Think about two South African children born on the same day in 2000: Nthabiseng and Pieter. Nthabiseng is born to a black family with no formal education about 400 miles away from Cape Town in a rural area. She has 7.2 percent chance of dying during the first year of her life; she can expect to live about 50 years if she survives her first year; and, her expected formal schooling is less than 1 year. Pieter, on the other hand, is born to a white and wealthy family in the capital, Cape Town. His family is well-educated in one of the best colleges in the country; along the same line, Pieter can expect to complete an average of 12 years of formal education. In contrast to Nthabiseng, Pieter’s life expectancy is almost 70 years with a much lower chance of dying in the first year of his life. Nthabiseng is much less likely to have access to clean water, health care, and education. None of these initial conditions that Nthabiseng and Pieter face are attributable to their own actions. Even though they do not have a control over this opportunity structure they face, it is a well-established fact that such factors will make a major difference for the remainder of their lives. To what extent will Nthabiseng and Pieter realize their “human potentials?” Moving from individual to societal level, this “wasted” human potential translates into “missed development opportunities” for Developing countries, to use the World Bank terminology.1
The 2006 World Development Report analyzes the relationship between equity and economic development in Developing countries. In this essay, I re-examine the relationship between equality, equity and development from a long-term economic development perspective. Equality refers to the condition where socioeconomic groups, i.e. upper, middle and lower classes, in a society have access to relatively similar levels of income. Equity, however, roughly corresponds to the broader term of human development,2 and emphasizes equality of opportunity, and a broader set of human conditions. In the light of this report by the World Bank, I suggest that contrary to the long-held views, the development of contemporary Developing countries can only be achieved by “leveling the playing field” among citizens.
For long years, it was believed that economic development led to human development. it was assumed that as a country develops economically, it is able to provide more for the basic needs of its citizens such as education, healthcare, and a better quality of life. Even though it seems reasonable to expect improvement in individuals’ quality of life as a country develops, we have not observed many countries successfully achieving this better quality of life by following the advice of policymakers. However, a casual observation suggests that the relationship between economic development and human development may be endogenous; that is, just as it is natural to expect economic development to affect human development, we should be able to observe various aspects of human development shaping the course of development of many Developing countries. In fact, many Developing countries such as India and Turkey perform better in measures of economic development due to their higher levels of educated citizens.
Following Simon Kuznets’ (1955) pioneering study on the relationship between economic development and equality, academicians and policymakers believed that there exists an inherent trade-off between economic development and socioeconomic equality. The dominant perspective places economic efficiency concerns at the center of this tradeoff .3Equality-enhancing redistribution programs lead to “diversion of resources away from their most efficient use.” According to this view, employing limited resources in welfare-improving areas results in a decrease in economic growth as well as underutilized resources. Instead of employing the relatively scarce factor of production, that is capital, in new investment opportunities which would economically be more efficient, spending the capital on less productive social redistribution would negatively affect the economic development hopes negatively.
The main alternative view highlights the welfare consequences of the presumed tradeoff between growth and equality. Proponents of this perspective claim that a focus on rapid growth is likely to entail “distorted patterns of development” and to reduce the welfare of the poor in the society. In particular, the state along with the actors in the private sector directs its focus on increasing productivity and efficiency in the manufacturing sector. Any financial commitment that potentially decreases efficiency in the economy is strictly avoided; redistribution to the poor in the society is considered among such expenditures. The socio-economic distress of the poor simply takes a backseat vis A vis economic efficiency. In order to minimize the short-term effects of the growth-oriented economy, equality should take precedence over economic growth. In the long-run, equality will positively impact economic development.
A recent report by the World Bank draws attention to this widely-accepted tradeoff between development and equality,4and proposes an alternative. The report claims that equality and development are complementary to each other rather than contradictory. Economic growth without equality can only provide distorted patterns of economic development leaving the majority of the population in need, just as we observe in many Developing countries today. On the other hand, an exclusive focus on equality is likely to hinder development as valuable resources at the disposal of capital-holders are diverted from their efficient use. As a result, a long-term solution to this impasse requires the introduction of a delicate trade-off between the two: Investment in human. Human development, hence, lies at the heart of this new conception of economic development.
Equality, in the conventional sense of the term, refers to the elimination of extreme disparity with respect to wealth among individuals within a given community. For this end, different states have applied various forms of redistribution in order to eliminate inequality of income. Such use of the term mostly taps into the outcome aspect of equality. That is, the goal is to minimize the differences in incomes of the people by redistributing wealth from the rich to the poor. Equity, on the other hand, is the new term offered by the World Bank to development terminology. Equity is based on a larger conceptualization of the notion of equality. It suggests equal opportunities in respect to education, health and such; no explicit implication is being offered for the outcome-based notion of equality. Individual responsibility, in this regard, is critical in bridging equal opportunity at the outset with the final outcome.
John Rawls’ notion of the “veil of ignorance” summarizes the basic idea behind this contemporary understanding of equity.5 The veil of ignorance is expected to provide a fair allocation of resources that all members of a society would agree. In a hypothetical decision-making situation prior to their knowledge of which position they would occupy in the society, individuals are asked to allocate resources to members of the community; they may be the worse-off or best-off in the community, hence they will put an effort in fairly allocating the resources. In essence, Rawls concludes that “primary goods” should be provided for all, referring to the equality of opportunity for all. Amartya Sen dwells on a similar concept of primary goods, “functionings,” and defines it as “the set of actions a person performs and of states the person values and enjoys.”6 It is important to recognize the fact that no suggestions are being made here with respect to the conventional understanding of equality, that is income redistribution. The emphasis in this conceptualization of equity highlights the relative importance of equal opportunity provision over outcome-based redistribution, but not necessarily the exclusion of the latter for the sake of the former.
Based on this relatively modern notion of equity, it is possible to identify three ways that equity and development are complementary in Developing countries. The first of these ways touches on the notion of “inequality traps.” Inequality traps can be defined as the reproduction of economic, political and social inequalities “over time and across generations.”7 Existing political and economic inequalities in Developing countries systematically favor the interests of a relatively small elite group over the rest of the society. By the use of overt or covert power, the elite in Developing countries are able to influence the policymaking process more effectively despite their disadvantage in number. As the poor are likely to be much less involved in the political decision-making process, the vicious circle of underperformance continues.
The second way that equity and development relate to each other comes in the form of inefficient redistribution mechanisms. The institutional structures are tailored to benefit not the neediest in the society, but rather middle-class and upper middle-class citizens.8Hence, the influence of the more advantaged in the society further determines the shape of the institutional structure.
Finally, leveling the playing field does potentially affect the investment and innovation environment. A modern economy is inconceivable without an active investment environment. Inequality of opportunity prevents individuals like Nthabiseng from taking part in the modern economy and realizing their potential. Barred from entry, either through institutional mechanisms or mere negligence, individuals facing inequality of opportunity will not be able to enrich the environment of competition necessary for economic development. The relatively few and well-endowed rich will be less likely to feel any pressure to pursue innovation and investment opportunities. Competition, which is regarded as the major source of development, will not come about. As a result, the resulting environment is inimical to sustainable development and poverty reduction.
Several world religions endorse social justice, helping the poor, and equality as central principles in their teachings. Even though these principles may manifest themselves in fundamentally different ways, the basic idea remains the same. Christians are urged to love their neighbors as themselves; Buddhists are responsible for caring for the poor; one of the five pillars of Islam is zakat (almsgiving); and, the word for “charity” is the same as for “justice” in Hebrew.9 As a demonstration of this shared concern among world religions, the World Faiths Development Dialogue has issued a statement the essence of which asserts as follows: “All religions would see the extreme material poverty in the world today as a moral indictment to contemporary humanity and a breach of trust within the human family.”10 In addition to this poverty-reducing aspect of religions, it is easy to see how this recent understanding of equity can also be inferred from one of the fundamental tenets of all religions. Human dignity constitutes a shared and fundamental theological principle for world religions.11 In order for human beings to reflect this dignity, the latent potential for perfection has to be provided with the right set of opportunities, and basic necessities such as health care, education, and nutrition. Otherwise, undeveloped individual potentials do run the risk of being wasted leading to both dishonoring human dignity and economic underdevelopment, as a social phenomenon.
In what preceded, I introduced a new perspective on economic development, a chronic problem among Developing countries. By making a distinction between equality of income and equality of opportunities, the presumed trade-off between equality and economic growth might be overcome. It is my hope that this new emphasis on equality and human development will allow billions of people living in dire conditions to reclaim their dignity as humans. Eventually, this emphasis on human development will result in economic development, long-anticipated in Developing countries.