Archive for SSP related Analysis

Trends in Income Inequality and its Impact on Economic Growth

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At the end of 2014, the OECD published a working paper titled “Trends in Income Inequality and its impact on Economic Growth” arguing that the disparity in the distribution of incomes has been rising over the past three decades in a majority of OECD countries. Addressing income inequality and the long-term trend towards higher disparity has risen to the top of the political agenda in many countries. This is occurring partly due to growing concerns over income inequality and its impact on economy growth and on the slow pace of exiting the current economic crisis.

Following a series of analyses of these trends, the OECD examined whether rapid increase in inequality might have an effect on economic growth and on the pace of recovery from the current recession. In this sense, this paper argues that a rapid increase in income inequality has a negative and statistically significant impact on subsequent growth. In particular, what matters most is the gap between low income households and the rest of the population.

Analysis based on the OECD data suggests that redistribution policies via taxes and transfers are a key tool to ensure the benefits of growth are more broadly distributed and the results suggest they need not be expected to undermine growth. But it is also important to promote equality of opportunity in access to and quality of public services. This implies a focus on families with children and youths, promoting employment for disadvantaged groups through active labor market policies, childcare supports and in-work benefits.

As an alternative way to represent the effects of inequality by focusing on changes in individual countries, the report estimates that more than 10 percentage points have been knocked off growth by rising inequality in Mexico and New Zealand during 1990-2010. On the other hand, greater equality increased GDP per capita in Spain, France and Ireland prior to the crisis.

The OCDE working paper concluded that reducing income inequality would boost economic growth, and that countries where income inequality is decreasing grow faster than those with rising inequality. Moreover, it shows that government transfers have an important role to play in guaranteeing that low-income households do not fall further behind in income distribution. However, it should not be limited to cash transfer programs, but incorporates policies to promote and increase access to public services.

Although the report did not look at inequalities between different identity groups, we know that the most disadvantaged groups are often from a different ethnic or other identity and therefore, in overall terms, the OECD analysis is linked with the guiding principles of the Economics of Shared Societies: a society in which diverse groups and individuals are economically integrated and utilize their talents and skills tends to be more stable and enjoy higher economic growth than divided societies.

 

Photo from the Diario Do Centro do Mondo

Economic Inclusion in Action: EU Migration benefits to the UK Economy

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On 4 November 2014, UK newspaper The Independent published “EU Migrants Add £20bn to the economy in decade,” an article that explored the huge monetary benefits migrant workers added to the British economy between 2001 and 2011.

Numerically, “migrant workers from EU15 countries, which include Germany and France, paid 64% more in tax that they receive in benefits. New arrivals from Central and Easter Europe “accession” countries contributed 12% more than they took out,” confirming the assertion that migrant workers produced a significant monetary boost for the economy and rebutting the often made claim that migrants are a drain on social services.

Following the same approach in one region of the UK, the local Belfast Telegraph published “How Migrant Workers Oiled Wheels of Recovery,” an article written by Jamie Stinson on data that reinforce the increased economic and social benefits of migrant workers.

In a recent report on how migrant workers had contributed around £1.2bn to the Northern Irish economy between 2004 and 2008, Nigel Smyth, Director of the CBI in Northern Ireland, importantly remarked “economic recovery in Northern Ireland would ´grind to a halt´ without migrant workers.

Migrant workers are helping to sustain economic growth and filling labor shortages by bringing much-needed skills. In that regard, Smyth stated that “immigration is instrumental in helping many sectors of the economy, including food processing, IT, and hospitality.” Workers from overseas – accounting for 4% of the workforce, were also enriching society through cultural diversity.

By generating income, raising productivity and through their purchasing power, migrant workers are substantially contributing to the economy, and “with the UK and Northern Ireland facing the challenge of an ageing population in the years ahead, it would be extremely myopic for policy makers to ignore the overwhelming contribution migrant workers will bring to our economy.

Importantly, both articles allude to one of the fundamental components of SSP, that of total economic inclusion. As reinforced by the authors, economic inclusion strongly benefits all members of society as capacities are developed and put to use and capital, both human and financial, substantially increases. In the words of the author of The Independent article, Nigel Morris, “…so why is your Government trying to keep them out, Home Secretary?

Fostering Inclusion and Empowerment: The contribution of Women in Nagaland

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Promoting equality and social inclusion in Nagaland, India is the goal of Kheshili Chishi of the Indigenous Women´s Forum for North-East India (IWFNEI) who hosted a workshop on the role of women in peace building between tribal groups and the promotion and protection of indigenous rights for women. Speaking fervently about empowerment and the exercising of rights, Chishi focused on peace building not only in times of conflict but at all times, saying, “Simply talking is not enough unless you put yourself into action. Each one of us has to shoulder the responsibility.

Furthermore, the workshop stressed the need for equal access to healthcare and work, emphasizing the importance of women´s political participation. In doing so, the workshop also related heavily to SSP´s commitments on institutional arrangements, service provisions, and inter-community development, and is a practical example of the ideas emerging from the Women and Shared Societies Working Group on the active role women can play in overcoming intergroup conflict, all focused on creating greater social cohesion.

For more information, the full article from the Morung Express News can be found here.

Ethnic diversity as a positive element for the provision of public goods in Zambia

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The ‘diversity debit’ hypothesis, developed in a famous article by Easterly and Levine in 1997 argues that ethnic diversity has a negative impact on social, economic, and political outcomes. According to this theory there is a negative relationship between ethnic diversity and public goods provision, due to different aspects related to the heterogeneity of the society such as: variety in ethnic group’s preference; less contribution to public goods; difficulties in solving problems that require collective action; or difficulties in governance when the elites are formed by diverse ethnic groups. The consequences of these negative relationships were in most cases low schooling and insufficient infrastructure, as well as political instability, underdeveloped financial systems, distorted foreign exchange markets, and high government deficits.

The study “Ethnic heterogeneity and public goods provision in Zambia” published by the World Institute for Development Economics Research of the United Nations University (UNU-WIDER)[1], challenges the ‘diversity debit’ hypothesis as it shows that ethnic fractionalization is not clearly associated with the under-provision of public goods. Instead they argued that diversity can have a rather positive relationship with key welfare outcomes. According to the authors, instead of posing the question: ‘Why does ethnic diversity undermine public goods provision,’ we should ask ourselves why does it not?

According to the study, ethnic diversity does not necessarily undermine public goods provision in those cases when ‘diversity’ is not equivalent to ‘division’. They argue that division, rather than diversity per se, is what drives the diversity debit hypothesis. Studies in those places where ethnic identity is comparatively stronger than national identity show that is in those cases when we can clearly see remarkable inequalities in public goods provisions.

Regarding the case of Zambia, in order to understand why and how diversity does not necessarily undermine public good provision is important to look at different factors such as internal migration or the role of political institutions.

The paper shows that internal migration (namely, urbanization) in Zambia is relevant to understand this issue. Between 1964 and 1990, the urban population in the country increased from 10.5 to 39.4 per cent. Those who choose to move around the country instead of staying within an ethnic enclave are likely to me more tolerant and highly educated and thus less reluctant to diversity. As a consequence, internal mobility and urbanization will result in variations of ethnic heterogeneity and in the construction of diverse communities at a sub-national level.

The findings of this study on the case of Zambia, challenging the widely accepted ‘diversity debit’ hypothesis and showing that division rather than diversity undermines the equal access to public goods provision, connects closely with the vision of the Shared Societies Project and the findings of the Working Group on the Economics of Shared Societies[i] together with the work of other researchers [ii]. Thus, the findings of this study, showing that there can be a robust positive association between diversity and key welfare outcomes resonate with the view of the Shared Societies Project: diversity is not an obstacle for justice and fair distribution of opportunities and public services, in the contrary, it can be a strength and can foster the well-being of a society, provided that all sections of the community feel at home and are able to contribute to the society.

This study shows that division, rather than diversity, is what fosters some of the main problems and inequalities in the provision of public goods. Academics and policy-makers should look at this case in order to find yet another example of the importance of inclusion in order to build truly just and shared societies.

 



[1] Rachel M. Gisselquist, Stefan Leiderer and Miguel Niño Zarazúa: Ethnic heterogeneity and public goods provision in Zambia, WIDER Working Paper 2014/162

 



[i] http://www.clubmadrid.org/img/secciones/The_Economics_of_Shared_Societies_Publication.pdf

[ii] Alesina, A. and E. La Ferrara (2005) Ethnic Diversity and Economic Performance, Journal of Economic Literature 43, 3, pp. 762-800

“Birnir, J and D Waguespack “Economic Policy and Relevant Ethnic Groups.” Party Politics. 17(2): 243-260

Hall,R.and C.Jones (1999) Why do Some Countries Produce So Much More Output per Worker than Others?  The Quarterly Journal of Economics, 114, 1,pp.83-86

 

Promoting Shared Spaces in Israel

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The Club de Madrid has been collaborating with the Friedrich-Ebert-Stiftung (FES) within the context of our Shared Societies Project for some years through the work of its New York office on global development issues and with global intergovernmental institutions.  We have collaborated with them at the United Nations and co-hosted meetings at the World Bank and International Monetary Fund from which we developed the Shared Societies Global Agenda to Promote Long-Term Inclusive and Sustainable Growth. So we follow with interest the Stiftung’s work at country level and look forward to opportunities to collaborate.

Using a perspective similar to the Shared Societies Project, FES-Israel is engaged in public information and peace and social dialogue projects that reinforce political, economical, social and cultural ties between Israel and its neighbours and provides platforms for exchange for Jewish-Arab networks. Another common feature with the Share Societies Project lies in the FES-Israel’s effort to strengthen civil society and to promote pluralism and mutual acceptance, by organizing majority-minority dialogue and empowering disadvantaged segments of the Arab community, as well as immigrants from the former Soviet Union and Ethiopia, and other groups.

We noticed a recent piece of action research conducted by FES-Israel: “Local Decision Making – Involving Residents in Municipal Affairs in Akko”. It was part of comprehensive research by the Jewish-Arab Center at University of  Haifa entitled “Akko as a Shared Space”, and its main goal was to promote and strengthen the relationship between Jews and Arabs living in the same city. The research’s objectives were to shed light on the impact of residents’ participation in local decision-making processes, to improve the local processes of decision making and, finally, to improve the residents’ quality of life, particularly the relations between Jews and Arabs.

This project is just one example of FES-Israel’s commitment to strengthening German-Israeli relations, remembering the past and promoting global social justice and democracy. It employs dialogue and debate through public events and encounter programs, political and socio-economic research and analysis, civic education and leadership training and political consulting in order to achieve their goals and missions. To this end, FES works closely with local partner organizations to jointly develop projects in the spirit of democracy, gender equality and peaceful co-existence.

Promoting “Shared Spaces” is a timely initiative towards supporting the global efforts to continue to seek the best approaches to building a Shared Society.

Peaceful Values: A lesson from indigenous communities

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Homo homini lupus/man is a wolf to his fellow man. This statement, made by Thomas Hobbes, gives a profound reflection on human nature. Men are aggressive according to their more basic instincts, but not everybody agrees.

There are many indigenous communities that make us reconsider this view about our, supposed, innate violent conduct. We can find a big number of peoples that live peacefully even though they are diverse and with different customs, as Douglas P Fry explains in his book “War, Peace, and Human Nature: The Convergence of Evolutionary and Cultural Views”.

Social cohesion is the cornerstone of the cohabitation of these communities. For example, in the Upper Xingu River (Brazil) ten different tribes live in peace and they do not know conflict among each other. They are heterogeneous but this is not a reason to trigger violent behaviors, unlike the Hobbesian theory; they have the capacity to respect themselves and each other and keep peace.

These people speak four different languages and have their own traditions but they have found the way to live together within their diversity. We can learn a very important lesson from them, and it is that they have decided to focus on the things that make them feel as a single community, respecting their particular traditions and gathering to create collective activities, such as participating in the same feasts, trading with each other allowing marriage among members of the different groups, etc.

The findings of this and other studies resonate with a core assumption of the Shared Societies Project: the right kind of values, policies, structures and institutions foster and encourage cooperative attitudes and relationships between peoples so that they treat each other with respect and dignity.  Other values, policies, structures and institutions encourage attitudes which are divisive and exclusive and treat others as less worthy of consideration than people from one’s own group.

People like those in the Upper Xingu River have created such a system instinctively and through experience, but in many of our societies we need to take active purposeful steps to shift towards the creation of a Shared Society.  That is why we identified the Ten Commitments which cover the aspects of society which can contribute to a society in which it comes naturally to treat others with respect and dignity and change those aspects which encourage us to exclude and disparage others who we think are different from us.  By making these ten commitments we can build a society in which everyone feels valued and at home and where they can make a full and active contribution to the development of the community.

We would not be surprised to discover that the peoples of the Upper Xingu river already share those commitments.  They are an example of good leadership for other multicultural societies.  Policies seeking the inclusion of varied identities will lead to the inclusion of all the groups and to the creation of a feeling of unity and belonging to that same community.

Policy-makers should take as an example these communities and their way to govern their society. Many of the challenges that states have to face nowadays are related with exclusion of certain groups on account of their religious beliefs, race, sexual orientation, gender, etc. This makes these communities impoverished at all levels.

Inclusion of distinct groups would provide a cultural as well as an economic enrichment, as the Shared Societies Project argues, inasmuch as an inclusive society would realise the skills of all its citizens, without discrimination of any kind, making communities bloom with the contribution of all their members, developing economic growth in which all participate and that will help it to be sustainable.

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