...and what about inequality?

“World inequality has increased more than we thought”. This is the statement the World Bank has not yet dared to make, after having disclosed the meagre results of the struggle against poverty worldwide and the little or nothing it has done to fulfill its mission. Is there evidence of the fact that inequality has increased more than what is acknowledged based on the adjustments made by the Bank for the strict comparability of households at global level? Yes, and too much of it. Nevertheless, I will just point out two facts.

In the first place, there is the problem regarding the poor effectiveness of Living Standards Measurement Studies to obtain information from the families and people that are owners of the capital of a certain country, in spite of having been selected by means of a sample design (1). This is a problem that has been contemplated on several occasions by Bank researchers, for which they have sought very witty solutions, with surprising results. In fact, in an applied pilot (2) on the reality of the United States (using the Current Population Survey of March 2001) it was found that the correction of data significantly increased the Gini coefficient from 45.05% to 50.76%, that is, there was an increase superior to 12%. A second correction for the same data (3) showed that the impact continued to produce a level of inequality that was higher to the one initially registered by increasing the Gini coefficient from 45.05% to 48.29%. In both cases, the poverty indicator had a scarcely significant impact, but it remains clear that it is impossible to hold back the evidence regarding the fact that inequality is higher than initially estimated.

In the second place, we have evidence of a large increase in the transfer of financial resources from developing to developed countries, which after a decade reaches the amount of 658 billion dollars in 2006 (4). This is mainly explained by two components that accentuate inequality among people at global level: i) the increase in profits credited to transnational companies from branches located in developing countries, and ii) the payment of interests by way of external public debt service. In both cases, the transfer of financial resources ends up favouring the people and families that are owners of capital and belong to those population sectors with the highest income levels in developed countries, to the detriment of the opportunities and consumption of people and families belonging to the poorest sectors of developing countries. This type of data cannot be collected by a timid living standard survey, but rather through the balance of payments. However, there still remains a problem in what regards to the difficulty in assigning the income resulting from transfers made, and which will be eventually enjoyed by the owners of capital.     

In short, the processes increasing inequality persist, and as a result, said inequality has aggravated much more than initially expected. The World Bank will soon present more accurate information in this respect. Meanwhile, it is nessary to find specific opportunities to reach a new agreement aimed at building a fairer world without poverty.

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(1) Technically known as the problem of selective compliance in the application of surveys. Generally, the richest families refuse to receive surveyors because they have a high time opportunity cost to devote time to answer a long survey such as the one measuring living standards, or because they are afraid of letting a stranger meticulously investigate their business deals, even if sent by a State agency.

(2) Mistiaen J. & Martin Ravallion, (2003) “Survey compliance and the distribution of income”. Policy Research Working Paper 2956. Development Research Group. The World Bank.

(3) Idem, page 17.

(4) Based on information provided by the World Economic Outlook, IMF, September 2006.

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