Confronting inequality in developing countries: what steps could the EU take?

15 Oct

Written by Mark Furness and Mario Negre

When it comes to internal EU affairs, the European Commission is committed to social cohesion — which means, among other things, reducing economic inequality. However, that same commitment has not materialised to any great extent beyond Europe, in EU international development cooperation.

The question of how to deal with inequality is starting to inform debates about the future of EU development policy. The October 2011 Agenda for Change stresses inclusiveness and sustainability and emphasises the importance of the private sector. However it mentions ‘inequality’ only once, and this is in reference to equality of opportunity, not of income.  On 20 August the Commission started filling in this gap with the release of a Communication on social protection in EU development cooperation. This document makes some welcome suggestions for advancing social protection in middle income countries (MICs) and in poor countries, including placing social protection at the heart of dialogue with developing country governments and supporting domestic initiatives to reform tax systems. Its publication indicates that at least some EU development policymakers are interested in mainstreaming the inequality issue, an impression also conveyed by the focus of the upcoming European Development Days.

Momentum appears to be building, but the question still remains as to whether the EU can turn some of these expressions of intent into concrete action. There are at least three reasons to doubt this:

First, in the praxis of EU development cooperation, the difficulty of implementing policies aimed at reducing inequality becomes apparent. Although the Commission earmarks around 20% of its development aid for social programmes, most is actually spent on activities to promote economic growth and tackle governance issues like police and judicial reform. These are undoubtedly helpful, but have had limited impact on social cohesion and do not address inequality directly, either in terms of opportunities or outcomes. One specific social cohesion programme, EUROsociAL  in Latin America, is very promising, but it is small and marginal.

Second, The EU is seriously thinking of disengaging from country-level development cooperation with MICs. Poverty remains a massive problem for many MICs, and even though they have increasing national wealth there are major obstacles to ensuring that most of the people benefit. Addressing inequality could become a central topic for political dialogue and technical cooperation with those MICs that are interested. The EU has lots to offer on both dimensions from its own social and regional cohesion experiences. However dialogue and cooperation need to take place at the national level, not only through regional and thematic programmes as currently proposed.

Third, the EU must set an example. Developing country elites will not take EU policy prescriptions targeting inequality seriously while inequality is rising in Europe. As Europe wrestles with self-doubt about its future and its place in the world, this is a good time to reflect on what the European project has been about: providing for the long-term peace, prosperity and well-being of the citizens of its member states. Social cohesion, achieved by ensuring that as many people as possible have a decent standard of living, is a core element of this strategy. It should not be forgotten that although the EU’s social model varies from country to country, it contains core features – such as low inequality – that make it one of Europe’s greatest success stories.

Measures aimed at reducing income disparities should be central to EU development policy, both for MICs where average income is growing and for lower income countries where mechanisms for capturing and sharing wealth are absent. EU development policy could focus on ex-ante support for more inclusive value-chains and sectors such as insurances for the poor and agriculture, where market-based mechanisms may not be able to meet needs. It could also act ex-post, for instance by promoting progressive tax systems and the pro-poor focus of social expenditure in countries with high inequality. The EU could offer twinning programmes to share expertise in fostering social cohesion in Europe, similar to programmes run by the Commission’s DG Regio on regional cohesion or DG enlargement on technical cooperation. Existing international social cohesion programmes, such as EUROsociAL, could be boosted and adapted to the needs of other developing countries and regions.

At the global level, the EU could take a strong position on inequality in international forums, especially the upcoming negotiations on indicators to succeed the Millennium Development Goals after 2015, and make this a key focus of its political dialogue with partner countries. Another step that the EU could take to prove it is serious about inequality and inclusive development would be cracking down on tax havens. This would make it harder for some developing country elites to siphon off wealth that could be invested in social protection and domestic enterprises creating decent, sustainable jobs.

Important lessons can be taken from Europe’s experience that can be applied to cooperation with developing countries. This means facing up to the intensely politically sensitive challenge of providing support to partner governments that are willing to address the inequality issue through the protection of civil rights and the provision of healthcare education and jobs, as well as by redistributing wealth. The extent to which state intervention is needed in order to foster inclusive growth is hotly debated, but it is worthwhile mentioning that if the public purse can be called upon to bail out too-big-to-fail banks and insurance companies, then it can also be tasked with fostering the inclusion of those too-small-to-benefit from economic growth.

These proposals will be debated by a high-level panel organised by the European Think-Tanks Group at the European Development Days on 17 October. The panel will feature Malawian President Joyce Banda, Benin President and African Union Chairman Yayi Boni, EU Development Commissioner Andris Piebalgs, ACP Secretary-General Mohamed Ibn Chambas, MEP Charles Goerens, ECDPM Director Paul Engel and DIE Researcher Mark Furness. The discussion will be moderated by ODI Research Associate Simon Maxwell.

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