Is there a relationship between equity and development? This report, published by the World Bank, recognises both the intrinsic value of equity and its instrumental role in reducing poverty. Greater equity contributes to poverty reduction through potential beneficial effects on aggregate long-term development and through enhanced opportunities for poorer groups within society. Government institutions should ensure equal opportunities for all individuals by promoting a level playing field both politically and economically in the domestic and global arena.
The concept of equity demands that individuals should have equal opportunities to pursue a life of their choosing and be spared from extreme deprivation. Equity is complementary to the pursuit of long-term prosperity. The complementaries between equity and prosperity arise for two main reasons. Firstly, market failures, notably in credit, insurance, land and human capital, mean that resources may not flow where returns are highest and may lead to unequal opportunities. Secondly, high levels of economic and political inequalities tend to result in inequitable institutions that systematically favour the interests of those with more influence.
Inequalities tend to persist over time due to the interaction between different forms of inequality.
- The adverse effects of unequal opportunities are damaging for development because economic, political and social inequalities often reproduce themselves across generations – a phenomenon known as the ‘inequality trap’.
- The distribution of wealth is closely associated with the social distinctions that stratify people, communities and nations into groups that dominate and those that are dominated.
- The patterns of domination persist because economic and social differences are reinforced by the overt and covert use of power. Such overlapping political, social and economic inequalities stifle mobility and are closely tied to the business of ordinary life.
- Inequalities are perpetuated by the elite and are often internalised by marginalised or oppressed groups, thus making it difficult for the poor to find their way out of poverty.
Inequality of opportunity is wasteful and inimical to development and poverty reduction. Institutions should promote a more level playing field, in which all members of society have similar chances to become socially active, politically influential and economically productive. Governments can contribute to the move from ‘inequality traps’ to virtuous circles of equity and growth by designing policies aimed at:
- Taking action at the domestic level by: investing in people; expanding access to public services, justice, land and infrastructure; guaranteeing property rights for all; and promoting fairness in markets.
- Undertaking reform at the international level by reducing inequities in the functioning global markets and the rules that govern them. Domestic policies aimed at promoting equity are more likely to be successful if accompanied by similar efforts to introduce greater fairness in global governance.
- Ensuring that public action to create a level playing field does not aim towards equality in outcomes. In particular, public policies should focus on the distribution of assets, economic opportunities and political voice, rather than inequality in incomes.
- Recognising the necessary short-term tradeoffs between equity and efficiency. A balance is needed to ensure that policies aimed at achieving equity do not harm growth and investment by ignoring individual incentives.
- Incorporating equity considerations into development policy design. The promotion of equity is central to the investment environment and to the agenda of empowerment in developing countries.
