14.08.2019

A contradiction in terms?

Reducing inequality and boosting economic growth are not necessarily contradictory, quite the contrary!

  • © FES New York

In their working paper for the Group of 24 and Friedrich-Ebert-Stiftung, Accelerating Growth and Reducing Inequality: Trends and Policy Approaches, Jomo Kwame Sundaram and Vladimir Popov ask whether mainstream proposals on inequality have done more harm than good.

The authors note that conventional approaches to strengthening property rights, developing human resources, and liberalizing international trade and finance have not only not successfully accelerated growth, they have actually exacerbated inequalities in most countries.

They argue that the data suggest rising inequality is caused by rising profit rates, indicated by the persistently growing income shares of the richest people, decade after recent decade.

Concerned that the resulting increase in wealth concentration may be difficult or impossible to reverse, despite on-the-ground support for progressive policies aimed at redistribution, the authors use the occasion of this paper to examine the impact of both enacted policies as well as policy proposals, in order to recommend a way forward.

They highlight the fact that the many development pathways followed by different countries show that there is no universal solution for growth. In addition, the preponderance of evidence suggests that "economic inequality traps countries in vicious cycles of weak institutions, low growth, limited social mobility and rising social tensions." Most worrying, the authors conclude, rising inequality is a likely contributor to the trend of strongman populist movements around the world.

In conclusion, this paper urges a revision of the dominant concepts behind the causes of inequality that pit aggregate growth against the promotion of greater social equality. The authors argue that growth and equity are not a contradiction in terms. In fact, the promotion of greater equity within countries will likely result in more stable political institutions and more sustainable economic growth.

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This paper is part of the Growth and Reducing Inequality Working Paper Series, which is a joint effort of the G-24 and Friedrich-Ebert-Stiftung New York to gather and disseminate a diverse range of perspectives and research on trends, drivers and policy responses relevant to developing country efforts to boost growth and reduce inequality. The series comprises selected policy-oriented research papers contributed by presenters at a Special Workshop held in Geneva in collaboration with the International Labour Organization and the Friedrich-Ebert-Stiftung, as well as relevant sessions in G-24 Technical Group meetings.

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New York, NY 10017

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