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Studies 20 March, 2013

Economic Inequality and Economic Development: Lessons and Implications of Global Experiences for the Arab World

Ravi Kanbur

​​Ravi Kanbur is T. H. Lee Professor of World Affairs, International Professor of Applied Economics and Management, and Professor of Economics at Cornell University. He holds an appointment tenured both in the Charles H. Dyson School of Applied Economics and Management in the College of Agriculture and Life Sciences, and in the Department of Economics in the College of Arts and Sciences. He holds a bachelor's degree in economics from the University of Cambridge and a doctorate in economics from the University of Oxford. He has taught at the Universities of Oxford, Cambridge, Essex, Warwick, Princeton and Columbia. Ravi Kanbur has served on the senior staff of the World Bank, including as Resident Representative in Ghana, Chief Economist of the African Region, and Principal Adviser to the Chief Economist of the World Bank. He has also served as Director of the World Bank's World Development Report. Professor Kanbur's main areas of interest are public economics and development economics. His work spans conceptual, empirical, and policy analysis. He is particularly interested in bridging the worlds of rigorous analysis and practical policy making. His vita lists over 200 publications, covering topics such as risk taking, inequality, poverty, structural adjustment, debt, agriculture, and political economy. He has published in the leading economics journals such as American Economic Review, Journal of Political Economy, Review of Economic Studies, Journal of Economic Theory,and Economic Journal. The honors he has received include the Quality of Research Discovery Award of the American Agricultural Economics Association and an Honorary Professorship at the University of Warwick. He is President-Elect of the Society for the Study of Economic Inequality.

This paper is prepared as an invited keynote address to the upcoming Second Annual Conference for Social Sciences and Humanities to be held by ACRPS on March 30-31 in Doha

This paper starts from the premise that economic inequality will be central to Arab policy makers concerns as they devise economic development strategies for the future. In this, the lessons from global experience may be useful in drawing implications for the Arab world. With this in mind, the core of this paper goes through seven case studies from around the world in the last fifty years, providing brief sketches of trends and patterns in the relationship between economic inequality and economic development. The central lesson to be learnt from these experiences is that initial structural inequalities matter in determining the equity of the growth path. Successful countries have addressed these structural inequalities through a range of policies.  The paper then draws specific implications of the global experience for Arab policy makers, highlighting in particular: (i) focus on the distributional consequences of privatization, (ii) expansion of targeted CCTs and public works programs in place of generalized subsidies and (iii) a systematic approach to reducing gender inequalities.

 

Introduction

 After some decades of languishing in the shadow of economic growth as a policy priority, economic inequality has been rising as a concern in public perception and policy makers' focus. This is not to say the economic growth has been cast aside-it would be unusual and inappropriate for that to be the case. However, the world over, inequality in its many dimensions has taken centre stage in the development and policy discourse.

The 1% versus 99% distinction made by the Occupy Wall Street protesters has had considerable resonance in the US in an era of sharply rising income and wealth inequality. The protests spread from Wall Street to many advanced and developing countries, reflecting global concerns. In Asia, a recent Asian Development Bank Report documented that four fifths of the population lived in countries where income inequality had increased in the last two decades. In Russia, vast wealth inequality was created in the 1990s by the botched and corrupt privatization program-the infamous "oligarchs" are only the tip of this inequality iceberg. In South Africa, income and wealth inequality remains high two decades after the fall of apartheid. Only in Latin America has inequality been falling as a broad regional trend, and this is remarked upon because of how unusual it is-relative to trends elsewhere in the world and relative to Latin America's own history of globally high inequalities. Latin American policy makers seem to have grasped the nettle of inequality as a policy priority.

And, then, of course, there is the Arab Spring. In the popular imagination and in press commentary it was inequalities in different dimensions-wealth and income inequality, unemployment, unequal access to education and employment-which contributed to the general discontent and political transformation to which it gives rise. The precise role of inequality is of course disputed in the emerging analytical literature on the origins of the Arab Spring, with some analysts emphasizing a range of alternative explanations in the political and social sphere. However, whatever the role of inequality in the genesis of the Arab Spring, the global context means that economic inequality is bound to be on the agenda for Arab countries as they debate and discuss policies for future economic development. The global experience with economic  inequality will be relevant to this discourse.

The object of this paper is not to analyze the role of inequality as a causal factor in the Arab Spring. Rather, the focus is on the future, and the objective is to present a range of global experiences of economic inequality and development, to feed in to the post Arab Spring policy discussions in the Middle East and North Africa. Section 2 of the paper starts with brief some preliminaries on the concept and measurement of inequality. Section 3 presents an account of seven case studies which have been and are influential in the global policy discourse: East Asia in the 1960s and 1970s, East Europe in the 1990s, China post 1978, India post 1991, South Africa post 1994, Ghana in the last two decades, and Latin America in the last decade and a half. Section 4 draws together the central lessons of the case studies and discusses their possible implications for policy towards inequality in the Arab world. Section 5 concludes.

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