World Bank asks countries to focus on shared prosperity to address inequality

World Bank Group President Jim Yong Kim on Friday called on governments looking to address growing inequality to work on boosting “shared prosperity,” with a strong focus on improving the lives of the bottom 40 percent of populations in developing countries.

“How are we going to address the problem of inequality?  At the World Bank Group, we attack it using a term that suggests a solution—shared prosperity,” Kim said. “In our work with governments, we support efforts to ensure that everyone benefits from growth, not just those who already control or have access to capital.”

Speaking at the United States Institute of Peace in advance of the World Bank-International Monetary Fund Annual Meetings, being held this year in Lima, Peru, Kim pointed to the civil-society organization Oxfam as effectively laying out one way to view the challenges of inequality.

“Last year Oxfam laid down an unusually sharp challenge in their report, “Even It Up,” stating that the richest 85 people in the world control as much wealth as the bottom 50 percent of the world—or more than 3.5 billion people,” Kim said. “By highlighting the stark reality that so much of the world’s population shares almost none of the world’s wealth, Oxfam touched a nerve.”

However, rather than focusing on the wealthy, Kim asserted that addressing inequality would be most effective by tailoring policy approaches to help the bottom 40 percent, depending on the country context.

“Efforts to boost shared prosperity will require a variety of strategies for countries, because the bottom 40 percent is made up of different populations in each one,” Kim noted. “Policies or interventions have to be supple and flexible to respond to the variation.

A low income country may need to ramp up agricultural productivity.  A middle income country may focus more on urbanization.  For a country where most children don’t go to primary school, this is the first goal that has to be reached—and then, secondary education.”

Kim described the three ingredients the World Bank sees as having the most promise:  “At the World Bank Group, for both of our goals of ending extreme poverty and boosting shared prosperity, three things have to happen—we call it grow, invest and insure. Grow the economy, invest in people and insure them so they don’t risk falling back.”

Of the three, Kim  stated that economic growth accompanied by rising wages and job creation has been the most important factor in ending poverty and boosting shared prosperity over the past half-century.

However, Kim took issue with those who believe growth alone is the rising tide that will lift all boats:

“A focus on gross domestic product growth is simplistic,” Kim said. “We reject ‘trickle-down’ approaches that assume any undifferentiated growth permeates and fortifies the soil and everything starts to bloom even for the poor.  We need to find an economic growth model that’s inclusive, that lifts up the poorest citizens rather than maintains those at the top.”

But, Kim asked, “What do we do in an era of low global growth—such as we are living through now?” “One answer is to encourage countries to do all they can to boost growth—which often means enacting reforms, like ending regressive fossil fuel subsidies, improving the business climate and making public expenditures more efficient and targeted,” he said.

Another important step is for developing countries to build more equitable and more transparent tax collection, Kim said.

“Christine Lagarde and I pledged a few months ago that our organizations will do all we can to help countries collect more taxes more fairly.  In too many countries, the rich evade paying their fair share.  Some companies use elaborate strategies to not pay taxes in countries in which they work, a form of corruption that hurts the poor,” Kim said.

No matter the levels or prospects for economic growth, Kim called on governments to continue to invest in people and insure them against the risks and looming disasters of modern life, so that everyday shocks will not be overly disruptive.