The Inequality Predicament.

MACROECONOMIC POLICIES, financial globalization and changes in labour market institutions have exacerbated inequality in recent decades, not only in income and wealth but also in access to education, health care and social protection, as well as political participation and influence.

A variety of factors has conspired to worsen the transmission of inequality from one generation to the next, even within communities experiencing rapid economic growth. This context shapes the transmission of knowledge, social responsibility and life chances, all of which can put communities at risk. The tremendous demographic changes in the world have exacerbated these problems profoundly.

As surveyed in The Inequality Predicament, Report on the World Social Situation 2005, published by the UN Department of Economic and Social Affairs (DESA), few countries have proved immune to the global trend of rising inequality or to its consequences, for example in terms of education, health and welfare inequalities. There is no simple causal relationship linking poverty and inequality to violence. Nevertheless, disparities and the sense of deprivation do contribute to resentment and social instability, threatening security. Faced with bleak life prospects and feeling excluded, young people, in particular, often experience anomie and may turn to antisocial behaviour, including violence. Nor is there a simple explanation of what causes poverty. Clearly, however, poverty arises from various complex conditions requiring multidimensional approaches. It is hard to imagine, for example, how to "make poverty history" without also generating enough decent work, educational opportunities and health care for all.

The world has seen some progress on some fronts. Access to education for girls has improved in recent decades and some gender gaps have been reduced. Despite AIDS and the resurgence of malaria and tuberculosis, life expectancies have increased in much of the world due to some public health gains. Overall, however, the inequality gaps are large and in many cases growing. The most important determinant of income inequality today is wealth inequality, with the increasing concentration of asset ownership principally responsible for greater income inequality in most countries in recent years. Meanwhile, growing unemployment, widening skill and productivity gaps, as well as the "informalization" or "casualization" of labour markets, have exacerbated income inequalities worldwide, as the number of "working poor" and the incidence of "jobless growth" have spread.

Since the 1980s, stabilization and structural adjustment programmes have been imposed with the promise of achieving higher economic growth, but growth during the last quarter century in much of the world has been poorer than in the previous 25 years despite more rapid growth in East Asia, India and a few other countries. Such differences have meant that overall global inequality may not have unequivocally increased by some measures. But inequalities at the national level have increased in most countries, largely due to economic liberalization at both national and international levels.

In much of the world, such economic reforms have actually undermined growth rates and the progressive role of Government, while otherwise increasing overall inequalities. The few exceptions have been largely due to continued or new progressive government interventions. The cumulative impact of these reforms over the past two and a half decades has been greater inequality in most developed and developing countries, with rising unemployment, greater earnings disparities, reduced social protection and environmental degradation.

Financial liberalization has undermined the use of more inclusive and targeted developmental credit to promote desired economic activities. In addition, international financial liberalization has actually resulted in net capital flows from the "capital poor" to the "capital rich" over the long term, increased financial volatility and slowed economic growth in recent decades. Meanwhile, trade liberalization negotiations seem to ignore various historical trends. As first demonstrated by the late Sir Hans Singer (see page 52) while he was working for the United Nations for almost two decades since the 1940s, the international terms of trade have continued to move against developing countries over the long run in at least three ways: the prices of primary commodities have decreased in relation to those of manufactures; tropical agriculture against temperate agriculture; and generic manufactures against those protected by "monopolistic" intellectual property rights.

Trade liberalization of manufactures has resulted in deindustrialization and greater unemployment in much of the world, as in the case of garments. And while agricultural trade liberalization may enhance export earnings for some poor countries, the main beneficiaries will be the more well-to-do major agricultural exporters, while those importing currently subsidized food will be worse off.

The "retreat of the State" in much of the developing world in recent decades has involved a generally reduced role for Government, including the capacity to lead and sustain development, as well as its more progressive social interventions in areas like public education, health, housing and utilities. Unless the world refocuses economic policies to address the adverse impact of economic inequality on growth and poverty reduction, the poor and the privileged will continue to live "the inequality predicament" and its potentially dire consequences.

Jomo K. S. is Assistant-Secretary-General for Economic Development at DESA.