ISS is the international Institute of Social Studies of Erasmus University Rotterdam

Can the Sustainable Development Goals stem rising income inequality in the world?

Rolph van der Hoeven,

ISS-EUR, The Hague, The Netherlands

Expert meeting Social Development and Agenda 2030, UNDESA, New York, 21-23 October 2015

Developments in the 70’s and 80’s

• UN First Development Decade • Redistribution with Growth • Basic Needs • New International Economic Order • Redistribution before Growth • Structural Adjustment Programs

Developments in the 90’s and beyond

• Human Development • World Summit for Social Development • Millennium Summit and Declaration • Millennium Development Goals

UNU-WIDER project 2002

“old” factors explaining level of inequality: • land inequality, • poor education, • poor infrastructure • urban bias

“new” factors explaining rise of inequality • liberalization of trade and

capital markets • increased financialization of

national economies and of international relations

• technological changes • the growing limitations of

functioning labour market institutions.

Growing inequality has become headline news, not only in development NGO’s but also in mainstream financial press and financial circles.

Effects of the financial crisis on various socio-economic groups in different country groupings

Drivers of income inequality

What kind of income inequality are we

talking about ?

Gini Index of global Income inequality

Factor and Household Income distribution

The classical economists paid attention mainly to the distribution of income between labour and capital, the main factors of production: the factor income or functional income distribution. After Second World War more attention to the household income distribution

Atkinson: three reasons to pay again greater attention to factor income distribution: • To make a link between incomes at the

macroeconomic level (national accounts) and incomes at the level of the household;

• To help understand inequality in the personal distribution of income;

• To address the social justice concerns with the fairness of different returns to different sources of income.

Interaction between Main Drivers and various types of income distribution

Globalization and Income Inequality

Household Income Inequality and Globalization across the World, 1992-2005

Labour income shares by GDP per capita classification, 1990-2011

The unadjusted labour income share and GDP per capita in 2008

The increasing share of the top 1% in developing countries

Millennium Development Goals and Sustainable Development Goals

Context of the SDGs

Structural Transformation as a necessary condition for growth

• Structuralism : reallocation of resources (capital and labour) to sectors that offer more benefits than other sectors in terms of employment, growth, competitiveness, productivity and value added

• Schumpeterism : process of technological innovation

through creative destruction

• Evolutionism: accumulation of knowledge and capabilities.

Ideal Structural Transformation combines all three aspects

Performance of LDCs: Changes in poverty reduction index plotted against changes in progress in structural transformation index

Because rise of the South more emphasis on structural transformation: traditional international financing institutions now face competition from new international institutions

Inequality and Sustainable Development Goals

Changing parameters for SDGs: most poor in the world do not live in poor countries anymore: Hence emphasis on reducing inequality is needed

Endogenous drivers: The degree of national redistribution by per capita income group

To what extent do the SDGs take income inequality and redistribution into account ?

The most direct reference to inequality is in goal 10: reduce inequality within and between countries. However the targets are rather weak. The first target states: By 2030, progressively achieve and sustain the growth of the bottom 40 per cent of the population at a rate higher than the national average, followed by targets calling to promote inclusion, and ensure equal opportunity a.o. by eliminating discriminatory laws. Another target is to adopt policies, especially fiscal, wage and social protection policies and progressively achieve greater equality.

Measures that increase the ability of developing countries to have greater national resources for distributional purposes

Fundamental changes needed in International Financial System: 1. Less volatility, hence less need for costly

foreign reserves which then can be used for domestic investment.

2. No illicit transfers, tax avoidance and other outflows due to transfer pricing

3. Sovereign Debt Reduction Mechanism.

A first reading: the SDGs and the Addis Ababa Action Agenda, in the way they have been currently formulated, will not be able to stem the growing inequality in the world. But ….

The SDGs and the Addis Ababa Action Agenda: many lofty words about reducing income inequality. Active civil society and academics should • call governments and the UN system to task on

growing national and international income inequalities and

• demand national and international measures which would form the basis of a global social contract for greater equality and an effective global partnership.

ISS as a multidisciplinary institute, with students and staff from all over the world, could play an important role in this.

Coherence between 17 Goals

Thank You