Inequality (and inequity) is, in my opinion, one of the most important problems to face when dealing with development.Inequality in developing countries is high and persistent (for a summary of the effects of inequality on development, don't miss the WDR 2006).
In the face of higher inequality you need more economic growth to make people out of poverty. At the same time, inequality is associated to political instability and social unrest, which diminishes the interest of potential investors (remember, there is important lack of capital in these countries!) and therefore hinders economic growth. Finally, those without resources are usually unable to access capital markets, having a pernicious overall effect in the economic capabilities of a country.
One of the most important reasons for the persistence of inequality lies in the power the economic and political elites (normally the same or closely tied) have to prevent the great majority of the population from benefiting from economic growth. Formal and informal institutions are the way to achieve it.
The strategy of the elites in LDCs consists in keeping the share of the cake, instead of trying to make it bigger.
In a recent report titled: The Next 4 billion, the World Bank has estimated the market power of the 4 billion people in the world living in relative poverty. They represent an awesome $5 trillion market (an important cake!) with an amazing potential. However, there exists important barriers for these people to take advantage of this potential.
If I were hired as consultant for the elites, I would tell them to invest more on the poor, that is, open the political space, pay more taxes (to preferably invest in education, health and infrastructure) and work for the development of an efficient state and public administration.
It is like Germany with the rest of European countries during the creation and development of the European Union. Why have they -the Germans, I mean- been financing the development of the rest of countries in the Eurozone? Guess, and if you don't find the answer ask AEG, BMW, Bayer, Mercedes, Porsche, BASF, Siemens, and many others... now they have a 455 million people market to sell their products!
Another case of irrationality? It must be the case that shellfish doesn't consider variables related to time.
1 comment:
I do not want this comment were understood as a defense of the elites, not further of my intention at all, but I don’t believe either that it’s anything so simple as a problem of myopia.
More than myopism, Iñigo, I think is a clear situation of lack of confidence of these elites in their own countries and people. I’m sure that the elites you mention, are sharing their pieces of cake, but there where they consider safer markets and sectors or with those who report them short-term economic or political profits.
In our globalized world, the elites are also global, so, any group of members of the global elit could press in order to open the access to the benefits of the economic growth to the population. It’s not an exclusive possibility of nationals, as you point in your last example.
Finally, you have to take into account –talking about the same example of Germany- than to become a “financed country” it has to pass rigurous filtres and exams, and to accept several principles and policies. If you don’t do that, with some luck you could access to some funds from international cooperation for develoment aid.
Unfortunally the system (a free market ecomomy or a liberal democracy) is what it is, and the hot pot is on the roof of the people by definition. The only way for the population is to show they have something to offer, and fix a price for it.
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