Inequality: a Neglected Dimension of Aid Policy

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Inequality a Neglected Dimension of Aid Policy

• Frances Stewart
• Wilton Park, October 27th 2006

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Two types of inequality

• Vertical inequality inequality among
  individuals/households -- VI
• Horizontal inequality inequality among groups
  (race/ethnic/religious) -- HI
• Both important
• and interconnected.
• Both neglected in aid. Focus here especially on
  HI.

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How are VI and HI related?

• VI can be thought of as consequence of between
  group and within group inequality.
• Reduce HI generally reduce VI.
• But statistically NOT related across societies.
• I.e. can have low group inequality and high
  individual inequality (much inequality within
  groups)
• Or high group inequality, low individual
  inequality
• Therefore need to consider each separately.

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Dimensions of inequality or inequality of WHAT?

• Most measures refer to income or consumption.
• But other dimensions critical, especially for
  group inequality.
• Four important
• Political inequalities, at all levels.
• Economic beyond income to include assets and
  employment
• Social access to services and health and
  educational outcomes
• Cultural recognition and status.

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Why does inequality matter?

• Intrinsic importance
• Instrumental importance.

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Intrinsic

• Peoples wellbeing depends on how well they are
  off in relation to others, as well as absolute
  wellbeing (happiness studies).
• In a group context, peoples identity and
  wellbeing stems in part from how ell their group
  is doing.
• Being black and feeling blue
• Humiliated by treatment of group
• Indigenous in Peru
• Moslems in UK
• Catholics in Northern Ireland, historically.

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Instrumental importance

• For VI, cannot reach millennium goals in many
  cases without redistribution. Growth alone too
  slow in highly unequal societies.
• For HI, in societies with heavy discrimination
  not possible to reduce poverty without improving
  position of the group (e.g. northerners in Ghana
  indigenous highlanders in Bolivia).
• HIs particularly persistent last centuries
• Efficiency handicapped by deprivation and loss
  of talent.

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Instrumental importanceinequality and conflict

• Mixed evidence on VI and conflict more likely to
  be related to criminality than political
  violence.
• Increasing evidence that HI is related to
  conflict. People mobilise along group lines when
  there are sharp inequalities.
• E.g. Rwanda Northern Ireland Nepal Cote
  dIvoire Sudan.
• Global story too.
• Econometric evidence Ostby Mancini.

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Conditions in which HIs lead to conflict

• Strong group identities.
• Mobilised by leaders.
• Where there are political as well as
  socio-economic inequalities. (Contrast Malaysia,
  Nigeria and Cote dIvoire Peru, Guatemala and
  Bolivia).
• Where inequalities are worsening Cote dIvoire.
• Where the state is unresponsive, or worse.

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Examples of horizontal inequalities in conflict
situations
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Need for aid policy to contribute to correcting
inequality

• In order to help reduce poverty and improve
  efficiency
• In order to prevent conflict.
• Policies needed to bring about inclusive
  societies politically, economically, socially
  and culturally
• This is NOT a consideration in aid at present

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Present aid policies

• Aim to reduce poverty and improve efficiency
• Instruments
• Aid distribution per capita income good
  policies NOT inequality.
• Macro-economic policy packages - nothing on
  inequality
• PRSPs focus on poverty and occasional reference
  to minority groups and gender imbalances, but
  very limited.
• Projects, distributed according to
  poverty/efficiency nexus.
• Budgetary support/sectoral support, similar.
• Governance issues transparency, accountability,
  not distribution.

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Yet aid can worsen HI

• Because its the most efficient way of achieving
  other objectives
• e.g. poverty reduction in Ghana most efficiently
  achieved by projects in South. Southern poverty
  has fallen northern increased.
• Transmigration policies in Indonesia, supported
  by aid. Led to sharp increase in HIs between
  Javanese and others, especially in land.
• Growth policies in Mozambique by investments in
  South.
• Because of implementation issues skewed by
  officials. Cohen
• aid agency professionals were well aware of the
  possibilities of ethnic biases in all the
  capacity building projects they funded. , they
  went out of their wayto ensure that such biases
  were reduced or eliminated. They were generally
  unsuccessful in these efforts.

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Aid can worsen HI

• Macro-economic policy package is blind to
  distributional aspects.
• Generally favours tradable sector, frequently
  dominated by privileged groups (Ghana Nigeria
  Mozambique Bolivia).
• Political conditionality also often blind to
  these issues. Majoritarian democracy can worsen
  political HIs.

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Reforms needed for HIs

• To accept importance of correcting HIs
• Monitor HIs
• Indepth analysis to identify salient groups
• Statistical review of nature of HIs.

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Aid policy reforms

•         Increasing the proportion of aid going
  to ethnically heterogeneous societies.
•         Discussing the imperative of correcting
  HIs, where large, in policy dialogue note aid
  can be influential accounts for 35 of
  government expenditure in Ghana more in many
  countries.
•         Introducing HIs as a specific element
  into PRSPs
•         Considering distribution across groups
  in all public expenditure reviews
•         Allocating aid resources towards
  deprived groups or regions
•         Reviewing macro-economic policies to
  consider the implication for horizontal
  inequalities and considering possible changes or
  compensatory policies.
• Supporting the systematic monitoring of
  horizontal inequalities.

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Political conditionality and support

• For inclusive systems of government
• Democratically inclusive
• Members of different groups included in
  government
• Shared powers
• Federal systems

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Policies towards HIs CAN work

• HIs reduced in Malaysia by set of policies
  towards education, employment and assets
• In N.Ireland use of combination of employment
  and housing policies Fair Employment legislation
  combined with threat of withdrawal of contracts
  by outside money.
• In Guatemala, post-peace agreements, HIs have
  narrowed but not fast enough.

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HIs in Guatemala