UN DESA United Nations Department of Economic and Social Affairs Distribution Analysis Poverty and Social Assessments Isabel Ortiz Senior Interregional Advisor United Nations DESA UN Commission for Social Development Side Event by Oxfam International and UN DESA New York, 8 February 2008

Distribution of World Income: Development for Whom? Source: Sutcliffe, Department of Economic and Social Affairs. WP 2. United Nations

Ratio of the Income of the Richest 20% to the Poorest 20% YearRatio18203: : : : : : :1 Source: UNDP Human Development Reports 1999 and 2005, New York Bringing Distribution Analysis to Development a Must: Inequality Escalating

The Core Problem: The Logic of Development Interventions  Major development interventions selected by a non-social rationale (e.g. GDP growth) – but these policies unable to generate high employment growth  Complemented with residual, smaller social investments (human development, safety nets) increased in recent years but often at the cost of agriculture!  Military expenditures further constrain fiscal space for poverty reduct’n Source: WB Annual Reports

No Trickle-Down Effect: The Benefits of Economic Growth do NOT Automatically Reach All Source: Woodward and Simms, Department of Economic and Social Affairs. WP 20. United Nations. WP 20. United Nations.

1995 World Summit in Copenhagen: Development for All  Governments of the world agree that eradication of poverty and promotion of social inclusion must be priorities of development because of:  Social Justice  Economic Arguments  Inequality is economically dysfunctional  World problem of overproduction and global excess capacity in the context of weak effective demand  Consumption concentrated in top income deciles  Raising the incomes of the poor increases domestic demand and, in turn, encourages growth by expanding internal markets  Political Arguments  Gross inequalities cause tension/conflicts, uncontrolled migration  UNDESA core mission: Development for All  BUT – HOW?

From Targeted Interventions to Mainstreaming Poverty and Social Issues in Development Key issue is not to leave social development in a “silo”, but to mainstream social impacts in all interventions: Tools/Instruments: 1. Social Safeguards, Corporate Social Responsibility 2. Distribution/Poverty and Social Assessments 3. Strategies/Action Plans for different social groups Ultimately, what is needed are National Development Strategies and International Agreements (e.g. trade) with equitable distributional impacts, that benefit all

1990s onwards: Social Safeguards and Corporate Social Responsibility  World Bank/AfDB Social Dimensions of Adjustment Initiative (1987)– high human costs of structural adjustment  World Bank/AfDB Social Dimensions of Adjustment Initiative (1987) – high human costs of structural adjustment  Safeguard approach in development institutions include:  Involuntary Resettlement  Gender  Indigenous Peoples  Impacts on the Poor  Social Protection and Labour Safeguards  Corporate Social Responsibility expands in the 1990s in the private sector. The UN Global Compact promotes non-violation of Core Labour Standards and UN Declaration of Human Rights by business.  Safeguards ensure compliance to minimum social standards as exemplary practice (e.g. no child labour used in an investment)  As well as mitigating unintended negative social impacts of development projects (e.g. compensation in case of resettlement because of an infrastructure investment) => Necessary but insufficient approach - safeguards ensure that poverty/exclusion is not increased, but they do not address the structural reasons of poverty/exclusion

Late 1990s/2000s: Poverty and Social Assessments in Development  Poverty and Social Impact Assessments (also known by acronym PSIA) are ex-ante analysis that look at the distributional impacts (income and non-income) of development interventions:  Project level  Sector reforms  National Strategies  International agreements (e.g. Trade)  Provides alternative policy options to maximize positive poverty and social impacts  Needs to be an independent, non-partisan analysis given vested interests at any level  For policy-makers, it is a good tool to be accountable to citizens through a public debate

Example: Impact of Policy Reforms on the Poor Summary analysis of effects of removing a fertilizer subsidy on the poor with respect to: (1) employment (2) prices (3) access to goods/services (4) transfers/taxes Two policy options

Distribution/Poverty and Social Assessments are a necessary tool to reduce poverty and exclusion BUT:  Need to expand outreach:  Done in selected interventions by the IFIs, piecemeal approach (e.g. IMF only utilities)  Also need to expand:  Governments/National Development Strategies  To other international organizations (e.g. WTO)  Need to expand coverage to all social groups:  The poor always addressed, but not other excluded social groups as agreed by UN international conventions/agreements (women, older persons, persons with disabilities, indigenous peoples, etc).  Despite women are half of world’s population, economic and social inequalities and measures to redress them are often misreported Slow Progress in Distribution/Poverty and Social Assessments

Slow Progress in Distribution/Poverty and Social Assessments (II) Areas: Analysis needs to cover all areas and discuss policy options – e.g. very limited progress on:Areas: Analysis needs to cover all areas and discuss policy options – e.g. very limited progress on:  Macroeconomic policies (examples next slides)  Trade - most trade agreements are done without thinking on distributional impacts on population  Policy options weak:  EURODAD (Hayes, 2005): only 3 of 18 World Bank PSIAs had a meaningful analysis of alternative options  Often minor policy changes or mitigative measures instead of a complete alternative set of policies  Policy space needed to discuss and implement real alternatives that maximize impacts on people

Country Fiscal Deficit Targets over 3-year IMF Program Reduction % GDP What this could buy for one year Cameroon -0.7 to Could have doubled health expenditure Ghana -9.7 to – Could have doubled primary healthcare expenditure each year of the 3-year program Rwanda -9.9 to – Could double the health and education budget in each of three program years  Normal inflation target: below 5% per annum  Alternative: Expansive, employment- generating macroeconomic policies, tolerance to limited inflation  Normally fiscal policies: Minimal direct taxation  Alternative: Progressive taxation for development and redistributive purposes  Normally deficit reduction a priority  Alternative: Public investment for development; need to expand governments’ fiscal space Examples of Standard Macroeconomic Policies and Alternative Options Source: Oxfam International 2003 and Rick Rowden, Action Aid 2007

IMF PapersOutside PapersEstimated Inflation Thresholds Fisher (1993)15%-30 % Bruno and Easterly (1998)40% Burdekin, et al (2000)3% for developing and 8% for rich countries Gylfason and Herbertsson (2001)10%-20% Pollin and Zhu (2005)15%-18% Bruno (1995)20% Barro (1996)Finds that a 10% increase in the annual inflation rate is associated on impact with a decline in GDP’s annual growth rate of only 0.24%. Sarel (1996) 8% Khan and Senhadji (2001) 11%-12% for developing and 1%-3 % for rich countries Ghosh and Phillips (1998) Finds that the inflation-growth relationship is convex, so that the decline in growth associated with an increase of 10-20% inflation is (1998) much larger than that associated with moving from 40% to 50% inflation.

Examples of Policy Options for Equity and Poverty Reduction AreaTypical interventions with EQUITABLE/PROGRESSIVE outcomes Typical interventions with INEQUITABLE/REGRESSIVE outcomes Culture Multicultural activities, popular events that foster social cohesion Subsidies to elitist events/ exclusive art Education Universal free education; programmes to ensure access and retention of students (particularly girls) User fees in primary and secondary education; commercialization of education Energy and Mining Rural electrification; life-line tariffs (subsidized basic consumption for low income households) Untaxed oil/mineral extraction, poorly negotiated PPPs power plants Finance Regional rural banks, microfinance; managing finance (current accounts, capital flight…) Reform/rescue of banking system (transfers to large banks); subsidies to large private enterprises Health Universal free (or with minimal nominal fees) primary and secondary health services, nutrition programmes User fees, commercialization of health, tertiary highly specialized clinics (e.g. cardiology centres) Housing Subsidized housing finance, upgrading of substandard housing Public loans for housing finance for upper income groups Industry Supporting competitive, employment- generating domestic industries Deregulation Labour Active and passive labour programmesLabour flexibilization

AreaTypical interventions with EQUITABLE/PROGRESSIVE outcomes Typical interventions with INEQUITABLE/REGRESSIVE outcomes Macroeconomics Employment-sensitive monetary and fiscal policies, countercyclical policies Cyclical policies, indirect taxation (VAT) Public Expenditures Progressive expendituresMilitary spending Rural Development Secure access to land, water, markets, livestock, credit for smallholders Irrigation systems that benefit landowners Social Protection Non-contributory pensions, cash transfers, social services, etc.; almost all SP aimed at redistribution Private funded pension systems Tourism Small-scale local companiesPoorly taxed luxury hotel chains Trade Linking employment-generating local companies with export markets Most bilateral free trade agreements Transport and Infrastructure Rural roads, affordable public transport, non-motorized transport for households (bicycles, buffalos, etc) Some large (and costly) infrastructure investments Urban Development Slum upgrading, accessible universal design Large urban infrastructure projects in wealthy areas Water Rural water supply and sanitationPoorly negotiated privatizations Source: Ortiz Social Policy Note. UNDESA Policy Notes for National Development Strategies, United Nations. Examples of Policy Options for Equity and Poverty Reduction

Slow Progress in Distribution/Poverty and Social Assessments (III)  Lack of independence:  Need independent institutions to carry analysis  Methodologies:  Not standardized, plurality of approaches is correct but problem when lack of rigor:  Sophisticated quantitative models not necessarily best – care with assumptions and parameters  It is not only about income poverty: Poverty and exclusion have many other dimensions including discrimination, exploitation, lack of control of resources, obstacles to access goods/services, vulnerability to shocks, helplessness/fear to violence and corruption, lack of voice in decision-making.  Multidisciplinary approaches best, combining quantitative and qualitative analysis

Slow Progress in Distribution/Poverty and Social Assessments (IV)  Short-long term impacts:  Generalizations not acceptable (e.g. often the poor/excluded groups benefit in the long term but upper income groups benefit in the short term – transparency needed)  Timing and Civil Society Participation:  If distribution/poverty social assessments done too late, cannot influence policy reforms  Analysis needs to be released (+ translated!) to civil society/parlamentarians as soon as possible, to allow for public debate and to be contested if necessary  See critical Joint NGO Briefing Note by Oxfam International, Christian Aid, Bretton Woods Project, EURODAD and other NGOs,  Why only ex-ante?  Distribution Analysis/Poverty and Social Assessments should accompany the whole policy cycle to be accountable

Concluding  UN Commission for Social Development, UN General Assembly, World Summits: Governments of the world unanimous that fighting poverty and exclusion is a priority UN General Assembly, World Summits: Governments of the world unanimous that fighting poverty and exclusion is a priority  This priority will not be accomplished by having targeted interventions to the poor, but about mainstreaming equity and social inclusion in development  Need to expand use of distribution analysis/poverty and social assessments  To all national and international development interventions  To all areas including trade, macroeconomic policies  To all social groups  Need policy space for alternative equitable policy options  Need public debate and be accountable to societies  Distribution/Poverty Social Assessments are not free, their costs need to be absorbed by governments and organizations – Call to donors to fund Southern independent institutions

Thank you United Nations Department of Economic and Social Affairs