Tackling inequality through ‘responsible development’ – Plenary Session II

By Laura Camfield

DIRK MESSNER established the agenda as addressing poverty reduction in middle income countries, while acknowledging additional challenges in fragile states; fostering debate about the role of the global middle classes; and addressing widespread inequality spanning the global North and South. He noted the global and country-specific drivers of inequality and the actions that could be taken to tackle these. Finally, he highlighted the importance of sustainability – the right to development within limited planetary boundaries – and introduced the panel who would speak to these questions.

BRANKO MILANOVIC works on historical trends in inequality and growth. He noted two contradictory developments: rising inequality at the level of nation states, e.g. US, China, while the growth rate of China and more recently India is reducing inequality at the global level. He indicated growth in the median of the global income distribution ($4-5 ppp per day) which was accounted for by ‘China’s middle class’. Conversely, the 80-90th percentile, e.g. US/ German lower middle class, have had little growth over the last 20 years. Is the stagnation of incomes in the rich world related to rising middle class incomes in the Asian countries? Global middle class is defined as $10-100 ppp per day, even though the lower bound is well below the poverty line of richer countries. He noted that globally there was a near equal split between poor (<$2), ‘the masses’ ($2-10), and the middle classes ($10-100), with the global rich ($100+) accounting for 1%. While the new PP numbers increase the number of ‘the masses’, the middle class estimates don’t change. The majority of middle classes live in urban China (450 million), where they also form the majority of their national population, making urban China look more like a developed country than a developing one. The Indian middle class is relatively small at ~5 million.

LOUKA KATSELI addressed the political implications of inequality. She noted that practicing public policy requires engagement in politics, which requires an understanding of power relations and who is setting the agenda. The social contract which we think we have has become irrelevant and defunct and needs renegotiation, redrafting and reinstitution. It has become defunct because key strategic players are not sitting around the table. She noted that the most important point in Picketty (2013) is that distribution of income from capital is more concentrated than the distribution of labour income. 1% of the world’s population owns 50% of the world’s wealth; alternatively – the bottom half of the population owns the same as the richest 85 people in the world. While economists previously focused on skills, opportunities, education and labour market as drivers of inequality, it may actually be about capital markets and saving and investment decisions. The implications for our research are that Gini coefficients don’t tell us much as they don’t address inequalities of ownership. We need to look at strategic actors and policies relating to tax, inheritance, real estate and operation of financial markets. The failure to do this can be attributed to three global public policy failures: firstly, failure to regulate a concentrated and powerful global financial system engaged in speculative rather than intermediation activities. The recent paper ‘Network of global corporate control’ (2012) analysed databases of corporations and investors which demonstrated that 147 corporations form a ‘super entity’ that controls 47% of the world’s wealth (e.g. Morgan Stanley, Barclays). This has shifted political power and decision making at a governmental level. Social partners, e.g. political parties, are increasingly captured by these interests. State independence is being eroded. Firms are increasingly dependent on credit for all activities and there is no requirement for banks to follow norms of transparency. For example, the involvement of European banks with Greek bonds, which needed to be divested before discussing debt renegotiation. The second failure is the absence of regulation of tax havens, facilitated by bank secrecy. The third is the failure to introduce a social protection floor, as proposed by ILO. An initial step could be to adopt Zuckerman’s proposal for a global financial register, followed by abolishing of tax havens and pushing for a social protection floor as part of a post-2015 agenda. Need to bring global financial actors around the table.

PETER KNORRINGA studies the global middle classes and their role in societies, especially in relation to sustainable development. Are these actors driving new social norms and types of development? (e.g. ‘responsible development’) He presented three examples from a research project with a colleague at Manchester on how ‘new’ players are becoming standard makers rather than standard takers. His main example was of the private sector organisation setting the agenda behind the scenes for responsibility within the international brand economy (‘global social compliance’ programme – Walmart, Carrefour, Coca Cola, Nike – focus on harmonising environmental and special ‘responsibility standards’). The advantage for participating firms is that they can use their certification across a range of suppliers. However, many things fall off the table, e.g. freedom of association, and the focus on what consumers are perceived to care about, e.g. child labour. GSC has a low profile within development due to doubts about its legitimacy; however, they may be shaping standards for the next 10-15 years as elite firms from China and India are now starting to enter this group. He also briefly discussed two other cases – whether it is only the second generation middle classes who are interested in standards, with the exception of food safety, and the example of Bonne Sucre – a multi-stakeholder initiative focusing on sugar production.

JOYEETA GUPTA addressed environmental challenges and the Anthropocene, specifically the implications for development of the move towards planetary boundaries. The implications of this new geological age are that there is acceleration in consumption which is linked to growing inequality. Shrinking eco-space reduces abiotic resources such as phosphorous (used in food production) and rare earths (mobiles). These are key resources whose sharing needs to be regulated. The same applies to land, water and sinks which support a range of ecosystem services, e.g. a stable climate. Who is allowed to extract fossil fuels and therefore develop and who isn’t? We need also to recognise that the impacts of climate change will hurt poorest most. States may also not wish to share resources with others, e.g. China banned export of rare earths in 2010. JOYEETA GUPTA identified four ways to manage scarcity – the market, hegemony, polycentricity (everyone doing their own thing), and a global social contract through rule of law and global constitution. She highlighted the 50% of trade/ banking and 33% of FDI channelled through ‘off shoring’ which reduces the potential for taxation and so funding a GSC. We need a global social movement on inclusive development and constitutionalism to support this and cannot wait for a second generation who may be preoccupied with, e.g. water shortages.

Finally, PIERRE JACQUET asked what responsible development is about (e.g. is there a single concept), how it differs from inclusive development, and who is legitimate to give a definition? A key focus of the conference is the role of middle classes in responsible development, however, we have not seen this in wealthy countries and according to Professor Chen not in China either. Need a political economy approach that thinks through how this desired outcome can take place, combined with an empirical approach that looks at how, e.g. perceived urgencies are shaped. Responsible development is a moral proposition underpinned by notions of social justice. We need to move towards a shared view of what this is or it will have no power. Is inequality of opportunity or incomes our real focus? Inequalities of income may reflect ‘effortful use of resources’, however, it may also generate future inequalities of opportunities. In developing countries informal transactions and relationships represent > 80%; how can these be captured? Can researchers from the global North make informed recommendations? We need locally generated data to complement global indicators. Access to basic services is key; however, important to also capture their quality. We also need more data on poverty trajectories, including the risks faced by poor/ vulnerable populations. How can the ideas discussed in this room be mainstreamed into local policy agendas? We need to understand more about people’s behaviours and also the reciprocal, context-specific relationship between growth and inequality.

DIRK MESSNER : Do the new global middle classes help us in redefining the social contract? How does this fit with the post 2015 debate?

BRANKO MILANOVIC: Historical data doesn’t speak directly to power structures; however, Pickety’s book is helpful in bringing capital incomes back into the picture and highlighting the rise of capital income as a percentage of total income (n.b. in developing countries data on capital income may not be reliable or useful). The supine S graph shows stagnation of incomes in the lower half of the distribution in rich countries. How do we placate the losers from globalisation? He noted the importance of income survey data as we move in a circle of relatively rich people so our perceptions may not be accurate.

PETER KNORRINGA: The heterogeneity of middle classes mean that they don’t play a role; negotiations are influenced by powerful organisations with vested interests. What do global middle classes really care about? Are they too vulnerable to have time to attend to these problems? We have little knowledge about consumer preferences and ethical inclinations in the global South. We need clear definitions of middle class but these should incorporate attitudinal dimensions, for example, those linked to growing up with stability, and acknowledge the relative and temporal dimension.

JOYEETA GUPTA: Sustainable goal discussion is ongoing at UN – goals reduced from 19 to 17 and likely to come down to under 10. Social protection floor and planetary boundaries are likely to be taken into account, especially in relation to resource scarcity. Why don’t we start by advising our own middle classes to go on a ‘CO2 diet’ to create space for other countries to grow? There are simple things that can be done that don’t require changes in norms, e.g. on-off button rather than standby. The no-harm principle could be employed, e.g. in getting corporations to pay taxes.

PIERRE JACQUET: The global social contract incorporates goal setting and discussion of principles and processes. We need broader ownership – how representative are the national representatives? (e.g. MDGs said to be representative, but little engagement with local development strategies). In moving to what we should do we need to consider how, for example, a global social floor would work, given that this has not yet happened.

LOUKA KATSELI: The post 2015 agenda is likely to become irrelevant if we don’t address global governance issues. However, there may be opportunities for communities across traditional divides, e.g. tax payers in North and South. Should set aside ‘romantic view of trickling upwards’ as there is no evidence, e.g. that if labour income goes up that changes wealth formation. Lack of political representation is a key shaper of outcomes – elites and political settlements dictate decisions that create incentives for nationalism within democratic systems. Regulating value chains needs engagement with the financial system that supports them. How do we organise for change? Ideas, networks, pressure groups, political action all matter. As researchers we need to clarify our thoughts, give one or two clear messages, and organise pressure groups to take these forwards, ideally not of politicians!

Laura Camfield is Senior Lecturer in International Development at the School of Development Studies at the University of East Anglia