Report On The World Social Situation 2005 (United Nations)

The Inequality
Predicament
Report on the World Social Situation 2005
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United Nations
ISBN: 92-1-130243-9
Sales No. E.05.IV.5
37966August 20051,500

The Inequality Predicament
A/60/117/Rev.1
ST/ESA/299
DEPARTMENT OF ECONOMIC AND SOCIAL AFFAIRS
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UNITED NATIONS
New York, 2005
DESA
Te Department of Economic and Social Aairs of the United Nations
Secretariat is a vital interface between global policies in the economic, social
and environmental spheres and national action. Te Department works in
three main interlinked areas: (i) it compiles, generates and analyses a wide range
of economic, social and environmental data and information on which States
Members of the United Nations draw to review common problems and to take
stock of policy options; (ii) it facilitates the negotiations of Member States in
many intergovernmental bodies on joint course of action to address ongoing
or emerging global challenges; and (iii) it advises interested Governments on
the ways and means of translating policy frameworks developed in United
Nations conferences and summits into programmes at the country level and,
through technical assistance, helps build national capacities
Note
Te designations employed and the presentation of the material in this pub-
lication do not imply the expression of any opinion whatsoever on the part
of the Secretariat of the United Nations concerning the legal status of any
country or territory or of its authorities, or concerning the delimitations of
its frontiers.
Te term country as used in the text of the present report also refers, as
appropriate, to territories or areas.
Te designations of country groups in the text and the tables are intended
solely for statistical or analytical convenience and do not necessarily express
a judgement about the stage reached by a particular country or area in the
development process.
Mention of the names of rms and commercial products does not imply the
endorsement of the United Nations.
Symbols of United Nations documents are composed of capital letters com-
bined with gures.
A/60/117/Rev.1
ST/ESA/299
United Nations publication
Sales No. E.05.IV.5
ISBN 92-1-130243-9
Copyright United Nations, 2005
All rights reserved
Printed by the United Nations, New York
iii
Preface
Since the series was launched in 1952, the Report on the World Social Situation
has served as a foundation for discussions and policy analysis of socio-eco-
nomic issues at the intergovernmental level. It has served to identify emerging
social trends of international concern and analyze relationships among major
development issues with national, regional and international dimensions.
Te 2005 Report continues that tradition by addressing the subject of
inequality. In particular, it focuses on some of the growing inequalities that
make it challenging, but all the more imperative, to reach the Millennium
Development Goals. It shows us that we cannot advance the development
agenda without addressing the challenges of inequality within and between
countriesthe widening gap between skilled and unskilled workers, the
chasm between the formal and informal economies, the growing disparities
in health, education and opportunities for social and political participation.
Te Report identies four areas of particular importance: addressing
worldwide asymmetries resulting from globalization; incorporating explic-
itly the goal of reducing inequality in policies and programmes designed to
achieve poverty reduction; expanding opportunities for employment, with
particular attention to improving conditions in the informal economy; and
promoting social integration and cohesion as key to development, peace and
security.
By detailing some of the most critical issues aecting social development
today, the Report can help guide decisive action to build a more secure and
prosperous world in which people are better able to enjoy their fundamental
human rights and freedoms. Overcoming the inequality predicament is an
essential element of this quest.
KOFI A. ANNAN
Secretary-General
v
Contents
Page
Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii
Explanatory notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix
Executive summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
I. The case for focusing on inequality . . . . . . . . . . . . . . . . . . . . . . . . . 13
Linkages between poverty eradication and inequality . . . . . . . . 14
Inequality and the economic dimension of poverty . . . . . . 14
Inequality and the socio-political dimensions of poverty . 16
Structural reform, the public sector and inequality . . . . . . . . . . . . 19
Universal access to education, health care and social
protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Patterns of intervention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
II. A spotlight on inequality: the informal economy . . . . . . . . . . . . 29
A brief overview of the informal economy . . . . . . . . . . . . . . . . . . . . 30
The attraction of the informal economy . . . . . . . . . . . . . . . . . . . . . . 34
Reasons for the growth of the informal economy . . . . . . . . . . . . . 36
Linkages between the formal and informal economies . . . . . . . . 38
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
III. Trends and patterns of inequality . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Economic aspects of inequality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Income inequality between countries . . . . . . . . . . . . . . . . . . . . 44
Income inequality within countries . . . . . . . . . . . . . . . . . . . . . . 47
Poverty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Unemployment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Non-economic aspects of inequality . . . . . . . . . . . . . . . . . . . . . . . . . 58
Health . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Life expectancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Maternal and child health . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
HIV/AIDS and other deseases . . . . . . . . . . . . . . . . . . . . . . . 68
Hunger and malnutrition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Education . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
IV. Inequalities and social integration . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Intergenerational dimensions of inequality . . . . . . . . . . . . . . . . . . 82
vi The Inequality Predicament
Page
Consumption, inequality and social integration . . . . . . . . . . . . . . 84
Violence and inequality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
Violent crime . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
Armed conict . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
Youth demographics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
Rape and child soldiers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
Domestic violence and slavery . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
Fostering democracy and social integration . . . . . . . . . . . . . . . . . . 99
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
V. The changing context of development and inequality . . . . . . 105
Globalization: asymmetries and the loss of policy space . . . . . . . 105
The impact of liberalization and stabilization policies on
inequality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
Financial liberalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
Trade liberalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
Financing the social agenda . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
Ocial development assistance . . . . . . . . . . . . . . . . . . . . . . . . . 114
Innovative sources of nancing . . . . . . . . . . . . . . . . . . . . . . . . . . 116
Migrant remittances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
Domestic nancing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120
The peace dividend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124
The role of the State and civil society . . . . . . . . . . . . . . . . . . . . . . . . . 125
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128
VI. The way forward: policies to reduce inequality . . . . . . . . . . . . . . 131
Redressing global asymmetries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132
Intensifying integrated strategies and policies for poverty
eradication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133
Guaranteeing employment opportunities for all . . . . . . . . . . . . . . 134
Fostering social integration and cohesion . . . . . . . . . . . . . . . . . . . . 136
Annex The ten commitments of the World Summit for Social
Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141
Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143
Figures
I.1. Policy framework: the three main pillars of social
development centred on equity and equality . . . . . . . . . . . . . . . . . 13
I.2. Relationship between life expectancy at birth and the level
of public and private health spending, 2002 . . . . . . . . . . . . . . . . . . 25
III.1. Evolution of income inequality among countries . . . . . . . . . . . . . 45
Contents vii
Page
III.2. Per capita gross domestic product in the poorest and
richest countries, 1960-1962 and 2000-2002 . . . . . . . . . . . . . . . . . . 45
III.3. Inequalities in life expectancy between major world regions:
deviations of regional life expectancy at birth from that of
Australia/New Zealand, (1990-1995 and 2000-2005) . . . . . . . . . . 60
III.4. Distribution of all countries according to how far their life
expectancy falls below that of Japan, 1990 and 2000 . . . . . . . . . 61
V.1. Aid from all Development Assistance Committee (DAC)
donors as a percentage of gross domestic product: the
long-term trend to 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
V.2. Aid from Development Assistance Committee (DAC) donors
as a proportion of gross domestic product . . . . . . . . . . . . . . . . . . . 115
V.3. Social sector spending among country groupings classied
by income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120
V.4. Defence and social sector spending in countries with the
highest defence expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122
V.5. Defence and social spending in countries with the highest
social sector expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123
Tables
II.1. Size and growth of the informal sector in selected countries,
by sex . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
III.1. Regional per capita income as a share of high-income OECD
countries average per capita income . . . . . . . . . . . . . . . . . . . . . . . . 46
III.2. Distribution of countries according to trends in Gini
coecients for income distribution between the 1950s
and the 1990s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
III.3. Poverty rates for the world, major regions, and China
and India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
III.4. Unemployment rates, labour force growth rates and GDP
growth rates for the world and major regions . . . . . . . . . . . . . . . . 56
III.5. Levels of under-ve mortality for selected countries and
between-country inequality indices . . . . . . . . . . . . . . . . . . . . . . . . . . 63
III.6. Under-ve mortality for countries with the highest and lowest
rates, 1995, 2000 and 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
III.7. Immunization coverage among children aged 12-23 months,
by country and selected background characteristics . . . . . . . . . . 66
III.8. Dierentials within and between selected countries in access
to skilled medical care at delivery for children born three
years before the survey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
III.9. Adults and children aected by HIV/AIDS: the world and
major regions, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
III.10. Women living with HIV: the world and major regions, 2004 . . . 69
viii The Inequality Predicament
Page
III.11. Percentages of total, urban and rural household populations
with no education, by sex . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
III.12. Inequalities in primary school enrolment: the world and major
regions, 1998 and 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
III.13. Inequalities in secondary school enrolment: the world and
major regions, 1998 and 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
ix
Explanatory notes
Te following symbols have been used in tables throughout the Report:
Two dots (..) indicate that data are not available or are not separately re-
ported.
A dash () indicates that the item is nil or negligible.
A hyphen (-) indicates that the item is not applicable.
A minus sign () indicates a decit or decrease, except as indicated.
A full stop (.) is used to indicate decimals.
A slash (/) between years indicates a statistical year, for example, 1990/91.
Use of a hyphen (-) between years, for example, 1990-1991, signies the full
period involved, including the beginning and end years.
Annual rates of growth or change, unless otherwise stated, refer to annual
compound rates.
Details and percentages in tables do not necessarily add to totals, because of
rounding.
Te following abbreviations have been used:
AIDS acquired immunodeciency syndrome
CIS Commonwealth of Independent States
DAC Development Assistance Committee
DHS Demographic and Health Survey(s)
ECLAC Economic Commission for Latin America and the Caribbean
ESAF Enhanced Structural Adjustment Facility
EU European Union
FAO Food and Agriculture Organization of the United Nations
FDI foreign direct investment
GATT General Agreement on Taris and Trade
GDP gross domestic product
GNI gross national income
GNP gross national product
G-7 Group of Seven major industrialized countries
HIV human immunodeciency virus
IFF International Finance Facility
ILO International Labour Organization
IMF International Monetary Fund
NGO non-governmental organization
ODA ocial development assistance
OECD Organisation for Economic Cooperation and Development
PRGF Poverty Reduction and Growth Facility
PRSP Poverty Reduction Strategy Paper
SDR special drawing rights
x The Inequality Predicament
TB tuberculosis
TRIPS Agreement on Trade-Related Aspects of Intellectual
Property Rights
UNCTAD United Nations Conference on Trade and Development
UNICEF United Nations Childrens Fund
VAT value added tax
WHO World Health Organization
WIDER World Institute for Development Economics Research
WIID World Income Inequality Database
WTO World Trade Organization
Reference to dollars ($) indicates United States dollars, unless otherwise
stated.
When a print edition of a source exists, the print version is the authoritative
one. United Nations documents reproduced online are deemed ocial only as they
appear in the United Nations Ocial Document System. United Nations docu-
mentation obtained from other United Nations and non-United Nations sources
is for informational purposes only. Te Organization does not make any warranties
or representations as to the accuracy or completeness of such materials.
Unless otherwise indicated, the following country groupings and subgroup-
ings have been used in the Report:
Developed market economies:
North America (excluding Mexico), Southern and Western Europe (exclud-
ing Cyprus, Malta, and Serbia and Montenegro), Australia, Japan, and New
Zealand.
Economies in transition:
Albania, Bulgaria, Czech Republic, Hungary, Poland, Romania, Slovakia,
and the former Union of Soviet Socialist Republics, comprising the Baltic
Republics and the member countries of the Commonwealth of Independent
States.
Developing countries (49 countries):
All countries in Africa, Asia and the Pacic (excluding Australia, Japan and
New Zealand), Latin America and the Caribbean, Cyprus, Malta, and Serbia
and Montenegro.
Where data are from UNESCO, the following regional groupings have been
used:
Arab States and North Africa: Algeria, Bahrain, Djibouti, Egypt, Iraq, Jordan,
Kuwait, Lebanon, Libyan Arab Jamahiriya, Mauritania, Morocco, Oman,
Occupied Palestinian Territory, Qatar, Saudi Arabia, Sudan, Syrian Arab Re-
public, Tunisia, United Arab Emirates, and Yemen.
Central Asia: Armenia, Azerbaijan, Georgia, Kazakhstan, Kyrgyzstan, Mon-
golia, Tajikistan, Turkmenistan, and Uzbekistan.
Explanatory notes xi
Central and Eastern Europe: Albania, Belarus, Bosnia and Herzegovina, Bul-
garia, Czech Republic, Croatia, Estonia, Hungary, Latvia, Lithuania, Poland,
Republic of Moldova, Romania, Russian Federation, Serbia and Montene-
gro, Slovakia, Slovenia, the former Yugoslav Republic of Macedonia, Turkey,
and Ukraine.
East Asia and the Pacic: Australia, Cambodia, China, Cook Islands, Demo-
cratic Peoples Republic of Korea, Fiji, Indonesia, Japan, Kiribati, Lao Peoples
Democratic Republic, Malaysia, Marshall Islands, Myanmar, Nauru, Niue,
New Zealand, Papua New Guinea, Philippines, Republic of Korea, Samoa,
Solomon Islands, Tailand, Tonga, Tuvalu, Vanuatu, and Viet Nam.
Latin America and the Caribbean: Anguilla, Antigua and Barbuda, Aruba,
Argentina, Bahamas, Barbados, Belize, Bermuda, Bolivia, Brazil, British Vir-
gin Islands, Cayman Islands, Chile, Colombia, Costa Rica, Cuba, Dominica,
Dominican Republic, Ecuador, El Salvador, Grenada, Guatemala, Guyana,
Haiti, Honduras, Jamaica, Mexico, Montserrat, Netherlands Antilles, Nica-
ragua, Panama, Paraguay, Peru, Saint Kitts and Nevis, Saint Lucia, Saint
Vincent and the Grenadines, Suriname, Trinidad and Tobago, Turks and
Caicos Islands, Uruguay, and Venezuela.
North America and Western Europe: Andorra, Austria, Belgium, Canada, Cy-
prus, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Israel,
Italy, Luxembourg, Malta, Monaco, Netherlands, Norway, Portugal, San
Marino, Spain, Sweden, Switzerland, United Kingdom of Great Britain and
Northern Ireland, and United States of America.
South and West Asia: Afghanistan, Bangladesh, Bhutan, India, Islamic Re-
public of Iran, Maldives, Nepal, Pakistan, and Sri Lanka.
Sub-Saharan Africa: Angola, Benin, Botswana, Burkina Faso, Burundi,
Cameroon, Cape Verde, Central African Republic, Chad, Comoros, Con-
go, Cte dIvoire, Democratic Republic of the Congo, Equatorial Guinea,
Eritrea, Ethiopia, Gabon, Gambia, Ghana, Guinea, Guinea-Bissau, Kenya,
Lesotho, Liberia, Madagascar, Malawi, Mali, Mauritius, Mozambique, Na-
mibia, Niger, Nigeria, Rwanda, Sao Tome and Principe, Senegal, Seychelles,
Sierra Leone, Somalia, South Africa, Swaziland, Togo, Uganda, United Re-
public of Tanzania, Zambia, and Zimbabwe.
Least developed countries:
Afghanistan, Angola, Bangladesh, Benin, Bhutan, Burkina Faso, Burundi,
Cambodia, Cape Verde, Central African Republic, Chad, Comoros, Demo-
cratic Republic of the Congo (formerly Zaire), Djibouti, Equatorial Guinea,
Eritrea, Ethiopia, Gambia, Guinea, Guinea-Bissau, Haiti, Kiribati, Lao Peo-
ples Democratic Republic, Lesotho, Liberia, Madagascar, Malawi, Maldives,
Mali, Mauritania, Mozambique, Myanmar, Nepal, Niger, Rwanda, Samoa,
Sao Tome and Principe, Senegal, Sierra Leone, Solomon Islands, Somalia,
Sudan, Timor-Leste, Togo, Tuvalu, Uganda, United Republic of Tanzania,
Vanuatu, Yemen, and Zambia.
1
Executive summary
Te global commitment to overcoming inequality, or redressing the im-
balance between the wealthy and the poor, as clearly outlined at the 1995
World Summit for Social Development in Copenhagen and endorsed in the
United Nations Millennium Declaration, is fading. Eighty per cent of the
worlds gross domestic product belongs to the 1 billion people living in the
developed world; the remaining 20 per cent is shared by the 5 billion people
living in developing countries. Failure to address this inequality predica-
ment will ensure that social justice and better living conditions for all people
remain elusive, and that communities, countries and regions remain vulner-
able to social, political and economic upheaval.
Te present Report on the World Social Situation traces trends and pat-
terns in economic and non-economic aspects of inequality and examines
their causes and consequences. It focuses on the traditional aspects of in-
equality, such as the distribution of income and wealth, as well as inequali-
ties in health, education, and opportunities for social and political participa-
tion. Te Report also analyses the impact of structural adjustment, market
reforms, globalization and privatization on economic and social indicators.
Ignoring inequality in the pursuit of development is perilous. Focusing
exclusively on economic growth and income generation as a development
strategy is ineective, as it leads to the accumulation of wealth by a few and
deepens the poverty of many; such an approach does not acknowledge the
intergenerational transmission of poverty. A broader approach to poverty
reduction includes social, economic and political dimensions, integrating
improvements in health, education, economic development, and repre-
sentation in legislative and judicial processes. It is the implementation of
policies in these areas that contributes to the development of human capi-
tal, enabling the poor to realize their full productive potential. Addressing
all aspects of poverty increases the odds that future generations will reap
the benets of todays policies rather than remaining trapped in a cycle of
poverty.
Inequalities in income distribution and in access to productive re-
sources, basic social services, opportunities, markets, and information can
cause and exacerbate poverty. As emphasized in the recommendations of the
World Summit for Social Development, it is crucial that policies and pro-
grammes for poverty reduction include socio-economic strategies to reduce
inequality.
Addressing inequality requires eorts to achieve a balance between many
complex, countervailing socio-economic forces. Although economic growth
is necessary, it is not a sucient condition to reduce poverty. Reforms are
required in a number of dierent areas to increase the opportunities for and
2 The Inequality Predicament
capabilities of the poor and other marginalized groups in order to spur inclu-
sive growth and development and thereby reduce inequality.
A healthy, well-educated, adequately employed and socially protected
citizenry contributes to social cohesion. Improved access by the poor to pub-
lic assets and services (especially in the education and health sectors) and
income transfer programmes to sustain the poorest families are essential to
changing the structure of opportunities and are key to reducing the inter-
generational transmission of poverty and inequality. Breaking the intergen-
erational poverty cycle is a vital component of an integrated and equitable
poverty reduction strategy.
Te World Summit for Social Development emphasized the need to
ensure the provision of universal and equitable access to education and pri-
mary health care. Recognition of the importance of culture and tolerance, a
people-centred approach to sustainable development, and the full develop-
ment of human resources is also essential.
In spite of the compelling case for redressing inequality, economic and
non-economic inequalities have actually increased in many parts of the
world, and many forms of inequality have become more profound and com-
plex in recent decades.
Income dierentials have narrowed among the high-income countries
that are not members of the Organisation for Economic Cooperation and
Development, with the exception of a few countries that have pursued lib-
eralization and deregulation policies; among most other countries income
inequalities have worsened since the 1980s, and the income gap between
high- and low-income countries has widened.
In many parts of the world persistently high levels of poverty are at least
partly attributable to inadequate incomes. Te proportion of the worlds
population living in extreme poverty declined from 40 to 21 per cent be-
tween 1981 and 2001. Nonetheless, many countries continue to experience
high levels of poverty. China and India, which together account for close
to 40 per cent of the global population, contribute greatly to the overall
positive picture. Elsewhere, the levels and persistence of poverty are more
pronounced.
Te large and growing chasm between the formal and informal econo-
mies in many parts of the world strengthens the case for reducing inequality.
Tose who are part of the formal economy generally fall among the haves
in society, as they are more likely to earn decent wages, receive job-related
benets, have secure employment contracts, and be covered by labour laws
and regulations. In contrast, those in the informal economy are typically
among the have nots; they are often excluded from various legal protec-
tions and are unable to access the basic benets or enjoy the fundamental
rights granted to those in the formal economy. Since most poor people work
informally, the recent expansion of the informal economy in many countries
has major implications for reducing poverty and inequality.
Executive summary 3
Access to jobs is essential for overcoming inequality and reducing pov-
erty. People who cannot secure adequate employment are unable to generate
an income sucient to cover their health, education and other basic needs
and those of their families, or to accumulate savings to protect their house-
holds from the vicissitudes of the economy. Te unemployed are among the
most vulnerable in society and are therefore prone to poverty.
Te global employment situation is characterized by extreme inequal-
ity. Some 186 million people were unemployed in 2003, accounting for
6.2 per cent of the total working population, up from 140 million a decade
earlier. Among developed countries unemployment has generally declined
in recent years; however, much of the developing world has experienced
high and even rising unemployment. Tis escalating unemployment within
the latter group has several underlying causes, including high labour force
growth rates and continued reliance on policies exclusively focused on mac-
roeconomic stability.
Liberalization policies entail changes in labour laws and institutions and
account for major changes in the labour market. Te process of economic
liberalization is typically marked by greater wage exibility and the erosion
of minimum wages, a reduction in public sector employment, declining em-
ployment protection, and the weakening of employment laws and regula-
tions. Te desire of developing countries to attract foreign investment and
expand exports frequently leads to a race to the bottom with labour pro-
tection and environmental standards often ignored or compromized, osten-
sibly to make the countries more competitive in the international market.
External competitive pressures therefore restrict the ability of developing
countries to pursue key aspects of social policy.
In many countries, the failure to address the needs of poor people as
part of a strategy for sustained growth has been a major obstacle to reduc-
ing poverty. High rates of fertility and population growth, large pools of
unskilled labour, and the HIV/AIDS epidemic have also played a role in
perpetuating poverty, especially in Africa. Internal and international migra-
tion are strongly linked to poverty as well; sending communities become
poorer, as they tend to lose their most economically active members, and
in receiving communities, migrants are likely to be poorly integrated and
vulnerable to extreme poverty. Te growing tendency for people to move
in and out of poverty can mean that those who are not thought to be poor
in a particular period may be overlooked by social assistance programmes.
Deepening levels of rural poverty, along with the increasing urbanization of
poverty, also pose new challenges to development.
Various non-economic inequalities also impinge on the progress of de-
velopment in many countries. For example, though most countries have
succeeded in expanding educational access in general, large disparities persist
in access to both primary and higher-level education. Disparities in child
health and mortality are pronounced and reect underlying inequalities in
access to quality care for mothers and their children. One area of concern
is access to immunisation, which, despite signicant increases in coverage
in recent decades, remains highly dierentiated by factors such as maternal
education and place of residence. Malnutrition and hunger are at the root of
global dierentials in health and survival.
Te HIV/AIDS epidemic has deepened both economic and non-eco-
nomic inequalities. Te situation is particularly alarming in sub-Saharan Af-
rica, which has been hardest hit by the epidemic. Te region is performing
poorly with respect to both economic and non-economic indicators, and the
gap between many countries in the region and the rest of the world is widen-
ing. Of special concern is the contribution of HIV/AIDS to the widening
dierentials in life expectancy across countries and world regions.
Gender dimensions are deeply embedded in observed inequalities. Tere
are persistent gender gaps in access to education, decent employment, and
fair and equal remuneration. In most countries, the increase in the numbers
of women in the workforce over the past two decades masks the deteriora-
tion in the terms and conditions of employment, as women tend to secure
jobs with lower pay. Womens poorer access to economic and non-economic
opportunities is often at the root of their lower status in many societies; as
a consequence, they may be subject to abuse and sexual exploitation and
rendered voiceless in issues relating to their own welfare.
In the past decade, greater attention has been directed towards improv-
ing the status of various social groups, as demonstrated by the substantial
eorts undertaken to ensure the rights of indigenous peoples and persons
with disabilities and to address poverty among older persons and unemploy-
ment among youth. Tere appears to have been less of an interest in policies
to equalize the distribution of income and wealth, however.
Providing social protection for the older members of society is especially
important. Benets for older persons often extend to the whole family, as
the money and other resources they possess are invariably shared with their
ospring and younger dependants, strengthening the family resource base
and contributing to the welfare of current and future generations. Govern-
ments should therefore identify policy changes that may be needed to sus-
tain and support older persons rather than looking for ways to cut costs.
Democracy and the rule of law are essential for the elimination of in-
stitutionalized inequalities that have prevented the successful integration of
marginalized groups into society. Although the twentieth century saw a
rise in the number of democratic governments globally, the pace and im-
plementation of democratization have been uneven. Te consolidation of
democracy is a process, and it may take many years for the roots of de-
mocracy to take hold. During this transition it is necessary for a sovereign
State, through its internal actions and institutions, to reinforce democratic
principles by promoting human rights and encouraging the political partici-
pation of all groups. It is essential that democratic freedoms be enshrined
Executive summary 5
in legislation and backed up by political will. Many policy prescriptions are
designed without adequate analysis of how the poorest and most vulnerable
(especially women) are likely to be aected; consequently, these groups re-
main marginalized in a number of countries. Achieving success and sustain-
ability in the development process requires the engagement of all groups to
ensure that the needs of all people are addressed, and ultimately to promote
equality.
Te recent explosive growth in international migration is a response to
perceived inequalities of opportunity between sending and receiving coun-
tries. High migration streams engender and exacerbate inequalities. Many
migrants encounter circumstances that leave them vulnerable to exploitation
in their countries of destination. Inequalities between migrants and resident
populations are even wider when migrants constitute a source of cheap la-
bour. Migrant earnings account for a sizeable share of the increasing ows
of remittances, especially to poor countries. Tese remittances constitute
the second-largest source of nancial ows into developing countries after
foreign direct investment and have surpassed ocial development assistance
(ODA) globally.
Conspicuously absent from the global development agenda are a number
of issues of particular interest to developing countries, including interna-
tional labour mobility, the facilitation of remittances, international taxation
on nancial ows, nancing mechanisms to address the special needs of
marginalized countries and social groups, and mechanisms to ensure macr-
oeconomic policy coherence.
Asymmetric globalization is an important source of rising inequality.
As rapid globalization is occurring in the economic realm, the international
social agenda, for which there are very weak accountability and enforcement
mechanisms, remains relatively marginalized. Tere is a compelling need
to create the necessary space in the international system for the provision of
political, social, economic and environmental global public goods. Insuf-
cient public oversight has hitherto contributed to a situation in which the
costs and benets of globalization are not equally shared among countries
and peoples.
Even in settings in which institutions prove to be adequate, the short-
age of nancial resources can cripple social development eorts. Tere has
been ample discussion of possible ways to nance social development, with
many countries undertaking commitments to increase the amount and qual-
ity of ODA. High levels of military spending have impeded the progress of
social development, as those countries that allocate a substantial share of
total government expenditure to the defence sector also tend to reserve the
lowest portion of the budget for the social sectors. Global insecurity result-
ing from the rise in international terrorism has contributed to increased
national security spending in many countries, leading to a further diversion
of resources from social development. Te violence associated with national
and international acts of terrorism should be viewed in the context of social
inequality and disintegration. In situations in which inequalities are extreme
and there is competition over scarce resources, the likelihood of social disin-
tegration and violence increases. Violence is more common where inequali-
ties are greater, and trends suggest that growing up in poverty often leads to
social exclusion, which can contribute to crime. Countries with high rates
of poverty and inequality generally have poorer social support and safety
nets, more unequal access to education, and fewer opportunities for young
people. Te likelihood of armed conict is also greater under such adverse
social conditions.
The way forward: policies to reduce inequality
It is evident that inequalities jeopardize eorts to achieve social justice and
development. Te comprehensive vision of social development agreed upon
at the World Summit for Social Development ought to dominate and shape
the agendas of national Governments and international organizations so that
the strategic benchmarks identied in the Millennium Development Goals
and the larger objectives of sustainable and equitable social and economic
development can be achieved.
To create the conditions necessary for social development, urgent at-
tention is required in four areas of particular importance. First, worldwide
asymmetries deriving from globalization need to be redressed. Second, the
goal of reducing inequality must be explicitly incorporated in policies and
programmes aimed at poverty reduction; in particular, specic measures
should be included to guarantee access by marginalized groups to assets and
opportunities. In this context, the Millennium Development Goals should
not be seen as a substitute for the larger United Nations development agen-
da, which provides a much broader development framework. Tird, priority
must be given to expanding and improving opportunities for employment.
It is essential that employment strategies not only address job creation but
also promote decent working conditions in which equality, security and
dignity gure prominently. Finally, social integration and cohesion must
be promoted as key to development, peace and security. Social integration
requires the full participation of all groups in the social, economic, political
and cultural spheres. Groups that tend to be subject to discrimination, in-
cluding indigenous peoples and persons with disabilities, require particular
attention in policy-making and implementation.
Te persistence, and even deepening, of various forms of inequality
worldwide should not be accepted with equanimity. With the unprecedented
wealth and resources, technical expertise, and scientic and medical knowl-
edge available in the world today, the most vulnerable in society cannot
continue to be left so far behind. Macroeconomic and trade liberalization
policies, economic and nancial globalization, and changes in labour mar-
Executive summary 7
ket institutions cannot be disconnected from the struggle to achieve social
development, equality and social justice. Te failure to pursue a compre-
hensive, integrated approach to development will perpetuate the inequality
predicament, for which everyone pays the price.
JOS ANTONIO OCAMPO
Under-Secretary-General
Department of Economic and Social Aairs
9
Introduction
History is teeming with cautionary tales of the unintended consequences of
narrow economic interests overriding the needs of the people and the issues
that matter most. It is also full of seminal moments when a visionary course
was charted and society moved forward. One such moment occurred 60 years
ago with the founding of the United Nations. Not long after its establish-
ment, its Member States charted a visionary course of action by recognizing
that freedom, justice and peace in the world is based on recognition of the
inherent dignity, equality and inalienable rights of all.
1
Te year 2005 marks the commemoration of other seminal moments,
including the fth anniversary of the Millennium Summit of the United Na-
tions and the tenth anniversary of the World Summit for Social Develop-
ment. Together, these unprecedented gatherings of heads of State and Gov-
ernment represent a resounding armation of the need to promote social
progress and better standards of life in larger freedom, as enshrined in the
Charter of the United Nations.
2

Te timing of the World Summit for Social Development was signi-
cant. Public sentiment for the ideal of equal opportunity for all had been
reawakened by the historic dismantling of apartheid, one of the most bla-
tantly institutionalized forms of injustice and inequality ever in existence.
Te Summit was, above all, uniquely equipped to rally on behalf of those
perennially at the bottom of the development ladder with a unied message
that policies, in every realm and at all levels, must safeguard the standards
of social justice. Te convergence of these ideals characterized not only the
end of a nationally systematized reign of oppression, but the beginning of a
larger global struggle for social justice and equality.
Tis struggle, which has animated a great deal of debate and political ac-
tion throughout the course of history, remains one of the dominant features
of todays world. Tere has never been any illusion that inequality would be
wholly and systematically eliminated, but the struggle to achieve even a meas-
ure of success has become increasingly dicult, as the global commitment to
one of the most basic principles of equalitythat there should be a better
balance between the wealthiest and the poorestappears to be fading.
It is profoundly disturbing that in a world in which unprecedented levels
of wealth, technical expertise and scientic and medical knowledge have been
attained, it is the most vulnerable in society that consistently lose ground dur-
ing economic booms. One of the most visible by-products of globalization is
access to new kinds of wealth and its propensity to increase inequality. Glo-
balization has helped to accentuate trends that show the wealthiest 20 per cent
of the planet accounting for 86 per cent of all private consumption and the
poorest accounting for just above 1 per cent. Unless some headway is made
in refocusing economic policies to help those left behind, progress towards
poverty reduction remains uncertain.
Te present Report on the World Social Situation traces the development
and expansion of inequalities within and between countries, examining not
only the distribution of income and wealth, but also opportunities, access,
and political participation and inuence, all of which have profound eco-
nomic, social, political and cultural dimensions. It is argued in this Report
that the rise in inequalities should not be considered in isolation or accepted
with equanimity. Te point is made that macroeconomic and trade liberali-
zation policies, nancial globalization and changes in labour market institu-
tions cannot be disengaged from the struggle to achieve equality and social
justice.
Te trends highlighted in the Report demonstrate that rising inequalities
are, at the most fundamental level, a clear and compelling manifestation of
pervasive social injustice. Acknowledgment or recognition of such trends is
not always coupled with coherent policies to halt or reverse them, however.
Tose following the current development discourse are well aware that there
are deeply entrenched and strongly supported policies for economic growth
that produce or exacerbate inequalities, and that eorts to protect poor peo-
ple are routinely portrayed as increasing their burden on society.
As the Report illustrates, the global balance sheet on equality shows a criti-
cal decit. One of the more ominous features of inequality is its intergenera-
tional dimension, or the manner in which it is inherited by successive genera-
tions. Every society depends upon the transfer of knowledge and responsibility
from one generation to another; however, inequality, poverty, unemployment
and exclusion have the potential to alter or even arrest this natural course.
Governments maintaining policies that sustain social fault lines run a substan-
tial risk of exposing communities, countries and regions to various forms of
social upheaval, potentially erasing the gains accruing from decades of social,
economic and political investments.
Despite the fact that inequality exists in every realm and society, its mark
is particularly disquieting in societies in which the political and economic
institutions needed for long-term prosperity and stability are weak. Violence
occurs more frequently in settings where there is an unequal distribution
of scarce resources and power. Te devastation wrought by such violence
is deepened when societies turn a blind eye to atrocities such as genocide,
slavery and the use of child soldiers in war. Similar to the legacy of apartheid,
societies are likely to pay a heavy price for allowing poverty, unemployment
and exclusion to continue to undermine the social fabric, contributing to
persistent inequalities.
Notwithstanding the obstacles and setbacks, examples of recent eorts
to attain equality are manifold. While some of the activity in this domain is
directed towards equalizing wealth and income, much of it involves groups
working to improve their status, win acceptance and secure the privileges
Introduction 11
and advantages enjoyed by other groups. Tis is perhaps most evident in
the realm of gender. Te womens movement has sought to give more than
half of the worlds population a voice. Women have traditionally had fewer
opportunities than men and have faced greater obstacles, but many are now
receiving some support in their struggle to achieve the goals their societies
project.
Most workers are deeply entrenched in the informal economy; however,
there is no galvanizing voice to speak for them. Informal workers generally
have no benets, social protection, or sense of security to bequeath to the
next generation. Eorts to strengthen voting traditions, unions and lobby-
ing eorts lack widespread political support. Like the poor and excluded,
informal workers remain disenfranchised from the larger political movements
in the struggle for equality and disconnected from participatory eorts to
advance a more inclusive globalization. Informal workers are a constituency
often mentioned but seldom heard; though they comprise a signicant por-
tion of todays global economy, they are, for the most part, scattered and
marginalized.
For many countries national policy space is increasingly being reduced by
liberalization policies that tend to accentuate asymmetric globalization and
inequalities. Te gradual diminution of openness in governance is hindering
the average citizens ability to establish a connection between public policy
and situations of inequality. In such circumstances, when social inequalities
and gaps in income and wealth reach levels that provoke unrest, it is unlikely
that those policies contributing to inequality will receive the critical atten-
tion they deserve. Unfortunately, society accommodates itself to these new
realities, creating a predicament whereby the obstacles to social justice are so
overwhelming that those on the wrong side of the inequality equation simply
despair and give up.
Te world today is at a crossroads. If the vision of a shared future is to be
carried forward, world leaders must seize every opportunity to take bold and
decisive action to reverse negative trends. If humankind remains committed
to fostering social integration and preventing the crystallisation of segmented
societies, which would inevitably lead to more social conict, they must aim
higher than what merely appears achievable. Te total development agenda of
the United Nations should serve as a guide in such endeavours, with particu-
lar attention given to the decisions and recommendations emanating from the
World Summit for Social Development.
Te Reverend Martin Luther King, Jr., once issued the following appeal:
Trough our scientic genius we have made of the world a neighbourhood;
now through our moral and spiritual genius we must make of it a broth-
erhood.
3
It is clearly within the realm of human possibility to meet this
challenge. Policies can and should redress trends that are neither morally ac-
ceptable nor politically or economically sound. A reshaping of priorities and
attendant policies and strategies would provide not only the mechanisms for
reducing inequalities but also the means to rectify injustices caused by short-
sighted economic interests and political expediency. Te evidence presented
in this Report uninchingly arms the need to once again dene the world
in terms of its essential humanity and not solely in terms of its economic
interests.
Notes
1 United Nations, Universal Declaration of Human Rights, General Assembly resolu-
tion 217 A (III) of 10 December 1948 (DPI/511).
2 Preamble to the Charter of the United Nations (1945).
3 Martin Luther King, Jr., Facing the challenge of a new age, a speech presented in
Montgomery, Alabama, on 3 December 1956.
13
Chapter I
The case for focusing on inequality
Can social development be achieved without focusing on inequality? If this
question had been posed during the World Summit for Social Develop-
ment,
1
the answer would have been a resounding No!. A people-centred
approach to development, as advocated in the Copenhagen Declaration on
Social Development and the Programme of Action of the World Summit for
Social Development, must have the principles of equity and equality at its
core, as graphically illustrated in gure I.1, so that all individuals, regardless
of their circumstances, have unimpeded access to resources and opportuni-
ties. Te world today is far from equal, however, as evidenced by growing
gaps between the rich and the poor. Tese gaps exist not only in income and
assets, but also in the quality and accessibility of education, health care and
employment opportunities, in the protection of human rights, and in access
to political power and representation.
Trough an analysis of the economic and socio-political dimensions of
poverty and an examination of the impact of structural adjustment, market
reform measures, targeting and privatization on access to education, health
care and social protection programmes, this chapter builds a compelling case
for redressing inequality in the pursuit of social development. Te case for

Source: Based on the concept of social development delineated at the World Summit for Social Development,
held in Copenhagen from 6 to 12 March 1995.
Figure I.1. Policy framework: the three main pillars of social development
centred on equity and equality
14 Report on the World Social Situation, 2005
focusing on inequality is further developed in chapter II, in which the di-
vide between the formal and informal economies is spotlighted; the chapter
highlights the disparities in wages, benets, working conditions, tax burdens
and legal protections, and how globalization and the drive for international
competitiveness have served to widen the divide even further.
Linkages between poverty eradication and inequality
How relevant is inequality in the ght against poverty? To address this ques-
tion, it is important to recognize the dierent forms poverty takes. While
poverty has many dimensions, its two fundamental aspects are the lack of
economic power owing to low incomes and assets, and the lack of socio-po-
litical power, as reected in the limited access to social services, opportunities
and information and often in the denial of human rights and the practice of
discrimination. Without minimizing the importance of other dimensions of
poverty, the present section focuses on these two critical aspects of poverty
and their connection to inequality.
Inequality and the economic dimension of poverty
Poverty is typically dened in economic terms, as manifested in very low
levels of income and consumption per capita or per household. In this con-
text, conventional wisdom for a good portion of the past half-century has
reected the view that poverty is essentially a problem that can be xed by
raising incomes alone. Te commitment to eradicating absolute poverty by
halving the number of people living on less than US$ 1 per day, a Millen-
nium Development Goal, is the most recent evidence of the income-focused
view of poverty. Te alternative concept of relative poverty, which highlights
the inequalities in income distribution within and between societies, has been
sidelined by undue emphasis on macroeconomic policies and market mecha-
nisms dedicated to achieving rapid economic growth.
With the dissatisfaction over the outcomes of structural adjustment pro-
grammes and the over-reliance on market mechanisms that have led to a rise
in inequality, the longstanding conviction that growth is the driving force
behind poverty reduction is increasingly being questioned. Tere is mount-
ing evidence that the impact of growth on poverty reduction is signicantly
lower when inequality is on the rise than when inequality is declining (Raval-
lion, 2004).
Furthermore, if growth contributes to increased inequality, then pov-
erty may worsenif not in absolute terms, then at least in relative terms,
as the poor may nd themselves comparatively worse o. For example, a
low-wage policy coupled with tax incentives for large businesses may lead to
rapid growth as investments increase; however, inequality is likely to worsen
as lowered worker incomes adversely aect personal consumption and in-
The case for focusing on inequality 15
vestments in human capital. Conversely, when the choice of growth strategy
is consistent with the objective of reducing inequality, both absolute and
relative poverty are apt to decline. Evidence from East Asia, for instance,
indicates that a low level of income inequality is linked to fast growth, and
policies to reduce poverty and income inequality that promote basic educa-
tion and enhance labour demand further stimulate growth (Birdsall, Ross
and Sabot, 1995).
Inequalities in land ownership also have a negative impact on growth
and poverty reduction. Rural economies, in which land ownership is concen-
trated in the hands of a few while the majority remain landless, tend to face
very high costs associated with labour shirking and supervision, inhibiting
growth (Cornia and Court, 2001). Indeed, high inequality in the distribu-
tion of land has a signicantly negative eect on future growth (Deininger
and Squire, 1998).
High inequality in assets can also adversely aect growth, as it can limit
progress in educational attainment and human capital accumulationfac-
tors that contribute to higher productivity and ultimately to poverty reduc-
tion. Additionally, the social tensions caused by wide disparities in wealth
and incomes can erode the security of property rights, augment the threat
of expropriation, drive away domestic and foreign investment and increase
the cost of business security and contract enforcement (Cornia and Court,
2001, p. 23).
It should be acknowledged, however, that equality can act as a disincen-
tive to growth when productivity and creativity are not rewarded. At very low
levels of inequality (as in socialist economies in the 1980s), growth tends to
suer because the narrow range of wages does not suciently reward dierent
capabilities and eorts, potentially leading to labour shirking and free-rid-
ing behaviour (Cornia and Court, 2001, p. 23). Tus, it is useful to make a
distinction between constructive inequality, which provides the incentive
needed to move resources to where they will be used most eciently; and de-
structive inequality, which generates envy and socially unproductive redistri-
bution (Timmer and Timmer, 2004, p. 3). Finding the right balance between
equality and competitiveness is essential.
Inequalities in access to production inputs and productive resources also
have an impact on poverty reduction, as they raise the production and mar-
keting costs of the poor, thereby rendering them less competitive and less able
to raise their incomes. Te poor have limited access to land, credit, informa-
tion and markets. Since land is a key input to the production function of the
rural poor, land ownership patterns and the displacement of the poor to less
productive lands undermine their productive capacity. Access to credit and
other nancial services is crucial, as it allows the poor to establish their own
small or micro enterprises. Te recent success of microcredit programmes
in helping the poor embark on new business ventures is evidence that pro-
viding more equal access to certain markets and services promotes poverty
reduction. With the growth of the Internet and computer technologies, ac-
cess to information and better communication is becoming much easier and
increasingly importantnot only for improving access to social services or
enhancing the protection of rights, but also in allowing the poor to compete
more fairly in the global market. Presently, the poor have unequal access to
local and national markets for their outputs owing to the uneven dispersion
of components of the transportation and communication infrastructure. Be-
cause the majority of the poor live in rural areas, policies that favour urban
over rural areas worsen inequality and perpetuate poverty.
Inequality and the socio-political dimensions of poverty
A strictly economic approach to poverty reduction, which focuses solely on
raising an individuals current income, does not translate into an intergenera-
tional process of poverty reduction unless there is an accumulation of wealth
or assets. A broader and more comprehensive approach to poverty reduction
that also incorporates socio-political dimensions, including improvements in
health and education and increased political representation in law-making,
injects a dynamic, or intergenerational, view of poverty. Tis is so because
investments in human capital enable the poor to realize their full productive
potential over time. Addressing these other dimensions of poverty would not
only improve the conditions of present generations, but would also increase
the odds that future generations would continue to reap the benets, thereby
breaking the cycle of poverty. However, in spite of their centrality to poverty
reduction, these socio-political dimensions are often downplayed or over-
looked.
Te goal of sustained poverty reduction cannot be achieved unless equal-
ity of opportunity and access to basic social services are ensured. Equality of
opportunity means that all individuals have the same chance to participate
in and contribute to the betterment of their own lives and the betterment of
society: Equitable access to resources is the key to equal opportunity, not
only in the economic sense, but also in its social, cultural and political di-
mensions (Ocampo, 2002b, p. 402). Expanding peoples opportunities and
capabilities will depend on the elimination of oppression and the provision
of services and benets such as basic education, health care and social safety
nets (Sen, 1999).
Recent studies of inequality support the notion that inequality in access
to basic public services contributes directly to poor health and deciencies in
the overall level of education. One such study of Latin America, for instance,
reveals that despite high levels of public social spending, the poor are not
beneting because large segments of the low-income population are excluded
from many areas of public welfare. Te eects of entitlement restrictions in
the region are reinforced by problems relating to access and quality in the pro-
vision of supposedly universal services (Lloyd-Sherlock, 2000). Similar em-
pirical results show that in a number of African countries, spending on social
services such as health care and education is not aptly directed to the poorest
households (Castro-Leal and others, 1999; Sahn, Stifel and Younger, 1999;
Sahn and Younger, 2000). Supporting these ndings is evidence that the poor
are typically subjected to the worst housing and living conditions, are dispro-
portionately exposed to pollution and environmental degradation, and often
nd themselves in situations in which they are unable to protect themselves
against violence and persecution. Taken together, these socio-political condi-
tions create and sustain a vicious cycle of poverty and despair by contributing
to the devaluation of human capital and potentially spawning additional prob-
lems that may have implications far into the future. Tey also have the eect of
diminishing any gains achieved in income and poverty reduction.
In contrast to the foregoing, more equitable public sector investments
have been found eective in improving access to education, health care and
other social services. In Kerala, India, for example, it has been shown that
high levels of education, especially among women, can short-circuit poverty,
help reduce fertility rates and improve life expectancy. In Costa Rica, even
though per capita gross national product (GNP) is one twelfth that in the
United States, life expectancy is similar for the two countries, largely because
of eective policies for basic education, communal health services and medi-
cal care (Sen, 1995).
Various studies have shown that public and private investment in human
resources has helped mitigate poverty and inequality. In the Republic of Ko-
rea and Taiwan Province of China, government encouragement and support
have been instrumental in the development of highly educated labour forces.
Te expansion of education has helped generate human resources with the
technical and professional expertise needed for industrial upgrading and has
enhanced opportunities for upward socio-economic mobility, including skill
development and higher wages (Jomo, 2003). In Indonesia and Malaysia,
reductions in inequality over an extended period can be attributed to gov-
ernment eorts aimed at redistribution and employment generation (Jomo,
2004). Tese are but a few of the country experiences that illustrate how
redressing inequalities in access to basic social services, especially education,
can lead to poverty reduction.
Te poverty reduction equation is incomplete if inequality is not ad-
dressed from a political perspective as well, with particular attention given to
issues such as discrimination and representation. As observed in a report of
the United Nations Committee on Economic, Social and Cultural Rights,
Sometimes poverty arises when people have no access to existing resources
because of who they are, what they believe or where they live. Discrimination
may cause poverty, just as poverty may cause discrimination (United Na-
tions, 2001, para. 11).
Discrimination can take many forms, including the unequal enforce-
ment of laws, even if the laws are fair. One of the most striking revelations in
a recent study is the extent to which the police and ocial justice systems
side with the rich, persecute poor people and make poor people more inse-
cure, fearful and poorer (Narayan and others, 2000, p. 163). Te selective
application of laws translates into gender, racial and ethnic discrimination
(forms of horizontal inequality) directed against the poorer segments of soci-
ety. Typically compromised are labour and consumer laws that, for example,
prohibit predatory pricing; the weak enforcement of such laws results in a
redistribution from the poor to the rich. In other cases, the laws themselves
may be inequitable. Land-grabbing, which displaces or uproots poor people
and is typically the result of discrimination against this vulnerable group, can
take the form of legalized expropriation.
Representation allows the poor to participate in decisions that aect their
lives. Unequal representation is perhaps best illustrated by the contrast be-
tween the powerlessness of the poor and the dominance of the elite in the
formulation of laws and regulations. Such a system often produces legal bi-
ases against the poor; laws governing land reform, property rights in general
and intellectual property rights in particular are prone to this problem. Given
the stakes involved, traditional elites are likely to resist active and informed
participation by the poor in decision-making (United Nations, 2004a). More
balanced representation is unlikely in the prevailing political environment,
given the entrenched interests of those already in power and the fact that
those most aected by income inequality often lack the capacity to inuence
economic, social and political decisions taken in their societies. Te lack of
an adequate income and the lack of representation reinforce each other in a
vicious circle, since only by being able to participate in decision-making proc-
esses relating to laws and customs can the poor change the conditions that
perpetuate their poverty.
As elucidated later in the Report, the increasing legitimization and insti-
tutionalization of civil society and the growing ocial recognition of the vital
role civil society plays in the global development process have signicantly
improved the opportunities for marginalized groups to contribute to their
own development. Nonetheless, the poor, minorities, indigenous peoples,
rural residents, women and other groups with special needs frequently do not
have much of a voice, even in issues that directly concern them. Tis situation
exacerbates existing inequalities in access to infrastructure and services.
Even when the poor have some voice, the defence or protection of their
rights entails certain costs, which can seriously drain their limited resources.
Tis may be viewed as a reverse incentive that stands in direct contrast
to the investment incentives granted to large business interests and corpo-
rations. Ultimately, when discrimination is high, the social and economic
disincentives and penalties imposed on the poor are also high, further ag-
gravating poverty.
In sum, inequalities in income distribution and representation and in
access to productive resources, basic social services, opportunities, markets
and information, together with discrimination, can exacerbate, if not cause,
poverty. As armed in the recommendations of the World Summit for So-
cial Development, it is crucial for poverty reduction policies and programmes
to include socio-economic strategies with redistributive dimensions that will
reduce inequality. Addressing inequality requires that a balance be achieved
between many complex countervailing socio-economic forces that inuence
the level of inequality, the rate of economic growth and the impact of poverty
reduction eorts. Although economic growth is necessary, relying on growth
alone to reduce poverty is clearly insucient; serious attention must also be
directed to the many other factors contributing to inequality.
Structural reform, the public sector and inequality
Reducing inequality calls for reform measures to increase the opportunities
and capabilities of the poor and other marginalized groups in order to spur
inclusive growth and development. A healthy, well-educated, adequately em-
ployed and socially protected citizenry contributes to social cohesion. Tus,
the redistributive potential of policies for health, education and social protec-
tion is of major signicance. Improved access by the poor to public services
and assets (especially in the health and education sectors) and income transfer
programmes to sustain the poorest families are essential to changing the struc-
ture of opportunities and are key to reducing the intergenerational transmis-
sion of poverty and inequality. Breaking the intergenerational poverty cycle is
a vital component of an integrated and equitable poverty reduction strategy.
Since the 1980s a number of Governments have undertaken measures
to reduce spending on social services, increase cost eciency, engage in pri-
vatization and target public services towards the poor. Some of the country
members of the Organisation for Economic Cooperation and Development
(OECD), for example, have pursued policies to reduce expenditures on uni-
versal social programmes such as unemployment compensation and old-age
pensions, thereby reducing public transfers to low-income families (Weeks,
2004). In Latin America and the Caribbean, access to public services has been
segmented; instead of beneting the poorest, this move has actually worked
against the objectives of equality (Economic Commission for Latin America
and the Caribbean, 2000b).
Structural adjustment programmes were implemented in the 1980s and
early 1990s with the expectation that economic growth rates for the countries
undergoing structural adjustment would be higher and that once scal imbal-
ances were addressed, the higher growth rates would be sucient to generate
social benets. Actual experience proved otherwise, particularly in areas of
sub-Saharan Africa and in many parts of Latin America and the Caribbean,
with policy makers gradually realizing that pursuing economic stabilization
policies at the expense of social policies produced negative long-term conse-
quences.
Te cumulative result of these structural reforms of the past two decades
has been a rise in inequality in both developed and developing countries.
In recognition of this negative impact, institutions such as the World Bank
have begun to support social development as part of their overall poverty
reduction strategies (see, for example, World Bank, 2004c). Clear evidence
of this shift came in December 1999, when the boards of the World Bank
and the International Monetary Fund (IMF) approved a new approach to
the challenge of reducing poverty in low-income countries that essentially
involved the development of country-owned strategies for tackling poverty,
set out in national Poverty Reduction Strategy Papers (PRSPs). Tellingly,
the name of the IMF country assistance programme was changed from En-
hanced Structural Adjustment Facility (ESAF) to Poverty Reduction and
Growth Facility (PRGF). By April 2005, a total of 45 countries had com-
pleted their rst full PRSPs, and of those countries, 24 had nished pre-
paring their rst annual implementation progress reports; an additional 12
countries had completed their interim PRSPs (World Bank, 2005). Te
proliferation of these initiatives reects the crucial role of social develop-
ment in sustaining progress within the broader context of overall develop-
ment.
Te World Bank has recognized some of the multidimensional aspects of
poverty, including exposure to vulnerability and risk, low levels of education
and health, and powerlessness (World Bank, 2000). To these must be added
the unequal distribution of assets such as land, capital, technology and edu-
cation and unequal access to participation in policy-making. Although the
PRSPs are much in line with the call by the World Summit for Social Devel-
opment to include social development in structural adjustment programmes
(United Nations, 1995), the Papers have yet to fully reect the multifaceted
character of poverty.
National eorts to remedy inequality spurred by structural reforms have
included reshaping social security systems and the roles of key social sectors,
with special emphasis placed on broadening coverage and improving benets
through more ecient management practices. Institutional changes have also
been introduced with the aim of providing better services, improving target-
ing and linking resources to the quality of service.
Likewise, eorts are being made to reinforce the link between social pro-
grammes and the promotion of productive activities such as training. For
example, some countries have shifted the focus of traditional welfare systems
from entitlements to employment and human resources development for the
most vulnerable groups. In addition, a number of Governments have under-
taken social security reforms using targeting as a criteria for the provision of
social services. Tese initiatives, in turn, have brought about changes in the
patterns of resource allocation and intervention, the magnitude of social pro-
grammes and the administration of traditional safety nets (Morales-Gomez,
1999). Finally, the appropriate mix between the public and private sectors in
the provision of public goods and equitable systems of regulation and subsi-
dies is now reected in the policy agenda in many countries.
Universal access to education, health care and social protection
Inequalities in educational access and outcomes, health status, employment
opportunities, social protection, and other dimensions of social welfare are
pervasive and growing in many countries. Education is typically viewed as a
powerful factor in levelling the eld of opportunity, as it provides individu-
als with the capacity to obtain a higher income and standard of living and
enables those living in contaminated environments to overcome major health
threats. By learning to read and write and acquiring technical or professional
skills, people increase their chances of obtaining decent, better-paying jobs.
Furthermore, there is considerable evidence that even in settings in which
sanitation facilities are poor and piped water is unavailable, the children of
educated mothers have much better prospects for survival than do the chil-
dren of uneducated mothers. As these facts indicate, the importance of equal
access to a well-functioning education system, particularly in relation to re-
ducing inequalities, cannot be overemphasized.
Both within and between countries, wide dierences in the quality and
availability of education persist. Disparities in access to education are preva-
lent and tend to be determined by socio-economic and family background.
Because such disparities are typically transmitted from generation to gen-
eration, access to educational and employment opportunities is to a certain
degree inherited, with segments of the population systematically suering
exclusion.
Studies indicate that inequality declines as the average level of educational
attainment increases, with secondary education producing the greatest payo,
especially for women (Cornia and Court, 2001). Recognizing these far-reaching
implications, many countries in Asia and Latin America have assigned priority
in their national agendas to ensuring universal access to and coverage of basic
education, especially for girls, and to expanding secondary education (United
Nations Educational, Scientic and Cultural Organization, 2005). Abolishing
school fees and providing special incentives to encourage the most marginal-
ized groups to attend school are also viewed as powerful tools for promoting
educational equality. In countries in Africa and Latin America, cash and in-
kind subsidies such as free school meals for poor households are being oered
to promote school attendance (United Nations Millennium Project, 2005).
Since improving equality is easier when educational resources are plentiful and
growing, many countries have initiated changes in educational nancing and
resource allocation systems and are expanding the scope of private input (Inter-
national Forum for Social Development, 2004).
Other educational reforms have focused on correcting deciencies linked
to the quality and relevance of what is taught in the classroom. Some of
these reforms involve bringing qualitative changes in line with the evolving
demands of the labour market. New technologies and increased competitive-
ness have placed greater demands on the labour force, making it imperative
that a relevant basic education be universally accessible, and that scholastic
content be adapted to ensure the acquisition of the skills needed in a changing
knowledge-based economy. Knowledge and skills gaps have contributed to
widening income disparities. Virtually without exception, wage dierentials
between skilled and unskilled labour, and particularly between university-
educated workers and the rest of the labour force, have expanded (Ocampo,
2002b). In sum, greater attention must be given to ensuring universal access
to a high-quality, relevant education and opportunities for training and skill
development in order to reduce inequality and foster broader competitiveness
in the labour market.
Health is another key input in the process of equitable development;
health status not only aects the quality of life, but can also determine levels
of opportunity and productivity. Patterns of inequality in health are char-
acterized by the more disadvantaged segments of society being deprived of
health-care services and excluded from the health-care system. Some of the
recent reforms in the health sector have been aimed at ensuring universal
access to primary health care, while others have focused on improving the
quality of care and the eciency with which health systems reach the poor
and disadvantaged. Waiving health-care costs and fees for individuals who
cannot aord to pay and providing direct conditional cash transfers to poor
families to reward household behaviour such as bringing children to health
centres for regular check-ups are some of the innovative, targeted approaches
that have been adopted in a number of developing countries (World Health
Organization, 2003).
Particular emphasis has been placed on improving child and maternal
health outcomes in an eort to reduce the more than 10 million deaths
among children and half a million deaths among mothers that occur annually
(World Health Organization, 2005b). Initiatives often focus on improving
the status of women in the community, encouraging disease prevention and
teaching better parenting techniques. Central to these eorts is an integrated
approach to family health careone that begins with pregnancy and contin-
ues through childbirth and on into childhood. Both mothers and children
benet greatly from access to a continuum of care, in contrast to the frag-
mented and inconsistent care that typically prevails. Addressing child and
maternal health issues is an eective way to alleviate the poverty that is both
a cause and an eect of ill health.
Improved social protection mechanisms, including unemployment com-
pensation, disability insurance, pensions, social security and other forms of
income support, also constitute a fundamental component of strategies for
reducing inequality and poverty. In the absence of adequate social protection,
individuals and families, particularly those from the more vulnerable groups,
are more likely to suer serious hardship during periods of unemployment
and transition. At present, social protection systems and institutions are weak
and seriously underfunded in most countries, with almost 80 per cent of the
worlds population having little or no social protection coverage (Garcia and
Gruat, 2003).
A common characteristic of social security schemes in Latin America is
segmented access, whereby coverage is provided for middle-income urban
employees in the formal economy but rarely for the poor, who are also inad-
equately covered by welfare programmes (Economic Commission for Latin
America and the Caribbean, 2000a). Likewise, some African countries have
subsidy schemes for urban health facilities and universities that favour the
rich at the expense of the poor (United Nations Development Programme,
1999). In developing countries undergoing macroeconomic reform, social
protection has typically been sacriced to meet budget performance condi-
tionalities, as evidenced by reductions in existing programmes or delays in
implementing or expanding new social protection initiatives (United Na-
tions, 2004c).
Even in some developed countries, social protection coverage is far from
universal and benets are generally inadequate. Furthermore, the trend in a
number of high-income countries is towards the eective reduction of wel-
fare and other income-support benets. Other measures are being imple-
mented to privatize certain social insurance schemes such as pensions and
medical plans. Tese reform eorts are spurred, at least in part, by grow-
ing cost pressures arising in connection with population ageing, changing
family structures, increasingly expensive medical care and persistent unem-
ployment. However, the drive to make social security systems more ecient
by adopting a market-oriented approach and by expanding the role of the
private sector in pension and health-care provision has undermined social
solidarity. Of particular concern are the increased inequalities generated by
gender discrimination in private systems owing to the lack of solidarity and
inter-gender transfers to correct for imbalances in pension contribution levels
(Mesa-Lago, 2004). Overall, the eects of these reform measures on people
and the economy are mixed but tend to be more heavily concentrated on the
negative side, eectively reinforcing the notion that the State continues to
play a crucial role in social protection.
Patterns of intervention
Dierent approaches have been tried in eorts to reach beneciary groups
more eciently, with the choice often coming down to a universal versus a
more targeted approach. Universalism involves guaranteeing all members of
society certain fundamental protections and benets that are necessary for
full participation in society. Universalism is closely linked to the principle of
solidarity, and individuals are expected to share in the nancing of services
according to their economic capacity, mainly through taxation. Serious ob-
stacles to the universal application of social benets have included the short-
age of resources, the lack of agreement on priorities and problems of imple-
mentation. Targeting involves funnelling protections and benets to selected
groups of individuals based on real or perceived need or as a means of gaining
political patronage. Given the scarcity of public resources, particularly in de-
veloping countries and during periods of economic adjustment and times of
crisis, targeting is often viewed as the better option, as it is more cost-eective
and increases the likelihood that social services will reach those who need
them most, with minimal slippage to the non-needy. An example of a tar-
geted programme is one in which income transfers are conditional upon chil-
dren remaining in school and receiving essential health-care services; such an
initiative is intended to improve lifelong income-earning capacity and can be
an important part of a more equitable welfare state (World Bank, 2004b).
Many countries have experimented with other patterns of intervention
aside from targeting, including expanding the role of the private sector in the
delivery of social services. Te shift in focus from public to private institutions
has occurred as a result of the conuence of several factors, including pressure
to liberalize the economy, the relative scarcity of public resources and the low
quality of public service provision. In many countries public social services
have been privatized or outsourced to private contractors. In other countries,
the provision of education, health care and other services has remained in the
public domain, but user fees have been introduced. Te transfer of respon-
sibility from the public to the private sector has also been observed in social
protection, often under privatization schemes, in which case social assistance
generally declines and public health programmes are scaled back, resulting in
a weakening of the social protection system.
Dierent combinations of public and private participation have been
developed to facilitate the provision of a wide range of social services and
benets. With a school voucher system, for example, public funding is used
to provide private education to children from poor families (United Nations
Development Programme, 2003). When private participation is a component
of social service provision and the goal is to attain universality and to provide
benets for disadvantaged groups, it is essential to ensure that exclusion does
not occur. Experience has shown that if public-private participation is not
properly designed and monitored, access can be seriously limited, and some
people may be excluded. A stronger regulatory framework is therefore needed
to guarantee access to social services, with legal mechanisms for preventing
or halting practices that exclude or discriminate against certain groups. Even
under the best of circumstances, private sector participation in the adminis-
tration and delivery of social services and benets systems cannot replace the
public provision of these services.
Notwithstanding eorts to engage the private sector, the State and the
public sector continue to bear primary responsibility for the provision of most

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social services, and for ensuring that these services are made available to all,
especially the poorest segments of the population. Te ecacy of the public
system is clearly illustrated in the strong relationship between public sector
health spending and life expectancy, as depicted in gure I.2. Tose coun-
tries that have had the greatest success in increasing life expectancy (notably
Australia, Canada, Iceland, Japan, Spain and Sweden) have maintained high
rates of public health spending, equivalent to between 5 and 8 percent of
gross domestic product (GDP), while private sector health spending has been
much lower. Te relationship between life expectancy and private spend-
ing on health is weak in all countries, with the exception of a few outliers
(Cambodia, Lebanon and the United States of America), where private sector
health spending as a percentage of GDP is particularly high. In contrast, the
relationship between public health spending and life expectancy is strong,
with dierences in the levels of public sector spending on health accounting
for close to 40 per cent of the variation in life expectancy by country. Tis
evidence should be given careful consideration, especially in an era in which
developing country Governments are under substantial pressure to reduce
public sector spending for social services in favour of private spending.
A proper balance between public and private sector involvement in the
delivery of social services should be sought to ensure that the principles of
universality, solidarity and social inclusion are preserved. In order to promote
greater equality, the public management of services should be characterized
by high levels of eciency and transparency. Non-governmental organiza-
tions (NGOs) often play an important role in facilitating the achievement of
these and other relevant standards, as they help ll the gaps in the provision
of public services and also constitute a strong force in promoting community
concerns, especially for poor people.
Conclusion
Te key to reducing poverty in a sustainable manner, particularly with an eye
to promoting social justice, is to focus on building a fairer and more equitable
society. Economic growth alone is not a panacea, as the level of inequality
can be a determining factor in the impact growth has on poverty reduction.
Overcoming inequalities requires an investment in people, with priority giv-
en to enhancing educational attainment, skill development, health care and
overall well-being, and to expanding and improving opportunities for quality
employment. Equal attention must be given to the socio-political dimensions
of poverty, and a serious commitment is needed to ensure that discrimination
is eliminated and its consequences are addressed, that the equal protection of
human rights is guaranteed, and that a better balance is achieved in the distri-
bution of political power and the level of representation among all stakehold-
ers. Accordingly, people need to be empowered to voice their concerns and
participate more actively in decision-making processes.
Te role of the State in reducing inequality remains critical, notwithstand-
ing reform eorts aimed at turning over responsibility for social programmes
to the private sector. Ensuring equal access for all to public servicesparticu-
larly education and health care, which are aimed at expanding opportunities
and capabilitiesis fundamental to reducing the intergenerational transmis-
sion of poverty and inequality. Tus, the principles of universality, solidarity
and social inclusion should continue to guide the delivery of social services.
Te World Summit for Social Development established a common
foundation for social policy reform processes that has guided eorts to ad-
dress the inequality trends that deepened with the implementation of the
structural adjustment programmes in the 1980s and 1990s. Te Copenhagen
Declaration emphasizes the need to attain universal and equitable access to
education and primary health care. While focusing on these important fac-
tors and principles in redressing inequality, it is essential not to lose sight of
the general values governing equality of access, the importance of culture and
tolerance, the people-centred approach to development, and the full develop-
ment of human resources.
Te principles of equality should be at the centre of social and economic
policy-making to ensure that economic growth is conducive to social de-
velopment, stability, fair competition and ethical conduct (United Nations,
1995, chap. I, para. 12b). In view of the prevailing world social situation,
characterized as it is by rampant inequality, it is essential that policy makers
heed the challenges posed by the inequality predicament. As the present anal-
ysis indicates thus far, and as the ensuing chapters make abundantly clear,
doing otherwise would be highly counterproductive.
Notes
1 See the annex containing the 10 commitments of the World Summit for Social De-
velopment.
29
Chapter II
A spotlight on inequality: the informal economy
An examination of the informal economy, contrasted with the formal econ-
omy, highlights the importance of focusing on inequality in the pursuit of
more equitable and just social development. Tose who are part of the formal
economy generally fall among the haves in society, as they are more likely
to earn decent wages, receive job-related benets, have secure employment
contracts and be covered by relevant laws and regulations. In contrast, those
in the informal economy are typically among the have nots; they are often
excluded from various legal protections and are prevented from accessing
basic benets or enjoying the fundamental rights aorded those in the formal
economy. Given that most poor people work informally, the presence, and
indeed the recent expansion, of the informal economy in many countries has
major implications for reducing poverty and inequality.
Being in the formal economy implies both rights (protections) and re-
sponsibilities, whereas in the informal economy there is little of either, and
the resulting imbalance contributes to inequality. On the side of rights and
protections, those in the informal economy are generally not covered by
national labour laws, including safety and health regulations, and are not
eligible for social security benets, pensions or other forms of social protec-
tion. In addition, informal workers and employers are usually deprived of
the right to organize and bargain collectively.
On the side of responsibilities, workers and employers in the informal
economy generally do not pay income or payroll taxes on earnings, or costs
such as licence fees, since their activities are unregulated and undocumented.
With the tax burden thus unevenly distributed, another form of inequality
is perpetuated. Workers and employers in the formal economy are left to
shoulder the lions share of the tax bill, while those in the informal economy
are largely exempt from this responsibility. Tose in the informal economy
who are capable of paying, but do not do so, enjoy a competitive advantage
over those in the formal economy. Tese uncollected tax revenues are likely
to translate into a lower quality and quantity of public services for the poor
and vulnerable in society, further perpetuating the cycle of inequality.
An objective comparison of the formal and informal economies reveals
myriad inequalities, ranging from wage, benet and gender disparities to size-
able imbalances in the tax burden. Tese glaring dierentials aside, greater
focus on the informal economy is warranted simply because it accounts for
a signicant share, and in some settings even a majority, of total economic
activity in a number of developing countries. Arguably, if adequate attention
is not given to the informal economy, little can be done to remedy the condi-
tions created by inequality and injustice throughout the world.
A brief overview of the informal economy
A precise denition of the term informal economy is elusive, though there
have been numerous attempts over the years to arrive at a working denition.
Without a common denition, however, it is important to bear in mind that
measurements will vary according to the way the term is dened. Essentially,
the informal economy can be described in terms of those who work in it
(employment status), or in terms of the activities that take place in it (type of
economic activity).
1
Dierent measurements result from assessments based on these two dif-
ferent approaches. Te size of the informal economy is measured in terms of
employment; using the broader approach to identify the types of economic
activity, it is measured as a share of GDP. Both methods of assessment in-
dicate that the informal economy has increased rapidly in recent decades in
both developing and industrialized countries, and that it contributes signi-
cantly to the overall economy in most countries. Table II.1 highlights the
rapid expansion of the informal economy in selected countries. Because the
data are based on national denitions, they are comparable only within indi-
vidual countries over time.
Informal employment accounts for between one half and three quarters
of non-agricultural employment in the majority of developing countries. Te
share of informal workers in the non-agricultural labour force ranges from 48
per cent in North Africa and 51 per cent in Latin America and the Caribbean
to 65 per cent in Asia and 78 per cent in sub-Saharan Africa
2
(International
Labour Organization, 2002b).
Sectors other than agriculture tend to be the primary employers of in-
formal workers, in part owing to migration from rural to urban areas, which
produces a large pool of workers lacking the skills necessary for employment
in the formal economy. Tose with limited skills are the most vulnerable in
the informal economy as they are more likely to work under inhumane condi-
tions and accept low wages. Although a large proportion of those working in
the informal economy are fully employed, it is a source of work for many in
the labour force who are underemployed in the formal economy or have been
unable to secure and retain jobs there. Tough the formal and informal econ-
omies may overlap in some areas, deep divisions remain, further segmenting
society, increasing social tensions and deterring the poor from participating
in the development process (Economic Commission for Latin America and
the Caribbean, 2005b). Informal trade, mainly street trade, comprises 30 to
50 per cent of urban informal employment (Charmes, 1998).
Workers in the informal economy constitute an eclectic group that in-
cludes street vendors, rickshaw pullers, home-based garment workers and
casual day labourers. Employment status varies; in the informal economy
there are non-wage workers (independent workers), including employers who
are owners of informal enterprises and self-employed workers, as well as wage
workers (dependent workers), including domestic workers, homeworkers and
A spotlight on inequality: the informal economy 31
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employees of informal enterprises. Outside of agriculture, self-employment
accounts for 60 to 70 per cent of informal work in developing countries, while
wage-based employment accounts for only 30 to 40 per cent (International
Labour Organization, 2002b). What binds the members of this heterogene-
ous group of workers together is the lack of secure employment contracts,
work-related benets, social protection and a voice (representation).
According to estimates based on data from the International Labour Or-
ganization (ILO), in 2003 a total of 1.39 billion people, or 49.7 per cent of
the worlds workers, were unable to lift themselves and their families above
the poverty threshold of US$ 2 per day. Even more striking, nearly one in
four workers in the developing world (23.3 per cent) were living on less than
US$ 1 per day (International Labour Organization, 2005c). Te majority of
workers with very low incomes are likely to be found in the informal econo-
my, where average wages are lower. Not all workers in the informal economy
are among the working poor; nonetheless, an estimate of the working poor
can be viewed as an approximation of those working in the informal econo-
my whose earnings are very low (International Labour Organization, 2005c).
It also stands to reason that because workers in the informal economy lack
rights, protections and representation, they are more likely to remain trapped
in poverty.
In addition to earning lower average wages, informal workers are seldom
provided with social security coverage or other forms of social protection by
either their employers or the Government. Te lack of social protectionen-
compassing opportunities, resources and services such as health care, pensions,
education, skill development, training and childcarecontributes further to
the social exclusion of these workers. Part of the diculty in extending so-
cial security coverage to informal workers stems from the limitations inherent
in raising revenues and collecting contributions from workers with minimal
earnings; the general absence of a direct employer-employee relationship is
another factor. Eorts to extend social security protection to informal workers
are growing, however; in India, for example, there is an initiative to tax the
aggregate output of designated industries in order to nance benets for all
workers in those industries (Chen, Jhabvala and Lund, 2002).
It is important to note that although wages and benets are generally
lower in the informal economy than in the formal economy, signicant vari-
ations exist even within the informal economy. Wages tend to decline in
the informal economy across the spectrum of employment activity; employ-
ers earn the most, with remuneration gradually falling for self-employed
and casual wage workers and continuing to decline for subcontract work-
ers. Women tend to fall into the last three categories, and are over-repre-
sented among subcontract workers and under-represented among employers
(Women in Informal Employment: Globalizing and Organizing, 2004c).
Add to that the fact that more women than men tend to work informally,
and the level of economic inequality between men and women becomes
even more apparent.
Overall, about 60 per cent of women working outside of agriculture in
developing countries are informally employed (International Labour Organi-
zation, 2002b). Home-based work and street vending are common among
women in informal employment. Myriad problems confront homeworkers,
among them long hours with low pay and poor working conditions; exclu-
sion from national labour laws; work instability; the lack of the right to or-
ganize and bargain collectively; and the absence of work-related benets such
as pensions, insurance, safety and health protection, and paid leave. An out-
growth of these conditions is that children are often required to work to sup-
plement the familys income (Women in Informal Employment: Globalizing
and Organizing, 2004b).
Few women employ others, and few men are industrial outworkers or
homeworkers. Dierences are also pronounced within the same industry. For
example, men traders generally have larger operations and deal in non-per-
ishable goods, whereas women traders usually have smaller operations and
deal in food items (Chen, Jhabvala and Lund, 2002). As this suggests, the
link between working in the informal economy and being poor is stronger
for women than for men, which can be associated with the growing trend
towards the feminization of poverty. Exacerbating the situation is the fact
that women are frequently not given the legal right to own or hold land, and
even where this right is recognized, there is a sizeable gap between legal rec-
ognition and their eective access to land (United Nations Research Institute
for Social Development, 2005). All of these factors contribute to the higher
rates of unemployment, underemployment and low-wage informal employ-
ment among women.
Informal economic activities exist along a continuum, ranging from sur-
vival-driven work to stable, resilient enterprises, to dynamic, ecient and
growing businesses. Te informal economy accounts for a signicant share
of GDP and gross national income (GNI) in almost all countries, particu-
larly those in the developing world. According to a study of the informal
economy in 110 countries, its average size as a share of ocial GNI in 2000
ranged from 18 per cent in OECD countries to 38 per cent in transition
countries and 41 per cent in developing countries. Among specic regions,
the informal economy accounted for an average of 42 per cent of GNP in
Africa, 26 per cent in Asia and 41 per cent in Latin America in 1999/2000
(Schneider, 2002).
Te same study indicates that the informal economy has been grow-
ing in those OECD countries included in the analysis; their collective share
increased from 13 to 17 per cent of GDP between 1989/90 and 1999/2000
(using unweighted averages), with signs of a slowdown in growth during the
second half of this period. In developed market economies, informal em-
ployment is characterized as non-standard work, and includes part-time and
temporary work, self-employment and various forms of casual day labour or
contract work, all of which typically oer limited work-related benets and
social protection.
A subsequent study released in 2002 estimated the contribution of infor-
mal enterprises to GDP in 26 developing countries. Te preliminary results of
the study showed a fairly wide range at the regional level, with averages of 27
per cent for North Africa, 29 per cent for Latin America, 31 per cent for Asia
and 41 per cent for sub-Saharan Africa. Among the countries represented in
the study, Mexico reported the lowest relative share (13 per cent) and Ghana
the highest (58 per cent). Te disparities are at least partially attributable to
the dierences in methods used by countries in preparing estimates on the
informal economy (International Labour Organization, 2002b).
The attraction of the informal economy
With all of its disadvantages, why does the informal economy comprise such
a signicant and growing portion of the total economy, particularly in de-
veloping countries? One essential reason is the lack of other options. As the
economically active population increases, the formal economy is unable to
absorb all those seeking work, especially in the developing world. Many turn
to the informal economy because they cannot nd jobs or are unable to start
businesses in the formal economy. For a large proportion of the working-age
population, particularly in developing countries, participation in the infor-
mal economy is not a choice but a means of survival. For those compelled to
engage in survival activities, the informal economy oers ease of entry. Par-
ticipants can avail themselves of local resources, operations are usually run on
a small scale and are therefore more manageable, and minimal capital invest-
ment is required. Moreover, education, skill and technology requirements are
generally nominal, enabling poorly educated and untrained workers to gain a
foothold in the workforce.
It is important to recognize that not all individuals involved in the in-
formal economy are there because they have no other choice. For those who
have built their own businesses, the informal economy is attractive because it
oers the possibility of wealth accumulation without taxation and regulation.
For others, the informal economy is appealing because it oers considerable
exibility, including part-time and temporary opportunities (Chen, Jhabvala
and Lund, 2002). Furthermore, the informal economy helps many people
cultivate their entrepreneurial spirit and acts as a breeding ground for devel-
oping business acumen, innovation and important job-related skills.
In developed countries in particular, an attraction of the informal econ-
omy is that it enables enterprises to avoid paying income taxes, social security
taxes and other wage-related taxes. Employers also save money by circum-
venting health, safety and environmental regulations and by disregarding in-
tellectual property rights. A cross-country comparison among OECD coun-
tries showed that the more expensive and more complicated the taxes and
regulations of a country were, the larger the informal economy was as a share
of GDP (Te Economist, 2004).
Overall, these ndings lead to the following conclusions: (a) the informal
economy tends to be larger in areas in which the burdens of tax and social
security contributions are comparatively heavy; the same is true in settings
with relatively high levels of State regulatory activity; and (b) as the dierence
between the total cost of labour and after-tax wages increases, so does the
incentive to work in the informal economy (Schneider, 2002).
In some cases, however, informal entrepreneurs are required to pay taxes,
and even nd themselves at a competitive disadvantage with larger, formal
operators. For example, when corporate taxes are lowered to assist businesses,
larger corporations in the formal economy are able to benet from the tax
cuts, whereas informal entrepreneurs are not. In some areas, city councils
send out tax collectors to ensure that daily market fees are paid by street
vendors, whether or not they are registered with the local authority. Indirect
taxes from city councils can also come in the form of nes and bribes, so it
can be in the interest of the city government to keep informal enterprises
informal (Chen, Jhabvala and Lund, 2002).
Aside from the competitive advantages and disadvantages associated with
tax collection in the informal economy, there is the impact on State revenues
to consider. As the share of the informal economy in the total economy in-
creases, State tax revenues inevitably decline, leading to a deterioration in
the quantity and quality of public goods and services. To compensate for the
slump in tax receipts, Governments can either raise tax rates in the formal
economy, running the risk of encouraging more enterprises to move into
the informal economy, or scale back public services. Under either scenario,
imbalances are created and the level of inequality increases, aecting the vul-
nerable and disadvantaged most severely in the long run.
In a kind of ironic twist, labour law has also played a key role in increas-
ing the attraction of the informal economy for many. Te essential logic or
purpose behind labour law is to moderate the inherent disequilibrium be-
tween labour and capital, balancing interests in such a way as to provide se-
curity for working families while at the same time not stiing entrepreneurial
dynamism (Trebilcock, 2004). Te trouble is that labour law has not kept
pace with changes in the labour market or responded eectively to globaliza-
tion, and legal and administrative requirements have raised the threshold of
entry into the formal economy, placing it beyond the reach of many people
(International Labour Organization, 2003). Employers or entrepreneurs who
face too many legal obstacles to hiring or starting a business in the formal
economy turn instead to the informal economy. Reforming labour laws to
make them more responsive to changing conditions can help slow the ris-
ing trend towards informal employment, and in so doing re-establish greater
equilibrium between labour and capital.
Reasons for the growth of the informal economy
For many years, development experts held the belief that an emphasis on eco-
nomic growth would promote overall development, including a natural de-
cline in the informal economy, and ultimately lead to a reduction in poverty.
Over the past several decades, however, developing countries have witnessed
the rapid expansion of the informal economy, rather than the synchronous
decline that had been expected to accompany economic growth and indus-
trial development. Exploring the reasons for this increase provides insight
into the impact that economic growth, competitiveness and liberalization
policies can have on inequality.
As touched upon previously, the informal economy has a strong and
growing appeal despite its inherent disadvantages. While the reasons for its
expansion in recent years are manifold, the three principal factors explaining
the increase in most countries are patterns of economic growth, economic
restructuring and economic crisis, and the restructuring of production chains
in response to global competition (Carr and Chen, 2002).
Patterns of economic growth. Some countries have registered little or no
economic growth, while others have experienced jobless growth, or capital-
intensive growth. When not enough jobs are being generated for all those
seeking work in the formal economy, some will be compelled to secure em-
ployment in the informal economy. Often the labour market is aected by
changes in skill requirements. With the relatively rapid growth in the high-
technology sector, for example, more high-skilled than low-skilled jobs have
been created in many economies, and those who have not acquired the skills
needed to compete in the evolving labour market may nd that their only
option is the informal economy.
A more positive aspect of the growth patterns contributing to the expan-
sion of the informal economy has been the proliferation of small and micro
businesses. Tese enterprises, which frequently operate in the informal econ-
omy, are in many cases more dynamic than their larger, formal counterparts,
making them the engines of growth and job creation in some industries,
regions and countries.
Economic restructuring and economic crisis. Evidence indicates that the
informal economy expands during periods of economic adjustment or transi-
tion, as experienced by the countries of the former Union of Soviet Socialist
Republics; and during economic crises, as experienced in Latin America and
South-East Asia in the 1990s. During periods of economic adjustment, re-
trenched workers move into the informal economy in order to survive. With
the downsizing of the public sector and the closure of public enterprises,
particularly in connection with structural adjustment programmes, laid-o
workers have few alternatives available. As social protection programmes such
as unemployment insurance and pensions are inadequate or even non-exist-
ent in many countries, workers cannot aord to remain openly unemployed.
Many turn to the informal economy as a way to support themselves and their
families; in eect, it becomes a kind of safety net. People also gravitate to
the informal economy when they need to supplement the family income in
response to ination or cutbacks in public services (International Labour Or-
ganization, 2002b). Even with the onset of macroeconomic stabilization and
economic growth following the period of economic adjustment, the infor-
mal economy tends to remain, or even continues to grow, especially if there
are no appropriate institutions or policies in place to counter its expansion
(Johnson, Kaufmann and Schleier, 1997).
Te restructuring of production chains in response to global competition.
Te fundamental changes made to enhance global competitiveness have also
played a major role in the expansion of the informal economy. Global trade
and investment patterns tend to favour capital, especially large transnational
corporations that can readily move capital and goods across borders, and to
constitute a disadvantage for labour, especially low-skilled workers who may
nd it dicult or impossible to migrate. While the liberalization of trade
and capital has been encouraged, little has been done to facilitate the free
ow of labour across national boundaries. In fact, many countries are trying
to tighten their borders and limit the inux of migrant workers. As a result
of these developments, the widening of skill-based income dierentials has
become a worldwide phenomenon (Ocampo, 2002b).
In an eort to increase their global competitiveness, investors are shifting
production to countries with lower labour costs and increasing their reliance on
more informal employment arrangements, including exible specialization.
Flexible arrangements usually involve an erosion of employment standards,
as workers are neither aorded minimum wage rates nor given assurances of
continued work, and rarely receive benets. In many cases, such arrangements
amount to no more than piece-rate or casual work. Te drive to cut costs has
led to the radical restructuring of production and distribution in many key
industries in favour of outsourcing or subcontracting through global com-
modity chains. Tese chains begin with large companies, which in some cases
focus only on the design and marketing of their products and subcontract
all manufacturing and production responsibilities to suppliers in low-wage
countries. In turn, these suppliers contract with small, informal production
units, which further contract out work orders to isolated, informal workers.
Tese workers at the end of the chain are typically paid very low wages, and
many, such as industrial homeworkers, have to absorb the non-wage costs of
production. Te employment situation is so precarious in many areas that
large number of informal workers, particularly the poor and vulnerable, are
compelled to accept any terms oered. In segments of the garment industry,
for example, companies will not provide workers with secure employment
contracts, giving them only the option of working as home-based subcontrac-
tors (Chen, Jhabvala and Lund, 2002). Under these circumstances, it is not
only that rms in the formal economy are unable to absorb labour; they are
also unwilling to do so.
Globalization also favours large companies that can capture new markets
quickly and easily over small and micro enterprises that have diculty gain-
ing an understanding of and access to emerging markets. Self-employment
also becomes more precarious because individual producers and traders are
apt to lose their market niche. With globalization, low-skill workers and petty
producers lose much of their bargaining power and face increased competi-
tion, putting them at a further disadvantage.
Globalization does present opportunities as well as threats; however,
many in the informal economy nd it dicult to avail themselves of the
opportunities because they are cut o from the benets typically enjoyed by
participants in the mainstream formal economy, including access to loans
and information about prices, the quality and sources of goods, and potential
markets and customers (Chen, Jhabvala and Lund, 2002). Te self-employed
(and women in general) often lack access to credit, training, technologies
and market information. Tese individuals also face competition from those
dealing with imported products in the domestic market or from larger for-
mal units (in export markets), and sometimes have to move into other, less
protable areas of the informal economy, perhaps engaging in petty trading
or piecework either at home or in a factory with low wages and under poor
working conditions (Carr and Chen, 2002).
Further compounding the diculties, the sustained expansion of the in-
formal economy eventually results in overcrowding, generating greater inter-
nal competition. Added competition exerts downward pressure on earnings
within this segment of the economy, making it even more dicult for people
to earn a living, regardless of how much they work or how many family mem-
bers are brought in to help out.
Linkages between the formal and informal economies
Tough the formal and informal economies move along separate tracks, they
are nonetheless interrelated and characterized by numerous intricate linkages.
What has gradually emerged is a continuum of production and employment re-
lations, with the formal and informal economies becoming more interdepend-
ent than distinct. Te question is whether the linkages are benign, exploitative
or mutually advantageous (Carr and Chen, 2002). Once this relationship is
better dened, the challenge turns to enhancing the positive linkages in order
to ensure the promotion of decent work in both economies.
Te experience of a number of key export industries (producers of gar-
ments, leather goods, textiles, sports shoes, carpets and electronics) can be
used to illustrate the linkages between the formal and informal economies.
A high percentage of the labour force in these industries are employed under
informal arrangements, with many working in export processing zones, in
sweatshops or out of their homes. What links them to the formal economy
is a global commodity chain, a network that connects the various labour,
production and distribution processes contributing to the manufacture and
placement of a single commodity or product. Tere are two main types of
global value chains that represent the full range of activities required to take a
product from conception to end-use and beyond. With buyer-driven chains,
such as those found in the footwear and garment sectors, retailers govern pro-
duction. With producer-driven chains, which characterize the automobile and
electronics sectors, large manufacturers govern the process. Every link in the
chain, from the production of inputs to the sale of nal products, is con-
trolled by powerful buyers or producers. Tose at the bottom of the chain,
namely home-based workers in the informal economy, typically benet least
from these arrangements (Women in Informal Employment: Globalizing and
Organizing, 2004a).
A shift has occurred in global production and distribution with the more
widespread adoption of the just-in-time inventory management and control
system, or lean retailing, which is characterized by the absence of a large
amount of stock on hand or on order. In the garment industry, for example,
the supply turnaround time is short, and a competitive order-to-delivery lead
time can only be maintained if the subcontractors furnishing the goods are
located relatively close to the main markets in Europe and North America. In
response to such market demands, there has been an increase in home-based
work in countries in close proximity to these markets, precipitating a decline
in the large-scale garment industry in Asia. As the industry becomes more dis-
persed and volatile, homeworkers are less likely to receive the pay due them
or to be notied when their contracts end, deepening their experience of eco-
nomic inequality. Te cumulative result of these trends is that the informal
economy, despite being considered incompatible with economic growth and
industrialization, has expanded considerably in both developed and develop-
ing countries (Carr and Chen, 2002).
As mentioned previously, the rising competitive pressures accompanying
globalization have compelled companies and employers to seek more exible
work arrangements in order to cut costs. Consequently, reliance on subcon-
tracting has increased, with home-based work constituting an especially at-
tractive option. Te proliferation of information technology, including the
Internet, has also facilitated the movement towards home-based work, as
larger numbers of clerical, technical and professional workers are able to work
at home rather than at a job site. Tis shift allows employers to save on rent,
utilities and other costs associated with maintaining a workplace.
Home-based self-employment has also grown, largely in response to the
contraction of the formal economy, as many people have had no choice but
to explore informal work options on their own. While some may nd it ad-
vantageous to work at home, there are some notable disadvantages for the
home-based self-employed; in particular, these individuals often remain out-
side the information loop and lack access to nancial markets and the capacity
to compete in product markets.
Some of the more common home-based work activities include rolling
cigarettes; stitching garments; providing laundry or childcare services; assem-
bling electrical plugs or electronic components; entering, processing or ana-
lysing data; and providing professional or technical services to individuals or
businesses (International Labour Organization, 2002b). Not included in this
category are those engaged in unpaid housework or paid domestic work. Wages
and working conditions can vary dramatically among home-based workers, de-
pending on the type of activity performed and the characteristics of the infor-
mal economy in a particular country.
Generally, the lowest-paid and most economically disadvantaged home-
based workers are industrial homeworkers, who engage in activities such as
garment production for businesses, typically on a piece-rate basis. Teir num-
bers are signicant and growing; industrial homeworkers currently comprise
30 to 60 per cent of the workforce in the garment, textile and footwear indus-
tries (Chen, Sebstad and OConnell, 1999). A stumbling block to improving
the wages and working conditions of industrial homeworkers is the diculty
in determining whether the employer is the intermediary that directly places
the work order, the supplier that contracts with the intermediary, the manu-
facturer that obtains goods from the supplier or the retailer that sells the
nished product. Without a clear indication of who the employer is, it is also
unclear who should be responsible for protecting the rights and benets of
these workers.
Linkages between the formal and informal economies can also aect pro-
ductivity growth. As competitive pressures in the formal economy intensify,
more rms have an incentive to move into the informal or grey economy.
Grey rms tend to be small, which helps them stay under the radar of tax
authorities, and they prefer to stay that way to continue avoiding taxation.
Remaining in the informal economy comes at a price, however, as these inten-
tionally small enterprises tend to be less ecient, which serves to undermine
productivity growth and ultimately the overall economic growth of the coun-
try. Nevertheless, labour-intensive industries such as retailing are inclined to
stay fragmented and inecient because the informal operators perceive that
any productivity benets deriving from an increase in scale would be oset by
the increased tax obligations in the formal economy. A recent study suggests
that broadening the tax base, cutting tax rates and improving enforcement
might bring more businesses into the formal economy, indirectly raising pro-
ductivity rates (Farrell, 2004).
It has been argued that employment creation can actually hinder produc-
tivity growth. If the jobs created are not decent and productive and do not
provide a sucient income, they will not have a favourable impact on the
demand side of the economy (International Labour Organization, 2005c).
In order for economic growth to be sustainable in a country, there has to be
a domestic market for the goods and services produced. If not enough peo-
ple in the country have sucient earnings to buy the domestically produced
goods and services, economic growth is bound to stagnate. Tis supports
the argument that decent work and productivity growth have to accompany
GDP growth; under these conditions, economic growth can lead to poverty
reduction.
Conclusion
For most workers and many employers in the informal economy, the nega-
tive aspects of participationnot being recognized, registered, regulated or
protected under labour laws or covered under social protection schemesfar
outweigh any perceived advantages. What the ILO refers to as decent work
decits are more pronounced in the informal economy than elsewhere.
Working in the informal economy often implies unsafe and unhealthy work-
ing conditions, long working hours with insucient and unsteady compen-
sation, low skill and productivity levels, and a general lack of access to in-
formation, markets, nance, training and technology (International Labour
Organization, 2002a).
Another important factor perpetuating inequality is that those in the
informal economy often do not have secure property rights, which restricts
or blocks their access to capital and credit, thereby limiting their ability to
expand and grow their businesses. Informal workers and employers also tend
to have diculty gaining access to the judicial system to enforce contracts,
leaving them without any means of seeking redress and thus more vulnerable
to harassment, exploitation, abuse, corruption and bribery. A coherent legal
and judicial framework is needed to ensure that property rights are secured
and respected so that assets can be turned into productive capital.
While eorts should be made to address the negative aspects of informal
work, or to reduce the decent work decits, it is important not to destroy
the capacity of the informal economy to provide a livelihood or to develop
entrepreneurial potential. Rather than regarding all informal work as nega-
tive, it is useful to view it as existing somewhere along the continuum of
decent work. At one end of the continuum are unprotected, unregulated
survivalist jobs, and at the other end are decent, protected and regulated
jobs. Te goal, ultimately, is to enhance the linkages between the informal
and the formal economies, and to ensure that there is decent work all along
the continuumwhere workers have rights, protection and a voiceand
not necessarily focus on formalizing the informal. Ideally, there should be
movement upward along the continuum so that there is not only job growth
but improvements in the quality of jobs as well (Trebilcock, 2004). Eorts
to reduce the decent work decits in the informal economy and ensure that
people are both empowered and protected will simultaneously contribute to
poverty reduction.
Traditionally, it has been dicult for workers and employers in the in-
formal economy to secure membership in, and therefore enjoy the services of,
larger employer and worker organizations, leaving them with little hope that
their rights at work will be acknowledged or respected. Women and youth,
who make up the majority of workers in the informal economy, are particu-
larly vulnerable, as they tend to have no voice or representation; the same is
true for home-based workers, whose isolation from other workers means that
they typically have little bargaining power relative to their employers or other
workers. Tere are signs of progress, however. Some important players in an
expanding international movement to support those working in the informal
economy include the following: Women in Informal Employment: Globaliz-
ing and Organizing (Women in Informal Employment: Globalizing and Or-
ganizing, 2004c), a global research and policy analysis network of women in
the informal economy; StreetNet, an international alliance of street vendors;
and HomeNet, a worldwide alliance of home-based workers. Te emergence
of these and similar groups is a positive step towards providing excluded and
often exploited workers with representation and a voice.
Te report of the World Commission on the Social Dimension of Glo-
balization stresses the importance of advancing the huge informal economy
along the decent work continuum, emphasizing that this is an essential part of
the overriding eort to achieve a more inclusive globalization. It is suggested
that this might be accomplished by ensuring that workers rights, including
property rights, are clearly established and consistently respected, and by in-
creasing productivity and access to markets for informal producers (Interna-
tional Labour Organization, 2004). Enormous strides can be made in resolv-
ing the inequality predicament if steps are taken to ensure that the informal
economy becomes an integral part of an expanding, dynamic economy that
provides decent jobs, incomes and protection, as well as fair and competitive
trade opportunities within the international system.
Notes
1 For various denitions of the informal economy, see the following: International La-
bour Organization (ILO), Report of the International Conference of Labour Statisti-
cians (Geneva, 1993); ILO, Conclusions concerning decent work and the informal
economy, adopted by the International Labour Conference at its ninetieth session,
Geneva, 3-20 June 2002 (see the ILC Provisional Record, No. 25, para. 3); and Frie-
drich Schneider, Size and measurement of the informal economy in 110 countries
around the world, World Bank Working Paper (Washington, D.C., July 2002), p. 3,
referring to denitions used by Feige (1989, 1994), Schneider (1994), and Frey and
Pommerehne (1984).
2 Excluding South Africa.
43
Chapter III
Trends and patterns of inequality
Te issue of global economic inequality and the underlying economic forces
contributing to its evolution constitute one of the most controversial aspects
of economic discourse in recent years. Until recently, economic indicators
dominated much of the discussion about global inequality, reecting the pri-
ority given to policies promoting economic growth as a panacea for develop-
ment ills. Now, however, greater attention is being paid to the non-economic
indicators of inequality. Similar to the shift that has taken place in the debate
on poverty, the debate on inequality has come to reect a broader conceptu-
alization of the subject in which the focus is not exclusively on measurable
economic indicators.
As non-economic aspects of inequality become more widely recognized,
the distinctions that will inevitably be drawn between economic and non-
economic inequality may create a false dichotomy between phenomena that
are intricately related. Inequality is complex and multidimensional and is
manifested in various forms at the community, national and global levels.
Individuals, groups and countries that lack opportunities at one level gener-
ally lack opportunities at other levels as well. For example, in societies with
high levels of income inequality, those who control the resources also tend
to control the political system, and those without access to either are ne-
glected. Likewise, the global marketplace operates to the advantage of richer
countries; poor countries are less likely to benet from globalization and are
more vulnerable to its risks and failures (Birdsall, 2002).
Tis interdependence is one aspect of a complex structural relationship
between economic and non-economic inequalities both within and between
countries; the many, varied linkages are impossible to isolate, complicating
eorts to develop solutions. A key feature of the structural relationship be-
tween economic and non-economic inequality is that both are often charac-
terized by inequality under the law and inequality of opportunities and con-
ditionsissues highlighted at the World Summit for Social Development.
Te present chapter describes the magnitude and summarizes the trends
and patterns of selected aspects of economic and non-economic inequality at
the national and global levels. It begins with a review of trends in economic
inequality, measured in terms of income distribution, monetary poverty,
and employment. Te chapter then summarizes the various trends associ-
ated with selected non-economic aspects of inequality, including health,
mortality, malnutrition and education.
It is important to note at the outset that while considerable evidence
exists with regard to trends in inequality at both the national and interna-
tional levels, data remain incomplete. Tis is particularly true for developing
countries and applies to both economic and non-economic indicators of in-
equality. Any interpretation of the levels and trends presented in the sections
below (especially short-term trends) should take these data limitations into
account.
Economic aspects of inequality
Income inequality between countries
Recent analyses of global inequality patterns suggest that income and con-
sumption inequality between countries has been relatively stable during the
past 50 years (Berry and Serieux, 2002). However, in general terms, meas-
urements of economic growth indicate that there has been an expansion in
world income since the 1980s. Tis overall trend has primarily been driven
by the sustained and rapid growth of the economy in China and the continu-
ous, though more moderate, economic growth in India; both countries have
played a crucial role in the expansion of the world economy in the past two
decades. While these and some of the other economies in Asia have grown
fairly rapidly, North America and Western Europe have registered only mod-
erate levels of economic growth. Following a slowdown in the 1980s and a
recession in the early 1990s, the economy in Eastern Europe resumed growth
during the mid-1990s. Most countries in Central and South America and
the Middle East experienced negative economic growth during the 1980s,
and growth rates in sub-Saharan Africa remained negative during most of the
1980s and 1990s (Berry and Serieux, 2002).
Although the issue remains subject to considerable debate, there has
probably been a moderate improvement in the overall world distribution of
income during the past two decades (Berry and Serieux, 2004; Sala-i-Martin,
2002). Upon further analysis, however, the picture that emerges is not quite
so positive. First, most of the improvement in the distribution of world in-
come can be explained by the rapid economic growth in China and, to a less-
er extent, India (see gure III.1), with a good part of the shift reecting the
gains of the poorer segments of society at the expense of the middle-income
groups in these two countries. Second, the share of the richest 10 per cent
of the worlds population has increased from 51.6 to 53.4 per cent of total
world income (Bourguignon and Morrison, 2002). Tird, when China and
India are not factored into the analysis, available data show a rise in income
inequality owing to the combined eect of higher income disparities within
countries and the adverse distributive eect of faster population growth in
poorer countries. Fourth, the income gap between the richest and poorest
countries has widened in recent decades, as shown in gure III.2 (Berry and
Serieux, 2002).
Table III.1 shows inequalities in the distribution of income among world
regions, presenting the per capita income in each region as a percentage of per
Trends and patterns of inequality 45

Figure III.2. Per capita gross domestic product in the poorest and richest countries,
1960-1962 and 2000-2002 (in constant 1995 US$, simple average)
Source: A. Berry and J. Serieux, Riding the elephants: the evolution of world economic growth and income
distribution on the end of the 20th century (unpublished paper).

Source: World Commission on the Social Dimension of Globalization, A Fair Globalization: Creating
Opportunities for All (Geneva, International Labour Organization, February 2004).
Figure III.1. Evolution of income inequality among countries
(Gini coecient values)
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capita income in the rich OECD countries as a group, as well as the changes
in these ratios over the past two decades. A review of the gures indicates
that per capita income in all developing regions except South Asia and East
Asia and the Pacic has declined relative to that in the high-income OECD
countries.
Per capita income levels in sub-Saharan Africa, the Middle East and
North Africa, and Latin America and the Caribbean have been steadily declin-
ing relative to the average per capita income in the wealthier OECD countries.
Between 1980 and 2001 these levels decreased from 3.3 to 1.9 per cent in sub-
Saharan Africa, from 9.7 to 6.7 per cent in the Middle East and North Africa,
and from 18 to 12.8 per cent in Latin America and Caribbean. Te decline
in the ratios indicates not that per capita income in developing regions has
decreased in absolute terms, but that per capita income has grown faster in the
richer regions than in the poorer ones, widening the inequality gap.
Te income gap between the wealthy OECD countries and the corre-
sponding group of non-OECD countries
1
actually narrowed during the pe-
riod under review; between 1980 and 2001 the per capita income of the latter
as a proportion of the former rose from 45.3 to 59.2 per cent. Asia registered
only moderate improvement relative to the high-income OECD countries,
with ratios rising from 1.2 to 1.6 per cent in South Asia, and from 1.5 to 3.3
per cent in East Asia and the Pacic.
Income inequality within countries
Some studies contend that within individual countries there has been little
or no change in income distribution or levels of income inequality in dec-
ades (Gustason and Johansson, 1999; Melchior, Telle and Wiig, 2000). An
analysis of the information provided in the World Income Inequality Data-
base (WIID) shows that within-country income inequality decreased during
the 1950s, 1960s and 1970s in most developed, developing and centrally
planned economies.
2
Since the 1980s, however, this decline has slowed or
levelled o, and within many countries income inequality is rising once again
(Cornia, 2004). Similar conclusions have been reached using dierent sets
of data, which describe a signicant increase in within-country income in-
equality over the past two decades (Atkinson, 2003; Harrison and Bluestone,
1988).
An analysis of WIID gures indicates that within-country income in-
equality rose between the 1950s and the 1990s in 48 of the 73 countries
for which suciently reliable data are available (see table III.2). Together,
these 48 countries account for 59 per cent of the combined population of the
countries included in the analysis. In the early 1980s, 29 of the 73 countries
had Gini coecients
3
higher than 0.35-0.40, the threshold beyond which
growth and poverty alleviation can be perceptibly aected; by the mid- to
late 1990s, the number of countries with such high levels of income inequal-
ity had risen to 48. Within-country income inequality remained relatively
constant in 16 of the countries under review, though the data suggest that
the situation has worsened in three of them during the past few years. Only
nine of the countries included in the analysis registered a decline in income
inequality between the 1950s and the 1990s; included in this group are the
Bahamas, France, Germany, Honduras, Jamaica, Malaysia, the Philippines,
the Republic of Korea, and Tunisia (Cornia, Addison and Kiiski, 2004).
Within-country income inequality has risen in many developing coun-
tries and in a surprisingly large number of industrialized countries. Although
data are not fully comparable across countries, a study of the evolution of
income inequality in nine OECD countries generally supports the view that a
signicant shift has occurred in the distribution of income in all the countries
analysed, with the possible exception of Canada. In some countries and coun-
try groupings, such as Finland and the United Kingdom of Great Britain and
Northern Ireland, there have been increases of more than 10 Gini points in
the past three decades. Empirical evidence from the study suggests that these
gures have been inuenced by technological change and the process of glo-
balization, though it is acknowledged in the analysis that the distribution of
income is a highly complex phenomenon, and that a single explanation does
not suce for all countries (Atkinson, 2003).
All of the former centrally planned economies of Europe and the former
Soviet Union have experienced increases in within-country inequality. Among
Table III.2. Distribution of countries according to trends in Gini coecients
for income distribution between the 1950s and the 1990s
(sample of 73 developed, developing and transitional countries)
Trends in Gini coecients
Number
of countries
in group
Sample countries percentage share of:
Total
population
of sample
countries
World
population
GDP-PPP
a

of sample
countries
World
GDP-PPP
a
Rising 48 59 47 78 71
Continuously rising/
rising- stable 19 4 3 5 5
U-shaped 29 55 44 73 66
Falling 9 5 4 9 8
Continuously falling 6 3 3 7 7
Inverted U-shape 3 2 1 2 1
No trend 16 36 29 13 12
Not included in sample 20 9
Total 73 100 100 100 100
Source: G.A. Cornia, T. Addison and S. Kiiski, Income distribution changes and their impact in the post-
Second World War period, in Inequality, Growth and Poverty in the Era of Liberalization and Globalization,
A.G. Cornia, ed. (Oxford, Oxford University Press/ United Nations University, World Institute for Economics
Research, 2004).
a
Gross domestic product - purchasing power parity.
the transition countries of Central Europe, income concentration increased
moderately throughout the 1990s, probably owing to the preservation of the
welfare state system (Milanovic, 1998). In the countries of the former Soviet
Union and south-eastern Europe, income inequality rose by an average of
10 to 20 Gini points, and the number of people living in poverty jumped
from 14 million in 1989 to 147 million in 1996 (Cornia and Kiiski, 2001).
Te abrupt dismantling of the State-run welfare system after the collapse of
the communist regimes in these countries played an important role in this
dramatic increase.
A number of South and East Asian countries that were once able to achieve
growth with equity have also experienced a sharp increase in income inequal-
ity in recent years. Te Gini coecient began rising in some of these countries
in the late 1980s; however, in the 1990s rising inequality became a common
feature in most. In some cases, the increase in income inequality appears to be
closely related to a widening of the urban-rural income gap (Cornia, Addison
and Kiiski, 2004).
Historically, the highest levels of income inequality have been found in
Africa and Latin America, and in the 1980s and 1990s the situation dete-
riorated even further. An analysis by the Economic Commission for Latin
America and the Caribbean (ECLAC) shows that, with few exceptions, the
Gini coecients for countries in the region between the 1950s and the be-
ginning of the 1970s were among the highest in the world, ranging from
0.45 to 0.55 (Sainz, 2004). During the 1970s, income inequality declined
moderately throughout the region, but a series of external shocks and the
debt crises in the 1980s aected income distribution, and levels of income
inequality rose again in most countries (Altimir, 1996). Tose countries that
had previously enjoyed a more equal distribution of income were the most
profoundly aected by these developments. During the 1990s, income distri-
bution trends deteriorated further, as reected in the higher Gini coecients
in most countries.
4

One feature that distinguishes patterns of within-country inequality in
Latin America from those in other regions is the share of the richest 10 per
cent of households in total income. In the 1990s these wealthier households
accounted for more than 30 per cent of total income, with their share reaching
35 or even 45 per cent in some cases. By contrast, the poorest 40 per cent of
households in Latin America garnered only 9 to 15 per cent of total income.
By the end of the 1990s, the relative share of total income among the wealthi-
est 10 per cent of the population had increased in eight countries, declined
somewhat in ve, and held steady in one.
Te largest income gap is in Brazil, where the per capita income of the
most auent 10 per cent of the population is 32 times that of the poorest 40
per cent. Te lowest levels of income inequality in the region can be found in
Uruguay and Costa Rica, countries in which the respective per capita income
levels of the wealthiest 10 per cent are 8.8 and 12.6 times higher than those
of the poorest 40 per cent. Although comparable gures are not available
for the rest of the region, other indicators suggest that Cuba has probably
maintained a less regressive income distribution than the other countries,
despite the strong deterioration of its economy during the rst half of the
1990s (Sainz, 2004).
Te limited statistics for sub-Saharan Africa show that high levels of in-
come inequality have persisted since the 1970s. Income inequality within
rural areas has risen in countries that have high land concentration or are
extremely dependent on the export of a single commodity, but has remained
constant in countries such as Mozambique and Uganda, where small-scale
agriculture is common (Bigsten, 2000).
In many countries, especially developing countries, the rise in income
inequality at the national level is strongly correlated with increases in rural-
urban and regional income inequality. According to an analysis of data from
several Asian countries, the rural-urban income gap rose rapidly in China,
India and Tailand during the 1990s. In the case of China, half of the overall
increase in income inequality since 1985 is attributable to dierences in in-
come distribution among the countrys various regions. Similar trends have
been observed for Tailand and, more recently, for India (Cornia and Kiiski,
2001). Conversely, data from Latin America show that the income gap be-
tween rural and urban areas has been narrowing.
Poverty
Te negative trends in income distribution imply that monetary poverty has
gradually worsened in many parts of the world. As the seriousness of the
problem has grown more evident, poverty and poverty reduction strategies
have become increasingly prominent in the development discourse. Since
the World Summit for Social Development, Governments have intensied
their eorts to address poverty, setting national poverty reduction targets and
formulating and implementing plans and strategies for poverty eradication.
Anti-poverty programmes have focused not only on monetary issues, but also
on improving access to basic social services such as health and education,
especially for vulnerable groups; promoting employment opportunities; pro-
viding social protection; and applying measures to address the adverse eects
of nancial crises.
At the global level considerable progress has been made in reducing pov-
erty over the past two decades, largely as a result of the more focused anti-
poverty programmes and policies. Table III.3 indicates that the proportion
of the worlds population living in extreme or absolute poverty (surviving on
less than US$ 1 a day) declined noticeably between 1981 and 2001, dropping
from 40 to 21 per cent. At the regional level, only East Asia and the Pacic,
the Middle East and North Africa, and South Asia registered sharp declines
during this period.
Overall poverty reduction statistics mask wide national and regional dif-
ferences and the uneven pace of progress. Te advances made in China and
India have contributed substantially to the positive picture at the global level.
Because these two countries account for 38 per cent of the worlds popula-
tion, the rapid expansion of their respective economies has led to a signi-
cant reduction in the number of people living in absolute poverty worldwide;
between 1990 and 2000 this gure declined from 1.2 billion to 1.1 billion
(International Labour Organization, 2004). In China alone, the proportion
of people living on less than US$ 2 a day fell from 88 to 47 per cent between
1981 and 2001, and the number of people living on less than US$ 1 per
day was reduced from 634 million to 212 million. In India, the proportion
living on less than US$ 2 per day declined from 90 to 80 per cent, and the
number living in extreme poverty decreased slightly, from 382 million to 359
million.
Te improvements in China and India notwithstanding, in 2001 more
than 1.1 billion people worldwide were struggling to survive on less than
US$ 1 a day. Poverty is more prevalent and persistent in certain regions. In
sub-Saharan Africa, for example, the number of poor people increased by al-
most 90 million in a little more than a decade (1990-2001). Even in regions
that have achieved signicant progress, such as South and East Asia, rates of
poverty reduction have been, at best, uneven.
In Europe and Central Asia the total number of people living on less
than US$ 1 a day grew by more than 14 million between 1981 and 2001.
Te incidence of poverty in these regions increased sharply in the 1990s, but
by 2001 the upward trend had slowed. Worsening poverty in Eastern Eu-
rope and the Commonwealth of Independent States (CIS) has contributed
substantially to the trend towards increased poverty in Europe and Central
Asia since 1993. By the end of the 1990s, 50 million people were living in
poor families in the former socialist countries, and the same was true for 43
million people in the CIS (United Nations Childrens Fund, 2001). During
the 1990s, poverty and income inequality rose steadily in the Central Asian
Republics. In Tajikistan, a 14 per cent increase in the countrys population
was accompanied by a 64 per cent decline in GDP and escalating poverty
levels. In Azerbaijan, sound macroeconomic policies have ensured economic
stability and high real GDP growth; however, these economic successes have
not been reected in the lives of people, 49 per cent of whom live in poverty.
In 2002, about half of the population in Kyrgyzstan lived below the poverty
line (United Nations Development Programme, 2004a).
In Latin America and the Caribbean the proportion of those living on
less than US$ 1 a day fell slightly overall, declining from 11.3 to 9.5 per cent
between 1990 and 2001, though poverty levels increased in many individual
countries during this period. Te most important exception is Chile, where
poverty declined sharply in the 1990s. Rates of poverty and unemployment
rose to record highs in Argentina, but the country has enjoyed steady eco-
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.
nomic growth since 2003. Tis economic expansion has not led to a more
balanced distribution of wealth or a reduction in social inequalities, however.
For example, in 1994 the income of the richest 10 per cent of the population
was nearly 20 times that of the poorest 10 per cent; by 2004 the ratio was 29
to 1 (South-North Development Monitor, 2005).
While the proportion of the worlds population living on less than US$ 1
a day decreased signicantly between 1981 and 2001 (from 40 to 21 per cent),
the share of those living on less than US$ 2 a day declined less dramatically
(from 67 to 53 per cent). In East Asia and the Pacic only 15 per cent of the
population was living on less than US$ 1 a day in 2001, but the proportion
living on less than US$ 2 a day was close to 50 per cent. Despite Chinas re-
markable economic progress and its inuence on global trends, 47 per cent of
the population was living on less than US$ 2 a day in 2001 (see table III.3).
Te slower decline in the proportion of those living on less than US$ 2 a day
reects the fact that a sizeable number of people have moved from the lowest
poverty category into this marginally better income category. Te combination
of the transfer between poverty categories and various demographic and eco-
nomic developments has resulted in a global increase in the number of people
living in poverty (those living on less than US$ 2 per day) since the late 1990s
(Chen and Ravallion, 2000).
Perhaps even more important than the increasing levels of poverty is
the emergence and entrenchment of new patterns of poverty in a number
of countries. Developments worth noting include an increased tendency for
people to rotate in and out of poverty, a rise in urban poverty and stagnation in
rural poverty, and increases in the proportion of informal workers among the
urban poor and in the number of unemployed poor.
Te tendency for individuals to move in and out of poverty has grown
since the 1980s, illustrating how the path out of poverty is often not linear.
Tis phenomenon can lead to some of the worst forms of social exclusion
because those who are not classied as poor in a particular period may be over-
looked by social assistance programmes. In many African countries around a
quarter of the population may be deemed consistently poor; however, up to
an additional 60 per cent move in and out of poverty (Economic Commis-
sion for Africa, 2003). In Latin America, uctuations in employment and
income account for an increasing share of the population cycling in and out
of poverty. In the Russian Federation, nearly half of the households deemed
very poor in 1992 were not classied as such a year later, demonstrating
that the poor do not constitute a static group. Indeed, some households rose
above the poverty level in 1992/93, even as overall poverty levels were in-
creasing (World Bank, 1995).

Te increasing urbanization of poverty and the lack of notable progress
in ameliorating well-entrenched rural poverty present new challenges to de-
velopment. Poverty has traditionally been viewed as a primarily rural phe-
nomenon, and the depth of poverty remains greater in rural areas; however,
a growing number of urban areas are experiencing serious levels of poverty
as well. In Latin America, poverty is more prevalent in urban areas. In 1999,
for example, only 77 million of the regions 211 million poor lived in rural
areas, while the remaining 134 million lived in urban areas. Nevertheless, the
concentration of poverty was still much greater in rural areas, with the poor
accounting for 64 per cent of the rural population but only 37 per cent of the
urban population. Poverty in rural areas is also more extreme (Sainz, 2004).
In Africa, where the worst forms of poverty exist, an estimated 59 per
cent of the rural population live in extreme poverty, compared with 43 per
cent of the urban population. Among the factors undermining poverty re-
duction eorts in the region are high rates of population growth; the high
prevalence of unskilled labour; and the HIV/AIDS epidemic, which has se-
riously reduced the overall calibre of the workforce. Te net eect of these
circumstances is that per capita income in the region did not change between
1990 and 1999 even though aggregate GDP increased by 29 per cent.
In many countries, the lack of sucient and sustained income growth
has been a major obstacle to reducing poverty. Among the 155 developing
and transition countries for which data are available, only 30 achieved annual
per capita income growth of at least 3 per cent during the 1990s, while 71
registered rates of less than 3 per cent; a total of 54 countries (including 20 in
sub-Saharan Africa) experienced a decline in per capita income in this period
(United Nations Development Programme, 2003).
Demographic trends have led many households, communities and
countries deeper into poverty. High fertility increases poverty by diverting
household resources from savings to consumption. It also makes government
investment in education and other forms of human capital formation more
dicult, as more and more resources have to be allocated to meet the needs
of a rapidly growing population. Persistently high fertility produces elevated
age dependency ratios, indicating a high proportion of the young (0-14 years)
and the old (65 years or above) relative to those in the prime working-age
group. Greater dependence places increased pressure on the earnings of a lim-
ited workforce in a way that perpetuates poverty even among those who are
employed. Internal and international migration are strongly linked to pov-
erty as well; sending communities become poorer, as they tend to lose their
most economically active members, and in receiving communities migrants
are likely to be poorly integrated and without access to decent employment
and are therefore vulnerable to extreme poverty.
Unemployment
Of all the inequalities within and between countries, the inability of an in-
creasing share of the worlds job-seeking population to secure employment
has perhaps the most far-reaching implications. Most of those looking for
work are adults with personal and household responsibilities. People who
cannot secure adequate employment are unable to generate an income suf-
cient to cover their health, education and other basic needs and those of
their families, or to accumulate savings to protect their households from the
vicissitudes of the economy. Te unemployed are among the most vulner-
able in society and are therefore more likely to suer from poverty in all its
manifestations.
A fundamental component of any successful development strategy is
an employment strategy that not only addresses the creation of decent jobs
but also promotes adequate working conditions in which freedom, equality,
security and dignity gure prominently (United Nations, 2004c). Te Pro-
gramme of Action of the World Summit for Social Development states that
productive work and employment are central elements of development as
well as decisive elements of human identity (United Nations, 1995, para.
42). It has been 10 years since full employment was identied as a core objec-
tive; however, the progress that has been achieved falls far short of expecta-
tions. Te Summit participants were hopeful that signicant strides could be
made towards ensuring freely chosen productive employment and work for
all; instead, global unemployment levels have risen in the past decade.
It is estimated that between 1993 and 2003 the number of unemployed
rose from 140 million to an unprecedented 186 million, representing 6.2 per
cent of the total working population (International Labour Organization,
2005c). By the end of this period the ranks of the working poor had swelled
to 550 million. In developed countries as a group, the unemployment rate
fell from around 8 per cent in 1993 to 6.8 per cent in 2003 (see table III.4),
while much of the developing world experienced stagnating or rising unem-
ployment during this time. Te world regions with the lowest and highest
Table III.4. Unemployment rates, labour force growth rates and GDP growth rates
for the world and major regions
Region/country grouping
Unemployment rate
Annual
labour force
growth rate
Annual GDP
growth rate
1993 2002 2003 1993-2003 1993-2003
World 5.6 6.3 6.2 1.8 3.5
Industrialized economies 8.0 6.8 6.8 0.8 2.5
Transition economies 6.3 9.4 9.2 0.1 0.2
East Asia 2.4 3.1 3.3 1.3 8.3
Latin America and the Caribbean 6.9 9.0 8.0 2.3 2.6
Middle East and North Africa 12.1 11.9 12.2 3.3 3.5
South Asia 4.8 4.8 4.8 2.3 5.5
South-East Asia 3.9 7.1 6.3 2.4 4.4
Sub-Saharan Africa 11.0 10.8 10.9 2.8 2.9
Source: International Labour Organization, "Global trends in employment, productivity and poverty, 2005"
(http://www.ilo.org/public/english/employment/strat/download/wr04c1en.pdf; accessed 17 February
2005).
levels of unemployment, which remained relatively stable during the decade
under review, were East Asia (around 3 per cent) and the Middle East and
North Africa (12.2 per cent).
Between 1993 and 2003 unemployment increased by as much as 62 per
cent in some parts of South-East Asia and Latin America and the Caribbean.
Although the overall level of unemployment rose in East Asia, it remained
well below that found in other regions. South-East Asia registered the most
substantial increase in unemployment during the period under review, large-
ly owing to the high annual labour force growth rate of 2.4 per cent and
the fact that some of the countries in the region, including Indonesia (the
largest), were slow to recover from the Asian nancial crisis of 1997/98. Te
data indicate that unemployment decreased slightly in South-East Asia and
Latin America and the Caribbean between 2002 and 2003, though it should
be noted that the changes were relatively small, occurred over a single year,
and may reect only a temporary or cyclical decline.
In sub-Saharan Africa, the labour force grew by 2.8 per cent annually
and unemployment declined only slightly between 1993 and 2003, leaving
the overall unemployment rate virtually unchanged. In the transition econo-
mies unemployment rose by 46 per cent during this period.
Among the countries for which reliable data are available, half have re-
ported a decrease and the other half an increase in unemployment rates since
1995 (International Labour Organization, 2005a). Trends have varied from
one region to another. In Latin America and the Caribbean, overall unem-
ployment has been rising since the 1990s despite the stagnant unemployment
situation in Brazil and the decline in unemployment in Mexico (Economic
Commission for Latin America and the Caribbean, 2005a). Almost all East
Asian and South-East Asian countries have experienced rising unemployment
during the past decade as well.
Before 1980, employment in China was growing steadily at about 2.6
per cent, but the rate dropped to 1.1 per cent in the 1990s. India also expe-
rienced a signicant decline in employment growth in the 1990s, reecting a
slowdown in both rural and urban areas. Between 1993 and 2000 growth in
rural employment fell to 0.67 per cent, the lowest rate in the countrys post-
independence history. Nonetheless, the unemployment rate in India rose
only slightly, whereas the corresponding rates for Bangladesh and Pakistan
increased noticeably.
Comparable trend data are not available for most sub-Saharan African
countries. However, the extremely high levels of unemployment in the region
are worth noting; in 1999, Botswana, Burkina Faso, Niger, South Africa and
Tanzania all had unemployment rates of 20 per cent or higher.
It is important to bear in mind that the unemployment rate alone is not
a clear indicator of the extent of equality or inequality in the labour force.
Beneath the tip of this iceberg are a number of other employment-related
factors that may exacerbate or ameliorate inequalities, including the size and
growth of the informal economy, the quality of work and wage levels (see
chapter II). Te fact is that most of the poor in developing countries are not
unemployed. Tey work but cannot earn enough to raise themselves and
their families above the poverty threshold. Further, as mentioned previously,
many are subject to exploitation and lack basic rights and protections in the
workplace.
Recognizing the critical importance of these issues, the ILO has come up
with a decent work agenda that constitutes an integral part of the overall
United Nations development agenda. Te overarching objective of the de-
cent work agenda is to promote opportunities for women and men to obtain
decent and productive work under conditions of freedom, equality, security
and human dignity. Te agenda encompasses the following four strategic
objectives: (a) the opportunity to be employed doing work that is productive
and is fairly remunerated; (b) security in the workplace and social protection
for workers and their families; (c) freedom of expression, organization, and
participation in activities aecting the lives of workers; and (d) equal oppor-
tunities for men and women (International Labour Organization, 2005b).
Labour market access and employment are considered vital for social inclu-
sion. Te ILO is working to protect the rights of all workers and has identied
meaningful employment as essential in both eradicating poverty and helping
people to full their human potential (International Labour Organization,
2004). Te decent work agenda addresses a number of challenges that have
arisen from globalization, including the loss of employment, the inequitable
distribution of benets, and the disruption that has been caused in so many
peoples lives. Answering these challenges will require the participation of
actors at all levels.
Non-economic aspects of inequality
As noted previously, the traditional focus on economic inequality is directed
almost exclusively towards income dierentials within and between coun-
tries, while the social underpinnings are neglected. It is not possible to assess
or address inequality until the importance and interconnectedness of its eco-
nomic and non-economic aspects are widely acknowledged. Non-economic
indicators relating to priorities such as health, education, access to basic ne-
cessities (food, water, sanitation and housing) and opportunities for political
participation are closely linked to individual, household and national eco-
nomic status. Countries that have the poorest education and health proles
are generally at the bottom of the economic development ladder. Te present
section summarizes patterns and trends relating to selected aspects of non-
economic inequality, including health, hunger and malnutrition, and educa-
tion. An eort is made to demonstrate how dierentials in these areas are
linked to some of the economic inequalities that tend to dominate discus-
sions of global inequality.
Health
Signicant advances have been made in recent years in the eld of health.
Te health status of many has improved as a result of this progress, but in-
equalities within and between countries have worsened because the benets
of better health have not accrued evenly. Te more privileged segments of the
population, by virtue of their better education, income, geographical loca-
tion or political clout, are often better able to harness the benets deriving
from advances in health. Developing countries are at a distinct disadvantage,
as they typically have less access to advanced diagnostic technologies that
contribute to the identication and treatment of diseases at advanced stages,
to therapeutic remedies such as antiretroviral treatments for HIV and AIDS,
and to medicines for preventing or treating endemic diseases such as malaria.
Since poverty can contribute to ill health, and poor health can in turn per-
petuate poverty, poorer people and countries are often caught in a vicious
cycle that deepens their deprivation in relation to non-poor groups.
Health-related inequalities, including dierentials in access to health
services, have perhaps become the most frequently cited indicators of non-
economic inequality. Discussions of causes, eects and possible solutions have
been a central feature of the development debate in the international arena,
and health gures prominently in the Millennium Development Goals.
Within countries, reducing disparities in health and mortality between socio-
economic groups, between urban and rural areas, and between regions has
been a priority concern of Governments.
Over the past 50 years or so, global eorts to improve health and life
expectancy have met with considerable success. Infant and child health has
improved, and child mortality rates have declined. More women have gained
access to safe and eective contraception, which prevents many unwanted
pregnancies and reduces maternal mortality resulting from unsafe abortions.
Global health statistics are indicative of enormous progress in these and other
areas, but they conceal the wide variability within and between countries
and regions. Tey also obscure the fact that, as a result of asymmetries in
globalization, the health benets accruing to poorer individuals and countries
represent a tiny fraction of the benets made possible by major technological
and scientic advances. Te inequality predicament is evident regardless of
how health status is measured.
Life expectancy
Worldwide, life expectancy has increased from about 47 to 65 years over the
past ve decades. However, statistics show a gap of up to 36 years between
the regions with the lowest and highest life expectancies (see gure III.3).
Since 1990-1995, Australia/New Zealand has had the highest life expectancy
of 77-79 years; the corresponding gures for other world regions have been
either slightly or signicantly lower.

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When inequalities in life expectancy are assessed in terms of the number
of regions falling more than 25 years short of the region with the highest
life expectancy, it is apparent that the situation has worsened since 1990.
In 1990-1995 and 1995-2000, the central, eastern and western regions of
Africa were the only regions with life expectancy more than 25 years be-
low that of Australia/New Zealand. By 2000-2005, largely as a result of the
AIDS epidemic, southern Africa had been placed in the same category. It
is worth noting that by 2000-2005 dierentials had narrowed somewhat
in the regions with higher longevity and also in those with lower longevity,
suggesting increasing polarization between the two groups. Life expectancy
dierentials among the four worst-performing regions have narrowed in
particular, even as their performance in relation to the rest of the world has
worsened.
Country-level dierentials in life expectancy also suggest increased po-
larization between the best and worst performers. Figure III.4 shows the
distribution of all countries according to how far their life expectancy for
1990-1995 and 2000-2005 fell short of that of Japan, which had the highest
life expectancy for both periods. Tere were many more countries that fell
within 10 years of Japans life expectancy in 2000-2005 than in 1995-2000,
suggesting a degree of improvement in the level of inequality. However, there
was also a substantial increase in the number of countries with life expectan-
cies 30 to 50 years short of Japans (the worst performers). Te number of
countries in the middle category (with life expectancies 20 to 30 years short
of Japans) declined by almost half, largely because Haiti and 12 sub-Saharan
African countries experienced a regression.
Tis pattern is consistent with the notion of club convergence, in
which poor countries tend to have lower average life expectancy while richer
countries converge towards a higher level (Mayer-Foulkes, 2001). It is also
consistent with the conclusion from recent analysis that inequality in the dis-
tribution of health gains has increased (Cornia and Menchini, 2005).
An important aspect of inequalities in life expectancy is the male-female
longevity gap. Almost everywhere, life expectancy is higher for females than
for males. Underlying this disparity, which is most pronounced in Eastern
Europe, are a number of factors associated with lifestyle, including the higher
exposure of males to health and mortality risks linked to certain occupations,
motor vehicle accidents, and the excessive use of tobacco and alcohol.
Maternal and child health
Child mortality declined between 1990 and 2001, though somewhat more
slowly in developing countries. Widespread immunization against killer
childhood diseases has contributed signicantly to reducing infant and child
mortality; over a period of several decades enormously successful vaccination
policies and programmes have been implemented in many countries with the
Table III.5. Levels of under-ve mortality for selected countries
and between-country inequality indices
Region/country Year
Under-ve
mortality (5q0)
per 1 000 births
Inequality
index
a
Sub-Saharan Africa
Gabon 2000 88.6
Zimbabwe 1999 102.1 13.5
Nigeria 1999 140.1 51.5
Tanzania 2000/2001 146.6 58.0
Uganda 2000/2001 151.5 62.9
Benin 2001 160.0 71.4
Ethiopia 2000 166.2 77.6
Zambia 2001/2002 168.2 79.6
Guinea 1999 176.9 88.3
Malawi 2000 188.6 100.0
Rwanda 1999 196.2 107.6
Burkina Faso 1998/1999 219.1 130.5
Mali 2001 229.1 140.5
North Africa/West Asia/Europe
Armenia 2000 39.0
Egypt 2000 54.3 15.3
Central Asia
Kazakhstan 1999 71.4
Turkmenistan 2000 94.3 22.9
South and South-East Asia
Nepal 2001 91.2
Bangladesh 1999/2000 94.1 2.9
India 1998/1999 94.9 3.7
Cambodia 2000 124.4 33.2
Latin America and the Caribbean
Colombia 2000 24.9
Dominican Republic 1999 30.4 5.5
Peru 2000 46.7 21.8
Guatemala 1998/1999 58.7 33.8
Haiti 2000 118.6 93.7
Source: Under-ve mortality data obtained from ORC Macro, MEASURE DHS STATcompiler (http://www.
measuredhs.com; accessed 15 February 2005).
a
The inequality index is calculated as the value of 5q0 for the selected country minus the value for the
country with the lowest 5q0 within that region.
assistance of United Nations entities such as the United Nations Childrens
Fund (UNICEF) and the World Health Organization (WHO). Since 1974
the proportion of children under the age of one who are immunized against
diphtheria, polio, tetanus, measles, tuberculosis (TB) and pertussis (whoop-
ing cough) has risen from 5 per cent to nearly 75 per cent.
Tese positive trends are apparent at the global level but do not reveal
the stagnation and even worsening of the child health and mortality situation
in certain parts of the world. Since the beginning of the 1990s, for example,
global inequalities have widened as mortality among newborns has risen in
sub-Saharan Africa but declined in most other regions (World Health Or-
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health policies that deny the poor access to health services play a major role
as well.
Between-country disparities in under-ve mortality are large and persist-
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for selected countries indicate that under-ve mortality rates in 2000 ranged
from 25 per 1,000 live births in Colombia to 229 per 1,000 live births in Mali
(see table III.5). Exceptionally high rates (more than 100 deaths per 1,000
live births) are evident for almost all of sub-Saharan Africa and for Cambodia
and Haiti. Te 20 countries with the highest rates and the 20 countries with
the lowest rates in the world in 2002 are shown in table III.6, along with
their respective under-ve mortality levels for 1995, 2000 and 2002. Te data
clearly indicate that the best-performing countries suer virtually no under-
ve mortality, while in most of the worst-performing countries more than
one in ve children die before they reach the age of ve. Of the 20 countries
with the highest rates, 19 are in sub-Saharan Africa, the region that experi-
enced the smallest decline (from 186 to 174 deaths per 1,000 live births, or a
reduction of only 2 per cent) between 1990 and 2001.
Large dierentials in under-ve mortality can also be found within most
countries. Data from recent Demographic and Health Surveys (DHS) indi-
cate that rates are consistently higher in rural areas than in urban areas (ORC
Macro, 2005). Te data show that in countries such as Armenia (2000), Brazil
(1996), Burkina Faso (1998/99), Colombia (2000), Cte dIvoire (1998/99),
Egypt (1995), Ghana (1998), Nicaragua (2001) and Peru (2002), rural rates
have been at least 1.5 times higher than urban rates of under-ve mortality.
Among all the health indicators, maternal mortality rates reect some of
the greatest disparities between developed and developing countries. Ninety-
nine per cent of maternal deaths worldwide occur in developing countries,
and in poor countries as many as 30 per cent of deaths among women of
reproductive age (15-49 years) may be from pregnancy-related causes, com-
pared with rates of less than 1 per cent for developed countries. In 2000,
there were 400 maternal deaths per 100,000 live births in developing regions,
a ratio 19 times higher than in developed regions. Te lifetime risk of mater-
nal death was 1 in 61 for developing countries, which was 45 times greater
than the risk of 1 in 2,800 for developed countries. Even among developing
countries, maternal mortality rates varied widely. Disparities were extreme at
the regional level; in 2000, the lifetime risk of 1 in 16 for sub-Saharan Africa
was 249 times greater than the risk of 1 in 4,000 for Western Europe. Equally
disquieting is the extent of morbidity or illness women experience in con-
nection with pregnancy and childbirth. Even when they survive childbirth,
women who receive inadequate maternity care often suer from the long-
term eects of complications such as obstetric stula, infection or prolonged
anaemia from excessive blood loss during delivery.
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Table III.8. Dierentials within and between selected countries in access to skilled
medical care at delivery for children born three years before the survey
Country Year of survey
Assistance at delivery
Doctor or health
professional No birth attendant
Urban Rural Urban Rural
Guatemala 1998/1999 67.2 26.1 2.0
Guinea 1999 77.1 21.8 2.5 9.0
Haiti 2000 54.2 12.0 2.8 4.5
India 1998/1999 73.3 33.5 0.1 0.6
Kazakhstan 1999 99.1 99.5
Malawi 2000 81.1 50.5 1.3 2.6
Mali 2001 81.7 27.4 5.4 19.1
Mauritania 2000/2001 85.9 29.1 1.6 10.9
Nepal 2001 53.7 11.5 4.0 8.4
Nigeria 1999 57.9 35.3 9.6 12.1
Peru 2000 86.5 27.4 0.4 1.7
Rwanda 2000 64.8 18.2 5.5 22.4
Tanzania 1999 82.7 33.5 1.0 8.7
Turkmenistan 2000 98.4 96.7 0.2 0.1
Uganda 2000/2001 81.3 33.4 4.4 15.5
Zambia 2001/2002 78.1 27.1 2.8 8.2
Zimbabwe 1999 90.0 64.3 1.0 4.4
Source: ORC Macro, MEASURE DHS STATcompiler (http://www.measuredhs.com; accessed 17 February
2005).
Health-related inequalities within and between countries are often the re-
sult of dierentials in underlying determinants of health, including education,
access to health services, sanitation and nutrition. For example, child mortality
dierentials are governed by disparities in proximate determinants such as ac-
cess to skilled medical care, nutrition, immunization and education.
Although it is known that the immunization of all children against killer
childhood diseases signicantly reduces child mortality, dierentials in im-
munization status remain wide both within and between countries. Table
III.7 shows that within countries, immunization coverage is generally higher
in urban areas and among children with more highly educated mothers. Be-
tween countries, urban disparities and rural disparities are sizeable. For ex-
ample, urban coverage is under 50 per cent in Cambodia, the Dominican
Republic, Ethiopia, Gabon, Guinea, Haiti, Mauritania, Nigeria and Uganda
but over 80 per cent in Tanzania and Turkmenistan and 93 per cent in Egypt.
Similarly, rural coverage remains below 20 per cent in Ethiopia, Gabon and
Nigeria but around 90 per cent in Egypt and Turkmenistan. Inequalities are
also evident across maternal education categories; women with little or no
education are less likely to have their children immunized than are those with
secondary or higher education. From a policy perspective, it is disconcerting
that the high inequalities in infant and child mortality persist, given that rela-
tively inexpensive preventive and remedial measures such as immunization
against measles and other childhood diseases, the protection of drinking wa-
ter, the practice of basic hygiene, and increased reliance on oral rehydration
therapy and breastfeeding could prevent millions of deaths among children
under the age of ve every year. With regard to immunization, it is surprising
that signicant within-country dierentials remain even though vaccination
programmes specically targeting underserved areas of developing countries
have been in place for many years.
Inequalities characterizing child and maternal health and mortality are
also closely linked to underlying inequalities within the health system, es-
pecially dierentials in access to prenatal care, skilled care at delivery and
emergency obstetric care. Table III.8 shows within- and between-country
disparities in womens access to health professionals for the delivery of their
babies. In Kazakhstan and Turkmenistan, almost 100 per cent of both urban
and rural births are attended by a doctor or other health professional, putting
those countries on par with developed countries. In contrast, fewer than 60
per cent of urban births in Haiti, Nepal and Nigeria are attended by a health
professional, and the percentage is even lower for rural areas. In some coun-
tries large proportions of rural births (19 per cent in Mali and 22 per cent in
Rwanda) are attended by no one, raising the risks of both child and maternal
mortality.
HIV/AIDS and other diseases
Te HIV/AIDS epidemic is worsening in parts of Africa and Asia, while
throughout most of Europe and North America signicant progress is being
made in controlling the epidemic and averting mortality; it is situations such
Table III.9. Adults and children aected by HIV/AIDS:
the world and major regions, 2004
Regions
Adults
and children
living
with HIV
Adults
and children
newly infected
with HIV
Adult HIV
prevalence
(percentage)
Adult
and child
deaths due
to AIDS
World 39.4 million 4.9 million 1.1 3.1 million
Sub-Saharan Africa 25.4 million 3.1 million 7.4 2.3 million
North Africa and Middle East 0.54 million 92 000 0.3 28 000
East Asia 1.1 million 290 000 0.1 51 000
South and South-East Asia 7.1 million 890 000 0.6 490 000
Latin America 1.7 million 240 000 0.6 95 000
Caribbean 440 000 53 000 2.3 36 000
Eastern Europe and Central Asia 1.4 million 210 000 0.8 60 000
Western and Central Europe 0.61 million 21 000 0.3 6 500
North America 1.0 million 44 000 0.6 16 000
Source: UNAIDS, AIDS Epidemic Update, December 2004 (http://www.unaids.org/wad2004/report.html; ac-
cessed 13 April 2005).
as this that epitomize the strong link between poverty and health inequalities.
Te number of people living with HIV has been rising in every region, with
especially steep increases in East Asia and in Eastern Europe and Central Asia;
sub-Saharan Africa, with more than 25 million infected adults and children,
has been the region hardest hit by the epidemic (see table III.9) (UNAIDS,
2004). Te health and mortality gulf between developed and developing
countries will continue to widen, as many of the countries most seriously
aected by the HIV/AIDS epidemic have some of the lowest life expectan-
cies recorded in recent history and are likely to experience continued high
mortality over the next 50 years, while in the developed world the epidemic
will have no perceptible impact on life expectancy.
One important reason for the inequalities generated by the HIV/AIDS
epidemic relates to the availability and aordability of treatment. Te rel-
atively high cost of antiretroviral therapy prevents poorer individuals and
Governments from obtaining treatments that can both reduce the risk of
HIV transmission and prolong the lives of those who are already infected.
Inequalities in the global pharmaceutical market and in national science
and technology infrastructures have contributed to the predicament; poorer
countries cannot aord the expensive drug therapies available abroad and are
unable to produce cheaper generic equivalents locally, in part owing to their
perennial lack of manufacturing capacity.
5

Te impact of the HIV/AIDS epidemic has extended beyond the health
sector and, again, has been most widely felt in the poorest countries. Te
epidemic is linked to widening inequalities in poverty, social status, access
to education and employment. In those countries in which HIV/AIDS is
most prevalent, the epidemic is rapidly eroding the progress made in reduc-
ing within- and between-country gender inequalities in access to educational
Table III.10. Women living with HIV: the world and major regions, 2004
Region
Number of women
aged 15-49 years
living with HIV
Women as a
proportion of adults
aged 15-49 years
living with HIV
(percentage)
World 17.6 million 47
Sub-Saharan Africa 13.3 million 57
Middle East and North Africa 250 000 48
East Asia 250 000 22
South and South-East Asia 2.1 million 30
Latin America 610 000 36
Caribbean 210 000 49
Eastern Europe and and Central Asia 490 000 34
Western and Central Europe 160 000 25
North America 260 000 25
Source: UNAIDS, AIDS Epidemic Update, December 2004 (http://www.unaids.org/wad2004/report.html;
accessed 13 April 2005).
and employment opportunities. In East Asia, North America, and Western
and Central Europe only about a quarter of HIV-infected individuals aged
15-49 years are women, but in sub-Saharan Africa women make up almost
60 per cent of this same group (see table III.10) and around 75 per cent of
HIV-infected individuals aged 15-24 years (UNAIDS, 2004).
In addition to being at a disproportionately higher risk of acquiring HIV,
females in the regions most seriously aected by the epidemic are more likely
to bear the burden of caring for infected or aected family members. Girls,
who often assume the responsibility of caring for sick parents and younger
siblings, suer the consequences of a truncated education, early entry into
the unskilled labour force, possible exploitation and abuse, and subsequent
poverty and social exclusion. Te AIDS epidemic threatens to reverse the
progress made in the past two decades in reducing the gender gap, particu-
larly in access to education.
Within-country inequalities linked to HIV/AIDS are most evident in
the area of human rights. Te stigmatization of those infected and aected by
HIV/AIDS has led to some of the worst forms of discrimination and isola-
tion within communities. Women are especially vulnerable to discrimination
when they become infected with HIV. In addition, inequalities under the
law in some areas of the world frequently leave women who survive the death
of an infected male relative without access to property or resources, driving
them deeper into poverty.
A number of other diseases also contribute to the disparities in health
and mortality indicators within and between countries. Malaria, in particu-
lar, takes a heavy toll in areas in which the disease is endemic. WHO esti-
mates that malaria kills at least 1 million people every year and contributes
to another 2 million deaths. Since about 90 per cent of global malaria deaths
occur in sub-Saharan Africa, and the overwhelming majority of those who die
are young children, the human and monetary costs of the disease fall heavily
on the region.
It is estimated that approximately 2 billion people are infected with the
bacteria that cause TB, though healthy individuals may never develop active
disease (Global Fund to Fight AIDS, Tuberculosis and Malaria, 2005). Each
year there are about 8 million new cases of TB, and approximately 2 million
people with suppressed immune systems die of the disease. Although TB is
more prevalent in developing countries, it persists in developed countries
as well, especially among lower socio-economic groups and those with HIV
(United States General Accounting Oce, 2000). Lack of compliance with
treatment regimens has contributed to the emergence of drug-resistant strains
of TB, undermining eorts to bring the disease under control. Drug-resistant
strains of TB are present everywhere in the world but are particularly preva-
lent in Africa, Central Asia and Eastern Europe (United States General Ac-
counting Oce, 2000).
In addition to being primary causes of illness and death, both malaria
and TB may serve as complicating factors aecting the acquisition, progress
or outcome of other diseases. According to the Global Fund to ght AIDS,
Tuberculosis and Malaria, one third of people with HIV will also develop
TB, as the weakening of the immune system leaves them more vulnerable to
opportunistic infections. Most of the deaths associated with TB occur among
those between the ages of 15 and 54, depriving communities of their most
productive adults.
Hunger and malnutrition
Improvements in agricultural productivity and the development of food
manufacturing and preservation technologies during the twentieth century
have produced a world of abundance. Since the early 1970s, global food pro-
duction has tripled and the price of major cereals has fallen by about 76 per
cent. Tere is more than enough food in the world for all its inhabitants, and
low-cost food supplies are produced in quantities sucient to meet the needs
of the growing global population. If food was distributed equitably around
the world, enough would be available for everyone to consume an average of
2,760 calories a day (World Ecology Report, 2005). In spite of these facts and
possibilities, appalling nutritional inequalities persist throughout the world.
Food emergencies, which can lead to famines or crises in which starva-
tion from insucient food intake combined with high rates of disease are
associated with sharply increased death rates, have risen dramatically in the
past several decades. Te number of these emergencies has increased from an
average of 15 per year during the 1980s to more than 30 per year since 2000.
Most of the crises have taken place in Africa, where the average number of
food emergencies every year has almost tripled in two decades. As of July
2004, 35 countries were experiencing food crises requiring emergency assist-
ance (Food and Agriculture Organization of the United Nations, 2004).
In many parts of the world a signicant proportion of the population
suers sustained nutritional deprivation, characterized by inadequate intake
of protein and micronutrients and by frequent infections or disease. Tis
long-term condition rarely receives media coverage, but more people may die
from its indirect eects than from famine. Malnutrition aects around 852
million people worldwide, including 815 million in developing countries, 28
million in transition countries, and 9 million in the industrialized world. In
the developing world 20 per cent of the total population is undernourished
(Food and Agriculture Organization of the United Nations, 2004).
Malnutrition is one of the primary causes of child mortality, account-
ing for about half of the 10.4 million child deaths occurring annually in the
developing world. Malnourished children who survive often experience the
long-lasting eects of disease and disability, reduced cognitive ability and
school attendance in childhood, and lower productivity and lifetime earn-
ings in adulthood. Te height and weight of almost a third of all children in
developing countries fall far enough below the normal ranges for their age to
signal chronic undernutrition, and WHO estimates that more than 3.7 mil-
lion child deaths in 2000 were directly linked to the children being seriously
underweight. In economic terms, every year that hunger remains at current
levels, developing countries lose around US$ 500 billion or more in produc-
tivity and earnings forgone as a result of premature death and disability (Food
and Agriculture Organization of the United Nations, 2004). Tis burden is
mainly borne by those who can least aord it, namely the poorest in society.
Tere are no clear signs that these trends will be reversed anytime soon.
According to the Food and Agriculture Organization of the United Nations
(FAO), the number of undernourished people in the developing world fell
by 27 million between 1990-1992 and 2000-2002 but rose at an annual rate
of almost 4 million between 1995-1997 and 2000-2002, seriously osetting
the gains achieved in previous years and resulting in a net reduction of only
9 million for the decade as a whole (1990-1992 to 2000-2002) (Food and
Agriculture Organization of the United Nations, 2004).
Tere are added dimensions to the patterns of inequality characterizing
food crises and sustained nutritional deprivation. In these situations, food
may not be divided equitably among household members, with women,
children (especially girls), and the elderly receiving proportionately less than
adult men. Dierent studies of famines have helped explain the largely hu-
man-induced economic, social and political factors that may contribute to
food crises. Whether these situations are the result of man-made or natural
disasters or a variable combination of the two, they reect the inability of
large groups of people to gain access to food in the societies in which they
live, so the impact they have on the population depends on the way society
is organized (Dreze and Sen, 1989). A study of the drought-induced famine
in Wollo, Ethiopia, describes how the peasantry were engaged in subsistence
agriculture and were generally able to manage until rising taxes and other
obligations reduced many of them to acute poverty, leaving them with few
resources or reserves with which to weather the drought (Dessalegn, 1987).
At the other end of the food spectrum, overnutrition (excessive calorie
intake) is also becoming a global problem. Tere are more than 1 billion
overweight adults in the world, at least 300 million of whom are clinically
obese (Chopra, Galbraith and Darnton-Hill, 2002). Obesity levels have risen
sharply in Australia, Canada, Europe and the United States during the past
several decades (Flegal and others, 1998). Te issue of overnourishment is
addressed further in chapter IV.
Education
Substantial global inequalities persist in the realm of education. Although a
number of developing countries, principally in Central Asia, East Asia and
the Pacic, Latin America and the Caribbean, and North Africa, are on track
to achieving primary school enrolment ratios that are consistent with the
Millennium Development Goals, signicantly lower levels of educational
progress and achievement are still being registered in sub-Saharan Africa and
South and West Asia. In many countries school enrolment has improved,
though in a number of areas completion rates remain low, especially among
girls. Africa, especially sub-Saharan Africa, lags behind other developing re-
gions, and a redoubling of eorts is required to overcome the regions unfa-
vourable initial conditions in terms of human capital.
Table III.11 illustrates the wide disparities in the educational status of
household members both within and between selected developing countries.
6

Incorporating two separate groupings, the table shows the countries with the
highest and lowest proportions of uneducated males in the household, along
with the extent of gender-specic educational inequality within and between
countries for urban, rural and all households. Overall, the proportions of
male household members who have had no education range from just under
3 per cent in Armenia to more than 70 per cent in Burkina Faso and Niger.
Even more striking are the wide disparities in household educational attain-
ment within countries. Tere are signicant urban-rural dierentials, with
rural residents far more likely to have no education. In virtually every coun-
try, female household members in both urban and rural areas are more likely
than males to be uneducated.
Existing gaps in the educational attainment of household members reect
decades of unequal educational opportunities. Table III.12 shows the dier-
ences in primary school enrolment between world regions. Te net primary
school enrolment ratio of 84 per cent at the global level conceals the much
better performance of Central Asia, East Asia and the Pacic, Latin America
and the Caribbean, and North America and Western Europe, all of which
have ratios of over 90 per cent for 2001; it also fails to convey the much worse
situation in sub-Saharan Africa, where net enrolment is only 62.8 per cent.
Female enrolment ratios are generally lower than those of males.
Te three regions faring the worst had the most substantial increases in
primary school enrolment between 1998 and 2001, and two of them had
very large numbers of students enrolled at this level. In sub-Saharan Africa
alone, primary enrolment jumped by more than 11 million during this short
period. While higher enrolment helps narrow the gaps in access to education,
it also places increased pressure on the education systems of countries that are
least able to handle it. Consequently, the quality of public education has suf-
fered in many countries, and those who have sucient resources and opt for
a more expensive private education are augmenting their social and economic
advantage over the poorer segments of society.
Studies indicate that inequality declines as the average years of schooling
increase, with secondary education producing the greatest pay-o, especially
for women (Cornia and Court, 2001). Given this fact, the global situation
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with regard to secondary and higher education is even more disquieting than
the situation at the elementary school level. In table III.13, school enrolment
statistics for the major regions and the world as a whole are used to show the
extent of educational inequality at the secondary level; data on tertiary enrol-
ment are more incomplete and less comparable. Te table indicates that net
enrolment ratios were signicantly lower at the secondary level than at the
primary level in 2001. Central Asia, Central and Eastern Europe, and North
America and Western Europe had the highest levels of secondary enrolment,
with ratios of over 80 per cent, while secondary enrolment in sub-Saharan
Africa was a very low 21 per cent. Te data for 2001 indicate that females
were less likely to be enrolled in secondary school, except in Latin America
and the Caribbean and in North America and Western Europe. Between
1998 and 2001 net secondary enrolment among young women improved
markedly in Latin America and the Caribbean; Africa also registered a small
increase.
Education is typically seen as a means of narrowing inequalities, and
among those who receive it, that purpose is served; however, education also
represents a medium through which the worst forms of social stratication
and segmentation are created. Inequalities in educational attainment often
translate into dierentials in employment, occupation, income, residence
and social class. In Latin America, for example, where inequalities within
and between countries are considerable, the wide disparities in occupational
earnings are directly attributable to the manner in which the market remu-
nerates those with dierent levels of education (Instituto de Promocin de
la Economa Social, 1999). Although there are dierences between coun-
tries, those with six years of education earn, on average, 50 per cent more
than those with no education, and those with 12 years of education earn
more than twice as much as those with no education. Te study from which
this information is taken notes that educational dierentials explain 25 to
33 per cent of the income concentration in the countries of Latin America.
Analysis of data from the Netherlands adds an intergenerational perspective
by conrming that while a certain degree of mobility exists across income
groups from one generation to the next, there is a strong tendency for edu-
cational segmentation to persist across generations (de Graaf and Kalmijn,
2001).
In summary, the huge and persistent inequalities in education have far-
reaching eects, leading to inequalities in employment, wages, health, power
and social integration. To redress educational imbalances and thereby re-
duce the inequalities they engender or perpetuate, eective policies and pro-
grammes that target disadvantaged groups but also focus more broadly on
improving educational access and quality for all must be implemented. Te
gender gap in education requires particular attention to ensure that neither
sex is favoured over the other. Te quality of education also needs to be
addressed.
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Conclusion
A mixed picture emerges from the recent developments relating to factors
that may inuence levels of inequality within and between countries. Tere
has been progress, especially in reducing inequalities in health and education,
but there have also been signicant setbacks. Te sources of existing inequali-
ties are often deep-rooted, ranging from economic liberalization policies that
have both created and sustained inequalities to sociocultural factors that have
impeded eorts to address them.
A number of factors have inuenced the patterns and trends examined in
this chapter. With respect to income distribution, for example, the evidence
clearly suggests that overall gains at the global level derive largely from the
exceptional economic growth in China and India; most other countries have
not beneted from that growth. Within-country inequality in income distri-
bution has worsened, even for a large group of industrialized countries. Pov-
erty reduction eorts have been reasonably successful in some regions, while
the poverty situation has stagnated or deteriorated in others. For example, the
number of people in China living on less than US$ 1 a day plummeted from
634 million to 212 million between 1981 and 2000, but in sub-Saharan Af-
rica the ranks of the abject poor increased by almost 90 million over a 10-year
period (1990-2000). In Latin America, economic recession and stagnation
occurring in the 1980s and 1990s had a signicant impact on poverty levels.
Among other regions the evidence paints more of a mixed picture.
Many countries continue to face deeply entrenched obstacles and chal-
lenges that undermine poverty eradication eorts. At the socio-political level,
these inhibiting factors include social exclusion and discrimination, which
translate into a lack of opportunities and political power. In some countries
poverty is exacerbated by disease and premature mortality, which deprive
families and communities of their most productive members. Progress in re-
ducing poverty is constrained in many instances by poor governance and by
the burden of geography, particularly for small and landlocked countries. A
number of economic factors hinder sustained poverty reduction as well, in-
cluding low or unevenly distributed economic growth, high unemployment,
heavy external debt, trade barriers, high levels of income inequality and com-
modity dependency.
Economic growth is considered essential for sustained poverty reduc-
tion. Liberalization policies, for example, are premised on the expectation
that the benets of increased economic growth will eventually lter down to
the poor. Tere is growing recognition, however, that regardless of how much
economic expansion a country experiences, poverty reduction is more likely
to take place in countries in which Governments have implemented policies
and programmes that promote equality, including initiatives to improve ac-
cess to resources, income, education and employment.
Non-economic indicators are also linked to the persistence and deep-
ening of various forms of inequality. All of the worlds regions have made
progress towards achieving education for all; however, large disparities are
still evident in access to both primary and higher levels of schooling, and the
quality of education remains uneven both within and between countries.
Te HIV/AIDS epidemic has exacerbated both economic and non-
economic inequalities. Infected and aected individuals and families are be-
coming increasingly vulnerable; there is often a denial of or failure to enforce
legal rights, and many lack access to basic education and health services. Te
situation is particularly alarming in sub-Saharan Africa; this region, which
has been hardest hit by the epidemic, is performing poorly with respect to
most economic and non-economic indicators, and the gaps between many
countries in the region and the rest of the world are widening.
Gender inequalities are often deeply embedded in the fabric of socie-
ties. Tere are persistent gender gaps in access to education and decent jobs,
and in remuneration for equal work. In most countries the numbers and
proportions of women in the workforce have risen over the past two dec-
ades; however, the narrowing gender gap masks the deterioration in the terms
and conditions of work among women (Razavi, 2005). Te concentration
of women in the lower-paying occupations remains high, which limits both
their actual income and their opportunities for advancement (income poten-
tial). Women constitute a disproportionate share of the worlds poor because
they often have limited access to land, capital and labour markets, and they
are more likely to be engaged in unpaid housework or low-paid domestic
work. Womens unequal access to economic and non-economic opportuni-
ties is often at the root of their lower status in many societies, and those who
are particularly vulnerable may be subject to abuse and sexual exploitation
and rendered voiceless in issues related to their own welfare.
Notes
1 High-income non-OECD countries and territories, as classied by the World Bank,
include Andorra, Antigua and Barbuda, Aruba, Bahamas, Bahrain, Barbados, Ber-
muda, Brunei Darussalam, Cayman Islands, Channel Islands, Cyprus, Faeroe Islands,
French Polynesia, Greenland, Guam, Hong Kong Special Administrative Region of
China, Isle of Man, Israel, Kuwait, Liechtenstein, Macao, Malta, Monaco, Nether-
lands Antilles, New Caledonia, Puerto Rico, Qatar, San Marino, Singapore, Slovenia,
United Arab Emirates, and Virgin Islands.
2 Te World Income Inequality Database (WIID), established and maintained by the
United Nations Universitys World Institute for Development Economics Research
(UNU/WIDER), collects and stores information on income inequality for developed,
developing and transition countries. Te WIID was compiled over the period 1997-
1999 by extending the data collected by Klaus Deininger and Lyn Squire for the
UNU/WIDER-UNDP project Rising income inequality and poverty reduction: Are
they compatible?, overseen by Giovanni Andrea Cornia, former Director of WID-
ER. As more observations were added to the database, WIDER decided to make the
database available to the public in order to facilitate further analysis and debate on
inequality (see the UNU/WIDER World Income Inequality Database, version 2.0
beta, 3 December 2004).
3 A common measure of national inequality is the Gini coecient, which assesses the
variation across individuals in a particular context. Te Gini coecient ranges from 0
(perfect equality) to 1 (perfect inequality).
4 In analyses conducted by ECLAC and the World Bank it is agreed that regional
trends are worsening. However, the analyses dier in dening trends for some of
the individual countries. While the World Bank indicates an improvement in the
distribution of income in Brazil during the 1990s, ECLAC does not conrm this
trend. In addition, the improvement observed by ECLAC in the Gini coecient for
Uruguay is not conrmed by the World Bank. Despite these dierences, ECLAC and
the World Bank reach the same conclusion for the region as a whole (J.A. Ocampo,
Latin Americas growth and equity frustrations during structural reforms, Journal of
Economic Perspectives, vol. 18, No. 2 [Spring 2004], p. 82).
5 Some of the countries hardest hit by the HIV/AIDS epidemic (including a number of
least developed countries) do not have to abide by the provisions of the WTO Agree-
ment on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement)
until 2016; the Doha Declaration on Public Health states that countries can make use
of article 31 of the TRIPS Agreement and produce the drugs they need (the restric-
tions are on exports of generics). Te diculty therefore lies not in obtaining produc-
tion rights but in the lack of manufacturing capacity and the limits on the exports of
generics from those countries that have to conform with the provisions of the WTO
agreements (such as India, which has issued a new law).
6 Te table includes data obtained at the household level for developing countries that
have undertaken national Demographic and Health Surveys.
81
Chapter IV
Inequalities and social integration
Inequalities and the lack of opportunities contribute to social disintegration.
Many remain excluded from the political process, and the hopes, aspirations
and concerns of those who have no chance to express themselves are frequent-
ly overlooked and ignored. Entrenched power systems that tend to favour a
select minority reinforce these inequalities and discourage social integration.
Ensuring that equal opportunities are guaranteed under the law and in
practice is essential for social development, and is especially critical for the
empowerment of poor people. Even when the poor and marginalized are
invited to express their views, it is unlikely that their needs and interests will
be given much policy attention unless mechanisms are in place to ensure the
realization of their objectives. Elected institutions should serve as the prime
vehicle through which vulnerable groups can secure eective representation.
Te most recent wave of globalization has contributed to an increasing
homogenization of consumption and production patterns. Globalization has
improved the quality of life for many; however, excessive consumption can
apply severe pressure on the natural resource base and increase distributional
inequalities. Te present inequalities and deprivation in both consumption
and resource use are likely to be passed on to succeeding generations.
A society characterized by extreme inequalities and the lack of opportu-
nities can become a breeding ground for violence and crime. Te widespread
and systematic destruction of human life is the ultimate indicator that eorts
to improve social integration have failed. Tis failure manifests itself in a
number of dierent ways, including rampant crime, the high incidence of
interpersonal violence and armed conict. Tere is seldom one simple reason
for the increased tendency towards extreme violence; however, it is clear that
inequality, especially horizontal inequality (disparities between groups), in-
creases the likelihood of conict. Another factor is the inability of a growing
number of countries to fully integrate youth into society, especially in terms
of employment. Today, almost half of the world population is under 25 years
of age, and many developing countries are faced with a younger generation
that is much larger than ever before. Most labour markets are unable to ab-
sorb all of the young people seeking work; statistically, youth unemployment
rates are two to three times higher than those for adults. Faced with such
bleak prospects and feeling a sense of injustice, young people often experience
anomie and may turn to violent behaviour.
Te notion of social integration is not limited by time and space, but
represents the understanding that present and future generations are entitled
to social justice and equality. Te decisions made today aect present and
future social integration patterns and the opportunities created therefrom.
Te notion of intergenerational equity assumes that each generation will look
after its own needs in a manner that does not disadvantage or harm the next;
future generations should not be neglected or made to pay the price for eco-
nomic and social policies adopted long before their time. Every generation
is a custodian for the next and is also responsible for ensuring the well-being
of members of the previous generation once their productive years are past.
Each generation is entitled to environmental, cultural, economic and social
resources.
Eorts to strengthen security and curtail violence have intensied around
the globe, but little has been done to address the socio-economic causes of
conict. Governments have increased defence spending in many countries,
often diverting human and nancial resources away from development. Tus,
there is a risk that security concerns will further marginalize the social agenda
at both the national and international levels, especially in times of height-
ened public concern over real and perceived threats. Tis situation has com-
pounded the challenges and diculties analysed in this Report, precluding the
implementation of comprehensive strategies essential for social development,
including the creation of an enabling environment and the strengthening of
institutions.
Intergenerational dimensions of inequality
In every society there are certain moral obligations between generations. Te
notion of an implicit agreement between generations dates back to the Greek
philosophers; this intergenerational social contract is based on the presump-
tion that each generation should take care of the other and has constituted a
central pillar of many dierent societies. It has been argued that such a con-
tract among citizens must contain something for everybody (Rawls, 1971).
Te manner in which the intergenerational contract is currently honoured
varies across societies. In most developing countries, intergenerational sup-
port is sustained within a wide kinship network and sometimes through com-
munity interaction, while in developed countries the State mediates and/or
supports the contract to varying degrees.
In most societies there is a general consensus that the State should take
the lead in key areas. For example, in many countries, the Government is the
primary provider of education and health care. Te public sector may also
provide social assistance and protection for children, the family, older persons
and other vulnerable groups. With the demographic shifts and economic,
social and political developments around the world, the nature of intergen-
erational contracts and relationships is continually evolving. Tere has been
some debate on the issue of intergenerational equity and the cost of sup-
porting older persons through State pensions and health-care provision.
Inequalities and social integration 83
As societies and their demographic composition change, there is a need
to refocus on the responsibilities of the dierent generations to each other,
and to adjust to the new realities. In developed countries, the present de-
bate on generational issues focuses mainly on the nancial obligations of the
younger working-age population vis--vis preceding and succeeding genera-
tions. Tere is some concern that current systems, if not adjusted, will fail
to meet the demands of the many people entering retirement in the coming
decades and will place an unsustainable burden on future generations.
Te possibility of intergenerational conict is not entirely unlikely, as
the younger members of society may eventually be unwilling or unable to
support the older members. Tis debate is usually framed in economic terms
and revolves around the funding of pensions, dissaving, health costs and the
reallocation of resources. However, while acknowledging that demographic
shifts might require adjustments not only in pension formulas and funding
sources but in a broad range of policies, the larger debate from an intergen-
erational perspective should really be about the nature of the social contract
in each country.
Tere is no consensus on the aordability of social protection for older
persons. It is argued, in the case of the European Union (EU), that relatively
small changes in the benet structure would keep expenditures at current
levels, and that the debates on aordability are really debates about social
cohesion, societal concepts and values rather than economic parameters (Ci-
chon, 1997). Some contend that the growing emphasis on promoting self-
responsibility, especially for older persons, will undermine intergenerational
solidarity and lead to a general weakening of overall social cohesion (Walker,
1993).
Research shows that in developing countries, nancing small pensions
for older persons benets not only the recipients but their families as well,
as societys elder members consistently invest money in their ospring and
younger dependents and contribute to the social capital of future genera-
tions (HelpAge International, 2004). Intergenerational coping mechanisms
may be adversely aected by the failure to recognize and address the negative
impact of certain policies and programmes on the intergenerational support
system. It is only recently that Governments in sub-Saharan Africa have be-
gun to acknowledge the fact that huge numbers of grandparents are caring
for orphans whose parents died of HIV/AIDS, and in many areas social pro-
tection measures are being instituted to allow them to continue to do so, or
to improve their capacity to provide better care. Still, many older persons
continue to struggle with meagre resources to provide for orphans within the
family structure.
Te traditional debate surrounding pensions and health-care funding
tends to obscure the fact that intergenerational equity is inuenced by a mul-
titude of factors. Researchers are now beginning to investigate other intergen-
erational transfers at both the family/community and macro levels, studying
the transmission of poverty and of human, environmental, nancial, socio-
cultural and socio-political capital, and are also examining the ways in which
social and economic structures and norms may positively or negatively aect
such transfers (HelpAge International, 2004).
Eorts must be made to balance national budgets over an extended pe-
riod to ensure the overall equitability of the tax burden across generations,
the fair and equal distribution of resources among all age groups, and the pro-
vision of essential goods and services for the benet of all in society. Govern-
ment debts should be reasonable and manageable; future generations should
not be made to pay for present spending habits. Economic, social and envi-
ronmental policies should complement each other to ensure the well-being
of future generations.
Many developing countries are burdened with a sizeable national debt.
Much of this debt was accumulated during the 1960s and 1970s, and the
decisions taken then continue to aect the policies of today. Debt service
as a percentage of GNP remains well over 10 per cent in several countries
(United Nations Development Programme, 2004b), seriously constraining
current scal and social policies and ultimately curtailing the opportunities
of future generations.
Some policy makers have been looking at ways to reduce expenditures
on State-nanced and State-supported programmes essential for intergen-
erational and social cohesion, while at the same time, demographic trends
indicate an increase in longevity in most societies and the coexistence of three
and four generations. Te combination of reduced social and economic sup-
port for older persons and even greater reliance on informal intergenerational
coping mechanisms will further undermine the intergenerational contract.
Tere is a need to move beyond the narrow economic eciency model
in assessing the value and meaning of the intergenerational contract to each
society. Te value the intergenerational contract brings to society in the form
of social cohesion and the readiness of societies to honour their social com-
mitments must be celebrated. Governments need to pursue policy changes
that support and sustain an inclusive society and not simply look for ways
to cut costs while bemoaning the burden older persons represent, thereby
ignoring their past and present contributions to society.
Consumption, inequality and social integration
An analysis of consumption patterns can provide insights into individual well-
being that complement an exclusively income-based approach to inequality.
Such patterns constitute an important measure of exclusion, as they identify
who does and who does not have access to resources, goods and services. Tey
also highlight the relative deprivation of certain groups in society, a persistent
problem worldwide.
Data reveal that observed rates of growth in household consumption
vary widely among regions. Over the past 25 years, household consump-
tion has increased at an average annual rate of 2.3 per cent in industrialized
countries and 6.1 per cent in the emerging East Asian economies; in Africa,
however, the level of household consumption has decreased by 20 per cent
over this period (United Nations Development Programme, 1998).
Te wealthiest 20 per cent of the population in the highest-income coun-
tries account for 86 per cent of total private consumption expenditures, while
the poorest 20 per cent worldwide account for just 1.3 per cent. Te inequali-
ties in consumption are illustrated by the fact that the wealthiest 20 per cent
have 74 per cent of all telephone lines and consume 45 per cent of all meat
and sh, 58 per cent of total energy, and 87 per cent of all paper, while the
poorest 20 per cent have only 1.5 per cent of all telephone lines and consume
just 5 per cent of all meat and sh, 4 per cent of total energy, and less than 1
per cent of all paper (United Nations Development Programme, 1998).
As these consumption levels imply, the material benets of global devel-
opment have largely accrued to the wealthy in the industrialized countries.
Te consumption gap may narrow somewhat over time, but with the nite
natural resources available, it would be impossible for the estimated 2.8 bil-
lion people currently living on less than US$ 2 a day to ever match the con-
sumption levels of the richest group.
With the burgeoning of a new elite comprised of those beneting most
from globalization, patterns of consumption have emerged in developing
countries that mimic those prevalent in developed countries. Conspicuous
consumption is becoming more widespread in many regions of the world as
the desire for status and for social distinction at the personal and group levels
propels individuals from all segments of society towards greater materialism.
Achieving status through consumption is as important to the marginalized
as it is to the well-to-do, and the pressures of conspicuous consumption are
being increasingly felt as countries become more open to global inuences
(Sanne, 1997). However, if the consumption practices of the several hundred
million auent people in the world today were duplicated by even half of the
projected global population of almost 9 billion in 2050, the impact on land,
water, energy and other natural resources would be devastating.
Te contrast between what is needed to achieve a decent standard of
living in developing countries and what is spent on luxury items is striking.
For example, US$ 35 billion is spent annually on perfume and cosmetics in
industrialized countries, which is equivalent to half of the total amount of
ocial development assistance (ODA) for 2004 (Organisation for Economic
Cooperation and Development, 2003).
Altering consumption patterns is likely to be extremely dicult but is a
critical necessity, as the eects of excessive consumption can be socially and
environmentally debilitating. It has been stated that the major cause of the
continued degradation of the global environment is the unsustainable pat-
tern of consumption and production, particularly in industrialized countries
(United Nations Conference on Environment and Development, 1992). As
developing economies continue to advance, this degradation will acceler-
ate. Te consequences of increasing consumption and production are most
strongly felt by the poor, as present patterns often have an adverse eect on
the development of communities and threaten the health and livelihood of
those who depend on immediately available resources to sustain themselves.
Because the poor in developing countries tend to live on marginal lands,
they are more vulnerable to the eects of environmental degradation. Tese
areas usually have low agricultural potential and are susceptible to oods,
landslides, drought, erosion and other forms of deterioration. Soil saliniza-
tion has been identied as a major cause of land degradation and is respon-
sible for the global loss of at least three hectares of arable land per minute
(Food and Agriculture Organization of the United Nations, 2000).
In Asia and sub-Saharan Africa, 75 per cent of the poor live in rural
areas and rely on common lands for their livelihood. In some Indian states
the poor acquire 66-84 per cent of what they feed their animals from shared
lands. Te use of resources such as communal grazing areas and forest lands
provides low-income families with between 14 and 23 per cent of their total
earnings, while for the wealthier segments of society the corresponding pro-
portion is only 1-3 per cent. A study conducted in Zimbabwe indicates that
the poor are dependent on environmental resources for up to one third of
their income, and conrms that less nancially secure families require more
natural resources for their subsistence (Commission on Human Security,
2003). It has been estimated that more than 350 million people are directly
dependent on forests for their survival; however, the growing demand for
land for agricultural use and for wood and paper production has accelerated
the process of deforestation, particularly in developing countries. Once the
forests have been harvested, much of the land quickly degrades and is not
suitable for long-term farming or grazing (Commission on Human Security,
2003; Roper and Roberts, 1999).
Existing inequalities are compounded by increased environmental vul-
nerability, and the eects are felt most strongly when natural disasters occur.
In the 1990s, more than 700,000 people lost their lives as a result of natural
disasters. While this casualty gure is lower than in previous decades, the in-
tensity and frequency of such events and the numbers of those aected have
increased substantially. More than 90 per cent of the victims of natural dis-
asters reside in developing countries. In 2002, rains in Kenya displaced more
than 150,000 people, and over 800,000 people living in China were aected
by the most severe drought seen in a century (United Nations Environment
Programme, 2002; Worldwatch Institute, 2003).
Te earthquake and tsunami disaster that devastated parts of South-East
Asia in late December 2004 demonstrated the eects of unequal socio-eco-
nomic vulnerabilities. Addressing the General Assembly meeting on the tsu-
nami and the longer-term recovery and reconstruction, the Secretary-Gen-
eral of the United Nations said, We know from experience that the poor
always suer the most enduring damage from such natural disasters (Annan,
2005a).
Inequalities in access to resources are also important in relation to man-
made disasters. With the increasing land degradation in many regions, mil-
lions of people are unable to produce enough food to sustain themselves and
their families. Such a situation increases social tensions and vulnerabilities
and can trigger both conict and mass migration. In many developing coun-
tries, competition and the struggle for control over scarce resources leads to
violent clashes as dominant groups attempt to subdue and marginalize indig-
enous and tribal peoples that reside in verdant areas in order to secure access
to their land and resources (Food and Agriculture Organization of the United
Nations, 2005b). Famine can provoke civil war, as demonstrated during the
drought in the Horn of Africa in the 1970s, 1980s and 1990s. During pro-
longed hostilities a vicious cycle is created when conict further reduces the
production of food and access to resources for marginalized groups (Renner,
1999).
Te substantial dierences in the quality of life between developed and
developing countries will persist for many decades, though trends and projec-
tions suggest that consumption levels in the latter will slowly rise to match
those in the former. It is a realistic presumption that as developing coun-
tries move forward, many of the resident poor will aspire to the lifestyles of
the more auent in developed countries. However, to achieve development
that is sustainable in the long run, developed countries must demonstrate
that resource-ecient, low-pollution lifestyles are both possible and desirable
(Schlvinck, 1996).
Some argue that because consumers represent the demand side of the
economy, their preferences and choices largely determine the behaviour
and output of other economic agents (United Nations, 1996). However,
whether consumers have true freedom of choice is open to question. In
modern consumer societies, individuals often become locked into consump-
tion patterns and are constrained by the overarching structure of markets
and business as well as by intense pressures from commercial marketing on
consumption habits (Sanne, 1997). It is becoming increasingly apparent
that the demand for goods and services is guided by a multitude of factors
and does not always reect free choice (Jackson and Michaelis, 2003). Te
dietary changes taking place around the world constitute evidence of the
expanding role of the commercial sector in shaping lifestyles. While these
changes may not have a direct eect on inequality per se, the indirect impact
has socio-economic implications. For example, people are spending more
of their disposable income on non-essential foodstus, which are often of
low nutritional value. In turn, these dietary changes are contributing to an
increase in non-communicable diseases, which places an added strain on the
health system.
Obesity, in particular, represents a rapidly growing health threat. Tere
are currently more than 1 billion overweight adults worldwide, and 300 mil-
lion of them are considered clinically obese (World Health Organization,
2005a). In many countries, the combination of urbanization and rising
incomes accompanying development has contributed to major changes in
nutritional patterns, leading towards dietary convergence, or the increas-
ing similarity of diets worldwide (Food and Agriculture Organization of the
United Nations, 2005a). Trade in foodstus has grown enormously; in 2001
it accounted for 11 per cent of total world tradea proportion higher than
that of fuel (Pinstrup-Andersen and Babinard, 2001).
WHO conrms that the shift from traditional foods such as sh and veg-
etables to Westernized diets that are higher in fat, sugar and salt and lower
in bre has contributed to a decline in overall health, noting that developing
countries are beginning to witness a marked increase in ailments commonly
found in industrialized countries, including heart disease and diabetes. It is
estimated that by 2020 these types of illnesses will account for two thirds of
the global burden of disease (World Health Organization, 2002).
Te younger generation is particularly vulnerable to these unhealthy die-
tary changes. Obese children are at increased risk of developing hypertension,
hypercholesterolemia, atherosclerosis and diabetes, conditions that are pre-
dictive of coronary artery disease (Food and Agriculture Organization of the
United Nations, 2002). With the increasing incidence of obesity in children,
chronic disease will become more prevalent as the population ages (World
Health Organization, 2005a). WHO projections indicate that stroke deaths
will double in the developing world over the next 20 years. Te number of
people with obesity-related diabetes is also expected to double, rising to 300
million by 2025, with the developing world accounting for three fourths
of these cases (Food and Agriculture Organization of the United Nations,
2002). If projections are accurate, these developments will have an enormous
impact on the demand for health-care and support services, placing an added
strain on the economy (Brody, 2002).
Violence and inequality
Countries that promote social integration and respect for human rights are
less likely to endure armed conict and more likely to develop and prosper.
Development, security and human rights are intrinsically linked and mutu-
ally reinforcing. As stated by the Secretary-General of the United Nations,
we will not enjoy development without security, we will not enjoy security
without development, and we will not enjoy either without respect for hu-
man rights. Unless all these causes are advanced, none will succeed (United
Nations, 2005c).
Although national and international security are necessary conditions for
social development, the increased focus on issues such as combating terror-
ism and organized crime has diverted attention and human and nancial
resources away from the development process in recent years. Tere is a risk
that the priority given to national security, a highly visible political issue, will
further marginalize the development and human rights agendas at both the
national and international levels and delay the implementation of compre-
hensive strategies aimed at building an enabling environment that promotes
social development.
One of the most positive aspects of the international climate prevail-
ing in the 1990s was the relative openness of international negotiation (ob-
structed until the mid-1980s by the strategic security interests dominating
the cold war period). Te evolution of closer relations and enhanced coopera-
tion within this context allowed the international community to place issues
of worldwide concern, such as gender, the environment, HIV/AIDS and so-
cial development, at the top of the global agenda. It also engendered a spirit
of collective responsibility that culminated in the widespread ratication of
the 1997 Mine Ban Treaty, the Optional Protocol to the Convention on
the Rights of the Child on the Involvement of Children in Armed Conict
and the Kyoto Protocol to the United Nations Framework Convention on
Climate Change. Further, the establishment of the International Criminal
Court cemented the shared commitment of Governments to ensure that ap-
propriate steps would be taken to address grave violations of human rights.
However, recent events, including acts of terrorism and armed conicts, have
created a new atmosphere of insecurity and religious and ethnic intolerance
in many parts of the world that may well undermine the spirit of common
responsibility for the protection of human dignity. It is essential that these
threats be addressed; however, it must be emphasized that long-term human
security cannot be ensured by military means alone.
While the precise nature of the relationship between violence and social
integration may not be immediately apparent, and while there are some exam-
ples of violence being used as a means of social integration, it is a reasonably
safe assertion that violence is most often a symptom of social disintegration.
Whether this violence takes the form of individual assaults, armed conict,
or expressions of self-determination, it is an indicator that societies have not
successfully fostered the full integration of all their members.
Societies in which violence is used to address grievances, force change
or maintain public order and the status quo tend to be those in which social
integration is lacking. Societies that generally promote human rights, dem-
ocratic processes and non-discrimination tend to have less need of heavily
armed security or military forces. Societies characterized by respect for diver-
sity, equality of opportunity, solidarity, security and the participation of all
people are usually less prone to resort to violence to maintain public order.
Violent crime
Tere is no simple causal relationship linking poverty and inequality with
violence. Tere are growing indications that increased inequality can have a
negative impact on economic growth and contribute to higher rates of vio-
lent crime (Bourguignon, 1999; Fajnzylber, Lederman and Loayza, 2002).
However, broad generalizations fail to convey the wide variations and more
nuanced realities on the ground. Violent conicts do occur in and between
well-o countries, while most poor countries live in peace. Poverty, inequal-
ity and deprivation do not necessarily lead to an increase in violent crime or
an immediate revolt, but they often remain in peoples memories and inu-
ence events at later stages. A holistic approach to development, in which se-
curity and freedom from violence are intrinsically linked to economic, social,
cultural and political justice and equality, represents the context in which
violence is analysed in relation to inequality and social integration.
Based on data from over 100 countries, the United Nations Survey of
Crime Trends reveals that the number of reported criminal incidents increased
steadily between 1980 and 2000, rising from 2,300 to more than 3,000 per
100,000 people (Shaw, van Dijk and Rhomberg, 2003). Te increases in over-
all rates of recorded crime have been most notable in Latin America and the
Caribbean, while slower increases have been noted in the Arab States, Eastern
Europe and the CIS, and South-East Asia and the Pacic. Data for sub-Saha-
ran Africa are insucient to identify any clear trends. Crime rates in North
America have been declining steadily since the early 1990s (United States De-
partment of Justice, 2004), while the EU has experienced a signicant increase
in recorded crime since the 1980s, surpassing North America. Recorded crime
rates for the EU and North America tend to be twice as high as the global aver-
age, indicating a signicantly lower propensity to report crime in most other
regions (Shaw, van Dijk and Rhomberg, 2003).
In determining levels of activity, homicide is a good proxy for the broader
category of violent crime as it is more frequently recorded than other crimes,
providing a relatively reliable source for comparison. Generally, countries
that are ranked high in terms of human development have homicide levels
below the global average, while all those with high levels of homicide (over
10 per 100,000 inhabitants) are either middle-income or developing coun-
tries. In Latin America and the Caribbean, homicide levels are very high and
relatively consistent (25 per 100,000 inhabitants). Sub-Saharan Africa also
shows high levels (17-20 per 100,000 inhabitants), though there is no clear
overall trend. Levels of homicide in the EU are comparatively low (under 3
per 100,000 inhabitants), and a similar trend prevails in Canada. Te United
States experienced a rise in the 1980s and a dramatic decline in the 1990s,
with the incidence of homicide dropping from just under 10 per 100,000
inhabitants to 5.6 per 100,000 inhabitants between 1991 and 2001 (United
States Department of Justice, 2004). Eastern Europe and the CIS registered
the sharpest increases in homicide, with the combined level rising from 5 per
100,000 inhabitants in the mid-1980s to 8 per 100,000 inhabitants in the
early 1990s, then declining slightly thereafter. Te trend for South-East Asia
and the Pacic showed relative consistency, with between 3 and 4 homicides
per 100,000 inhabitants. Fluctuations in homicide rates were greater in the
Arab States than in other regions, though the rates remained consistently be-
low 4 per 100,000 inhabitants (Shaw, van Dijk and Rhomberg, 2003).
Although data on crime and violence are often scarce and ambiguous,
especially in developing countries, there is sucient evidence to conrm
the signicant relationship between inequality and crime levels across both
countries and time periods (Bourguignon, 1999; Fajnzylber, Lederman and
Loayza, 2000). Te correlation between crime levels and inequality seems
to be particularly high during periods of economic volatility and recession
(Fajnzylber, Lederman and Loayza, 2002).
A strong positive correlation between inequality and crime, especially
violent crime, is observed across dierent countries and regions, as well as for
specic countries over extended periods. Some believe this can be explained
by the theory of relative deprivation, which suggests that inequality breeds so-
cial tensions, as those who are less well-o feel dispossessed when comparing
themselves with others. Te basic premise is that the necessary precondition
for violent civil conict is relative deprivation, dened as actors perception
of discrepancy between their value expectations and their environments ap-
parent value capabilities. Value expectations are the goods and conditions of
life to which people believe they are justiably entitled. Value capabilities
are the conditions that determine peoples perceived chances of getting or
keeping the values they legitimately expect to attain (Gurr, 1968). Individu-
als who feel they are disadvantaged and treated unfairly may seek compensa-
tion by any means, including crimes against both rich and poor.
Inequality does not always lead to increased violence and is by no means
the only explanation for violent crime. However, it does increase the likeli-
hood of violent crime and armed intracountry conict, especially when it
coincides with other factors. For example, the participation of many young
people in violent crime and drug tracking is linked to the intense cultural
pressure for monetary success in order to sustain a level of consumption that
confers a desired status (Kramer, 2000).
Armed conict
While it cannot be said that poverty, inequality and the denial of human
rights cause or justify assault, terrorism or civil war, it is clear that they greatly
increase the risk of instability and violence. Poorer countries are more likely
than richer countries to engage in civil war, and countries that experience civ-
il war tend to become and/or remain poor. In a country in which per capita
GDP is US$ 250, the predicted probability of war (in a ve-year period) is
15 per cent, while the probability is reduced by half for a country with per
capita GDP of US$ 600, and by half again (to 4 per cent) for a country with
per capita GDP of US$ 1,250 (Humphreys, 2003).
Violence occurs more frequently in hierarchical societies, where there is
typically an unequal distribution of scarce resources and power among iden-
tiable groups distinguished by factors such as territory, race, ethnicity and
religion. Violence is more common in countries in which levels of inequality
are higher. Countries in which poverty and inequality rates are high also tend
to have poorer social support and safety nets, unequal access to education,
and fewer opportunities for young people.
Although it is agreed that wealth and growth are generally associated
with a lower risk of conict, there is no consensus on whether certain types of
growth make conict more or less likely. Some may contend that inequality
is the primary cause of a particular conict, but there are insucient data to
support or dispute such a claim; typically there are many possible factors that
can contribute to violent conict. When investigating the potential link be-
tween levels of inequality and the incidence or absence of conicts, it should
be kept in mind that the most important aspect of inequality in this context
may not be inequality between individuals, but rather inequality between
groups (horizontal inequality). Armed conict and civil war are generally
more likely to occur in countries with severe and growing inequalities (or
perceived inequalities) between ethnic groups.
Certain levels of inequality may create stresses in society but will often
be tolerated, particularly when they remain consistent over time. However,
rising inequality can increase tensions, and when this is coupled with a lack
of institutional capacity to address the widening disparities, violent conicts
become more likely. Ethnic, religious or cultural dierences, in themselves,
seldom lead to conict. However, they often provide the basis on which bat-
tle lines are drawn, especially when other factors such as social, political or
economic inequalities are present. Ethnic identication has proved to be a
vital tool for rebel groups seeking to enhance their legitimacy and recruit new
members and support.
A society with a balanced distribution of social and economic resources
is generally better able to manage tensions with less risk of institutional and
social breakdown than is a society characterized by poverty, economic and so-
cial disparities, a systematic lack of opportunity and the absence of universal
recourse to credible institutions for the resolution of grievances (Organisa-
tion for Economic Cooperation and Development, 2001). Change can often
lead to social and political dislocations, the erosion of social cohesion and the
weakening of traditional authority structures and institutions. Economic and
political transitions inevitably raise tensions, especially when the power bal-
ance or access to valuable resources shifts among groups.
Te number of individuals aected by violence is signicant. In 2002 an
estimated 1.6 million people died worldwide from intentionally inicted in-
juries (World Health Organization, 2004). Men are more likely than women
both to cause and to die from such injuries. Globally, suicide accounts for
the majority of intentionally caused deaths (873,000), while armed conicts
(559,000) and interpersonal violence (172,000) claim considerably fewer
lives (World Health Organization, 2004). Tis pattern is reected in all re-
gions except Africa and Latin America, where interpersonal violence and war
claim most of those lives lost to intentionally inicted violence.
In 2004, more than 17 million people were living as refugees or internal-
ly displaced persons owing to violence or the threat of violence, down from
21.8 million in 2003. Te numbers of people seeking asylum in industrial-
ized countries fell to a 17-year low in 2004 (United Nations High Commis-
sioner for Refugees, 2005b). Among a group of 50 industrialized countries
the number of asylum requests fell from 508,100 in 2003 to 396,400 in
2004, a decline of 22 per cent. Since 2001, asylum applications have dropped
by 40 per cent (High Commissioner for Refugees, 2005a). Although this
would normally inspire optimism, it is likely that the decrease reects chang-
ing methods of dealing with asylum-seekers, such as the fast-track handling
and rejection of applications, rather than greatly improved living conditions
in the countries of origin. With the tighter security measures and border
controls, it has become increasingly dicult for asylum-seekers to reach their
nal destinations and le their applications, creating the impression that the
numbers of asylum-seekers have decreased.
Te above notwithstanding, 2004 was considered a reasonably good year
in terms of refugees. Most of the 3.2 million people who ed Rwanda in
1994 were able to go back to their homeland, and hundreds of thousands
of refugees returned to Angola, Eritrea, Liberia and Sierra Leone during the
year. However, even as the global community remembered the 800,000 who
died during the Rwandan genocide, more than 70,000 people in the Darfur
region of Sudan lost their lives to violence, and at least 1.8 million residents
were forced to ee their homes as their neighbours were being raped and
slaughtered. Despite the traditional calls of never again when commemorat-
ing past genocides, the international community proved to be as ill-equipped
to deal with intracountry violence in 2004 as it had been 10 years earlier.
Tere were 19 major armed conicts in 18 locations in 2003, signalling
a slight improvement over 2002, when there were 20 major conicts in 19
locations, bringing the number of major conicts down to their second-lowest
level since the end of the cold war (Dwan and Gustavsson, 2004). In only two
cases were the hostilities between States. Between 1990 and 2003, there were
59 major armed conicts in 48 locations, only four of which involved war be-
tween countries. It should be noted that although many conicts are classied
as internal, they have an international element to them in that warring factions
are supported by neighbouring countries. In recent years, most of the conicts
of this nature have taken place in Africa. Of the 25 countries ranked lowest in
the human development index in 2004, 23 are in Africa, and 20 are currently
or have recently been in conict.
Tere is increasing awareness that proactive conict prevention is more
eective and signicantly less expensive than conict resolution for securing
national and international peace and preventing the massive loss of life and
property. It has been estimated that preventive action in Rwanda in 1994
would have cost about US$ 1.3 billion, while overall assistance to that coun-
try in the wake of the genocide cost US$ 4.5 billion (United Nations, 2001).
Prevention is both cost-eective and possible; studies have estimated that in
the second half of the 1990s there would have been 25 per cent more violent
conicts in the world had preventive measures not been undertaken (Com-
mission for Africa, 2005). Te most eective conict prevention strategies,
however, are those aimed at achieving reductions in poverty and inequality,
full and decent employment for all, and complete social integration.
Youth demographics
High rates of unemployment and underemployment, especially among youth
(aged 15-24 years), contribute to the growth of all types of informal econom-
ic activity. Te incapacity of a country to integrate younger labour market
entrants into the formal economy has a profound impact on the country as a
whole, with eects ranging from the rapid growth of the informal economy
to increased national instability; in the latter case, organized crime and vio-
lent rebel groups are often able to recruit heavily from the huge supply of
unemployed youth.
In the year 2000 more than 100 countries were experiencing youth bulg-
es, which occur when young people between the ages of 15 and 24 comprise
at least 40 per cent of the national population. All of these youthful countries
are in the developing world, with most concentrated in the Middle East and
sub-Saharan Africa (United Nations, 2003). Youth bulges, which are associ-
ated with high levels of unemployment, poverty and inequality, increase the
likelihood of violent conict within countries (Urdal, 2004). Even under the
best conditions, generations that are considerably larger than those preceding
them run into institutional bottlenecks. Unemployment tends to be two to
three times higher for young people than for the general population, and the
lack of work opportunities may cause intense frustration among youth, espe-
cially if expectations have been raised through expansions in education. Te
situation is aggravated when youth bulges coincide with economic down-
turns, which further limit a countrys capacity to absorb additional labour.
Tis argument is valid for criminal activity in general. Although a higher
level of education is normally associated with a lower likelihood of conict,
this can change when unemployment is high. Deep dissatisfaction is espe-
cially prevalent in settings in which recruitment processes for political and
economic positions are closed, and in which avenues for social change and
social justice are open only to the privileged members of certain groups.
Faced with social exclusion, many young people conclude that there is
no way for them to inuence or change their own situations or society as a
whole. Without any real prospects for decent and productive employment,
young people may turn to violence. Tis decision typically has dire conse-
quences for the young people themselves, but also has far-reaching implica-
tions for society that should not be underestimated. In February 2005, dur-
ing an open debate in the Security Council relating to security issues in West
Africa, the Secretary-General of the United Nations commented, Youth un-
employment levels are shockingly high, and the accompanying desperation
carries a real risk of political and social unrest in countries emerging from
crisis, and even in those that are currently stable (Annan, 2005b).
Most of those who inict violence on others are males under the age
of 30. Young men have committed most of the war crimes and atrocities in
history, and it is young men who carry out most of the violence and killing
in conict zones today. Young men tend to make up the rank and le in
military and paramilitary forces, and also comprise the majority of civilians
involved in violent activity, either alone or in groups. Young people are also
particularly vulnerable in times of conict. Tey are more likely to be force-
fully recruited as combatants and to become victims of human tracking and
targets for sexual violence; in addition, they are deprived of educational and
socialization opportunities.
As already indicated, another important element to be incorporated in
the analysis is relative deprivation, as opposed to objective deprivation. Pov-
erty alone may not generate grievances or conict, but individuals and groups
may experience strong resentment and be more inclined to engage in violence
when they perceive a gap between what they have and what they believe they
deserve or what others have. Tis tendency is particularly pronounced among
easily identiable groups with a strong collective identity based on ethnicity,
religion, language or culture.
Te attitudes and behaviour of one generation can have a signicant
eect on the psychological and behavioural development of another. Te
characteristics, values and outlook of a particular generation can inuence
the choices made by the next, as well as the outcome of those decisions.
Te inheritance of opportunities has already been addressed, but the inter-
generational legacy can also include beliefs and principles, parenting styles,
the tendency towards delity or adultery, and even depression, trauma and
violence. Tis phenomenon often exacts a social price. Perceptions are fre-
quently passed down through the generations, which may result in a deepen-
ing of discrimination against particular ethnic or religious groups or against
persons with disabilities, for example. For those who inherit mental illnesses
or negative behavioural tendencies, there are actual costs associated with re-
habilitation and social costs associated with leaving them untreated. A par-
ticularly high price is paid by those who receive such a legacy; if individuals
are exposed to negative or damaging inuences at an impressionable age, the
eects and implications can extend throughout their lifetime and that of their
descendants.
Rape and child soldiers
Rape has accompanied war and other forms of conict throughout history.
Sometimes it occurs with the breakdown in law and order as armed combat-
ants in a position of relative power take advantage of unarmed civilian wom-
en. At times, however, sexual assault is a part of a groups or Governments
policies. It has been a consistent feature of religious crusades, revolutions,
liberations, wars of imperial conquest and genocides. It is used to punish
enemies and reward victors. In war, as in peace, it is the most vulnerable
members of society, including women, refugees, minority groups, the young
and the poor, who suer disproportionately from sexual assault.
On the subject of protecting women and girls from rape and sexual vio-
lence in conict situations, the most that can be said is that the international
community is now more aware of the need for such protection. Te problem
is as serious as it has ever been (United Nations Childrens Fund, 2005).
Since the high-prole accounts of systematic rape by soldiers in the Balkans
in the 1990s, there has been a growing general awareness of the prevalence of
rape as an instrument of war in general and of genocide in particular. Nev-
ertheless, the practice continues and has been an element of virtually every
single recent conict.
Although there are widely diverse social and cultural attitudes towards
rape and particularly towards the victims of rape, the eects on the victims
societies are remarkably similar. Te physical and psychological damage to
those who have been violated is catastrophic and can never truly be meas-
ured. During times of conict the perpetrators of rape and other forms of
sexual assault are aware of the harm done not only to the victim but to the
enemy community as a whole. Rape is frequently used as a deliberate strategy
to destroy family and community bonds and therefore constitutes a tool of
ethnic cleansing or genocide. It is deliberately used to infect women with
HIV/AIDS and other diseases, which often exposes the victims and their
families, including their children, to social exclusion and stigmatization, en-
suring that they and their communities continue to suer from the crimes
years after they are perpetrated. Children born as a result of rape often endure
stigmatization, discrimination and exclusion from their communities. Tese
circumstances reect an intergenerational dimension of social disintegration
whereby the consequences of crimes committed against one generation are
also suered by the victims descendants.
A number of underlying factors make sexual violence in conict extreme-
ly dicult to eradicate. Te subordinate status of women in peacetime often
deepens in times of conict, making them even more vulnerable to sexual
abuse. Little progress has been made in bringing the perpetrators to justice,
and because there are inadequate services for the survivors of sexual assault,
their reintegration into society often proves enormously dicult (Human
Rights Watch, 2004).
Child soldiers represent another direct result of a societys failure to en-
sure social integration. Just as rape is used as a deliberate weapon or strategy
in conict, the use of child soldiers is based on a deliberate policy of exploita-
tion; essentially, children are seen as cheap, compliant and eective ghters.
Human Rights Watch estimates that there are around 300,000 child sol-
diers in at least 20 countries, and despite increasing awareness and improved
understanding of policies that can address the use of children in war, that
number has remained fairly constant in recent years (Human Rights Watch,
2004).

Te recruitment (more accurately described as the abduction) of chil-
dren for the war in the Democratic Republic of the Congo increased dramati-
cally in late 2002 and early 2003, while the end of the wars in Angola and
Sierra Leone freed thousands of children from active armed conict.
Increased awareness of the situation of child soldiers has led to the adop-
tion of three important treaties in recent years.
1
Tese international treaties
have been almost universally embraced but have proved dicult to enforce.
Non-State armed groups constitute a particular challenge, as little can be
done to induce compliance. Tese groups are less sensitive to world opinion,
and since there is no real threat of military aid being cut o or sanctions being
imposed against either these types of groups or formal Governments for their
use of child soldiers, there is no reason to expect any signicant improvement
in the near future.
Halting the use of child soldiers must go hand in hand with the full re-
integration of these children into society. Former child soldiers are likely to
have been denied a formal education and the opportunity to acquire income-
generating skills. Often, their participation in conicts has provided them
not only with a way to earn an income but also a sense of community or
camaraderie and status. Tese young people need a viable alternative to par-
ticipation in armed conictone that meets all their basic needs. Up to now,
such reintegration components have received less nancial support than dis-
armament and demobilization eorts, creating an imbalance that may lead to
increased frustration and further violence (United Nations Childrens Fund,
2005).
Domestic violence and slavery
Another insidious symptom of the lack of social integration is domestic vio-
lence. Although men are sometimes subjected to domestic violence, women
constitute the overwhelming majority of victims. Domestic violence is a seri-
ous problem worldwide; research indicates that as many as 69 per cent of
women around the globe have been victims of physical assault by a male part-
ner. Physical violence, frequently accompanied by psychological and sexual
abuse, has a profound impact on individuals and even entire communities
(World Health Organization, 2002).
Although domestic violence occurs in all socio-economic groups, women
living in poverty appear to be disproportionately aected; further study is
needed to determine why this is the case. Research suggests that domestic vio-
lence is caused and sustained by the political, social, economic and structural
inequalities between men and women in society, and by the rigid gender roles
and power relations between the sexes (United Nations Development Fund
for Women, 2003).
Violence between partners in a marital or consensual union is often not
perceived to be as serious a crime as violence between two strangers. Tis
perception is prevalent among both public ocials and the general popula-
tion (Iadicola and Shupe, 2003). Largely through the eorts of civil society,
legal mechanisms and various public and private programmes have been in-
troduced in many countries to combat domestic and other forms of violence
against women (Jelin and Daz-Muoz, 2003). Legal and policy reforms
usually constitute the rst step, though little headway will be made unless
these measures are enforced and are accompanied by changes in institutional
culture and practice. Ultimately, however, violence against women will not
be eradicated until structural inequalities between men and women and gen-
eral attitudes in society are addressed (Chopra, Galbraith and Darnton-Hill,
2002).
Another challenge facing global society is modern-day slavery. Human
tracking and slavery are among the most extreme examples of the damage
inicted by inequality.
2
Te times of individuals claiming legal ownership
of other human beings are all but gone, yet slavery still exists and is actually
growing at an alarming rate. Te magnitude of tracking and slavery is ex-
tremely dicult to measure, given the illicit and clandestine nature of these
practices. It is estimated that between 12 million and 27 million people are
trapped in forced labour or slavery today (Bales, 2000; International Labour
Conference, 2005). Most of these individuals live in debt bondage, serving
as human collateral against loans that, in practice, are all but impossible for
them to repay; often such debts are inherited by the labourers children.
It is estimated that 600,000 to 800,000 people are tracked across bor-
ders each year. International trade in human beings as a commodity is be-
lieved to generate up to US$ 10 billion per year, an amount exceeded only by
the proceeds of the illegal trade in drugs and arms (United States Department
of State, 2004; United Nations Childrens Fund, 2005). Tese gures do not
take into account individuals who are tracked within national borders, as
they are even more dicult to identify. Te United Nations Population Fund
(UNFPA) estimates that the total number of people tracked within and
across borders may be as high as 4 million (United Nations Population Fund,
2005). Eighty per cent of tracking victims are women and girls, and a large
majority end up being exploited in the commercial sex industry. UNICEF
has estimated that 1.2 million children are tracked each year, usually for
sexual exploitation or domestic labour (United Nations Childrens Fund,
2004).
Te link between poverty/inequality and slavery is remarkably simple.
Individuals from families living in poverty are sold as goods to satisfy the de-
mand for cheap labour. Poverty and the vulnerability it creates are key in
this context. Trackers use force, fraud or coercion to trap and then exploit
their victims, who are usually women and children. Te victims are conned
by means of violence and the threat of violence, fear of the authorities (espe-
cially if they have been illegally transported to another country), drug addic-
tion, shame and family obligations. Once a slave ceases to be protable, he
or she is discarded and easily replaced with another human being living in
poverty. Tracking in women and girls ranks among the three top sources
of income for organized crime (Heyzer, 2002; United Nations Development
Programme, 1999). Te fact that tracking has become such a lucrative busi-
ness with relatively low risks, combined with the diculties in identifying
victims and trackers, clearly presents a problem in combating this crime.
Notwithstanding the considerable challenges, various actions can be and
have been taken to prevent tracking, including strengthening cooperation
between transit and destination countries, targeting the demand side of sexual
slavery, and reforming immigration laws to protect victims of tracking and
allay their fears of deportation. Governments are increasingly identifying traf-
cking as a crime, and public awareness of the problem is growing. Nonethe-
less, any progress made in this area is likely to be hard-won. Tere remains
a huge demand for immigrant and tracked labour, and there is an equally
large supply of cheap and disposable human beings that may be easily pro-
cured by means of deception, coercion and force to meet this demand. Te
demand comes from the more prosperous segments of society, and the supply
is met by the people living in poverty; the driving force in this equation is the
relative inequality between communities, countries and regions.
Fostering democracy and social integration
Promoting respect for democracy, the rule of law, diversity and solidarity can
contribute to the elimination of institutionalized inequalities and is therefore
critical to successful social integration. Countries that provide opportunities
for all people to voice their grievances peacefully and allow them to participate
in the political process and inuence policy formulation, implementation and
monitoring are less likely to experience internal conict. Some contend that
the true meaning of democracy is the ability of a person to stand in the middle
of a town square and express his or her opinions without fear of punishment
or reprisal. Tis takes democracy beyond the institutional denition to include
tolerance and acceptance at the individual and group level. It also underscores
that democracy cannot be imposed by an outside source. Where democratic
institutions are not permitted to ourish, and where there are no outlets for
peaceful dissent, specic groups become marginalized, social disintegration is
rife, and there is a greater chance for political upheaval.
Democratic, transparent and accountable governance is indispensable in
achieving social development. Tere are now more democratic countries and
a greater degree of political participation than ever before. Te 1980s and
1990s witnessed what has been called the third wave of democratization.
In 1980, 54 countries with a total of 46 per cent of the global population
had some or all of the elements of representative democracy. By 2000, these
gures had risen to 68 per cent of the worlds population in 121 countries.
However, there is some scepticism about the consolidation of newly planted
roots of democracy in some regions; the momentum gained during the 1990s
appears to be slowing and in some places may be receding (United Nations
Development Programme, 2002).
Democratic political participation consists of more than voting in elec-
tions. Te ideal of one person, one vote is often undermined by unequal
access to resources and political power. Tus, there is a danger of decreased
motivation to participate, demonstrated by low voter turnouts, unequal
capacities to participate in the democratic process and ultimately unequal
capacities to inuence policy outcomes. Formal political equality does not
necessarily create increased capacities to participate in political processes or
inuence their outcomes, and the transition to democracy does not in itself
guarantee the protection or promotion of human rights.
Civil, cultural, social, economic and political rights are essential for
maintaining a democratic society. Tese human rights are mutually reinforc-
ing and must include freedom of association, assembly, expression and par-
ticipation for all citizens, including women, minorities, indigenous peoples
and other disadvantaged groups.
3
Respecting and upholding human rights
is crucial not only for the well-being of individuals, but also for the active
engagement of citizens and the well-being of society. If democracy is to our-
ish, it is not enough to enshrine these freedoms in legislation; they must be
backed up and protected by policies and political will to ensure that all people
have the opportunity to participate actively in the processes that aect their
everyday lives.
Democracy is not an achievement but a process that must be continually
reinforced at all stages by the internal actions and institutions of the State as
well as by the international community. It is necessary to operate under the
assumption that democracy is within the reach of any country or region. It
is also essential to acknowledge that democratization does not mean the ho-
mogenization of cultures; in a true democracy diversity is a source of enrich-
ment and empowerment. One of the fundamental principles of democracy is
the right of all individuals to freely express and defend alternative viewpoints
both privately and in the context of political participation. In light of the
tremendous benets at all levels, opportunities to strengthen democratic in-
stitutions should not be missed.
Participation is central to the development process and is essential for its
success and sustainability. Although often overlooked in the past, margin-
alization has emerged as a critical element in the re-evaluation of poverty re-
duction strategies. Nonetheless, many policy prescriptions are still designed
without adequate analysis of how they might aect the poor. Te most vul-
nerable groups in society, including the poor, remain outside the sphere of
political activity and inuence, excluded from the formulation, implementa-
tion and monitoring of the very policies developed to address their plight.
As a result, poverty reduction programmes may suer from an urban bias,
despite the fact that three quarters of the worlds poor live in rural areas
(International Fund for Agricultural Development, 2004).
In some countries, stakeholders have successfully advocated for an in-
crease in the share of public resources allocated to social development. How-
ever, even in countries in which poverty programmes have been developed
through widespread consultations, the priorities identied are not necessarily
linked to budget mechanisms, and the nal programmes may fail to target
the poorest.
Enhancing womens political participation is one means of achieving
social empowerment. In 2003, women held only 15 per cent of national
parliamentary seats worldwide, an increase of slightly less than 2 percentage
points since 1990. Te Nordic countries have come closest to achieving gen-
der parity in political representation; in 2003, women comprised 40 per cent
of national parliamentarians, more than double the average for developed
countries as a group (United Nations, 2004c). Excluding half the population
from the political process represents a poor use of human capital and is ulti-
mately a recipe for poorer performance at all levels. Socio-economic obstacles
to womens political participation include poverty or inadequate nancial
resources, limited access to education, illiteracy, limited employment options
(in terms of both work opportunities and choices of profession), unemploy-
ment, and the dual burden of domestic duties and professional obligations.
Te proportion of a countrys budget earmarked for the needs of women
and girls is often an accurate indicator of the countrys priorities. Budgets are
never gender-neutral, and in recent years it has been recognized that gender-
responsive budget initiatives represent a tool for promoting gender equality
and the human rights of women in numerous countries (United Nations
Development Fund for Women, 2001).
Indigenous peoples have been discriminated against throughout history
and are still frequently denied their basic human rights, in particular their
cultural rights and the right to exercise control over their land and natural
resources. Tey are often excluded from the political process. It is critical to
ensure their participation so that their concerns can be addressed and another
step can be taken towards the achievement of a more equitable society.
Persons with disabilities have also been consistently discriminated against
and left without an opportunity to engage actively in the political process.
Studies indicate that individuals with disabilities are up to 10 times more
likely than others to become victims of crimes, often perpetrated by family
members or care providers (Petersilia, 2001). Te current consultations for
the Comprehensive and Integral International Convention on the Protection
and Promotion of the Rights and Dignity of Persons with Disabilities repre-
sent an important step in ensuring the protection of this groups fundamental
human rights.
Policy discussions on youth and older persons often reect an under-
estimation of their contributions to society and a lack of understanding of
their needs. To ensure an inclusive democracy that promotes intergenera-
tional equality, these groups must be integrated into the entire policy-making
process.
Conclusion
In many places, social integration remains a distant ideal. Communities world-
wide have had to endure enormous pressures as a result of the social changes
brought about by globalization. Increases in poverty and inequality and the
decline in opportunities have had a serious adverse eect on the well-being of
individuals, communities and even countries. It is widely felt that socio-eco-
nomic needs are not being addressed; few believe that State institutions act in
their best interests, and many communities are dissatised with their economic
situation. Negative perceptions of community well-being and future prospects
can leave many discouraged, making it dicult to ensure the participation and
investment of all members of a society in the development process.
Since the events of 11 September 2001, global security has risen to the
top of the international agenda and has become a focus of increasing concern
among the general population. In an international survey conducted by the
World Economic Forum, 45 per cent of the respondents felt that the next
generation would live in a less safe world, while only 25 per cent believed that
the world would be a safer place for future generations (World Economic Fo-
rum, 2004). Te Middle East and Western Europe were the most pessimistic
about future security; Africa, Eastern and Central Europe, and Western Asia
were the only three regions that displayed higher levels of optimism than
pessimism.
Accompanying this growing perception of increased insecurity is an ex-
pansion in the privatization of security. As previously noted, globalization,
deregulation and the weakening of the State are contributing to the growth of
the informal economy, and these trends are aecting the criminal black mar-
ket and the growth of the private security sector.
4
Tree interlinked trends in
the growing privatization of security and violence have been identied; they
include the increasing availability of small arms to the public, the expansion
of private security arrangements and the increased involvement of mercenar-
ies in armed conict (Klare, 1995). While most large-scale weaponry remains
under State control, the same cannot be said of the many dierent types of
small arms used in the low-intensity conicts that have taken place since the
end of the cold war. Tree in ve of the estimated 640 million rearms in the
world are held by civilians (Commission on Human Security, 2003).
Surveys conducted in Africa, East Asia, Europe and Latin America in-
dicate that a growing majority of individuals feel they have no control or
inuence over the economic, political and social factors that aect their lives.
Economic and security concerns are causing a great deal of anxiety, and there
is little condence in the ability or commitment of State institutions to man-
age these growing problems. Countries that have recently undergone pro-
found changes tend to display higher levels of optimism (World Economic
Forum, 2004).
Negative perceptions of political processes indicate that increased eorts
are required to integrate all segments of society in political life. It is impera-
tive that all individuals have equal access and opportunities to participate in
the political process, not only for the sake of justice, but also to ensure that
full advantage is taken of a countrys human resources and to promote peace
and stability. Empowering local groups to take part in the building and im-
provement of their own communities will make development projects more
eective. Involving people in the decision-making processes that aect their
daily lives and well-being will signicantly reduce the risk of conict.
Te process of social integration is likely to become even more dicult
with the demographic and economic changes expected to occur over time.
Te intergenerational contract, which has provided an eective system of
mutual support over the centuries, will be seriously challenged in the com-
ing decades. Many believe that the demographic shifts occurring around
the world have ominous implications; the perceived societal threat is often
framed in apocalyptic terms that portend power struggles. While changing
social, economic and political realities represent an enormous challenge for
every society, appropriate planning and sound policy implementation can
create opportunities to ensure the well-being of all.
Social integration is a social issue, but it is also an economic, environ-
mental, political, security and human rights issue. Te creation of peaceful
and productive societies requires the achievement of social integration based
on respect for human rights, the principle of non-discrimination, equality of
opportunity and the participation of all people, with account taken of the
rights and needs of both present and future generations.
Notes
1 Te Rome Statute of the International Criminal Court denes the conscription, en-
listment or use in hostilities of children under the age of 15 as a war crime; the Worst
Forms of Child Labour Convention, 1999, prohibits the forced recruitment of chil-
dren under 18 years of age for use in armed conict; and the Optional Protocol to
the Convention on the Rights of the Child on the involvement of children in armed
conict establishes 18 as the minimum age for participation in armed conict.
2 For a denition of tracking, see article 3 of the Protocol to Prevent, Suppress and
Punish Tracking in Persons, Especially Women and Children (also referred to as
the Palermo Protocol), supplementing the United Nations Convention against Trans-
national Organized Crime.
3 Te issues of these social groups are extensively addressed in the Report on the World
Social Situation, 2003.
4 It is questionable whether dierentiation between the black market and the informal
market is necessary or useful, given that neither is regulated and both are generally
outside the reach of the law and are illegal to one degree or another. Tese essential
similarities aside, there is certainly a dierence between the market trader selling ag-
ricultural products who fails to pay the State sales tax and the small arms trader who
provides rebel groups with automatic weapons.
105
Chapter V
The changing context
of development and inequality
Previous chapters build the case for focusing on inequality, highlighting the
stark contrasts within and between countries. It is appropriate at this juncture
to explore the dynamics underlying this unwelcome reality.
National and international events and circumstances have had a major
impact on the pace and level of social development. Globalization stands out
as one of the most important phenomena inuencing social development in
the twenty-rst century; of particular signicance is the asymmetry of glo-
balization, which has led to the emergence of winners and losers. Te
new international trade regime has serious implications for the hopes raised at
the World Summit for Social Development in 1995. Structural adjustment
programmes and market reforms have shaped the economic and institutional
context in which nancial and trade liberalization have unfolded in recent
decades. Tese changes have generally had a negative impact on the welfare
of individuals, groups and communities worldwide, and have some negative
implications for future development.
With the combined challenges of globalization and market reforms, in-
cluding nancial and trade liberalization, it becomes evident that the path to-
wards social development can only be charted once the political and institu-
tional dimensions of the current international context are better dened and
any shortcomings identied and addressed. Clearly, the quality of governance
and of policies formulated within national frameworks can either promote or
impede social development. One pressing issue requiring closer attention is
nancing for development.
Teories of economic convergence suggest that the increasing integration
among countries brought about by globalization will promote the conver-
gence of income levels and a consequent reduction in overall income inequal-
ity (Barro, 1991; Barro and Sala-i-Martin, 1992; Ben-David, 1993). Existing
evidence seems to refute this premise, however, and some studies question
whether globalization in its current form can contribute to reducing inequali-
ties worldwide.
Globalization: asymmetries and the loss of policy space
Te current global economic system is circumscribed by an international
agenda dominated by the issues of free trade, intellectual property rights,
nancial and capital account liberalization, and investment protection. Con-
spicuously absent from the agenda are items of critical importance to devel-
oping countries, including international labour mobility, international taxa-
tion of capital income, nancing mechanisms to compensate marginalized
countries and social groups, and mechanisms for ensuring macroeconomic
policy coherence among industrialized countries and a consequent reduction
in the exchange rate volatility among major currencies. Te same issues tend
to be assigned varying levels of priority and urgency by dierent groups of
countries, and market competitiveness can place countries in direct opposi-
tion to one another. For example, products of vital economic importance to
developing countries, such as agricultural and labour-intensive manufactured
goods, are given the highest levels of trade protection in developed countries,
as evidenced by the provision of massive subsidies. In addition, service nego-
tiations remain focused on products and services of major concern to devel-
oped countries, including telecommunications and nancial services, while
modalities that are of particular interest to developing countries, such as the
mobility of labour (particularly unskilled labour) for the provision of services,
are neglected (Ocampo and Martin, 2003).
One of the more important asymmetries relates to the unbalanced agen-
da underlying the current process of globalization; more precisely, there is a
contrast between the rapid pace of economic globalization and the relative
weakness of the international social agenda (deriving largely from the very
poor accountability and enforcement mechanisms in the realm of social de-
velopment). Tere is increasing recognition of the need to provide the neces-
sary space in the international system for the protection of political, social,
economic and environmental global public goods (Ocampo, 2005).
As implied in this Report, the policy space in most countries is some-
what constricted under the current international trade and nancial system.
Global competitive pressures tend to restrict a countrys policy choices and
often have an adverse eect on social development, since decisions or actions
required to advance social policies and social equality are usually perceived
as unnecessary costs. Put simply, social development policies are often mis-
takenly considered to be in conict with the preservation of a countrys
international competitiveness.
Te desire of developing countries to attract foreign investment and ex-
pand exports has frequently led to a race to the bottom in which labour
protection and environmental standards are ignored or compromised to make
the countries more competitive in the international market. As this suggests,
external competitive pressures have restricted the ability of some countries
to pursue certain aspects of social policy and have therefore undermined the
progress of social development.
1

Noting the prevailing asymmetries in the world economy, the United
Nations Conference on Trade and Development (UNCTAD), in the Plan
of Action adopted at its tenth session in Bangkok in February 2000, calls for
enhanced bilateral and multilateral eorts to safeguard vulnerable popula-
tions and for the benets of globalization to be more widely shared, stating
The changing context of development and inequality 107
that there is no automatic process by which the income levels of develop-
ing countries will converge towards those of developed countries (United
Nations Conference on Trade and Development, 2000, para. 4). Te Plan
of Action stresses the importance of eective social policies for economic
growth, noting, for example, that good health and the attainment of basic
education are essential building blocks of development and indispensable for
reducing poverty and inequality (United Nations Conference on Trade and
Development, 2000, para. 9).
At its eleventh session, held in So Paulo in June 2004, UNCTAD built
on its previous session by appealing for more coherence between national
development strategies and global economic processes in order to achieve
economic growth and development. It emphasized that most developing
countries have not beneted from globalization and are still facing major
challenges in realizing their economic potential, developing their productive
sectors and creating employment for a large proportion of their population
(United Nations Conference on Trade and Development, 2004b).
In addition, the debate focused on ways to make trade work for devel-
opment, particularly the capacity of international trade to contribute to pov-
erty alleviation and reduce instability in world commodity prices (United
Nations Conference on Trade and Development, 2004b). Tese themes were
reiterated by the ILO in the 2004 report of the World Commission on the
Social Dimension of Globalization, which stressed the importance of policy
coherence in achieving a far more inclusive globalization (International La-
bour Organization, 2004).
While UNCTAD emphasized at its eleventh session that development
was the primary responsibility of each country, it also recognized that do-
mestic eorts should be facilitated by an enabling international environment
based on multilaterally agreed and applied rules (United Nations Confer-
ence on Trade and Development, 2004b). Te Conference concluded that
to achieve sound global economic governance it was necessary to
improve coherence between national and international eorts and between
the international monetary, nancial and trade systems, so that they were
more capable of responding to the needs of development (United Nations
Conference on Trade and Development, 2004b).
Some aspects of the current international agenda pose special challenges
for developing countries. A prime example is the World Trade Organiza-
tion (WTO) Agreement on Trade-Related Aspects of Intellectual Property
Rights (TRIPS Agreement). Although the basic presumption is that eective
protection of intellectual property rights will increase technical innovation
and the transfer of technology, there are recent indications that the Agree-
ment may actually restrict technology transfer and jeopardize the interests
of poorer countries to protect those of richer countries. More broadly, the
TRIPS Agreement may increase the cost of, and thus narrow the range of
modalities for, transferring technology to developing countries.
Liberalization policies implemented in many countries in the past couple
of decades have produced important changes in the labour market and in la-
bour laws and institutions, including a shift towards greater wage exibility,
the downsizing of public sector employment and a decline in employment
security and protection. Tese changes have led to expanded informal em-
ployment, higher labour mobility and less job stability. Tere has also been
greater diversication of the issues of particular concern to workers, and a
decline in the importance and bargaining power of trade unions and other
labour institutions.
Te changes highlighted above have contributed signicantly to in-
creases in wage inequality and overall within-country inequality, especially in
medium-income developing and transition economies and OECD countries
(Cornia and Court, 2001). In view of the fact that wages constitute around
60-70 per cent of total income in most developed countries, this rising earn-
ings inequality is an important component of the increase in overall income
inequality.
In many cases, there has been a drop in real minimum wages and a sharp
increase in the highest incomes. Among industrialized economies, the wid-
ening of the income gap has been especially marked in Canada, the United
States and the United Kingdom, where the share of the top 1 per cent of
income earners has risen sharply (Atkinson, 2003). In the United States,
this groups share reached 17 per cent of gross income in 2000, a level last
seen in the 1920s (International Labour Organization, 2004). In develop-
ing and transition economies, the rise in earnings inequality has followed a
similar pattern. In Brazil and Mexico, for example, trade liberalization has
caused wages to decline, especially among unskilled labour, further increas-
ing the wage gap between skilled and unskilled workers (International La-
bour Organization, 2004). Te liberalization of trade has widened the wage
gap in six of the seven Latin American countries for which reliable wage data
are available, as well as in the Philippines and Eastern Europe (Lindert and
Williamson, 2001). Data indicate that in the OECD, Latin American and
transition economies, the rise in wage inequality was particularly dramatic
between the mid-1980s and mid-1990s, though the extent of the problem
varied (Cornia, 2004).
The impact of liberalization
and stabilization policies on inequality
Foremost among the global dynamics that help explain the root causes of
persistent inequality trends are the liberalization policies implemented in
many countries during the past two decades. Tese reforms have been applied
by countries worldwide and have had a major adverse impact on inequality
trends.
Many of the new policies and measures adopted to enhance economic
performance have not contributed to a more balanced distribution of the
benets of economic growth, but have in fact exacerbated inequalities. Avail-
able data indicate that the OECD countries that have applied the strictest
regimes in implementing these policies have been among those that have
exhibited the greatest increase in within-country inequality in recent decades
(Weeks, 2004).
Te liberalization and adjustment policies implemented over the past
two decades have contributed to the rise in inequality in several ways. Te
subsections below outline some of the components of these policies and pro-
vide insight into the negative impact they have had on income distribution
within the countries concerned and worldwide. Te review concentrates on
two of the more salient elements of these policies: nancial liberalization and
trade liberalization.
Te current international economic approach evolved in the 1980s as
the market-guided development perspective gained dominance. As noted in
previous chapters, this approach to development was based on the premise
that market forces would lead to the most ecient allocation of resources, re-
sulting in faster economic growth and ultimately an improvement in overall
development.
Te nancial crises of the 1990s and the subsequent economic recessions
in Asia, Latin America and the Russian Federation demonstrated the social
devastation that could result from unrestricted, and at times heavily specula-
tive, international capital ows coupled with procyclical macroeconomic poli-
cies. Te human impact of these crisesincluding increased unemployment,
poverty and inequality, and the erosion of social cohesion in many coun-
triesunderscores the crucial importance of fostering social development.
Experience with structural adjustment programmes exposed the draw-
backs of pursuing economic liberalization policies at the expense of social
policies. Analysis of the impact of IMF/World Bank structural adjustment
and macroeconomic stabilization reforms found increases in poverty during
periods of recession (Easterly, 2001). As mentioned in the rst chapter, pol-
icy makers gradually realized the need for a change, which culminated in the
introduction of the World Bank Poverty Reduction Strategy Papers (PRSPs)
and the IMF Poverty Reduction and Growth Facility (PRGF).
Further to the development and adoption of poverty reduction strate-
gies with pro-poor and pro-growth programme measures supported by more
equitable government budget allocations and increased scal exibility, a
new feature of the PRGF is the use of social impact analysis in connection
with major macroeconomic and structural reforms. Internal reviews indicate,
though, that the systematic incorporation of such analysis into programme
design remains one of the areas most in need of improvement (see, for ex-
ample, World Bank, 2004c; International Monetary Fund and International
Development Association, 2003).
External reviews of the PRSP and PRGF initiatives point to heightened
concern among civil society organizations over the imposition of structural
adjustment conditionalities, given their proven negative impact on poverty.
Tere is also criticism that the IMF and World Bank have not backed up
their stated commitment to poverty and social impact analysis with actual
implementation. For example, a review by the Nordic Governments of the
PRSP process revealed only a nominal linking of macroeconomic and struc-
tural adjustment measures with poverty reduction and also a failure to rely
on empirical evidence in the adoption of actual policies (Norwegian Agency
for Development Cooperation, 2003). Tese ndings led the World Bank
to acknowledge an implementation gap between planning and action, or
more precisely, the disconnection between the discourse on incorporating
social dimensions (particularly poverty reduction) in economic programmes
and actual practice (World Bank, 2004c).
Financial liberalization
Since the mid-1980s, most developing countries have taken steps to liberalize
their domestic banking and nancial sectors and open their markets to inter-
national capital ows. Tese processes have been an important cause of the
increased poverty rates and inequalities in income distribution documented
by various studies. Analysis by the World Bank shows that nancial crises
have a negative impact on wage distribution, and that this eect persists even
after economic recovery (World Bank, 2000). Another study suggests that in
Latin America the implementation of nancial liberalization measures had
the strongest disequalizing impact on wage dierentials (Behrman, Birdsall
and Szekely, 2000).
Financial liberalization has increased the level of instability and the fre-
quency of nancial crises, especially in developing countries (Caprio and
Klingebiel, 1996). For example, the liberalization of international capital
ows has made countries more vulnerable to capital ight. Te ow of capital
into a country following the liberalization of its nancial system tends to lead
to real exchange rate appreciation, which is often linked to higher real interest
rates. Higher interest rates often attract additional capital ows. Te resulting
credit expansion can trigger a consumption and import boom or a speculative
asset price bubble. Te demand expansion may prove to be short-lived, if
the consequent widening of the external balance is unsustainable, or if capital
ees the economy when the bubble begins to deate (Taylor, 2004). In
short, countries that have undertaken capital account liberalization have to
a large extent lost autonomy over their exchange rate and monetary policies,
which in turn has severely limited their capacity to implement countercycli-
cal macroeconomic policies (Ocampo, 2002a).
Problems of incomplete information and information failure have pre-
vented deregulated nancial systems from operating eectively and have led
lenders to nance unsound investments, misallocating valuable resources.
Te prominence of short-term speculative ows within these systems has de-
creased the availability of resources for productive investment and created
new constraints to development policy.
Some of the crises that have occurred in connection with major econom-
ic developments have produced severe economic and social losses. A study of
countries that experienced nancial crises between 1975 and 1994 showed
that national GDP growth declined by an average of 1.3 per cent over the ve
years immediately following the respective crises (Stiglitz, 1998).

Economic crises have also raised levels of inequality within countries.
During such crises, job scarcity reduces the demand for labour, which drives
down wages, especially among unskilled workers. Tese circumstances lead to
increased inequality both in earnings and more generally, especially in coun-
tries in which the wage declines have been substantial and in which social
protection systems have not yet been developed. Tis has been empirically
demonstrated in dierent studies that have analysed the eects of nancial
crises on wage inequality in over 60 countries since the 1970s. For example,
wage inequality increased in 62 and 73 per cent of the countries in Asia and
Latin America, respectively, following their nancial crises; however, no such
post-crisis impact was evident in developed countries such as Finland, Norway
and Spain (Diwan, 1999; Galbraith and Jiaqing, 1999).
Te liberalization of nancial and capital markets has led to substan-
tial foreign direct investment (FDI). Te eects of FDI on employment and
growth have been mixed (International Labour Organization, 2004). Such
investment has beneted certain countries, with the transfer of technol-
ogy and know-how contributing to economic development. However, these
countries already had a number of important conditions in place, including
a certain level of education among wide sectors of the population, training
institutions and some level of technological development to support the in-
vestments, and the existence of local rms able to absorb and benet from
the technology and skills transferred. Countries without such conditions, in
which the links between FDI and the local economy have been weak, have
beneted little from such investment. While the ow of investment capital
into developing countries has increased overall, FDI remains highly concen-
trated in particular areas, further exacerbating inequalities between countries
(International Labour Organization, 2004).
Trade liberalization
As mentioned previously, liberalization policies and market reforms have
produced many asymmetries. In the case of trade liberalization, the trans-
formation of the General Agreement on Taris and Trade (GATT) into the
WTO has been crucial, broadening the scope of international trade negotia-
tions and regulations beyond the reduction of taris and other direct barriers
to trade in manufactures. Many other issues viewed as impediments to the
free ow of goods and services between countries have come under the pur-
view of the WTO. An important consideration in the present context is that
WTO rules place restrictions on national policies, including social policies, if
they are judged to be inconsistent with the provisions of WTO agreements.
Any party, whether it be a country or a private interest or enterprise, can use
the WTO dispute settlement mechanisms to challenge the local and national
laws and regulations of another member country (Guimares, 2004).
Even the staunchest advocates of the market economy agree that trade
liberalization does not ensure that all actors will prosper without support ei-
ther directly from the State or through some form of regulation, particularly
in emerging economies (Lowi, 2001). One of the more dicult challenges
linked to the inequalities characterizing the new international trade regime
is the undue primacy given to free trade to the detriment of the long-term
sustainability of economic growth and social development.
Research suggests that the proliferation of free trade agreements may
further widen inequality between countries (World Bank, 2004a). A World
Bank study estimates that a broad global trade agreement could increase
world income by US$ 263 billion by 2015, with the developing country
share amounting to US$ 109 billion. However, if all developing countries
had bilateral agreements with the largest trading partners, namely the EU,
the United States, Canada and Japan, global income would rise by just US$
112 billion, or less than half the previous estimate. Further, this US$ 112
billion increase would derive from a US$ 133 billion rise in income among
the wealthiest countries and a corresponding loss of US$ 21 billion among
developing countries (World Bank, 2004a).
Te relationship between trade liberalization and poverty eradication has
recently been subjected to close scrutiny by both international organizations
and academia. UNCTAD, for example, examined the trade liberalization ex-
periences of 66 developing countries over ve-year periods (1990-1995 or
1995-2000) and concluded that the relationship between trade liberalization
and poverty reduction was neither automatic nor straightforward.
2
Similar-
ly, a review of relevant academic studies found no simple general conclu-
sion about the relationship between the two (Copeland and Taylor, 2004).
UNCTAD did indicate, however, that countries that had opened up more
gradually tended to exhibit a better trade-poverty relationship than did those
that had opened up furthest and fastest and those that had retained the most
trade restrictions against other countries.
Te empirical literature on trade liberalization in Africa identies vari-
ous channels through which trade has impacted the continent in terms of
investment composition, household welfare, income distribution and the
competitiveness of local rms (Geda, 2004). Most cross-country regressions
show that openness is positively correlated with income inequality (see, for
example, Spilimbergo, Londoo and Skezely, 1999; Fischer, 2000).
In industrialized countries, trade and nancial liberalization have con-
tributed to the widening of within-country inequalities. Te transfer of in-
dustries to lower-cost countries has pushed down the salaries of those en-
gaged in low-skilled work in the more traditional manufacturing industries
and has reduced the availability of these types of jobs in developed countries.
In recent years, this phenomenon has begun to aect other types of jobs as
well, including those in the high-technology sector.
Trade liberalization policies have aected the prospects for poverty re-
duction in both developed and developing countries. As roughly three quar-
ters of the poor live in rural areas, poverty cannot be reduced in most of
the developing world unless agricultural productivity is characterized by sus-
tained growth. Te deterioration of already low agricultural incomes is a ma-
jor factor in the perpetuation of rural poverty. While the decline in the prices
of agricultural goods may reduce the cost of consumption for poor people,
it also means lower incomes for farmers and a reduction in their demand for
other goods and services in rural areas.
Protectionist practices and agricultural subsidies in developed countries
are recognized as major factors contributing to low agricultural production
and incomes in the developing world. While imports from other developed
countries are subject to an average tari rate of 1 per cent, agricultural prod-
ucts from developing countries are taxed at 9 per cent by the United States
and 20 per cent by the EU, and textile levies average 8.9 and 7.9 per cent,
respectively. Tis asymmetry is vividly reected in the trade situation of
Latin America and the Caribbean. Te region imposes an 8.5 per cent duty
on non-agricultural imports (mostly from industrialized countries), but its
own agricultural products are subject to a 20.4 per cent duty when exported
to industrialized countries. Overall, developing countries lose in excess of
US$ 40 billion annually from agricultural exports due to the imposition of
import duties by developed countries. Tis amount is equivalent to a sig-
nicant proportion of the projected nancial requirements for the successful
achievement of the Millennium Development Goals (Guadagni, 2004).
Financing the social agenda
Financing is a crucial element for the new context for social development,
and for the concerted national and international eorts to reverse present
inequalities within and between countries. While the provision of nan-
cial resources alone does not automatically guarantee positive results, such
resources are nonetheless a prerequisite for social development. Tere has
been ample discussion of possible ways to nance social development, with
many countries undertaking commitments to increase the levels and quality
of ODA. Increased attention is also being directed towards the issues of mi-
grant remittances and domestic nancing, as well as ways to invest the peace
dividend in social development.
Ocial development assistance

Te International Conference on Financing for Development was held in
Monterrey, Mexico, from 18 to 22 March 2002. In the Monterrey Consen-
sus adopted at the Conference, heads of State and Government pledged to
undertake actions to improve nancing for development. Te Conference
marked the rst quadripartite exchange of views between Governments, civil
society, the business community and institutional stakeholders on global eco-
nomic issues.
As a component of eorts to mobilize international assistance, repeated
calls have been made for raising current levels of ODA as soon as possible to
increase the ow of resources available for social development. As a share of
the combined GNI of the 22 Development Assistance Committee (DAC)
donors, the overall level of ODA decreased from 0.36 per cent in 1987 to
0.22 per cent in 2001. Although ODA has recently begun to climb, rising to
0.25 per cent in 2004 from its lowest point in the late 1990s (see gure V.1),
it is still far below the internationally agreed target of 0.7 per cent called for
by the General Assembly 35 years ago (Organisation for Economic Coopera-
tion and Development, 2005a).
Only Norway, Denmark, Sweden, Luxembourg and the Netherlands
have met and surpassed the United Nations ODA target of 0.7 per cent. Fig-
ures for 2004 indicate a large gap between these ve countries and the other
17 DAC donor countries (with the exception of Portugal, which is close to
Figure V.1. Aid from all Development Assistance Committee (DAC) donors
as a percentage of gross domestic product: the long-term trend
to 2004
Source: iDevelopment Initiatives, Brieng on Aid in 2004 (www.devinit.org/daggs2004brief2.pdf.; ac-
cessed 20 May 2005).
meeting the target). As shown in gure V.2, most of the G-7 countries
3
al-
located a much lower proportion of their gross national income to ODA than
the United Nations target.
At the International Conference on Financing for Development, major
aid donors pledged to increase levels of development assistance. If donors hon-
our the commitments made in Monterrey, aid ows will rise to approximately
US$ 88 billion by 2006, up from US$ 78.6 billion in 2004, the highest level
of ODA to date (Organisation for Economic Cooperation and Development,
2005b). While these developments appear to represent a step in the right di-
rection, the Secretary-General of the United Nations has emphasized that

Figure V.2. Aid from Development Assistance Committee (DAC) donors
as a proportion of gross domestic product
a

Source: iDevelopment Initiatives, Brieng on Aid in 2004 (www.devinit.org/daggs2004brief2.pdf.; ac-
cessed 20 May 2005).
a
Preliminary data obtained on 11 April 2005.
substantially greater increases in ODA are needed to reach the target of 0.7
per cent by 2015. Developed countries that have not already established time-
tables for expanding ODA are called upon to do so, starting with signicant
increases no later than 2006 and achieving a level of 0.5 per cent by 2009.
Action must also be taken to increase the quality, transparency, accountability
and predictability of ODA (United Nations, 2005c).
Aid ows tend to be volatile, which can compromise their eectiveness.
ODA follows the rise and fall of economic cycles in donor countries and is
aected by both shifts in donor policies and assessments of recipient country
policies. A decline in aid generally leads to costly scal adjustments in the
form of increased taxation and spending cuts, which reinforce the cyclical ef-
fect of diminishing aid. A surge in aid ows can create macroeconomic prob-
lems, especially in countries with underdeveloped nancial sectors, which
often have low absorptive capacities. Surges can cause exchange rate appre-
ciation, which, when sustained, can lead to currency overvaluation (United
Nations, 2005d).
ODA has generally been concentrated among a select group of countries.
Because donors have tended to favour certain recipients, more than half of
the net bilateral aid disbursed since the 1980s has been directed to just 20
countries. Tis concentration has evolved largely as a result of donor percep-
tions of aid eciency (United Nations, 2005d).
Recent increases in ODA have been earmarked for expenditures on
emergency aid, debt relief, technical assistance or aid to countries that donors
deem critical for reasons of political or security, and this has eectively re-
duced the resources available to poor countries for social development (Unit-
ed Nations, 2005c). While emergency aid is important, it does not support
long-term development and does not represent a real increase in develop-
mental aid. For this reason, despite the recent increases in donor assistance,
the eective contribution of ODA to development programme nancing in
recipient countries has been limited. In other words, even with the recent
recovery in recorded donor contributions, ODA has been a declining source
of budgetary resources for developing countries, limiting their capacity to
pursue the Millennium Development Goals. In support of these Goals, the
call for increased ODA must refer specically to real cash increases (United
Nations, 2005d).
Innovative sources of nancing
New proposals are being considered for innovative development nancing
that complements existing ODA mechanisms and ensures greater predict-
ability in the ow of development assistance. Te ve-year review of the 1995
World Summit for Social Development gave new impetus to the debate on
alternative sources of development nancing. A recent study has explored
several potential options for development support, proposing both short- and
longer-run mechanisms (Atkinson, 2004). Teir adoption and implemen-
tation would depend, in part, on their feasibility and the consensus of the
partners involved. One alternative is the International Finance Facility (IFF),
a short-run mechanism that would frontload new long-term donor commit-
ments by issuing bonds in international capital markets. Tis would sub-
stantially increase the development funds immediately available and lend aid
ows greater stability and predictability. Another short-run mechanism is the
use of special drawing rights (SDR) for development purposes. Tis instru-
ment could potentially be utilized to supplement the existing ocial reserves
of countries and provide emergency nancing during crises.
Potential long-run nancing mechanisms include a global lottery and
global taxes, the revenues of which would be used for development. Te sug-
gested taxes on currency transactions, arms sales and the consumption of fuels
producing greenhouse gases could generate enough funds to combat poverty
and hunger worldwide. It is estimated that implementation of the currency
transaction tax would generate between US$ 16.8 billion and US$ 35.4 bil-
lion in revenues per annum. A tax on the emission of greenhouse gases would
provide a signicant source of development nancing while also discourag-
ing harmful behaviour. Building on the 1992 United Nations Framework
Convention on Climate Change, the imposition of a US$ 21-per-ton tax
on greenhouse gas emissions could yield US$ 130 billion per year if applied
globally and US$ 61 billion annually if applied only to wealthy countries. A
tax on arms sales could generate between US$ 2.5 billion and US$ 8 billion
annually while discouraging military spending (Atkinson, 2004).
Global taxation to nance development would have to be nationally
mandated and internationally coordinated to prevent it from being perceived
as an infringement on the scal sovereignty of participating countries. In
applying global taxation, the creation of a new international bureaucracy
should be avoided. Universal participation would not be required, though
more widespread involvement would translate into higher levels of resources
and would also reduce the risk of free-riding (Atkinson, 2004).
Arranging for migrant workers to remit their earnings through regulated
nancial institutions would provide another signicant opportunity to ac-
crue resources for development. By facilitating better access to banking in-
stitutions for foreign workers and obtaining the support of local nancial
institutions in recipient countries, joint eorts could be launched to further
reduce remittance costs.
Migrant remittances
Globalization, liberalization and the growing integration of economies have
meant that people, and not just jobs and capital, are moving across borders
in greater numbers and with increasing frequency (United Nations, 2003b).
Persistent and growing income inequalities between countries and widening
demographic disparities, combined with the availability of cheaper and more
accessible forms of transportation, have raised international migration ows
to unprecedented levels. In 2000, an estimated 175 million people (or rough-
ly 1 in 35) worldwide were living outside their countries of birth (United Na-
tions, 2004d). A growing number of migrants are moving from developing
to developed countries in search of jobs and better economic opportunities.
At their destinations, migrants are often able to earn higher incomes and im-
prove their standard of living. Migrant ows are high even within developing
regions, where forced migration and heavy refugee movements often exert
considerable pressure on limited resources.
Although many recent migrants have been admitted to a number of de-
veloped countries on the basis of family reunication (SOPEMI [Continuous
Reporting System on Migration], 2003), international migration still occurs
largely in response to perceived inequalities of opportunity between sending
and receiving countries. Historically, migrant pools have often reected a bias
towards the more skilled segments of the population in the countries of origin;
however, this trend is beginning to change in response to labour shortages
and new labour demands in many developed countries. Several countries that
seek to ll gaps in the supply of low-skilled labour tolerate undocumented
migration and visa violations, though this is often not widely acknowledged
by Governments (United Nations, 2004d).
Te heavy outow of migrants from developing countries has mixed eco-
nomic and social repercussions in both sending and receiving communities.
In the countries of origin, emigration often depletes an already limited skilled
labour force, making the benets of economic reform even more dicult to
realize. Fiscal revenue from taxation may also decline, as migrants are more
likely to be among the highest income earners. On the positive side, emigra-
tion releases jobs in the countries of origin and may provide opportunities for
those previously unemployed (United Nations, 2004d).
Migrant earnings constitute a considerable and growing source of remit-
tance ows to labour-sending countries, in spite of the sometimes precarious
economic situation of foreign workers in various host countries. Data on
remittances are incomplete and almost certainly underestimate the ows of
funds through informal channels. Nonetheless, available data suggest that
remittances totalled US$ 130 billion in 2002, with US$ 79 billion going to
developing countries. For a growing number of countries, remittances have
surpassed ODA in volume and now constitute the second largest source of
nancial ows after FDI (United Nations, 2004d).
Remittances to developing countries tend to be concentrated in particu-
lar regions. Te largest amounts go to Latin America and the Caribbean, fol-
lowed by Eastern and Southern Asia, while sub-Saharan Africa receives only
1.5 per cent of the total. Te European Union accounts for the largest source
of remittance payments, followed by the United States and countries in the
Middle East (United Nations, 2004d).
Tere is a positive statistical correlation between remittances and poverty
reduction; on average, a 10 per cent increase in the share of international
remittances in a countrys GDP will lead to a 1.6 per cent decline in the share
of people living in poverty (Adams and Page, 2003). International migra-
tion, per se, has also been shown to have a strong statistical impact on reduc-
ing poverty; a 10 per cent rise in the proportion of international migrants in
a countrys population is associated with a 1.9 per cent decline in the share of
people living on less than US$ 1 per day.
Te deployment of workers remittances and the impact they may have
on families and communities are receiving considerable attention. By and
large, migrants appear to use their incomes wisely, with the benets gen-
erally outweighing the costs of migrating. Remittances tend to be used pri-
marily for consumption rather than investment. However, they are also fre-
quently utilized to pay for the education of children and youth or to improve
the quality of housing, which are clearly investments. Even when remittances
are spent on consumption, they have an indirect eect on the community,
as consumption stimulates local economic growth (Skeldon, 2002). Grow-
ing attention has been given to the possibility of using remittances to bank
the poor at the sending and receiving ends, channelling the funds towards
more productive uses such as the nancing of small and micro enterprises
or the adoption of nancial savings and other investment strategies for both
migrant and recipient households.
It is dicult to measure the impact of remittances on inequality. Remit-
tances may intensify nancial and social inequalities, as those who migrate
tend to come from the wealthier families in a community. Overall, how-
ever, the ndings have been mixed. For example, a study in Pakistan found
that inequalities had intensied between migrant and non-migrant house-
holds, but also found that the distribution of remittances was spread over a
relatively wide range of groups and areas. A study in Tailand has indicated
that remittances to poor households may have a much greater relative impact
on poverty alleviation, even though the per capita amounts are much lower
than those sent to wealthier families (Skeldon, 2002).
Te economic impact on migrants families is often signicant, and those
who do not migrate may experience envy and growing resentment as they
witness the eects of remittances on the households of migrants. According
to a study of migration in India, such resentment contributed to an outbreak
of violent conict in which non-migrant households railed against the visible
signs of auence made possible by emigrants earnings (Allen, 2003). Sustain-
ing the positive contributions of remittances will require proper management
and recognition of the feelings of resentment and exclusion among non-mi-
grant families. Clearly, the impact of migration and remittances on sending
and receiving countries is dierent, with the social costs and benets also vary-
ing at the community and national levels.
Domestic nancing
With the implementation of liberalization policies, measures with a direct
impact on the reduction of inequalities, such as progressive taxation and
changes in the level and composition of public expenditure, have become less
redistributive in many countries. A survey of 36 developing and transition
economies indicated, for example, that during the 1980s and 1990s overall
tax progressivity and the share of direct taxes in total taxes declined, and the
ratio of taxes to GDP fell by one percentage point on average (Chu, Davoodi
and Gupta, 2000). Tax changes in Latin America eectively shifted the bur-
den of taxation from the wealthy to the middle- and lower-income segments
of society (Morley, 2000). In OECD countries in which liberalization poli-
cies have been most consistently implemented, there have been reductions
Figure V.3. Social sector spending among country groupings classied by income
Source: P. Kelly and V. Saiz-Omeaca, The allocation of government expenditure in the world, 1990-2001,
unpublished paper (New York, United Nations, Department of Economic and Social Aairs, Division for Social
Policy and Development, November 2004).
in expenditures on universal social programmes, resulting in lower transfers
from the public budget to low-income households (Weeks, 2004).
In many cases, public nance reforms have transferred responsibility for
social sector nancing and oversight from the public sector to the private sec-
tor. Tis shift is most visible in the provision of social services in a number
of developing countries, where services traditionally provided by the public
sector at subsidized rates have in some cases been privatized or outsourced to
private contractors. Te new orthodoxy favours cost recovery and a fee-for-
service approach, which has placed many services beyond the reach of the
poor. Te introduction of user fees for health care and education has resulted
in greater social exclusion, with reduced social assistance and scaled-down
public health programmes. Te increase in non-economic inequalities in ar-
eas such as education and health care both within and between countries is
highly correlated with these factors.
Te rise in non-economic inequalities is also partially attributable to the
higher government priority given to spending on areas such as economic af-
fairs and defence than to spending on health, education, social protection
and other social sector programmes. A recent study has attempted to identify
how Governments allocate their resources, focusing on the distribution of
resources between the social sectors and other areas of priority and on the
impact public spending patterns have on social development (Kelly and Saiz-
Omeaca, 2004).
Research ndings point to wide disparities in social sector spending be-
tween dierent groups of countries classied according to their level of eco-
nomic development. High-income countries spend an average of 27 per cent
of GDP on the social sectors, compared with 19 and 15 per cent respectively
in upper-middle- and lower-middle-income countries and 12 per cent in
low-income countries (Kelly and Saiz-Omeaca, 2004). Overall, rich coun-
tries devote an average of two and a half times more of their national wealth
to the health, education and welfare of their citizens than do poor countries
(see gure V.3).
Among the social sectors, the greatest variation in spending as a share of
GDP is found in the area of social protection, followed by health and, to a
lesser degree, education. On average, high-income countries funnel 15 per
cent of their GDP into various forms of social protection such as pensions,
unemployment and disability benets, and accident and medical insurance,
while upper-middle-income countries allocate 10 per cent and lower-middle-
income countries 7 per cent. Most strikingly, low-income countries allocate
less than 4 per cent of GDP to social protection, or about one quarter of the
share spent by high-income countries.
Health spending also varies signicantly among economic groupings.
High-income countries spend an average of 6 per cent of their GDP on
health, or more than double the 3 per cent allocated by low-income coun-
tries. Considering the importance of health to peoples well-being, not to
mention its link to poverty reduction, the low level of resources invested in
health care by poorer countries is especially troubling.
Education constitutes the one bright spot among the social sectors in
terms of relative proportions of State spending. Although high-income coun-
tries still allocate more of their GDP to education (6.3 per cent, versus 5.3 per
cent among lower-income countries), the dierence is far less pronounced
than in the social protection and health sectors. Moreover, low-income coun-
tries actually spend a higher proportion of their GDP on education than do
lower-middle- or upper-middle-income countries. Te importance attached
to education by many lower-income countries is laudable, and the trend to-
wards investment in education should continue. However, education alone is
not enough to reduce poverty and improve living standards. Adequate invest-
ment should be made in all the social sectors, including health and social pro-
tection, in order to achieve marked improvements in social development.
Te nancing of social sector programmes is directly related to the col-
lection of taxes, the primary component of the State resource base. Rather
Source: P. Kelly and V. Saiz-Omeaca, The allocation of government expenditure in the world, 1990-2001,
unpublished paper (New York, United Nations, Department of Economic and Social Aairs, Division for Social
Policy and Development, November 2004).
Figure V.4. Defence and social sector spending in countries with the highest
defence expenditures
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than raising taxes to provide additional funding for social programmes, many
Governments have felt compelled to lower average corporate tax rates in or-
der to attract and retain FDI; among the worlds 30 richest countries, the
average rate of corporate tax fell from 37.6 per cent in 1996 to 30.8 per cent
in 2003 (International Labour Organization, 2004). A similar phenomenon
can be seen in the taxation of high-income earners, who are also relatively
more mobile. In many cases, to compensate for these tax cuts, Governments
have gradually increased their dependence on indirect taxes such as sales taxes
(especially the value added tax, or VAT) and taxes on relatively immobile (or
less mobile) factors such as labour.
The peace dividend
Financing for development would also benet from reductions in military ex-
penditures, as the freed-up public resources could be redirected to investment
in social development. According to a recent study of worldwide government
spending over a 10-year period, countries that dedicated a higher share of
total public expenditure to the defence sector tended to be among those that
allocated the lowest portion of the State budget to the social sectors (see gure
V.4). Likewise, as shown in gure V.5, countries with the highest levels of
social sector spending were found to have the lowest defence spending (Kelly
and Saiz-Omeaca, 2004).
Over the past several years, the reallocation of resources from defence
to social development has not taken place. Estimated world military ex-
penditures
4
declined for ve straight years, falling from US$ 762 billion in
1993 to a low of US$ 690 billion in 1998, after which they began to rise
(Stockholm International Peace Research Institute, 2003; United Nations,
2004b). By 2002, defence spending had increased to an estimated US$ 784
billion, surpassing the 1993 level for the rst time. World military expendi-
tures reached US$ 956 billion in 2003, representing 2.6 per cent of global
GNP (United Nations, 2004b; Stockholm International Peace Research
Institute, 2004), and will probably exceed US$ 1 trillion in 2005 (United
Nations, 2005b). Tis gure is almost 20 times the current level of develop-
ment aid.
As indicated above, the global decline in military spending during the
1990s has been dramatically reversed. Tese gures stand in sharp contrast
to the current levels of ODA and those projected for the period 2006-2010.
It has been asserted that all of the Millennium Development Goals could be
met in developing countries by 2015 if ODA were increased by US$ 150
billion (United Nations, 2005d). Tis amount represents only a fraction of
the more than US$ 900 billion the world is now spending in a single year on
arms and other means of destruction (United Nations Millennium Project,
2005). Te reallocation of defence-related expenditures to social development
requires the concerted action of the international community, with the aim
of realizing the double dividend of sucient funding for social programmes
and the reduction of armed conict and violence.
The role of the State and civil society
Te trend towards economic liberalization that characterized the 1980s and
1990s provoked a reaction to ensure that the social dimension was taken
into account in economic and structural adjustment policies. Tis response is
largely a consequence of the appeals by civil society and NGOs, which have
seen their numbers and inuence rise substantially over the decades. Civil
society activism has also helped promote greater self-awareness of rights and
awareness of the relative inequality between people, which has been bolstered
in recent years by the growing interest in human rights and increased access
to information on a global scale.
Te last decade has witnessed growing interest in improving the status of
various social groups, as evidenced by the considerable attention given to the
rights of indigenous peoples and persons with disabilities and to poverty among
older persons and unemployment among youth; however, there has been less
interest shown in developing policies to equalize the distribution of income
and wealth. Te focus of many political struggles has shifted away from the lat-
ter to other kinds of dierences and inequalities, especially those based on race
and gender, with particular attention given to political and civil rights.
Tere has been a very important shift in the past two decades in the way
individuals and social groups have chosen to be represented and defend their
interests nationally and internationally. Trough the last decade of the twen-
tieth century, trade unions represented civil society interests, not only on is-
sues such as employment and wages, but also on many other issues related to
social development, such as pensions, health care and social protection. Te
trade unions appear to have been aected by the long-term trend of declining
relative size in union membership, as measured by union density ratesthe
percentage of workers who belong to unions (International Labour Organi-
zation, 1997).

As the role of trade unions in social activism has declined, other types of
civil society organizations and non-prot groups have ourished. Te social
environment has favoured non-governmental actors and has supported the
growing trend towards partnership in fullling many of the responsibilities
hitherto carried out solely by State. Te participation of civil society organi-
zations in the national and international arenas has become crucial, as these
entities defend the interests of groups whose voices might otherwise never
be heard. Starting with their active participation in the major world confer-
ences of the 1990s, civil society organizations have articulated new ideas and
proposals, argued and negotiated, protested and exercised political pressure
(Cardoso, 2004), and in so doing have created an unprecedented new inter-
national public space.
Te contribution of religious organizations should not be underestimat-
ed. Traditionally, these organizations have played an important role in social
development, mainly through the direct provision of social services in areas
such as health and education. In some countries, the involvement of religious
and/or other civil society organizations in service delivery has been of such
magnitude that these countries have been able to resist the wave of privati-
zation driven by market reforms in recent decades. Religious organizations
have expanded their role to include greater advocacy and have acquired a
more directly political voice. Tese groups are much more inclined now than
in the past to assume an active role in the international debate and to try to
inuence signicant decisions in the social arena. Teir scope of activity now
encompasses not only education and health, but also the environment, hu-
man rights and democratic governance.
International organizations and even private voluntary concerns have
recently begun to establish their own labour standards and environmental
rules, and while this trend is welcome, it is also believed to represent a re-
sponse to the possible impact of an apparent race to the bottom, during
which market forces are left unchecked. Te Global Compact, launched in
July 2000, and the Equator Principles, drafted in October 2002 and adopted
by a growing number of major investment banks since then, are noteworthy
among the voluntary schemes that, by virtue of their emergence, lend cre-
dence to the notion that a race to the bottom has occurred and corroborate
the need for initiatives to counter the tendency.
Te Global Compacts 10 universal principles on human rights, labour,
the environment and anti-corruption, which are meant to inspire more re-
sponsible and sustainable business practices, reect a growing consensus and
a coming together of United Nations agencies, labour and civil society organ-
izations, and corporate interests. It is important to note that these commit-
ments, while welcome, represent a set of promises, as there is no enforcement
mechanism to hold private-sector actors accountable for adhering to the
principles of the Global Compact. Te 17 Equator Principles are intended
to serve as a common framework for assessing and addressing environmen-
tal and social risks in project nancing, and for the implementation of rel-
evant procedures and standards across all industry sectors globally (Equator
Principles, 2004).

Te overall framework derives from policies and guidelines
established by the World Bank and the International Finance Corporation
(Equator Principles, 2004). Te Equator Principles have been adopted by a
number of organizations, and it is estimated that the 23 banks among the
25 nancial institutions applying the Principles approved US$ 55.1 billion
in project loans in 2003, representing 75 per cent of the US$ 73.5 billion in
project loans approved by this group of banks that year (Dealogic, 2004).
It should be emphasized that the relative decline in some traditional
forms of societal representation and the emergence of other non-State ac-
tors do not presuppose the further weakening of the State. In recent years
it has been increasingly recognized, in spite of the ideological swings of
the past decade, that the State still holds key responsibilities in regulatory
matters and in its role of articulating diverse productive, community and
social sectors (Cardoso, 1995; World Bank, 1997; United Nations, 2004c,
para. 47).
In line with the structural adjustment and transition policies implement-
ed over more than a decade, there emerged a growing tendency to reduce the
role of the State; however, in the late 1990s, this trend began to reverse itself
as country experiences demonstrated the folly of privatizing State functions
on a large scale. Gradually, a consensus has evolved that the State plays an
important role in social and economic development and that its functions
cannot be completely taken over by the private sector or executed within the
framework of public/private or public/civil-society partnerships.
In the current approaches to development it is acknowledged that public
regulation and State-led policies still represent contributions to the develop-
ment process that are unique, necessary and indispensable (Guimares, 1996).
Te essential importance of the State transcends the logic of market forces,
particularly in areas such as ethics, equality, social justice and the defence of
rights intrinsic to citizenship, which are foreign to market mechanisms and
institutions. Te State role is necessary because the very logic of capital ac-
cumulation requires the provision of public goods and merit goods that
either cannot be spontaneously produced in the market or can only be pro-
duced in suboptimal quantities.
5
Te State is also more eective in address-
ing risk, vulnerability, social exclusion, destitution and many other issues not
amenable to microeconomic calculus, particularly when future generations
(who, by denition, do not participate in todays market) are brought into
consideration.
While it is recognized that the separate and combined functions of gov-
ernmental and non-governmental actors are essential, the manner in which
they carry out these functions is equally critical. Over the past two decades,
the changes in the roles and functions of the State and civil society and the re-
spective approaches they have adopted have not always been favourable to the
reduction of inequality and the pursuit of social justice. While the renewed
recognition of the necessary involvement of the State in promoting devel-
opment and poverty eradication is a welcome reversal of the earlier trend
towards minimizing the States role in ensuring social justice, little has been
done to instigate progressive taxation and other redistributive measures in
order to reduce inequality. Likewise, while equal political and civil rights for
vulnerable and marginalized groups have been placed on the public agenda
largely as a consequence of the growing numbers and rising inuence of civil
society organizations, the focus of advocacy appears to be shifting away from
the equitable distribution of income and assets towards more general political
and civil rights. Tis state of aairs represents the political and institutional
framework in which issues of inequality are considered today.
Conclusion
As stated in the Millennium Declaration, the central challenge we face today
is to ensure that globalization becomes a positive force for all the worlds peo-
ple. For while globalization oers great opportunities, at present its benets
are very unevenly shared, while its costs are unevenly distributed. [O]nly
through broad and sustained eorts to create a shared future, based upon our
common humanity in all its diversity, can globalization be made fully inclu-
sive and equitable (United Nations, 2000, para. 5).
It is in this context that eorts must be undertaken to ensure that market-
driven reforms, the multilateral trading system embodied by the WTO, and
other aspects or components of the international economy do not interfere
with the possibilities for realizing the progressively redistributive dimensions
of social development. Actively pursuing such possibilities not only represents
a requirement for reducing poverty and inequality, promoting employment
and fostering social integration (the major priorities on the social develop-
ment agenda today), but also constitutes a moral and ethical imperative.
In the context of development, the quantity of growth (the simple in-
crement of material output or economic growth) has remained the primary
focus. It is becoming increasingly apparent, however, that the single most
important challenge facing the world in this new millennium is enhancing
the quality of growth (increasing levels of well-being and reducing socio-eco-
nomic inequalities). In acknowledgement of this fact, measures to foster sus-
tainable economic growth must be accompanied by indispensable distribu-
tive policies and corrective and compensatory policies to redress the injustices
and imbalances of the past (Ricupero, 2001).
National, regional and international eorts should be aimed at strength-
ening global governance and mechanisms to promote a more balanced and
inclusive globalization. As the Secretary-General of the United Nations has
stated, millions of people around the world experience it [globalization] not
as an agent of progress but as a disruptive and even destructive force, while
many more millions are completely excluded from its benets (Grumberg
and Khan, 2000).
While the main engine of globalization is technology and the expansion
and integration of markets, it is not a force of nature but the result of proc-
esses driven by human beings. Tus, globalization needs to be controlled so
that it can be put at the service of humanity, which means that it needs to
be carefully administered, by sovereign countries at the national level, and
through multilateral cooperation at the international level (Grumberg and
Khan, 2000). Adequate management of the multifaceted processes associ-
ated with the current wave of globalization is required; more to the point,
open-minded, tolerant and pragmatic approaches to the development chal-
lenge, consistent with todays increasingly interdependent world, are urgently
needed to place economic policy once again at the service of social justice and
stability (United Nations Conference on Trade and Development, 2003).
Notes
1 It should be noted, however, that there are instances in which, as a result of pressure
from civil society organizations (in particular those in developed countries), multina-
tionals have begun to promote higher social and environmental standards.
2 Among these 66 countries, 51 succeeded in increasing exports over the ve-year
period. Further analysis of the average private per capita consumption of these 51
countries indicated that 22 of them (less than half) had experienced the virtuous
trade eect, meaning that average private per capita consumption had increased with
export expansion during the ve-year period examined; 11 had experienced an am-
biguous trade eect; and 18 had experienced an immiserizing trade eect, meaning
that average private per capita consumption had decreased with export expansion (see
UNCTAD, 2004a, p. 10).
3 Te Group of Seven major industrialized countries (G-7) includes Canada, France,
Germany, Italy, Japan, the United Kingdom and the United States.
4 Measured in constant 2000 United States dollars and at market exchange rates.
5 Merit goods, often mentioned in the literature on welfare economics, are also re-
ferred to as goods of social value. Te concept of public goods focuses on the in-
terdependence of consumers and other economic agents, whereas the notion of merit
goods, or goods of social value, emphasizes the decision of society to provide certain
goods to all citizens. Although the dierentiation between these concepts is appropri-
ate in the context of welfare economics, the common use of the term public goods
in social and political analysis typically encompasses both (see Jos Antonio Ocampo,
2005, pp. 11-20).
131
Chapter VI
The way forward:
policies to reduce inequality
1
Te present Report has endeavoured to make a strong case for focusing on
the inequality predicament, a situation that jeopardizes the quest for social
justice and social developmentthe very same quest that led world leaders
to gather at the World Summit for Social Development in Copenhagen 10
years ago and commit themselves to specic actions to bring about the social
betterment of humanity.
Addressing the inequality predicament requires a multifaceted normative
and policy approach that puts human beings at the centre of development,
one that considers economic growth as a means and not as an end in itself
an approach for which the ultimate goal is to increase, protect and attain
improvements in the quality of life of current and future generations. Te
approach should be socially sustainable in reducing poverty and inequality
and in promoting social justice. It should be culturally sustainable, conserv-
ing values, practices and symbols of identity that determine social cohesion
and national identity over time. It should be politically sustainable, deepen-
ing democracy, transparency and accountability, and thereby guaranteeing
the access to and participation of all sectors of society in public decision-
making. Finally, the approach should be environmentally sustainable, taking
into account access to and use of natural resources and the preservation of
biodiversity.
Tis approach is based on the fact that social development and economic
development are two sides of the same coin. Tey are equally important and
mutually reinforcing; one cannot be achieved without the other. Societies
that do not provide educational opportunities for all, adequate health care
and decent employment are doomed to fail. Countries in which the needs
and rights of future generations are not considered, in which women do not
enjoy the same rights as men and in which social disintegration is rife will
not achieve sustainable economic development. Tere are countless examples
of such societies, both present and past. Tere is an urgent need to create an
environment in which a multitude of positive examples can be provided in
the futureone in which a holistic view of development prevails.
Te comprehensive vision of social development agreed upon at the
World Summit for Social Development in Copenhagen in 1995 and reaf-
rmed in Geneva in 2000 and in New York in 2005 has yet to receive the
attention it deserves. Te enabling environment envisaged by the Copenha-
gen Declaration was conceived so as to create the conditions for people to
achieve social development. Te economic, political, social, legal and cultural
dimensions embedded in it are especially important. Te commitments on
eradicating poverty, promotion of full employment and social integration
were accompanied by far-reaching policy recommendations based on the
axiom that the well-being of people should be the centrepiece of national and
international public attention.
2
Its implementation ought to dominate and
shape the agendas of national Governments and international organizations
in order to achieve sustainable social and economic development and foster
the achievement of the Millennium Development Goals.
Redressing global asymmetries
Te imbalance between the pace of globalization and the prevailing regula-
tory framework has produced many asymmetries requiring correction. At the
political and institutional levels, emphasis should be placed on the equitable
distribution of the benets in an increasingly open world economy, with ac-
tions that promote democratic participation by all countries and peoples in
the decision-making processes that govern international relations. Implement-
ing people-centred development requires an approach that places the highest
priority on the long-term objectives of social development. Tese overarching
policy goals require the following:
Tat actions are taken by the international community to lend political
and institutional support to national capacity-building in the developing
world, particularly to restoring the regulatory capacity of public institu-
tions and especially in areas where privatization of the delivery of social
services has created new challenges to and diculties in the actual ex-
ercise of individual and collective rights to education, health and other
social rights of citizenship;
Tat a necessary balance is established between market forces and the
public interest, especially through appropriate State regulation and over-
sight of corporate power and market forces;
Tat exibility is introduced into macroeconomic policies in order for
national policies to counter the negative impacts of globalization on so-
cial development. Such an undertaking entails mainstreaming employ-
ment and poverty objectives into short-term macroeconomic policies and
structural adjustment programmes. Tis step is particularly important in
view of the constraints arising from competitive pressures brought about
by international trade. Specic measures should also be introduced in
foreign direct investment to promote domestic productive linkages and
job creation;
Tat a global minimum standard is established for social protection in
order to stabilize incomes, distribute the gains of globalization for the
benet of all and support the development of new capabilities. Te inter-
national standard, built on and harmonizing all the initiatives analysed
The way forward: Policies to reduce inequality 133

in the present Report, would prevent the race to the bottom in which
countries are forced to overlook or limit social rules and regulations in
order to remain competitive in the international market;
Tat proposals for the reform of global nancial architecture translate
into action, particularly by increasing the surveillance and regulation of
international capital ows providing adequate room to manoeuvre for
the counter-cyclical macroeconomic policies of developing countries;
and by strengthening regional cooperation eorts;
Tat the various international social and economic regimes are reori-
ented towards a more coherent and integrated approach, with special
attention given to the harmonization of relevant WTO agreements with
other multilateral agreements in the social arena;
Tat innovative ideas guaranteeing sucient and stable nancing to
achieve major international development objectives are introduced to
generate new sources of nance for development. Te General Assem-
bly and the Bretton Woods institutions should, in that regard, take the
political decisions to advance some of the proposals that are under con-
sideration.
Restructuring the social sector to promote equality and social integration
requires political will, an eective State, and sucient nancial resources.
To support this process it may be necessary to provide assistance aimed at
strengthening the managerial, administrative and nancial capacities of the
State (United Nations, 2003a). Te principal objective of such a strategy
should be the democratization of the public education system through im-
provements in the coverage and quality of the primary and secondary levels
within that system.
Suggested taxes on currency transactions, arms sales and the consump-
tion of fuels producing greenhouse gases could generate enough funds to
combat hunger and poverty worldwide. Other initiatives could include the
proposed International Finance Facility (IFF), the use of special drawing
rights (SDR)
3
and the creation of a lottery whose revenues would be used
for development aid. In addition, the transfer costs of remittances should be
reduced (Atkinson, 2004).
Intensifying integrated strategies and policies
for poverty eradication
As a fundamental principle, policy decisions aimed at poverty reduction and
eradication should be structured in such a way that these issues are addressed
directly, instead of simply assuming that the trickle-down eects of other pol-
icies promote economic growth and development. Towards that end, specic
policies and actions must be implemented to guarantee that the dimensions
of equality are explicitly incorporated in policies and programmes designed to

achieve poverty reduction; they must be complemented by specic measures
to guarantee access by marginalized groups to assets and opportunities in
general, and in particular to education, land, capital and technology.
Many aspects of social development, including poverty, gender equality,
education and health, are addressed in the Millennium Development Goals
and have therefore received increased global attention. However, the Goals,
despite their galvanizing eect, are not a substitute for the much broader social
development agenda. Te international goal of halving the number of people
living on less than US$ 1 a day by 2015 has become a universally recognized
benchmark for evaluating development progress. Nonetheless, poverty allevia-
tion strategies require a holistic approach that includes addressing inequalities,
both within and between countries, in opportunities and access to resources,
as well as promoting decent work. In support of this notion, it was stressed at
the 10-year review of the World Summit for Social Development that the Mil-
lennium Declaration and the Copenhagen Declaration should be considered
mutually reinforcing (United Nations, 2005a).
Te gap between Africa and the rest of the world remains and has even
widened in some respects. Te marginalization of Africa in a globalizing world
and the human suering associated with a lack of development in the region
are unacceptable.
Foremost among the key areas of international action is the commitment
that technical and nancial assistance will be earmarked in explicit quanti-
tative targets to guarantee, within the framework of the New Partnership
for Africas Development, a favourable environment for social and economic
development in Africa.
National institutions for social development need to be strengthened.
To further this goal, it is necessary to include institution-building in develop-
ment and poverty reduction strategies, including PRSPs. Increased emphasis
must be placed on national ownership of the PRSPs; the policy formulation
and development process should also involve civil society more eectively.
Most policy prescriptions are still developed and implemented largely
without adequate analysis of how they aect the poorest and most vulnerable
in society. In many countries, these groups still nd themselves excluded
from the planning processes and concrete actions designed to alleviate their
plight. Eorts must be made to include the excluded and chronically poor in
the consultative and participatory processes that accompany the development
and review of poverty programmes.
Guaranteeing employment opportunities for all
Te Secretary-General of the United Nations has stated that the best anti-
poverty programme is employment. And the best road to economic empow-
erment and social well-being lies in decent work (Annan, 2004). In order
to reduce poverty in a sustainable manner and promote the development of
a more just and equitable society, it is important to focus on expanding and
improving opportunities for employment, with emphasis on both the quality
and quantity of jobs.
An employment strategy aimed at promoting decent work under condi-
tions of equality, security and dignity should be a fundamental component
of any development strategy, and must be oriented to include employment
creation in macroeconomic policy. Such a strategy also requires undertaking
employment impact analysis as a basic criterion for macroeconomic poli-
cy and for policy decisions adopted in other areas. Furthermore, it calls for
adopting specic measures to incorporate the informal sector in social pro-
tection programmes and for establishing incentive structures that promote
employment creation by directing investment to sectors that are productive
and labour-intensive, with a special view to promoting small and medium-
sized enterprises.
In pursuing such a strategy, it is critical to invest in people, including their
education, skill development, lifelong learning, and health and safety, and to
improve market access for informal producers. Te goal is to move workers
and economic units into the mainstream so that they are covered by legal
and institutional frameworks (International Labour Organization, 2002a).
In addition, improvements in the policy and legal environment are needed
to lower the costs of establishing and operating a business. Specic measures
should include the development and application of simplied registration and
licensing procedures, appropriate rules and regulations, and reasonable and
fair taxation. Policies should be advanced to discourage businesses from shift-
ing from the formal to the informal economy, and to enable new businesses
to enter the formal economy and maintain labour standards. An expanded
formal economy not only provides benets for participants, but also helps to
raise State revenues (International Labour Organization, 2002a).
Economic growth alone is not enough. Both productivity growth and
employment creation are needed to reduce poverty in general and pover-
ty among the working poor in particular. Regions of the world that have
achieved both an increase in productivity levels over the long run and the
creation of new employment opportunities for their growing labour forces
have been the most successful in reducing overall poverty. As the ILO has
observed, opportunities for decent employment address more than the in-
come component of poverty; those who are able to secure decent jobs and
receive adequate compensation, benets and protection under the law are
also empowered to voice their concerns and participate more actively in deci-
sion-making in the world of work, and are able to gain more respect for the
work they do (International Labour Organization, 2005c).
Contrary to the expectations of development experts, the informal econ-
omy has not declined as a natural outgrowth of economic development but
has instead expanded over the past two decades. Consequently, the policy
prescriptions relating to the informal economy and inclusive development
outlined at the World Summit for Social Development remain valid for
achieving development and the reduction of inequality.
Informal enterprises should be integrated into the formal economy
through access to aordable credit, exposure to information on markets and
new technologies, and the ability to acquire technological and management
skills. Further eorts should include extending labour standards and social
protection to the informal economy without compromising its potential for
generating employment (United Nations, 1995).
Governments should enhance their eorts in the area of youth employ-
ment. Tis is becoming increasingly important, as large and growing num-
bers of young people are entering the labour market and are unable to nd
work. Te inability of the market to absorb them generates frustration and a
sense of unfairness among youth and increases the likelihood of conict.
Fostering social integration and cohesion
Consideration should be given to the importance of explicit policies to coun-
ter both the negative eects of globalization on social development and the
new threats posed by market-driven reforms. Deliberate action must be taken
to guarantee that cultural, religious and ethnic identities and rights are explic-
itly protected in international agreements and in national and local legisla-
tion, and that such protection translates into an enforceable code of conduct
for national and transnational corporations and private interests operating
under national jurisdictions. Tere is an urgent need to expand opportunities
for participation in decision-making processes; in particular, specic areas of
public policy formulation that have not yet incorporated participatory mech-
anisms should be identied, and steps should be taken to ensure unrestricted
legal access to information among citizens in general and to establish mecha-
nisms for the more open review of government policies.
Although targeting can be a useful approach to achieve equality, it should
not become a substitute for universal coverage. From a social inclusion and
empowerment standpoint, the economic benets of targeting may be oset
by the social costs. In addition to the feelings of stigmatization that target-
ing can generate, there is also the danger that non-targeted groups will grow
resentful of those receiving assistance. In some cases, there may be little that
separates a target group from a non-target group in terms of need. Under a
targeted system, the determination of who receives assistance and who does
not may be based on a variety of factors external to the level of need among
individuals or groups, including donor preferences, programme design, po-
litical considerations or geographical location.
If targeting is to be employed, one of the more promising forms is com-
munity-based targeting, in which the community is directly involved in iden-
tifying beneciaries using eligibility criteria of their own choosing. People at
the community level are more likely than programme administrators to be
aware of the actual circumstances in which people live, and the participatory
process itself can be quite empowering for the community as it increases local
control over programmes. Community-based targeting is an attractive option
for two main reasons: it draws upon local knowledge, thereby increasing ac-
curacy; and it involves beneciaries directly in the decision-making process,
thereby promoting equality (Devereux, 2002).

Experience has shown that
the most eective targeted programmes are those that are supported by spe-
cic institutions, involve community participation, and are backed up by
adequate resources (Economic Commission for Latin America and the Carib-
bean, 2000b).
Notwithstanding the foregoing, evidence from dierent countries has
shown that targeting can be counterproductive. Targeting programmes are
often characterized by poor coverage and high cost, and can also provoke
social divisions, discourage saving, jeopardize employment creation and en-
courage premature withdrawals from the labour force (Mesa-Lago, 2004).
With a more universal approach to the provision of social services, many
of the problems associated with targeting can be circumvented. Te poor
are mainstreamed along with other groups, thereby promoting social inclu-
sion. Universal social services and benets also carry the advantage of being
more politically acceptable. When a broader range of people stand to benet,
it becomes easier to gain the support necessary to ensure the allocation of
sucient resources to put the universal protections in place. In developing
countries, however, resource constraints pose the greatest challenge to pursu-
ing this universal approach.
For indigenous peoples, poverty is closely linked with discrimination and
the loss of control over their traditional lands and natural resources; therefore,
programmes to alleviate poverty among these groups must be designed not
only to facilitate social protection and social integration but also to address
land and resource issues. With regard to this last aspect, the incorporation of
indigenous history and culture in educational curricula can play an important
role in reducing prejudices.
Since the creation of the United Nations, persons with disabilities have
moved from accepting others denitions of the parameters of their lives to
becoming active in asserting strength and condence in their own abilities to
lead self-reliant and independent lives. Te role of NGOs has been impor-
tant in this process, and the eorts of the United Nations have contributed
to the transformation as well. Te consultations for the development of the
Comprehensive and Integral Convention on the Protection and Promotion
of the Rights and Dignity of Persons with Disabilities represent further proof
of the prominence given to the issue of persons with disabilities. Programmes
designed for persons with disabilities must emphasize equality of opportuni-
ties, both through individual rehabilitation and through the introduction of
mechanisms for eliminating social and physical obstacles in order to facilitate
their integration into society.
Governments should consider how their economic, social and environ-
mental policies are likely to aect future generations and, by adhering to the
implicit terms of the intergenerational contract, ensure that no generation
lives at the expense of another. Steps should also be taken to identify and im-
plement appropriate measures to address the societal impact of demographic
shifts such as the growth of the ageing population in developed countries and
the emergence of youth bulges in many developing countries.
Te costs associated with old-age support are often covered by a com-
bination of private resources and State-provided resources. In countries in
which pensions are provided by the State, particularly in those relying on
transfers from younger to older generations, the shortfall will be considerable
over the coming decades owing to a signicant decline in the relative propor-
tion of contributors, and will eventually become unsustainable (World Bank,
1994; Chand and Jaeger, 1999; Bongaarts, 2004). To ensure that they are
able to maintain pension systems compatible with the intergenerational con-
tract, States should avoid depleting funds earmarked for pensions and old-age
health coverage for future generations. A rst step in this process would be to
balance national budgets.
In recent years, the international agenda has been dominated by secu-
rity issues and concerns relating to armed conict. As one of the underlying
causes of conict is social disintegration, it is essential that Governments rec-
ognize that social integration is a key condition for creating and maintaining
peaceful societies. Social integration can only be achieved by ensuring the
full participation of all groups in the social, economic, political and cultural
aspects of life. Two particular areas of concern are the challenges faced by
youth, who are two to three times more likely than adults to be unemployed,
and the horizontal inequalities between ethnic groups. It is essential that op-
portunities be provided for young people to obtain decent work and to par-
ticipate in the political process; it is equally important to implement policies
that counter horizontal inequalities. Te most eective long-term solution
is universal education. Te enforcement of anti-discrimination legislation is
crucial as well.
In conclusion, inclusive development incorporates the creation of an en-
abling environment that promotes more equitable access to income, resourc-
es and services, as well as international cooperation in the development of
macroeconomic policies and in the liberalization of trade and investment in
order to promote sustained economic growth and employment creation. Te
principles of equality should continue to guide social and economic policy-
making to ensure that economic growth is conducive to social development,
stability, fair competition and ethical conduct (United Nations, 1995). If this
course of action is followed, inequality will no longer be the predicament it
is today.
Notes
1 Tis chapter draws heavily from the Review of the further implementation of the
World Summit for Social Development and the outcome of the twenty-fourth special
session of the General Assembly: report of the Secretary-General, submitted to the
Commission for Social Development at its forty-third session (E/CN.5/2005/6; see
United Nations, 2004c).
2 Te people-centred approach to development was also highlighted at the 10-year re-
view of the World Summit for Social Development (see E/CN.5/2005/L.2; United
Nations, 2005a).
3 As noted in chapter III, the International Finance Facility would leverage new long-
term donor commitments by issuing bonds in the capital markets, and special draw-
ing rights could be particularly useful during times of crisis, as they would supplement
the existing ocial reserves and could be used as an emergency nancing facility to
help countries overcome liquidity problems, to allow them to avoid borrowing at high
market rates when attempting to build up their reserves, or to nance development
(Atkinson, 2004).
141
Annex
The ten commitments of the World Summit
for Social Development
At the World Summit for Social Development, held in March 1995, Gov-
ernments adopted the Copenhagen Declaration on Social Development and
Programme of Action of the World Summit for Social Development, and
identied the eradication of poverty, the promotion of full employment and
the fostering of social integration as goals of the highest priority for achieving
secure, stable and just societies. At the heart of the Copenhagen Declaration
are the ten commitments to social development agreed by the heads of State
and Government at the Summit, which embody the global drive for social
progress and development. Te commitments are as follows:
Commitment 1: Create an enabling environment for social development
We commit ourselves to creating an economic, political, social, cul-
tural and legal environment that will enable people to achieve social develop-
ment.
Commitment 2: Eradicate poverty
We commit ourselves to the goal of eradicating poverty in the world,
through decisive national actions and international cooperation, as an ethical,
social, political and economic imperative of humankind.
Commitment 3: Support full employment
We commit ourselves to promoting the goal of full employment as a
basic priority of our economic and social policies, and to enabling all men
and women to attain secure and sustainable livelihoods through freely chosen
productive employment and work.
Commitment 4: Promote social integration
We commit ourselves to promoting social integration by fostering so-
cieties that are stable, safe and just and that are based on the promotion and
protection of all human rights, as well as on non-discrimination, tolerance,
respect for diversity, equality of opportunity, solidarity, security, and par-
ticipation of all people, including disadvantaged and vulnerable groups and
persons.
Commitment 5: Achieve equality and equity between women and men
We commit ourselves to promoting full respect for human dignity and
to achieving equality and equity between women and men, and to recogniz-
ing and enhancing the participation and leadership roles of women in politi-
cal, civil, economic, social and cultural life and in development.
Commitment 6: Attain universal and equitable access to quality education
and primary health care
We commit ourselves to promoting and attaining the goals of univer-
sal and equitable access to quality education, the highest attainable standard
of physical and mental health, and the access of all to primary health care,
making particular eorts to rectify inequalities relating to social conditions
and without distinction as to race, national origin, gender, age or disability;
respecting and promoting our common and particular cultures; striving to
strengthen the role of culture in development; preserving the essential bases
of people-centred sustainable development; and contributing to the full de-
velopment of human resources and to social development. Te purpose of
these activities is to eradicate poverty, promote full and productive employ-
ment and foster social integration.
Commitment 7: Accelerate development in Africa and the least developed
countries
We commit ourselves to accelerating the economic, social and human
resource development of Africa and the least developed countries.
Commitment 8: Ensure that structural adjustment programmes include
social development goals
We commit ourselves to ensuring that when structural adjustment pro-
grammes are agreed to they include social development goals, in particular
eradicating poverty, promoting full and productive employment, and en-
hancing social integration.
Commitment 9: Increase signicantly and/or utilize more eciently the re-
sources allocated to social development
We commit ourselves to increasing signicantly and/or utilizing more
eciently the resources allocated to social development in order to achieve
the goals of the Summit through national action and regional and interna-
tional cooperation.
Commitment 10: Promote an improved and strengthened framework for
international, regional and subregional cooperation for
social development
We commit ourselves to an improved and strengthened framework for
international, regional and subregional cooperation for social development,
in a spirit of partnership, through the United Nations and other multilateral
institutions.
143
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