Talk is cheap, but will the World Bank really step up on inequality?

October 4, 2016

     By Duncan Green     

Max Lawson, Oxfam’s Head of Development Finance and Public Services raises the curtain this week’s World Bank
max-lawson and IMF Annual Meetings before hopping on the plane to Washington

I have been going to the Annual Meetings of the World Bank and IMF longer than I care to remember, certainly since most Oxfam policy wonks were still at school. Every time I go to the office I feel old these days. Age does have some small benefit though.  It enables me to see just how far things have changed in the way the IMF and Bank are talking about extremely high levels of inequality across the world – more than I would ever have thought possible (both the talk and the inequality, unfortunately).

The inequality crisis is high on the official agenda this week.  The World Bank has just launched its first major report on inequality in a decade. The report focuses on the World Bank’s aim to ensure ‘Shared Prosperity’ by boosting the share of national income going to the bottom 40% of the population. Two cheers, maybe two and a half – it moves the Bank beyond banging on about aggregate growth and starts looking at who benefits, but I wouldn’t be working for an NGO if I didn’t want more. Here’s my pitch

inequality-swimming-poolsThe problem with Shared Prosperity as a measure of inequality is that it doesn’t actually measure inequality. By making no reference to the growth in incomes at the top of society, it fails to capture what is happening to the gap between rich and poor. That might be as much as the countries who make up the World Bank board would accept but it’s distinctly underwhelming.

Quite a few of the World Bank staff seem to agree, because this year they have added to the report a really great substantive additional section on inequality. This is great, and it would be greater still if they were to do this every year.

This year’s report looks at the Palma measure for example, which compares the bottom 40% with the incomes of the top 10%.  It may sound like a debate among geeks, but it would be far preferable to the Shared Prosperity goal, because it actually addresses the gap between rich and poor, i.e inequality, rather than the half way house of Shared Prosperity.

The report also shows how data systematically underestimates the scale of inequality and the incomes of those at the top, especially in developing countries. Nevertheless, this has not stopped them drawing very categorical and upbeat conclusions about many countries reducing inequality in recent years. Genuine stories of success are vital to understanding what can be done to tackle inequality. But we should I think remain a little more circumspect than theinequality-last-try Bank does, given the evidence that the data is wrong or missing. Where we do have data on top incomes the picture is of worsening inequality. The top 1% in the US have secured over half of all income growth since the financial crisis. The incomes of the top 1% in Brazil grew rapidly during the same period that official inequality was falling. If the bank is serious about tackling inequality they should surely avoid painting an overly rosy picture which sends the opposite message.

The report also briefly discusses inequality of wealth. which is far more extreme than inequality of income. The top 1% now own more globally than everyone else put together, following rapid increases in recent years. Disappointingly this is not looked at across countries or in any depth.

Most importantly, the report concludes categorically that the world will not be able to eliminate poverty without redoubling efforts to tackle inequality, a conclusion Oxfam would strongly support.

The report is weakest when it attempts to lay out the ‘so whats’ – the policies needed to combat inequality. World Bank President Jim Kim is right when he rejects the ‘trickle down economics’ that has done so little to tackle inequality over the last 30 years, but this report doesn’t really rise to the challenge of what to do instead.

dilbert-on-income-inequalityIts policy proposals feel far more like a justification of what the Bank is doing already.  Of course many Bank activities help fight inequality, whether it is rural roads or early childhood development.  But many others – like supporting so called “low fee private schools” would struggle to pass an ‘inequality audit’. The Bank needs to walk the talk.

The private sector arm of the World Bank, the International Finance Corporation, is perhaps the most egregious example of this gap between words and deeds.  The IFC has been complicit in murderous land grabbing, continues to actively use tax havens, is promoting failed public private partnerships in Health, Education and Agriculture, and despite great rhetoric on climate, new reports released this week show the institution is linked to several coal projects in Asia and serious human rights abuses through its investments in financial intermediaries.

Over the street, the IMF has been significantly more ambitious, concluding that inequality is bad for growth, that redistribution needn’t harm growth, that we need more trade unions and perhaps most important of all that neoliberalism has increased inequality. This is all pretty disorientating for someone like me, who cut their advocacy teeth during 1990s, when the IMF was trying to impose disastrous ‘structural adjustment’ around the developing world.

But the IMF is just as guilty of a gulf between these revolutionary conclusions and continued business as usual.  Last inequality-cartoonweek the Financial Times highlighted the brutal austerity being required of Egypt to secure IMF support and how it will hurt the 30 million Egyptians living in poverty. That’s the Fund I remember.

President Kim’s re-coronation as World Bank President for a second term has just been announced.  This has been greeted with criticism from across the political spectrum, and is happening against the backdrop of unrest amongst World Bank staff.  Those of us with longish memories remember how staff bravely succeeded in seeing former World Bank President Paul Wolfowitz removed, so they are a force to be reckoned with.

All the more reason for President Kim to shore up his credibility by demanding a truly proactive agenda on fighting inequality. Here’s Oxfam’s wishlist:

  • A low hanging fruit would be a serious investment in improving the appalling quality of data on inequality across the world.  Working with the IMF, UN and others like the Gates Foundation they could lead a data revolution in this area, including income and wealth at the top, vital to understanding the nature of inequality and how to deal with it.
  • Inequality audits of all Bank policies and lending.
  • The Bank could set up a dedicated unit to assist countries in removing user fees for health, which kill people and fuel inequality.  President Kim has said he opposes these fees, yet they persist in country after country and the World Bank needs to do more to address this.  This would be a great start to his new term.
  • He can drop controversial World Bank support for private education too while he is at it, as this too drives up inequality and excludes the poorest, especially girls, as the forthcoming report from the Global Campaign for Education demonstrates.
  • They could have a team dedicated to tax evasion and avoidance, working with the IMF and country authorities to ensure rich individuals and corporations pay their share, and they could make sure they themselves are safeguarding against irresponsible taxation by their corporate clients.

What is clear is that the World Bank and IMF can play a critical role in combatting inequality- but it is time to move from simply saying the right thing to doing it too.