My introductory post to Blog Action Day started by highlighting the growing groundswell of anti-inequality voices, and ended with a call to action to begin a global conversation to find the solutions to inequality. In that spirit, this post aims to do just that: contribute some of the wisdom we’ve gained here at Government Spending Watch over the years of doing analysis of public spending in low-income countries. We know that the right kind of public spending, backed by progressive taxation, is one critical part of tackling growing inequality in low-income countries – and that’s why taps, toilets, teachers and tablets are critical anti-inequality weapons.
Before heading off in search of solutions, it’s useful to know the scale of the problem. Economic growth in most developing countries over the last 20 years, has helped to close the gap between the nations of ‘haves’ and ‘have nots’ (for an absolutely fascinating graph on this dynamic, see this on Gapminder). At the same time this has helped to halve extreme poverty. But this has also served to blur the growing inequality which sits behind these figures, and often masks a grotesque and growing divide in low and middle income countries. The poorest – or the ‘new bottom billion’ – are often being left behind in extreme poverty, locked out of development and increasing prosperity, struggling to get by and secure the basics of survival. Income inequality increased by 11% in low and middle income countries between 1990 and 2010. Within some countries the contrasts are getting ever sharper. In China, the gap between rich and poor surpassed the US this year. In India, income inequality doubled over the last two decades. While in sub-Saharan Africa, rising inequalities led the 2012 Africa Progress Panel to conclude that the wealth disparities in Africa are now among the biggest in the world. In sub-Saharan Africa’s economic powerhouses, South Africa and Nigeria, inequality is most certainly worsening: in fact, economic inequality in South Africa is now higher than under apartheid, while in Zambia, income inequality is at a record high.
For anyone who cares about ending poverty, it’s urgent to get to grips with solutions to this rising inequality because evidence shows that, beyond a certain threshold, inequality harms poverty reduction.
Inequality: starting off on the long road to solutions
At Government Spending Watch we track public spending on vital social services and other poverty reducing programmes. To be precise, we track how much governments are investing around the broad areas related to the Millennium Development Goals (MDGs): agriculture, education, environment, gender, health, social protection, water, sanitation and hygiene (WASH). We then look at how different governments are doing in terms of reaching their international financing commitments, as well as what donors are doing to support this.
But what has this got to do with inequality? A lot. Especially in low-income countries, where the right kind of investment by governments in public services can halt runaway inequality and tackle extreme poverty.
Investment in basic services, such clean and accessible water which can increase hours spent working, vital lifesaving healthcare services to tackle diseases and stop unnecessary deaths, good quality education that gives poor children a leg-up out of poverty, support to the poorest families to grow more food so they can feed their families, and basic social welfare measures to stop the poorest falling through the cracks, can tackle extremes in inequality.
Public services: anti-inequality weapons
A 2012 OECD study found that public services (education, health and social services) are worth 75% of the income of the poorest 20% of the population, compared to only 14% of the income of the richest. They therefore have a huge anti-inequality effect, including providing a “virtual income‟. They found that OECD countries which increased spending on services throughout the 2000s had more success in reducing income inequality. Oxfam used this analysis earlier in the year to calculate that between 2000 and 2007, the “virtual income‟ provided by public services reduced income inequality by an average of 20% across OECD countries. In five Latin American countries (Argentina, Bolivia, Brazil, Mexico and Uruguay), this virtual income from healthcare and education alone has reduced inequality by between 10% – 20%. So investment in public services can help to tackle inequality by lifting the poorest out of poverty and acting as a redistributive tool within the economy. Meanwhile, the IMF is also increasingly acknowledging in its research that increasing spending on education, health and social protection has a key role to play in tacking inequality.
However, in spite of this evidence, what is becoming increasingly clear to us at Government Spending Watch, as we delve ever deeper into our analysis of government budgets, is that the kind of spending necessary to tackle inequality through public services is woefully lacking. In part, the problem lies with low-income country governments, who have made commitments to spend a higher proportion of their budgets in pro-poor sectors such as health and education, but have often failed to do so – and this is exacerbated by donor countries failing to support these services sufficiently.
Last year the 2013 annual Government Spending Watch report found that the vast majority of low-income countries we analysed were spending far too little, and much less than they have promised – for example, on wages for teachers and nurses, and maintenance of water facilities – to achieve the MDGs. Only one-third of countries were found to be meeting promised or needed levels for health, one-quarter for education, and one-fifth for agriculture and water and sanitation. In particular, social protection spending is very low and therefore income inequality and vulnerability of the poorest remains high.
This means governments are simply not spending enough to unleash the anti-inequality benefits of investment in public services.
But more money alone is not enough. What is currently spent is often poorly targeted, and goes disproportionately to wealthier citizens or regions. Our analysis has shown a lamentable failure to target the poorest – those most in need – with government spending.
Spending on public services often tends to be ‘regressive’, i.e. more beneficial to wealthier citizens. Education offers a stark example of this (and education has a profound impact on either cementing inequality or acting as a leveller). The Education for All Global Monitoring Report shockingly reports that 43% of public spending is received by the most educated 10% – almost unilaterally the richest quintiles – in sub-Saharan African countries. This can sometimes lead to outrageous differences in spending. For instance, in Malawi, 73% of public resources allocated to the education sector benefit the most educated 10%. On average spending per pupil at university level is US $16,334, compared to just US $57 at primary level. This is in a country where only 7% of the poorest children complete secondary school, and virtually zero make it through to university, and only 16% can do basic maths sums. How can we ever hope to overcome deeply entrenched inequalities when such inequalities exist at the very starting line of life for the poorest?
Our analysis of spending patterns also shows that less is being spent in poor rural areas (where the very poorest live), where costs tend to be higher for services to reach due to lack of infrastructure and the need to pay premiums to workers to attract them to the more remote areas. This is doubly regressive: not only do the rural poor get less per head but they also need more per head. The negative effects of this misallocation in terms of equity are confirmed by much lower school enrolment and completion rates, and poorer health indicators, in rural poorer areas.
Government spending must be targeted to overcome and offset inequality. This is going to involve adopting deliberate approaches to equitable financing, such as those adopted by Brazil, one of the much heralded inequality success stories, where global inequality trends have been bucked – albeit from a very high base – through a combination of redistributive policies and focused social spending.
Here at Government Spending Watch we will be working hard with partners to try and influence similar approaches in all countries. We also know that the increases in spending that are necessary to tackle inequality is going to require a massive boost to revenues. That’s why in 2015, Government Spending Watch is going to be expanding our data collection to include analysis of revenues, to calculate how progressive tax systems are in funding services – watch this space for more information.
Influencing budgets, deepening democracy & busting inequality
One final critical part of ensuring that public services meet the needs of the poorest and act as an anti-inequality weapon, is making budgets transparent and helping citizens hold their governments accountable for spending. We know that many governments need nudging in that direction, not least because at the moment extreme concentrations of wealth too often puts power in the hands of elites. This power translates into decision making which favours the needs of the wealthier in society, and because decisions are made behind closed doors this is often not visible.
This is why Government Spending Watch emphasises the importance of transparency and accountability in setting budget priorities. In a recent review of country studies by Government Spending Watch, in collaboration with Oxfam and the International Budget Partnership, we showed that a mix of transparency, accountability and citizen engagement in budget processes can lead to an increase in the share of funds being turned into textbooks, teachers, clinics and water points that reach the poorest.
Ensuring priorities are tailored to the needs of the poor, will entail building citizen pressure and the power of the voice of the many to challenge the policies which work only for the few. At Government Spending Watch, we hope that the data we collect on budgets in low and lower middle income countries can help put tools in the hands of citizens, which can turn numbers into nurses and become a weapon in the fight against inequality.
** Jo Walker works for Government Spending Watch, a joint project of Oxfam and Development Finance International (DFI), which tracks and analyses how much low and lower middle income countries are spending on 7 vital public sector investment areas – agriculture, education, environment, gender, health, social protection, water, sanitation and hygiene (WASH) – this information is made available for citizens and non-governmental organisations to help empower them in their campaigning for positive change **