Inequality index: The global scenario 

Hasnat Abdul Hye | Published: October 16, 2018 21:27:32 | Updated: October 17, 2018 21:26:48


Inequality income has been a global phenomenon for long and has drawn attention of academicians, think tanks and civil society organisations. Surprisingly, not much has been done by way of amelioration, not to speak of bridging the gap between the top and lower rungs of the economic ladder, either nationally or internationally. The failure to address the problem urgently and in a sustained manner, both by developed and developing countries, has only allowed the situation to worsen. Study after study and surveys undertaken in recent years have produced reports and books giving a vivid picture of the inequality situation with facts and figures. These seem to have gone unnoticed or unattended by the power that be at national and international levels. This inaction is alarming because persistence and burgeoning income inequality is threatening national and global economic growth. Two recent reports, the Paris-based Inequality Lab's World Inequality Economic Report, 2018 and Oxfam International's Reward Work and not Wealth highlight how global income inequality has worsened in recent years, especially since the 2008-2009 global financial crises. Other recent surveys, such as, Bloomberg's Billionaires Index, Allianze Global Wealth Report and Credit Suisse Report, highlight similar or related trends. The recent report by Oxfam delineating inequality index deserve some discussion because of its coverage and the data-base used.

The report on Commitment to Reducing the Inequality Index (CRI) for 2018 by Oxfam surveyed the income distribution in 157 countries. This is the second edition of the CRI from Oxfam but covers a larger number of countries than the first and has upgraded the data base. The report shows that since the turn of the century, the poorest half of the world's population have received just 1 (one) per cent of the total increase in global wealth, while the top 1 (one) per cent have received 50 (fifty) per cent increase. According to the Report, many countries across the world have experienced rapid growth in the gap between the richest people in society and everyone else over the past 30 years. On the basis of the inequality index the countries (157) surveyed have been ranged using a new data base of indicators. The indicators measure mainly government actions and include : a] spending on health, education and social protections, [b] progressivity of tax policy and [c] labour's rights and minimum wages. According to Oxfam these three areas are critical to reducing the income gap.

Among the 157 countries covered by the Oxfam report, Denmark's track record on progressive taxation, social spending and worker's protection placed it at the top of the global ranking. Nigeria, on the other hand, came at the bottom due to low social spending, poor tax collection and growing labour rights violations. The most surprising ranking is of Singapore, one of the Asian miracle countries, which has been assigned the 149th position among 157 countries. This places Singapore among the bottom 10 countries on the basis of the indicators used. According to Oxfam, this low ranking of Singapore is because of practices that facilitate tax evasion.

The Oxfam Report has commented, 'Sadly, countries such as India and Nigeria do very badly overall, as does America among rich countries showing a lack of commitment to closing the inequality gap.' According to Oxfam, Bangladesh is performing poorly in reducing the gap between the rich and the poor despite posting more than 7 (seven) per cent growth in gross domestic product (GDP) in recent years. It has been ranked at 148 among 157 countries surveyed and is at the bottom 10th spot in ranking among the total. In South Asia, Bangladesh is only ahead of Bhutan, lagging behind the Maldives, Sri Lanka, Afghanistan, Pakistan, Nepal and India. In the overall ranking, the Maldives ranked 68, Sri Lanka 102, Afghanistan 127, Pakistan 137, Nepal 139, India 147 and Bhutan 152.

As regards the indicators, Bangladesh has been shown ranked 146 on social spending, 103 on taxation policies and 148 on labour rights and wages in the report. Oxfam has identified the establishment of a lower threshold for exemption on income taxation for women, taking into account the wage gap and the high level of informal labour in the country, as a positive policy move. On the other hand, poor labour practices and variation in minimum wages of labour across sectors have been highlighted as negative development impacting on the distribution of income. To illustrate the last factor the report has pointed out that while the monthly wages of garment workers at Tk 5300 (US$68) is the lowest minimum of garment workers globally and well below the international poverty line, workers in other sectors receive only Tk 1500 (US$19) per month.

The Oxfam report recommends that all countries should develop national inequality action plans to achieve the Sustainable Development Goal's target number 9 that aims at reduction of inequality. It is further recommended that the action plan should include delivery of universal, public and free health and education and universal social protection floors. It is also recommended that the spending on health, education and social protection should be financed by increasing progressive taxation and whittling down exemptions and stopping tax evasion. .'Countries must also respect union rights and make women's rights at work comprehensive, and they should raise minimum wages to living wages,' the Report has said.

The CRI report of Oxfam has also said, 'the inequality crisis is not inevitable and that governments are not powerless against it. Inequality is a policy choice and our finding this year clearly shows this. All over the world, governments are taking strong policy steps to fight inequality.'

Since most of the policy actions fall within the jurisdiction of governments the degree of success in reducing the gap in income distribution between social groups depend almost exclusively on political will. Though the Oxfam Report appears very positive about policy actions by governments little or no empirical evidence has been provided in the Report. Of all the policy instruments for reduction of income inequality, progressivity of taxes is the most crucial. But here either lack of strong measures or enforcement of tax rules or both are seen as common failure by governments across the globe. An indicator for the preparation of the data base realistically is employment which is missing from the Oxfam survey. Considering wages independent of employment gives only a partial picture of the basis for income distribution. When wages are high due to collective bargaining by unions/groups of workers, as is the case with garment workers in Bangladesh (even though the wages given have been marked as the lowest in the world), widespread un-employment and under-employment exacerbate income inequality.

Thomas Piketty has used employment in his celebrated book Capital in the Twenty-First Century as the most important determinant of income distribution. Joseph Stiglitz, the Nobel laureate, has also emphasised the crucial role of employment when he discusses job creation in America. 'Remarkably, in the heyday of unbridled capitalism, the early years of this century, a period in which inequality at the top increased at historic rates, there was no private-sector job creation.' (J. Stiglitz, The Price of Inequality, 2012). Therefore, in any survey/study on income inequality, the state of employment has to be analysed along with pattern of wages. In developing countries like Bangladesh, as a corollary to this analysis on the state of employment, poverty reduction has to be added to assess both relative and absolute poverty.

As the Oxfam Report uses inequality index that neither reflects employment nor poverty reduction, the conclusion it arrives at is incomplete at best, and misleading at worst.                                         

hasnat.hye5@gmail.com

 

 

 

 

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