GDP is not enough to understand inequality, says UNDP chief

epa08058386 United Nations Development Program (UNDP) Administrator Achim Steiner speaks during the UNDP Human Development Report 2019 presentation, in Bogota, Colombia, 09 December 2019. EPA-EFE/Mauricio Duenas Castaneda

From Brexit to the ‘gilets jaunes’, protest movements in Europe and elsewhere have shocked political elites in recent years. At their heart is a sense that economic growth has left many people worse off even if, in most countries, the headline GDP figures suggest that countries are much wealthier.

Challenging the idea that economic growth will automatically lead to development and wellbeing is one of the main themes in the 2019 Human Development report by the UN Development Programme (UNDP) published in December.

Achim Steiner, the administrator of the UNDP, told EURACTIV that policy makers need to look beyond the GDP figures and economic indices that “simply do not capture”.

“The perception is that things are not getting better but that they are in fact getting worse and that is breeding distrust of the political process.

“Income per capita and GDP is an inadequate way to respond to growing inequalities. You have to go beyond averages. We need a more calibrated view of where a country is at that looks at the basic health and education indicators,” added Steiner.

Europe has seen some of the biggest gains in human development over the past decade. Ireland had the highest increase in rank on the Report’s accompanying Human Development Index (HDI), rising 13 places between 2013 and 2018. Seven of the top 10 positions on the HDI are held by European countries, five of which are members of the European Union.

Yet European countries have generally experienced the same broad inequality trends as countries elsewhere. Both income and wealth inequality have deepened in many countries, even though inequalities drop significantly after taxes and transfers.

More importantly, disparities persist in health and education. Its estimates show the top 10% pretax income earners received 29% of total regional income in 1980, rising to 34% in 2017. The incomes of the top 0.1% of earners more than doubled during the period, and the incomes of the top 0.001% nearly tripled.

The bottom 50% received 24% of total regional income in 1980, but only 20% by 2017, meanwhile.

Despite overall reductions in poverty, hunger, and disease, a new generation of inequalities is opening up, according to the HDR.

“We want a more constructive and empowering debate in countries,” said Steiner, adding that the purpose of the report is “to connect countries and increase understanding inequality beyond the traditional yardsticks that will yield better policy outcomes.”

Steiner believes that we are seeing the emergence of 21st century inequalities, such as access to higher education, pointing out that access to tertiary education is developing 15 times faster in wealthier countries.

Similar patterns and social divides are emerging outside Europe in developing countries, and it tends to be the lower middle class that suffers the most.

Steiner points out that although Colombia is about to join the Organisation for Economic Co-operation and Development – the Paris-based group of wealthy countries – because of conflict, one-third of its population are left unserved by the state.

One of the questions that Steiner wants political leaders across the world to address is: what is fair globalisation?

Although the UNDP works with the economist Thomas Piketty, co-director of the World Inequality Lab in Paris, the report says that radical changes to taxation policy, particularly increases, are not going to be enough on their own.

“Inequalities begin before birth,” said Steiner, pointing out that the average American child in a wealthy family has more than 300 words in their vocabulary, far more than their counterparts across most of the world.

“Tax is not everything,” he adds.

Steiner believes instead that more efficient tax collection, alongside efforts to ensure that multinational companies pay their fair share, is the way forward, particularly in developing countries.

“Across Africa, we have a tax base that far exceeds receipts from development aid, and that is a turn-around from the 1960s. Africa’s ability to finance their development has rapidly grown. Tax authorities are becoming far more efficient in terms of revenue collection,” he added.

He also pointed to countries where administrations have introduced E-government platforms and also digitised land ownership and financial services.

“Kenya is turning upside the traditional methods of financial inclusion. M-Pesa takes away the transaction costs – you can borrow money in the morning, buy your goods to sell in the market and then repay the loan in the evening,” said Steiner.

He said one of the common messages being borne out of the UNDP’s research is about the lack of fairness in economic growth and development.

“‘I’m losing my dignity’ is the phrase we heard in Latin America,” he added.

“The protests have a trigger,” Steiner said, pointing to the wave of demonstrations across Europe and elsewhere. It is “the combustion that has accumulated in many societies. At a point, people say ‘enough’”.

“We need to understand why people feel the way that they do, and that is where economists have been falling short.”

[Edited by Zoran Radosavljevic]

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