Inequality, Governance and Development

Mo Ibrahim Foundation Governance for Development in Africa

IESE/SOAS, Maputo 2011

Where does this come from?

• “The central argument here is that unequal power leads to the formation of institutions that perpetuate inequalities in power, status, and wealth – and that typically are also bad for the investment, innovation, and risk-taking that underpin long-term growth”

Source: Bob Sutcliffe, 100 Ways of Seeing an Unequal World

The Lorenz Curve and Gini Coefficient

Indicators measures of concentration

Lorenz curve: relationship between actual distribution and perfect equality (straight line in graph)

% incom

e

0 % population 100

A

B20%

70%

Gini coefficient:

A/A+B

Ranging between

0 < G < 1

Inequality rankings

Source: Palma (2006), “Globalizing Inequality: centrifugal & centripetal forces at work” (DESA Working Paper 35).

Winner takes all?

Source: Palma (2006), “Globalizing Inequality: centrifugal & centripetal forces at work” (DESA Working Paper 35).

Winner takes all in Chile

Source: Palma (op cit)

Gini coefficient

The Kuznets Curve

Fateful inequality

• “People had come to think of rising inequality as a natural state of affairs, as how things are” (Brazilian panellist, OECD conference on income inequality in emerging economies, November, 2010)

Does low income inequality mask high gender inequality?

Source: Seguino, All Kinds of Inequality are not Created Equal

Capturing Polarisation

• “A society is said to be polarised when its members can be classified into different clusters, with each cluster being similar in terms of the attributes of its members (intra-group homogeneity) but with different clusters having members with dissimilar attributes (inter-group heterogeneity)” (Penubarti and Asea, 1996).

• “The ratio of between-group inequality to within-group inequality can thus be regarded as a scalar polarisation index because it captures the average distance between the groups in relation to the income differences seen within groups.” （ Zhang Kanbur）

Source: Bob Sutcliffe, 100 Ways of Seeing an Unequal World

Mechanisms of Durable Inequality

– Exploitation

– Opportunity hoarding

– Adaptation

– Emulation

The tunnel effect

• “As long as the tunnel effect lasts” writes Hirschman, “everybody thinks they are doing better, both those who have got rich and those who have not….But this tolerance is a loan which eventually expires. It is granted in the expectation that, with time, the disparities will grow smaller. But if this does not happen there will undoubtedly be problems and maybe even disaster” (Hirschman and Rothschild, 1973).

Trends & policy questions

Policy Matters

1. Election of Allende. 2. Pinochet coup. 3. year before Pinochet plebiscite to stay in power. 4. First democratic centre left government. 5. second democratic government (same coalition, different policies).

Declining Brazilian inequality

Income gains for poorer Brazilians

Real minimum wage trends since 1992, Brazil: policy matters

Policy matters