Inequality is on the rise in many countries worldwide: more than 75% of the population in the Global South live in countries with increasing inequality. High and rising inequality is increasingly recognised as a major barrier to sustainable development since it decreases economic growth and social cohesion. The World Bank argues that economic growth alone is not be sufficient to eradicate extreme poverty – it must be complemented by redistributive policies. The International Monetary Fund (IMF) argues that redistribution, if properly carried out, has no negative effects on economic growth. The 2030 Agenda recognises the importance of inequality and includes it as a stand-alone goal (SDG 10), but also mainstreams the topic in other goals. Twelve of 17 SDGs refer to inequality in one way or another, and reducing inequality is thus a pre-requisite for the success of the 2030 Agenda as whole. Until recently, topics such as inequality or redistribution were not part of the development agenda. Hence, new approaches and strategies are needed.
Where do we stand today?
Growing inequality prevents the effective reduction of poverty and the holistic implementation of the 2030 Agenda, especially the principle to ‘leave no one behind’ (LNOB). Rising and high inequality is not inevitable – it is a policy choice. The task of reducing inequality may seem to be too big at first. However, it is possible. Furthermore, reducing inequality does not necessarily harm economic growth or other developmental goals. There are country examples that show that policies and strategies exist that combine economic growth with stable or shrinking inequality. Countries in the Global South have redistributive spaces that can be increased and used more efficiently. To support partner countries in identifying these spaces and increasing them is a challenge for actors in international cooperation, as analytical capacities and support mechanisms must first be put in place.
What can be done?
Reducing inequality is a new topic for most bilateral and multilateral development actors. As a consequence, strategies and approaches have to be revised to develop and strengthen projects that explicitly address redistribution. Only then can the positive spill-over effects from reduced inequalities be harnessed and truly sustainable development achieved. Among the new approaches currently under development is a tool called ‘inequality diagnostics’. This tool consists of guidelines that help to assess the causes and drivers of inequality in partner countries. Once these are known, tailor-made approaches to the country-specific causes of inequality can be developed. Supporting country efforts to enhance their own capacities to analyse inequality dynamics and develop policy responses is another important step towards reducing inequality.
Formulating and implementing inequality reducing policies is a complex undertaking. Therefore, and within the framework of the Multi-Actor Network on Inequality, a week-long training programme has been developed to equip policy makers from partner countries with the knowledge necessary to undertake the task. Moreover, through the Inequality Challenge, Germany supports the practical testing of new and innovative approaches to tackling inequality.
HOW POLICIES REDUCE INEQUALITY
Policies can make a meaningful and lasting impact on reducing inequality.
Examples of policies that have been shown to contribute to inequality reduction include: