Addressing Global Inequality- Can We Succeed?

TWEET THIS

It is inconceivable that we can achieve much needed greater social stability without economic inclusion and less inequality
Better quality data and comparable distributional data is needed to determine whether the distributional effects of World Bank Group strategies and projects have helped to improve shared prosperity in client countries.
Greater shared prosperity can be achieved by supporting equitable and sustainable macroeconomic policies, promoting well-functioning markets, facilitating public and private transfers, and promoting fair and transparent institutions.

Just last week leaders from all walks of life met at the World Economic Forum in Davos. As they started their meeting, a new report by Oxfam revealed that that four out of five dollars in economic gains made in 2017 had gone to the richest 1%. Against this context, it was fitting that organizers highlighted concerns about inequality in the theme for this year’s forum – creating a shared future in a fractured world. And indeed, during many of the discussions held over the course of the forum, policy makers and business leaders focused on how to address growing inequality and ensure greater inclusion.

The fact that world leaders are discussing inequality should draw attention to the importance and urgency with which this issue needs to be addressed. Given that we are operating in extremely unfavorable conditions, it will take extraordinary efforts to turn trends around. It is alarming that in a year like 2017, when at least a notional commitment existed to increasing inclusion, we witnessed a further concentration of capital among the richest in this world.

Part of what needs to happen is a better understanding of how and under what conditions World Bank Group strategies and projects lead to improved shared prosperity outcomes in client countries. IEG, found for example, that while three-quarters of World Bank projects mention the shared prosperity goal, a much smaller share have a well-defined approach on how they will contribute to the goal. Success will require strong analytical underpinnings, more frequent, better quality and comparable distributional data to enable rigorous analysis of distributional effects.

Since 2013, the World Bank Group has prioritized boosting share prosperity alongside reducing extreme poverty as its twin goals. The World Bank Group’s Goal of shared prosperity is officially defined as growth of income of the bottom 40 percent of the population in every country. The basic idea is that growth should be more inclusive: it should benefit not just the rich but also the middle class, the bottom 40 percent, and the poor, in particular. Such inclusive growth and related policies, therefore, contribute to lower inequality than would otherwise be the case.

At IEG, we have evaluated how the World Bank Group Institutions – IBRD, IDA, IFC and MIGA – are pursuing these goals and to identify where they are well on track. In addition, we have recommended measures to enhance the World Bank Group's development effectiveness and success by 2030. For more on IEG’s evaluation work, read our previous blog on poverty. You can also download our most recent evaluation of the World Bank Group’s support for building shared prosperity.

In this and upcoming blogs under a new series, we will explore some of the lessons we have gleaned from evaluating the World Bank Group’s work on poverty and shared prosperity. Overall, the Bank Group has made a significant effort to incorporate the shared prosperity goal into its various products and services, across regions, global practices and World Bank Group institutions, and it plays an important convening role in championing the shared prosperity agenda in its global, regional and country level engagements.

However, significant further effort is needed in several areas. Lessons from the pre-2013 period suggest that an increased focus on distributional issues in the World Bank's lending projects does not automatically lead to improved development outcomes. This implies that continued attention will be needed to ensure success of the new shared prosperity agenda.

Part of what needs to happen is a better understanding of how and under what conditions World Bank Group strategies and projects lead to improved shared prosperity outcomes in client countries. IEG, found for example, that while three-quarters of World Bank projects mention the shared prosperity goal, a much smaller share have a well-defined approach on how they will contribute to the goal. Success will require strong analytical underpinnings, more frequent, better quality and comparable distributional data to enable rigorous analysis of distributional effects.

In addition, the Bank Group needs to scale up its work across the multiple pathways toward shared prosperity, for instance by supporting equitable and sustainable macroeconomic policies, promoting well-functioning markets, facilitating public and private transfers, and promoting fair and transparent institutions in its client countries. And given the constraints on public and international official financing, success will depend in part on the ongoing drive to leverage private finance to support poverty reduction and shared prosperity in low- and middle-income countries.

As Prof Schwab said in his opening remarks, we continue to be in a period of heightened social discontent. It is inconceivable that we can achieve much needed greater sustainable economic prosperity and social stability without greater economic inclusion and less extreme inequality. The World Bank Group is making a concerted effort, but cannot succeed unless there is a larger global commitment and leveraging of public with private financing for development to transform goals and commitments into concrete actions.