Income distribution is extremely important for development since it influences the cohesion of society, determines the extent of poverty for any given average per capita income, and the poverty-reducing effects of growth, and even affects people's health. Accumulating evidence shows that more equal income distribution leads to higher economic growth.
Coordinated regional action, and better international action would help promote equality without weakening the ability to compete. For example regional coordination of domestic tax and benefits would permit improved distribution without undermining competitiveness, as would regional coordination of minimum wages at an appropriate level. At an international level, coordinated taxation of international capital flows and support for universal human rights to minimal standards of living would also contribute to improving income distribution. A global economic environment will require a global social response.
Professor Frances Stewart (Oxford University) suggests six strategies for achieving more egalitarian growth: (i) agrarian-focused strategies and those aimed at increasing productivity in the rural sector; (ii) employment-intensive strategies; (iii) higher levels of and widespread education; (iv) asset redistribution, (e.g. land reform); (v) government policies towards structuring the market, to favour the less well-off; (vi) raising the rates of taxation and public expenditure to improve after-tax distribution.
In the national context, the State must endeavour to create the preconditions for ensuring a more egalitarian economic development. Two strategic approaches are paramount: the proactive approach to preempt exclusion would seek to develop mechanisms and policies to ensure that the benefits of development would be widely shared. This requires the integration of social policy into the strategy of economic development. The second approach can be characterized as reactive. This would curb the adverse effects of exclusion and provide social safety nets. The time has come to evolve a new consensus on development, which should be concerned as much with equity as with efficiency, and as much with social progress as with economic growth. The focus must shift from economies to people, and from means to ends.
1. While strategies to promote more egalitarian growth seemed both feasible and desirable, in the 1980s and 1990s there has been a strong tendency for income distribution to worsen in both developed and developing countries. A variety of explanations for this have been advanced including trade liberalization, technology change, and the impact of liberalization and globalization more generally.
3. High income inequality translates into growth-impeding factors as it leads to political instability, uncertainty and, therefore, to less investment and slower growth.
