Chair:

Simon Maxwell, Director - ODI
Speakers:

Edward Anderson, ODI

Tammie O'Neil, ODI

Kevin Watkins, UNDP

Francisco Ferreira, World Bank

Johan Scholvinck, UN Department of Economic and Social Affairs
Discussants:

Rolph van der Hoeven, ILO

Andy McKay, University of Bath

Juan De Laiglesia, OECD

Session 1: Overview

1. Tammie O'Neil said that it was timely to have a debate about equity and development now because three significant development reports had been published with equity or inequality as a theme. (These are the World Development Report 2006, Human Development Report 2005 and Report on the World Social Situation.)

2. In the three reports, there are two main areas of innovation in relation to the question of why and which inequalities are important:

• the explicit definition of equity in WDR;
• the intrinsic case that is presented for why inequality is important and the strengthened case made for its instrumental value.

3. O'Neil suggested four possible questions for discussion:

• Should we be concerned with (in)equality or (in)equity?
• How should equal opportunities be defined?
• How do we decide what the minimum threshold should be?
• What is the relationship between equity and efficiency?

4. Edward Anderson opened by saying that, if we felt inequalities are important to address, there are two main considerations: 

• What are the most appropriate policy instruments? The three reports set out a framework for addressing inequality based on policy instrument in six main areas: land reform, increased public spending; taxation; access to markets: social insurance: international actions (aid, trade and migration). 
• How can we address the political economy constraints to implementation? The reports suggested that these could be overcome by: deepening governance reforms, in particular reforming institutions to make them more accountable, and by establishing international and national targets for reducing inequalities.

5. Anderson suggested four possible questions for discussion:

• How different is the equity' policy agenda to existing policy agenda(s)? 
• Should an equity policy agenda go further? 
• Can donors legitimately engage with political processes in order to implement an equity policy agenda? 
• Should there be an MDG target for promoting equity? If so which indicator(s)?

6. The following comments were made during the discussion: 

• The UN DESA had decided to focus on inequality rather than equity because they had felt that equity was less well-defined. Their report also focused on the social rather economic inequalities.
• There had been a mixed response to the WDR within the World Bank but the equity lens had important implications for policy that could be realised.
• The distinction between equality of opportunities and outcomes is blurred because unequal outcomes impact on opportunities.
• In general, governments do not like to report on inequality because they feel that it is divisive. It was possible to politicise the debate on inequality in a constructive manner, as had been demonstrated by the debate in India on child mortality.

Session 2: Equity as a goal of development policy?

1. Kevin Watkins made four main points in his presentation:

• He stressed the underlying UNDP focus on people's capabilities , in terms of their substantive freedoms to achieve, and social justice. This focus implies that there are limits to the amount of inequalities which can justifiably be tolerated. 
• He stressed the importance of linking inequality to the MDGs . The implicit message sent by the MDGs to national governments was that there is no need to be concerned with distributional issues; only national aggregates matter. This was contradictory, given the crucial importance of addressing inequalities in order to meet the MDGs, particularly those relating to income ($1-a-day) poverty and child mortality. NGOs should be more critical of the omission of distributional issues in the MDG agenda; 
• He challenged the notion that any growth which raised the overall income of the poor in real terms could be described as pro-poor. What mattered for pro-poor growth was the share of growth captured by the poorest 20% or 30% of the population; this determined whether growth would be converted into poverty reduction at a satisfactory rate; 
• Finally, he argued that the size of international inequalities implied that redistribution had to be part of the solution. One way to start would be to see aid as mechanism for the international redistribution of opportunities.

2. Rolph van de Hoeven made five main points in his presentation:

• He argued that it was important to recognise the large amount of redistribution which goes on already. Some argue that governments need to redistribute more as they become more open to foreign trade and investment. 
• He provided some simulations done at the ILO to show the large contribution that redistribution could make to global (income) poverty reduction; 
• He argued that there was a need for much greater clarity about the term efficiency ', and noted instances in which market reforms in the interests of greater efficiency (e.g. trade liberalisation) has led to increased inequality; 
• He also noted that the balance between growth' and redistribution' policies was country-specific, and in particular there may be a threshold level of average income below which redistribution is undesirable from the point of poverty reduction; 
• Finally, he argued that there was a need for a development goal for the reduction of inequalities , and a mechanism to ensure progress is monitored and enforced.

3. In the discussion, seven main issues and topics were raised and discussed:

• The definition of pro-poor growth . This had been discussed at length by those involved in the Operationalising Pro-Poor Growth (OPPG) project. The absolute' definition of pro-poor growth was considered appropriate by donors (e.g. DFID) whose overriding goal was absolute poverty reduction. However, it was recognised that poverty is a multi-dimensional concept, and that the instrumental argument was broad and took into account the effect of inequality on social cohesion and state capacity for example. It was also noted that what matters is the rate of pro-poor growth, not simply whether what matters.
• Intrinsic versus instrumental arguments for addressing inequality . Some argued that this was not a good distinction to make, since all arguments were instrumental in some deeper sense (e.g. in terms of raising human happiness). A better classification might be between the direct (e.g. conflict with our notions of fairness) and indirect (e.g. lower income or expenditure) effects of inequalities on wellbeing. Others felt the distinction was still helpful, not least because policy-makers were often more persuaded by so-called instrumental arguments.
• The importance of fairness . It was suggested that the ODI background paper had not given enough emphasis to experimental evidence on the importance people attach to fairness. Happiness surveys also often suggest that people's sense of well-being is affected by their sense of fairness, and their standing relative to others, although some evidence cited from China suggested otherwise (happiness being more related to income growth and employment rather than one's relative position).
• Ascribed versus achieved inequalities. This was argued by many to be an important distinction, in terms of explaining which inequalities matter. Ascribed inequalities may be more harmful for economic growth (suggested in empirical work by Barro, 2000), and considered more unfair. However, it was also recognised that the distinction, like that between equality of opportunities and equality of outcomes, was not clear cut, and that which inequalities are ascribed and which are achieved may be contentious.
• Equality of opportunity . It was noted that the definition of this concept in WDR 2006 could have quite radical implications for the design of policy in terms of seeking to remove the influence of social background on people's life outcomes for example.
• It was noted that more analysis was needed on the structural determinants of inequalities, and of the political and structural shifts associated with the reduction of inequalities over time.
• Finally, it was considered refreshing to have some more critical reflection on the MDG agenda , and on what might be referred to as their excessive focus on issues of quantity to the detriment of quality.

Session 3: An equity policy agenda?

Francisco Ferreira presentation covered three main areas.

• What does the concept of equity mean? The definition of equity presented in the WDR 2006 was based on 2 principles: equality of opportunity (draws on the work of John Roemer and suggests that predetermined circumstances should not determine outcomes) and the avoidance of absolute deprivation (minimum threshold of need).
• How does equity translate into a policy objective? Policies should place weight on the most disadvantaged group within the constraints of what is technically and politically feasible. There are three entry points. Policies aimed at making:
  • endowments more equitable: Using public action to ensure that outcomes are the same across groups for individuals who put in the same effort. This implies an emphasis on levelling the playing field, including increasing access to good quality education, healthcare, risk management and possibly assets transfers, and targeting expenditure disproportionately at the poor.
  • process more equitable: Using public action to ensure that market and non-market institutions treat individuals equally. Positive discrimination may be warranted but the first step is to eliminate existing forms of discrimination. 
  • outcomes more equitable: Outcomes shape opportunities both within and across generations. Equalising endowments and ensuring process is fair may break this cycle however other public actions may be needed such as inheritance taxes or social protection systems. 
• What does it mean in practice? Equity diagnostics within specific countries were one way for the World Bank to operationalise an equity lens. This entailed identifying key disadvantaged groups and the endowments they lack, the fundamental institutional inequalities, the main channels of inequality persistence and possible mechanisms to address them and the development of homegrown' policy options to address these.

5. Andy McKay explained that his presentation would focus on the WDR, because this contained the most detailed domestic policy response. He argued that the WDR was made an innovative contribution to the debate on equity, in particular though its:

• focus on reducing inequality of opportunity and avoiding absolute deprivation; 
• focus on political perspectives; 
• emphasis on the persistence of inequality due to the underlying political inequalities; 
• focus on the redistribution of influence, advantage and subsidy, primarily through expenditure.

McKay asked whether the WDR lives up to the radical agenda that it sets out.

• McKay outlined the key elements of the WDR policy response as being: human capacities; justice, land and infrastructure; markets and macreconomy; and actions within the global arena (migration, trade and aid). 

McKay highlighted six questions for discussion:

• Inequality of opportunities or outcomes? In practice there is not a clear distinction, for example assets can be both, and one shapes the other. However, if it is appropriate to also be concerned with outcomes, should we not also consider income redistribution? 
• What about pro-poor growth? Inequality can be shaped by patterns of growth. A positive-sum game is possible where increments in growth are shared more equally. 
• What do we mean by macroeconomic stability? A concern with equity is not an excuse for poor policy however, although there may be general agreement on some components of good macroeconomic policy, there is less agreement about issues such as the size of government or optimal inflation rates. 
• How can an increase in the quality of public services be paid for? Is this paid for through additional resources or redistribution? In reality, redistribution is likely to be difficult owing to political economy constraints. 
• Are the political challenges to implement an equity agenda taken seriously enough? Policies that attempt to breaking the cycle of persistent inequality is highly political because they challenge the status quo. Do political elites want broad-based growth? 
• What about employment creation? Some countries have seen jobless growth' rather than the provision of opportunities to help people move out of agriculture that has occurred elsewhere. Increased informalisation is a potential source of increased inequality.

9. Four main issues were raised during the discussion:

• There was more discussion on the determinants of inequality , and in particular i) the effect of the sectoral pattern of growth on inequality; ii) the effect of spatial pattern of growth on inequality, and iii) the effect of demographics on inequality. A good understanding of the determinants informs policy choices; where demographic forces are driving inequality for family planning interventions are an important policy option.
• The effect of globalisation on government's ability to address inequality was discussed. Greater international capital and labour mobility has the potential to reduce tax revenues, and it was important in this respect to avoid a race to the bottom'. International tax co-ordination could play an important role in this regard.
• There was discussion of exactly how different an equity' policy agenda was to the existing poverty' agenda. It was agreed there were some innovations, for example in looking at the entire income distribution, the potential for more progressive taxation, and opportunities in and access to higher education. These issues would be particularly relevant in middle-income countries with low levels of $1-a-day poverty. For low-income countries with substantial $1-a-day poverty however, the two policy agendas were very similar and that this should be regarded as reassuring rather than a cause for concern.
• There was also discussion about the issue of using a maximin' approach in determining resource allocation priorities across groups. Some argued that a preferable and more realistic approach would be a system in which more disadvantaged groups are given greater weight (with those weights varying according to context), but that less disadvantaged groups are still given some weight.
• Finally, there was initial discussion about the political constraints to tackling inequality. It was accepted that domestic governments are often reluctant to acknowledge and address inequalities within society, although there were a series of notable exceptions (e.g. Brazil , South Africa ). Whether donors and other external agencies should try to intervene in such cases raised a number of difficult issues however, to be taken up further in the next section.

Session 4: Implementation and next steps

1. Johan Scholvinck made four main points: 

• First, all three reports make a convincing case for placing inequality at the top of the development policy agenda . For the UN DESA, the main issue was that rising levels of inequality were leading to a segmentation of societies, and had to be addressed for this reason. 
• Second, although the concept of equity is the logical starting point for determining what is just and what is unjust, the lack of good indicators made monitoring and enforcing progress towards greater equity a daunting task. 
• Third, national governments are and need to remain primarily responsible for addressing inequalities within countries, and for ensuring that the benefits of growth are widely shared. Even incremental changes (e.g. in tax levels on high-income groups) can result in significant shifts in income distribution. 
• Fourth, donors can contribute to addressing inequalities within countries through increased aid combined with improved aid delivery. 
• Finally, it is crucial to integrate the emphasis of economic policy on efficiency with the emphasis of social policy on equity , to ensure that social development goals are met and social inequalities avoided.

2. Juan De Laiglesia made four main points:

• In relation to the determinants of inequality , he argued that the focus on inequality traps' in WDR 2006 was important, but can blur the issues of a) what are the origins of inequality and b) what are the best entry points for addressing inequality. OECD work was addressing these issues, for example through its Gender, Institutions and Development (GID) database. 
• In relation to political economy , he argued that finding what dimension of inequality receives priority will require a certain amount of politics and coalition building, and that it was important to understand how existing political institutions map into these power struggles and how the rules of interactions allow specific reforms to be put forward. 
• In terms of the role for donors , he noted that the current emphasis among donors is not on equity but on pro-poor growth, which includes certain aspects of the equity agenda. This included the need for donors to support in-country processes, and to provide long-term, flexible and responsive support. 
• Finally, in terms of a research agenda , he argued that there is a need for more research on the underlying deep' determinants of inequality of opportunities, and on political systems, institutions and agency.

3. Simon Maxwell asked participants to respond to two questions during the discussion and a number of issues were raised around these:

(i) How can we get equity onto the agenda of developing countries?

• The theory surrounding the PRSP framework suggests that getting poverty reduction on the agenda requires opening up the policy debate in developing countries, in particular through the engagement of policymakers with civil society and parliaments. In practice, this assumption has proved to be false. 
• Some political economy literature suggests that reform is unlikely e.g. literature on rational choice or institutions. Others (e.g. Grindle, 2002) argue that an examination of reforms that have occurred suggests that reforms can happen when reform-minded actors operate strategically through processes.

(ii) What should donors do?

• Equity should be on the international agenda. An international standard relating explicitly to equity is required to promote this. However, it should also be recognised that existing international human rights standards already contain obligations for those countries party to them to tackle discrimination and promote equality. 
• More historical and political analysis is needed to understand how change happens, for example, land reform has occurred outside of periods of social upheaval. 
• Is it possible to make an empirical case to suggest that reducing inequality will produce greater security? Some research has shown that inequality is not a major indicator for stability (e.g. Robert Bates). 
• The focus should be where the equity agenda diverges with the existing poverty framework in order to demonstrate the value added, such as progressive taxation. 
• Should organisations such as the World Bank give political policy advice or be involved in political design given that this could encroach on national sovereignty? However, economic policy advice can also be political and the World Bank is already involved in political areas such as its work on corruption and judicial reform.