Blog
Global Inequality

by Richard Jolly

​The gap between rich and poor nations is now at its highest ever level. OECD Research by Angus Maddison shows that differences in per capita income between the richest and poorest countries were only just above 3 to 1 in 1820 (with income measured in dollars and at constant prices). The gap grew over the 19th century: slowly at first, and then more rapidly until 1913. Inequality between nations continued to grow over the twentieth century, accelerating over the last forty years. The ratio of the average GNP per capita (1987 prices) of the richest countries with a fifth of the world’s population, to the GNP per capita of the poorest countries with a fifth of the world’s population, grew from 30 to 1 in 1960 to 60 to 1 in 1990, and to 74 to 1 at present. The OECD projects that the gap will grow even larger. The figure (on page 6) shows the dramatic difference in national fortunes.

Today, more than 80 developing and transition countries have per capita incomes lower than ten or more years ago. Twenty have per capita incomes lower than in 1960. These 80 countries contain some 1.2 billion people, nearly a quarter of the world’s population.

Global inequality has largely slipped from view over the last two decades. Yet the conclusions of the International Commission chaired by the former Canadian Prime Minister Lester Pearson in 1969 are still valid: The widening gap between the developed and the developing countries has become the central problem of our times. Global inequality exacerbates political instability in poor nations, encourages migration to the rich world, damages the environment and facilitates the spread of diseases such as HIV/AIDS and TB. Global inequality therefore affects everyone - the rich as well as the poor. 

Too Few Transfers

The growth of global inequality should surprise none of us. The present international system lacks almost all of the mechanisms that exist within the developed world to support marginalised groups and offset inequality between regions. Aid transfers could fulfil this role, as they did under the Marshall Plan when, for four years, some 2 per cent of US GNP was transferred each year to Europe. Aid was also important in the early growth of South Korea and Taiwan. But at barely 0.2 per cent of global income, aid cannot achieve its potential.

It is true that private capital flows have grown rapidly. But private capital flows to developing countries are skewed towards a few Asian economies. Just 12 developing countries account for 80 per cent of investment flows from the industrial world to the developing world. The developing world as a whole has relied on foreign savings to only a very limited extent: 1.5 per cent in terms of GDP and 6 per cent in terms of investment according to OECD. Many of the poorest countries remain highly unattractive to private capital, notwithstanding their longer-term development potential.

Moreover, protectionism in the industrial countries - especially in agriculture which affects the export prospects of the poorest countries - hinders efforts to close the global income gap. Other constraints include the concentration of scientific and technological research on the problems of industrial countries, the long-term shift in the terms of trade against commodity producers, and the deterrent to investment posed by corruption.

Closing the Gap

How can global inequality be reduced? International transfers have a role but the primary long-run solution must be accelerated rates of pro-poor growth by developing countries themselves. All the least developed countries need to reach a minimum long run annual growth rate of 3 per cent per capita - a target set out in UNDP’s 1996 Human Development Report. Growth must also be pro-poor and directed to human development. This requires large-scale investment in primary education and basic health care. But national efforts alone will be insufficient. International action to close the gap is crucial. The decline in Official Development Assistance (ODA) must be reversed and the decline in the share of ODA going to the 43 poorest and least developed countries must be halted and reversed. More must be done to encourage private investment in the poorest countries as well.

The OECD, the IMF and the World Bank now pay more attention to poverty reduction. This is to be greatly welcomed. But given the existence of enormous inequality on a global scale, these institutions need to do more. As a practical step, they should be asked to monitor the global gaps between the industrial countries and the main regional groups of developing countries, and report regularly on the progress of the less developed countries in achieving the 3 per cent per capita growth target.

Many people find it difficult to imagine a return to real growth in aid flows - public opinion appears to be against it. But UNDP recently and vigorously restated the strong case - both in principle and in practice - in favour of international support for global public goods. If the OECD countries removed perverse subsidies which damage the environment then up to $ 600 billion per year could be released for investment in global environmental protection and for human development in poor countries.

There is no shortage of ideas about what to do and how it could be done. The challenge is political rather than technical. When Nobel Laureate Jan Tinbergen made the case for international transfers he concluded that .. the idealists of today are often the realists of tomorrow. We should heed his words. 

Dr Richard Jolly is Principal Co-ordinator of the Human Development Report and Special Adviser to the Administrator, United Nations Development Programme.

Further information on UNDP and its work can be found at www.undp.org. Summaries of the 1999 Human Development Report can be found at www.undp.org/hdro.

For details of the new UNU/ WIDER database on inequality see page 12 of this issue of Angle, or go to our website www.wider.unu.