Perspectives on Global Development 2011

Shifting Wealth: An opportunity for strengthening social cohesionPreliminary findings

OECD Development CentreJohannes Jütting

UNRISD20 May 2011Geneva

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Perspectives on Global Development

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• A lower-middle income country• Average 5% annual growth rate since 1990• 60% of budget dedicated to social sectors• Nearly 100% primary enrollment in 2008• 80% health care coverage• 3% fiscal deficit • Inflation at approx. 3% in the 2000s

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Source: OECD/AfDB/UNECA (2010), African Economic Outlook

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Source: World Bank

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Three main messages

• Shifting wealth provides new opportunities ....• More resources• Others

• ….but also comes with risks…..• Old challenges • New once linked to the shift

• leading to increasing demand for strengthening cohesion• Holistic approach • Shared responsibility

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1 Shifting Wealth: an unprecedented opportunity?

Challenges for social cohesion in fast growing countries2

3 How can we strengthen social cohesion?

Outline

4 Conclusions

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Emerging and developing countries driving global growth since 2000Contribution to world GDP/PPP growth 1990‐2015

Annual global GDP‐PPP growth rate (based on 3‐yr moving average)

0%

1%

2%

3%

4%

5%

6%

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Contribution of advanced economiesContribution of emerging and developing economies

Source: OECD Development Centre, Perspectives on Global Development 2010 Shifting Wealth based on IMF World Economic Outlook, 2010, AprilNotes: Data for 2010-2015 based on IMF projections

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The four-speed world in the 1990s

Source: OECD Development Centre, Perspectives on Global Development 2010 Shifting Wealth

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The four-speed world in the 2000s

Source: OECD Development Centre, Perspectives on Global Development 2010 Shifting Wealth

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Lower Between-country Inequality

-.05

0.0

5.1

.15

Annu

aliz

ed G

DP

per c

apita

gro

wth

rate

200

0-09

4 6 8 10 12Log GDP per capita, 2000 USD

Source: OECD Development Centre on the basis of World Bank (2010)

β coefficient ‐0.004***  

-.1-.0

50

.05

.1A

nnua

lized

GD

P pe

r cap

ita g

row

th, 2

007-

094 6 8 10 12

Log GDP per capita, 2007 USD

β coefficient ‐0.010***  

2000‐09 2007‐09

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Enormous resources generated by Shifting Wealth

Some examples:

1.Angola’s exports worth $62 billion in 2008

2.Two thirds of foreign exchange reserves now in hands of emerging and developing countries. Africa has estim. $1 trillionin forex reserves.

3.Algeria alone has $150 billion forex reserves

4.Macroeconomic improvements – but large regional divides –e.g. South America vs. Central America, resource rich African states, versus aid-dependent resource poor countries.

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Growth in life satisfaction and income do not necessarily coincide

Sources: Authors' elaboration using Gallup World Poll (2010) and World Bank (2010)

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1 Shifting Wealth: an unprecedented opportunity?

Challenges for social cohesion in fast growing countries2

3 How can we strengthen social cohesion?

Outline

4 Conclusions

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Conceptual framework: The Social Cohesion “Triangle”

Social Cohesion

Social Inclusion•living standard

•distance from customary living standard•satisfaction with living standard

Social Capital•trust

•civic participation

Social Mobility•parent/child educational differences

•perceived ability to advance

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Policies

Growth patterns

Social Cohesion

i)Fighting social exclusion

ii) Fostering social capital

iii) Enabling social mobility

Growth and Development

InequalityEmploymentFiscal policy

Food securityMigration

Shifting Wealth

Civic participationGender

Education

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Social mobility: correlation of parent/child education

Sources: OECD (2010) based on Hertz, et al (2007)

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Challenges for Social Cohesion

i. Distributional challenges

ii. Employment and social protection

iii. Fiscal policy

iv. Food security

v. South-South migration

vi. Urbanisation

vii. Civic participation

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Distributional challenges

Source: OECD Development Centre, Perspectives on Global Development 2010 Shifting Wealth based on OECD (2008) and World Bank (2009).

•Absolute and relative poverty headcount for selected OECD and non-OECD countries (mid-2000s)

* Indicates income rather than consumption measure

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Challenges to labour and social protection

• Structural transformation:• Declining wage shares in value added • Today: The Lewis turning point and wage adjustment ? • Demand for labour institutions to smooth labour relations

• Dealing with “Informal is Normal”

• Alleviating inequality and compensating losers through social protection• New instruments• Beyond CCT’s: broadening the system

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Labour productivity has accelerated in emerging countries

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While wage shares in value added are on a decreasing trend

Wage shares of value added by region (1985 – 2006)

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Increasing number of labour disputes (China)

0

100

200

300

400

500

600

700

800

900

100019

96

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

Cas

es a

ccep

ted

(thou

sand

) Employers Workers Both partial Mediated

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Strategies for filling the ‘missing middle’

1. Unbundled individualised instruments• Defined contribution pensions• Unemployment insurance savings accounts

2. Subsidised contributions• Matched defined contributions in pensions• Subsidised social security

3. Towards universal entitlement• National health services (including community-based insurance

providers: Ghana)• Multi-tiered or supplemental regimes

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Taxes and social cohesion

• From regressive to progressive tax policies to finance social programs: amount available, efficiency and equity of spending

• Sustainable revenues: 1) more fairness and transparency 2) create fiscal space

• Low tax revenues in emerging countries due among others to missing legitimacy and broken/missing social contract

• Avoiding pro-cyclical spending patterns

• Social cohesion crucial determinant

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Fiscal policy: the broken link

0

10

20

30

40

50

60Argentina

Brazil

Chile

Colombia

Mexico

Peru

OECD‐24 avg.

Inequality before taxes and transfers Inequality after taxes and transfers

Gini coefficients before and after taxes and transfers in developing countries

Source: OECD (2008a and 2008b).

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Tax morale in developing countries

AustraliaCanada

Finland

France

GermanyItaly

JapanKorea

Mexico

NetherlandsNew Zealand Norway

PolandSpain Sweden

Switzerland

Turkey

United KingdomUnited States

Argentina

BrazilChile

ColombiaCosta Rica

Dominican Republic

El Salvador

Guatemala

Peru

Venezuela

0

10

20

30

40

50

60

0 10 20 30 40 50 60

% of peo

ple who

 justify evasion

Tax revenue/GDPSource: Daude and Melguizo (2011a).

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1 Shifting Wealth: an unprecedented opportunity?

Challenges for social cohesion in fast growing countries2

3 How can we strengthen social cohesion?

Outline

4 Conclusions

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Social cohesion policy agenda: What is needed?

Better and different data: subjective measures, quality of life indicators

Assessing of impact of policies on social cohesion

Leadership, patience and managing conflict and aspirations

Development of an « own, shared vision «

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What needs to change?

Holistic approch and policy coherence

Focus not only on the poorest but also emerging middle class

Addressing discriminatory social institutions

Harnessing better new opportunities: peer-review learning, IT- tools, date deluge etc..

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Summary

1. Shifting wealth: Opportunities and risksGrowth, poverty reduction and human developmentMore ressources and un-precedented possibilitiesBut: new opportunities are not necessarily equally shared

2. Response: Social cohesion as a framework for policy making Inclusive labour markets and social protectionFairer taxation and mobilisation of resourcesCivic participation to reinforce the sense of belonging and responsibility towards a social contract

Thank you

OECD Development CentreMore information:www.oecd.org/dev/pgd webnet.oecd.org/pgdexplorerwww.oecd.org