Inequality in Developing Nations

Inequality is usually associated with poorer, developing nations. But for many years, studies have shown that many wealthier nations also suffer from inequality, sometimes at levels similar to those of some developing countries.

For example, the UN Habitat’s State of the World’s Cities 2008/2009 report has found that disparities within cities and between cities and regions within the same country are growing as some areas benefit more than others from public services, infrastructure and other investments.

In addition, and almost counter to conventional wisdom, the report finds that in cities that have high levels of inequality increases the chance of more disparities increases, not reduces, with economic growth. This is because high levels of urban inequality have a dampening effect on economic growth and contribute to a less favorable environment for investment.

The report also added that in such cities, the lack of social mobility tends to reduce people’s participation in the formal sector of the economy and their integration in society. This exacerbates insecurity and social unrest which, in turn, diverts public and private resources from social services and productive investments to expenditures for safety and security.

In another UN Habitat report, the issue of equality was noted:

As a municipal official, one has to decide whether to spend taxpayers’ money on road infrastructure, which in developing cities mostly serves higher income citizens with cars, or to spend it on public utilities and amenities, thus providing for a majority of the population, particularly benefiting the poor. This is why the major issues for today’s cities have to do with equality and politics, rather than engineering alone.

Factoring in democratic principles also makes things harder: “Government has many roles but a fundamental one, in democracy, is to build equality. For legitimacy to exist in society, citizens must perceive that inclusion and equality are fundamental objectives of public authorities.” (p.9)

Yet different priorities and interests easily result. For example, the report adds that in many developing cities, wealthier citizens live in private spaces and may even avoid visiting or walking around in city centers. As a result, “they do not care much about city’s parks or public schools” but may be more interested in better roads, for example.

There is therefore a dilemma that the public sector faces compared to the private sector: for the private sector, deciding where to invest usually boils down to where the best returns will be. By contrast, “in the public sector every project is ‘good’, a police station, a road, a school or a park all provide a benefit which is difficult to measure.”

In parallel with growing cities are growing “informal settlements” or slums. Numerous factors create this rise, from poverty in the countryside, changes towards neoliberal economic ideology, corruption, globalization factors and so on. The problem is so immense that, according to UN Habitat, approximately 1 billion people live in slums in the cities of the world — approximately 1 in every 6 people on the planet.

While there have been some successes in reducing the number of people living in such areas in recent years by about a tenth (mostly in China and India), numerous problems persist.

In developing countries, where some 1 in 3 people living in cities are living in slum areas, the urgency to address this has never been more.

With increasing migration to cities (almost half of humanity lives in urban areas), there is increasing pressures on providing sufficient resources in a sustainable way.

Furthermore, as cities grow in this way, addressing greenhouse emissions from urban areas can go a long way to helping combat climate change.

Latin America has the highest disparity rate in the world between the rich and the poor:

• Internal, regional and external geopolitics, various international economic factors and more, have all contributed to problems. For example, the foreign policy of the US in that region has often been criticized for failing to help tackle the various issues and only being involved to enhance US national interests and even interfering, affecting the course and direction of the nations in the region through overt and covert destabilization. This, combined with factors such as corruption, foreign debt, concentrated wealth and so on, has contributed to poverty there.
• Much of the above was written around early 1999. Unfortunately, well into 2003, the World Bank reported that the Latin American rich-poor gap is widening. There has been progress in closing the gender gap in income, and girls and young women had overtaken their male counterparts in education. However, inequality is very high. For example:
  • Income inequality in the region had worsened with the richest one tenth of the population earning 48% of its total income, while the poorest tenth earns only 1.6%
  • Race has also been a factor where “Indigenous and Afro-descended people are at considerable disadvantage with respect to whites, with the latter earning the highest wages in the region.”

The U.S. itself also has the largest gap and inequality between rich and poor compared to all the other industrialized nations. For example, the top 1% receives more money than the bottom 40% and the gap is the widest in 70 years. Furthermore, in the last 20 years while the share of income going to the top 1% has increased, it has decreased for the poorest 40%.

The UK and US are often two of the more dynamic nations, economically and opportunities to make a very successful life is well within the realms of possibility. Yet, these two tend to have the worst levels of inequality amongst industrialized nations. Such levels of inequality implies that it is overly simplistic to blame it all on each individual or solely on government policy and “white-collar” corruption.

While ideological debates will always continue on the causes of inequality, both the political left and right agree that social cohesion (social justice or family values, etc) is suffering, risking the very fabric of society if it gets too out of control.