Inequality—the villain of peace  

Abdul Bayes     | Published: April 12, 2019 22:08:13

Bangladesh grew at an average annual rate of 6.2 per cent - indeed an exhilarating rate in the annals of her history - for a decade or so.  Then the growth rate jumped to a little over to 7.0 per cent and further to about 7.3 per cent in most recent years.  The economy is forecast to grow at about 8.0 per cent in 2017-18, the highest ever rate in the country's history. Relatively speaking,  Bangladesh is, based on IMF and World Bank perceptions, to be one of the top 20 high growth performers of the last 10 years (2008-2017). However, sustained growth has not been associated with declining income inequality.  However, high growth rate heinously heightened inequality of income that depicted discernible upward trend with periodic fluctuations.  For example, Gini coefficient, a common measure of the degree of inequality in the distribution of income (or consumption) increased from 0.338 in 2010 and then stabilised at 0.45 during the period 2000-2010 possibly because of the pro-poor and inclusive growth policies of the Government to constrict rise in income inequality.

However, the latest HIES (2016) shows that Gini is back to its long run trend with a value of 0.483 in 2016. This implies that  (a)  income inequality in the last six years has increased and (b)  government policies could not put up enough of a brake, not to speak of a hump,  on that growth of inequality. The most noticeable adverse impact of inequality has been that it has dampened the effect of growth on poverty reduction. As experts opine, had the inequality not risen by that period, the incidence of poverty would have been lower by a certain percentage. On the other hand, a rising inequality trend is also reflected by another indicator called  Palma ratio. The ratio measures the ratio of incomes of the richest 10 per cent and the poorest 40 per cent of the population - and a la SR Osmani-  gradually rising from 1.7 in the 1980s to 2.1 in the 1990s and further to 2.5 in the 2000s .

Contrarily however, consumption Gini provides some room for comfort remaining lower than income Gini and, as a government document shows, has remained relatively stable around 0.32 during the 2010-2016 period. "This implies that the consumption expenditure of the poorer segments of the population has grown closely in line with average growth with positive impact on poverty reduction (as poverty is measured in terms of consumption expenditure not in terms of income)."

In the present context, rising inequality seems to be the villain of peace. "High and growing inequality could harm the overall growth of the country and the efforts to reduce poverty. Government policies foster inclusive growth to simultaneously address the challenge of poverty reduction as well as reduction of inequality. More focused policies are required to have larger impact on inequality.

First, public spending on rural infrastructure -- rural roads, rural electricity, irrigation, flood control and salinity control -- has to be increased. There is also need for cultivation of high-yielding, climate-change-tolerant rice varieties and diversification of agriculture to high value crops. This will help increase growth rate, average labour productivity, rural wages and facilitate transfer of labour from the rural to the urban sector.

Second, micro-credit helps accumulate assets by the poor and get out of poverty. Similarly, SME loans help accumulate assets of micro and small entrepreneurs and create jobs for less skilled workers.

Third, citing from that document, the Government has been expanding coverage of social protection which now claims 1.6 per cent of GDP excluding government service pensions. The programmes however, raise concern about their quality and targeting. Targeting these benefits and services to the poorest people, and improving the timing of safety net response to mitigate the effects of various natural disasters and global shocks, will ensure that growth remains inclusive. The National Social Security Strategy (NSSS) was approved by the strategy. The objective of the action plan is to formulate a detailed inventory of activities to be executed by line ministries over the next five years (up to 2011). The action plan provides indicators that will be used to track implementation progress of the action plan.

Fourth, there are concern about mismatch between skills and quality of those acquired by workers. Skill development programmes should address these problems. Linking labour to productive employment in both domestic and global labour markets will help both poverty reductions and increase the flow of remittances. The private sector should also invest in the skills of employees and provide on-the-job training to meet the need for higher skilled works and increasing wages for workers.

Fifth, migration of workers and its appropriate role in promoting pro-poor growth needs to be emphasised. In this context migration will be mainstreamed with national development process. Skill development programme will be strengthened by upgrading skills, international certification and mutual skill recognition by Country of Origins (COOs) and Country of Destinations (CODs). An efficient, inclusive, governance framework for labour migration will be put in place. Migration-related legal frameworks will be updated and enforced. Awareness will be created among aspirants workers so that they are not exploited through their expatriate friends and family members.

Sixth, a progressive tax system is crucial to fight inequality by raising sufficient revenue to invest in essential public services which benefit the poor and the less wealthy in society and by directly reducing income and wealth inequality. Despite some progress in the present income tax system, tax avoidance and evasion continue.

But all of those steps could fail to reduce inequality if better governance and institutions cannot be built up. Rule of law has to be established to combat transfer of income and wealth through rent seeking behaviour as demonstrated in discretionary access to (public) bank loans, non-repayment of these loans, corruption in public procurement and public spending spheres, illegal land grabbing including public land and in the delivery of public services. Improve governance and better institutions should improve the distribution of income.

The bottom line is that the roots of inequality lie in illegal possession of assets and income through exercising political and social power. Independence of the Anti-Corruption Commission, the judiciary, and the Election Commission would go a long way in reducing inequality.

Abdul Bayes is a former Professor of Economics at Jahangirnagar University.


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