C20 Zirvesi – Inspiration Session

15.Eyl.2015

Statement by
Kamal Malhotra
United Nations Resident Coordinator, Turkey
Resident Representative, UNDP Turkey

 

Bosphorus University, Istanbul, Turkey

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Distinguished colleagues and friends,

It is a pleasure to be here with you today on behalf of UNDP. During Turkey’s G20 Presidency, very productive development related meetings have taken place in all G20 components. All engagement group activities have also focused on the three pillars (the three I’s, i.e. Inclusiveness, Implementation, Investment) from their own perspectives.

In this context, the C20, which got off the ground quite late in the Turkish Presidency, nevertheless established its own priorities under four key themes, namely governance, inclusive growth, gender equality and sustainability. I am told that more than 40 civil society organizations from 11 countries have been actively involved and have developed policy recommendations for the G20 Leaders’ Summit from the perspective of national and international civil society organizations.   

Today, we are here to discuss all these issues in a collaborative manner and contribute concrete substance to the Leaders’ Summit which will be held on 15-16 November 2015 in Antalya. Before going any further, let me say that UNDP is very pleased to support this event both substantively and financially. As some of you know, all four themes identified by the C20 are central to UNDP’s mandate and current Strategic Plan and UNDP has substantively supported the Turkish Presidency through platforms such as the G20 Development Working Group as well as through three engagement groups: T20, B20 and now C20.

Ladies and Gentlemen,

Inequality has multi-faceted characteristics and, as a result, reference needs to be made to multi-dimensional factors when we look at identifying its root causes. The multidimensional drivers of inequality also necessitate a holistic approach to dealing with inequality and creating a suitable climate for a truly inclusive society.

The global economy has been facing financial and economic crises since 2008 and this situation has caused the international community to rethink its economic priorities and place a higher emphasis on social cohesion in order to make the transformation processes of nations and societies more resilient and sustainable. It is now almost universally agreed that inequality most often has a negative impact on even economic growth. It has long been agreed by many, including UNDP, that it has had negative repercussions for economic development by impeding economic progress, undermining democracy, and risking a lack of social cohesion. When inequality increases in an accelerated manner, it makes achieving widespread human well-being very difficult. In such a situation, it is critical that we focus not just on the physical aspects of human well-being but also the relational and subjective aspects of well-being and their multidimensional characteristics. Empirical studies confirm that after a certain threshold level, inequality damages economic growth and poverty reduction. Exceeding a critical threshold of inequality also creates qualitative economic growth problems. It negatively impacts income distribution and impedes the access of disadvantaged and/or excluded people to education, health, and other basic social services, in addition to denying them many opportunities. As a result, it needs emphasis that both the level and the growth rate of inequality matter for human well-being.

Distinguished Guests,

From a development perspective, the concept of inequality has been based on two principal issues. The first requires the determination of the dimensions of inequality while the second concerns the distribution of inequalities among individuals, households and specific groups in a population.

While inequality is fundamentally multidimensional, development theory unfortunately largely deals only with its measurable components, significantly ignoring its qualitative aspects. In the development literature, these two aspects of inequality are kept distinct from each other. In this context, the inequality of outcomes is defined in quantifiable human well-being terms such as the level of income and the level of educational attainment. Alternatively, the inequality of opportunities can be defined in terms of equitable opportunities such as having equal access to education, health, or employment. It is important to look at the causality between outcomes and opportunities. Indeed, both outcomes and opportunities are closely interdependent with each other. For example, there is considerable evidence that higher incomes lead to more opportunities and more opportunities lead to better outcomes in human well-being.

Ladies and Gentlemen,

Indeed, unequal outcomes, especially those leading to income inequality play a key role in the variations we observe in human well-being. There is also a strong association between income inequality and inequality in health, education and nutrition. The close interdependency between outcomes and opportunities affects job availability and/or access to health, education, nutrition and other resources. In sum, the rise in income inequality negatively affects the economic, political and social lives of less privileged people and results in a deterioration in their well-being. Moreover, if people start their lives from very similar starting points in income, then most, if not all are more likely to have greater equality of opportunity as well. And, the negative impact of inequality is felt not only by individuals but by societies as a whole. It also often leads to discrimination, especially against racial or ethnic minorities.

Neither inequality in outcomes nor inequality in opportunities is more important than the other in addressing inequality in human well-being. Therefore, we will need to focus on both equally.

Distinguished Guests,

There has been a long-held mainstream view since WWII that high and increasing levels of inequality are unavoidable in the early stages of economic development. However, high levels of inequality cannot be sustained for a long time without serious political and social consequences. Many mainstream empirical studies on this issue have also indicated that higher inequality is the price which has to be paid by emerging economies to achieve sustainable growth but this orthodoxy is not valid and is being increasingly challenged even in the IMF today. Empirically, many countries over the past decades have managed to significantly decrease income and non-income inequalities by implementing economic and social policies that have prioritized greater participation and empowerment of people who had been left behind in the development process.

We should be concerned about high inequality for both intrinsic and instrumental reasons. The intrinsic reasons are fairness and moral in nature and are related to values of dignity, respect and non-discrimination which are embodied in a human rights based approach. Equality is an ideal in this approach. Instrumental reasons are related to the economic, social, and political consequences of high and increasing inequality, and are supported by rich empirical evidence. As I pointed out earlier, high and/or rising levels of income inequality are detrimental for economic growth and poverty reduction. They also contribute to rent-seeking behaviour and reduce human well-being.

Recent discussions related to the concept of human well-being concluded that it can be decomposed into income (i.e. material aspects), and non-income components (i.e. relational and subjective well-being). Persistent inequality between different groups of a population can institutionalize discriminatory practices and cultural biases which are detrimental to human well-being. Furthermore, high levels of inequality can distort political decision-making by negatively affecting broad-based democratic participation. In addition, sharp disparities in access to resources and opportunities can negatively affect subjective well-being.

Empirical studies in recent years have also found that in many developing and developed economies income distribution between households is now more unequal than it was in the past. For example, income inequality within countries has increased by 9 percent in developed economies and 11 percent in developing countries. The increasing trend of income inequality is not uniform across all regions. Additionally, it should be emphasized that trends in income inequality are reversible, e.g. some countries have experienced shifts from increasing income inequality to decreasing income inequality. The empirical evidence also indicates that average income inequality rises as countries go up the economic ladder to upper-middle income status while average income inequality has decreased in countries that have stayed at a lower middle-income level.

A detailed analysis of trends in income inequality have led to the identification of the dynamics and drivers of rising income inequality. It has to be stressed that these types of insights are crucial since they can help in the design and implementation of public policy aimed at reducing inequalities.


Some of the drivers of inequality are related to broader globalization dynamics. The integration of emerging economies into the world trade and financial markets was useful for economic growth, however, this pattern of economic growth was not necessarily good for income distribution. In this regard, it is important to note that the share of wages and employee compensation has been consistently decreasing in the last two decades, attributable significantly to trade and financial globalization.
 
The second set of drivers are more related to national policies. Many national policy reforms have been implemented to promote and support global economic integration and macroeconomic policies which emphasize price stability over growth and job creation. Many labor market reforms weaken the bargaining position of labor, and fiscal policies have led to fiscal consolidation at the cost of progressive taxation and public investment, particularly in critical sectors such as education and health.

Another critical issue regarding inequality is that global financial integration reduces the bargaining power of labour. Furthermore, greater dependence on volatile capital inflows make countries -developed and developing- more vulnerable to economic and financial shocks with adverse effects on economic growth and employment with the most negative implications for the poor and vulnerable: those who are at the bottom of the income distribution ladder.

Government policies can be used to mitigate income disparities through taxation and public spending.  On the other hand, governments can contribute to increased inequality by reducing the redistributive role of fiscal policies. Therefore, national institutions and national policies can play a critical role in either reducing or increasing income inequality regardless of a country’s income level.

Distinguished participants,

It was observed in the last decade that countries with higher levels of income performed better on indicators which measure average education, health, and nutrition achievement when compared with countries at lower levels of income. However, and notwithstanding this, the pace of progress was relatively slow in high-income countries. Nevertheless, it is a fact that economic growth is important for improving average achievement in well-being, even if faster growth does not guarantee faster improvements in education, health and nutrition outcomes.

To explain this seeming contradiction or counter-intuitive outcome, let me clarify that results of analyses of differences in education, health and nutrition across countries indicate that the income levels of countries do not have a major direct impact on education, health and nutrition outcomes. Income levels do, however, make indirect differences through other channels such as poverty reduction, governance capacity, and public expenditure on social services.

Significant disparities in education, health and nutrition exist between households with different wealth stocks within countries. Similar disparities are also evident between rural and urban households. For instance, children living in urban areas are up to 30 percent more likely to finish primary school when compared with children in rural areas. Moreover, important and significant gender gaps exist in education, health and nutrition.

Let me elaborate on gender inequalities. There are disadvantaged groups within a population such as women and racial and ethnic minorities. In this context, gender, which is an issue that concerns the entire population, is the premier factor that stratifies economic and social lives. Indeed, an analysis of gender disparities can provide significant contributions to an understanding of the dynamics of intergroup inequality. It is important to note, however, that the evolution of gender-based disparities can only be fully understood when the multi-faceted characteristics of well-being also cover issues such as capabilities, access to livelihoods and political agency.

The empirical analysis indicates that the educational gap is significantly closing down between genders. For example, the female-to-male ratio of total years of schooling has been globally decreasing for the last two decades. While it was 82 percent in 1991, the gap had narrowed to 91 percent by 2010.

Bargaining power is also one of the dimensions and determinants of gender inequality. Gender inequality often occurs in the areas of livelihoods and earnings which restricts women’s ability to negotiate resources within the household. The empirical evidence shows that despite declines in educational inequality, gender wage gaps and job segregation remains persistent. In this regard, it appears that women have largely achieved greater access to employment by substituting for the roles of men in more vulnerable and lower qualified jobs. When it comes to political agency, there are still some countries with no female political representative in parliament. It has to be underlined that there are significant differences among countries in this regard, even though some countries, particularly some developed countries, have increased the ratio of women’s representation in the political arena through the use of mandatory quotas. To summarize, while there have been significant successes in closing the gender gap in education and health access, significant gaps remain in access to livelihoods and political participation. Some but not all of these problems are linked to cultural norms and discriminatory institutions which affect the available opportunities for women.

Ladies and Gentlemen,

Political processes determine policy options, and perceptions and attitudes have a powerful influence in the political process. A recent UNDP report, based on a global opinion survey administered to policy makers around the world, indicated that inequality of incomes and opportunities in their countries were high. Furthermore, the current level and trend of inequality was evaluated by them as a threat to the long term development of their country. Among policy options, reducing unemployment was considered as a high priority to reduce inequality of opportunities. Furthermore, infrastructure development, particularly in rural regions, and more equal access to public services, especially education, were also seen as other high priority policy measures and strategies.

Indeed, most of the policies and strategies that can effectively reduce inequalities are well known. However, policy makers often do not either have the political will or see enough policy space for action on inequality reduction. Nevertheless, reducing inequalities as a non-partisan issue across the political spectrum can be achieved. In this context, a more proactive national media which focuses on inequality and the constructive engagement of the business sector in reducing excessive inequality can be cited as necessary partners in this battle.

Let me also emphasize the strategic role of civil society in reducing inequality. It is critical to have a growing and large space for active civic engagement and empowered civil society organizations focused on the key issues if we are to be successful in battling inequalities and winning that battle.

It is also worth repeating that persistent and deep-rooted inequalities constrain not just the future prospects of individuals but of nations as well. This has, unfortunately, been the case especially in many developing countries for the last three decades. Some countries, on the other hand, have had high economic growth but with disparity in income also rising faster than other counties. This situation denotes that their current pattern of economic growth is not conducive to enlarging opportunities and choices for all their citizens i.e. their economic growth is not inclusive and not sustainable in the long run due to widening inequalities.

Ladies and Gentlemen,

Reducing income inequality therefore, requires that such economies need to transform their growth strategies into more inclusive patterns. In doing so, they need to ensure that the growth rate of low-income households becomes higher than the average growth rate of the economy so that the income inequality gap will be reduced. Inclusive growth can be supported in the following ways. First, the pattern of economic growth can be changed to disproportionately benefit low-income groups. Second, redistributive policy instruments that contribute to economic growth while reducing inequality need to be prioritized. Third, opportunities for vulnerable or excluded groups need to be increased to support their access to gainful employment and decent work.

Transformative economic growth which benefits low income groups requires the creation of productive employment. Thereby, employment policies need to concentrate on quality jobs that will create high value added, sufficient income and long term job security for workers. In this context, the role of international trade and financial globalization also need to be reconsidered since there is a lot of evidence to indicate that the current dominant patterns of international trade and capital flows have been associated with rising inequalities.
Social protection floors are necessary at the national level. Targeted consumer and producer subsidies, if well designed, can play a role in ensuring this. In addition to these specific instruments, fiscal policy can support implementation of progressive taxation and tax reforms that allow for the mobilization of local resources which are critical if governments are to provide basic social services and income transfers to low-income groups.

Legislative and administrative reforms to support disadvantaged populations and repeal discriminatory provisions or discriminatory practices will be equally crucial. The legislative framework needs to provide equal access to land ownership, recognize collective rights and codify certain affirmative action policies. Legislative frameworks can also encourage productive employment by providing incentives to upgrade inadequate skill sets, bridge information gaps and loosen mobility constraints on individuals or groups.

It is also important to ensure consistency between inclusive growth strategies and the macroeconomic framework. Empirical evidence frequently shows that macroeconomic policies mostly focus on macroeconomic stability without taking into account growing inequalities. Strong, independent and pro-poor institutions are equally important for implementation of policy measures to reduce inequalities. Without these, even the best policies and strategies will remain only on paper and gather dust on bookshelves.

Ladies and Gentlemen,

Allow me to conclude by noting that prejudice, discrimination and social exclusion that are embedded in the social, economic and political processes of most countries, reinforce inequalities and prevent individuals and disadvantaged groups from pursuing lives of their own choosing. These issues can only be addressed by strengthening the political participation and voice of discriminated against people. The regulatory and political environment to support civil society organizations which give voice to such people needs significant improvement in most countries.

During the Turkish G20 Presidency, the former Deputy Prime Minister, Mr. Ali Babacan introduced three dimensions, namely Inclusiveness, Implementation, and Investment. Mr. Babacan also stated that Turkey aims to have the G20 reach out to low income countries and take care of countries that are not G20 members in an inclusive way. He also indicated that their Presidency will bridge the gap between developed economies and underdeveloped countries to combat global inequality. The UN and UNDP specifically welcomed the Turkish Presidency’s emphasis on development as a cross-cutting issue, and its attempts at inclusiveness, in particular.

Today, the global economy is at a critical turning point. The financial and economic crises in recent years have forced policy makers to think about inclusive patterns of economic growth and social cohesion both of which are very crucial for the resilience and sustainability of the global economy. At the same time, we are close to the launch of the 2030 Sustainable Development Agenda in less than two weeks in New York. This is a much more universal and ambitious agenda than the MDGs were. The inequality issue will be a major topic now not only for development specialists but also for all policy makers in the world since unlike the MDGs, the Post-2015 Development Agenda draws significant attention to reducing inequalities. This is especially vital for a future peaceful world and sustainable societies.

Allow me to end by congratulating the C20 Turkey team for organizing such an important event. I believe that the C20 Summit is a very useful platform and hope it can produce concrete outcomes which are included in the G20 Leaders’ Summit outcome document. Again, thank you for inviting me to join this event today.

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