The virtues of equity

The World Development Report 2006, titled "Equity and Development", released by the World Bank this week, raises important issues about the nature of inter-linkages between inequality and the effectiveness of any development strategy.

In this, as in previous editions of the report, the Bank does not claim to make any startling revelations or break new ground in understanding the process of economic development.

Its main contribution, unquestionably a significant one, is to amass a huge range and variety of evidence, from its own knowledge archive and outside, in support of the basic proposition being presented in the report.

In the past, it has done this with respect to the roles of infrastructure, markets, governance and many other factors. This year's theme presumably reflects the intellectual orientation of the Bank's Chief Economist, Francois Bourguignon, who oversees the production of the document.

The structure of the report is based on the old "intrinsic vs. instrumental" debate. There are those who would argue that inequality beyond a certain degree is unacceptable under any circumstances and, therefore, interventions to deal with it must be initiated.

For proponents of this "intrinsic" view, the report provides a range of examples of inequality across dimensions and geographies. But, not everyone will be satisfied with this: even if inequality is abhorrent, the resources spent in combating it could well have better uses in other directions.

Recognising this, the report goes on to demonstrate, again across geographies and dimensions, how the presence of inequality can actually have a negative impact on growth and development. This evidence implies that dealing with inequality will actually make the development process itself more effective.

In this sense, far from the conventional view of a trade-off between equality and efficiency, the mass of evidence from the developing world actually suggests a significant complementarity between the two.

The third part of the report is devoted to the kinds of interventions that might facilitate the full realisation of benefits from this complementarity. The evidence of destructive, even disastrous, policies of redistribution followed by so many developing countries in the past weighs heavily on this discussion. Dealing with inequality with brute force will simply not work.

The main focus of anti-inequality policies must be on creating access to health, education, credit and a host of other productivity-enhancing services, and opportunities for employment and commerce and investment, rather than narrowing the income gap between rich and poor. Even the potential benefits from such access, assuming it can be created, are subject to a variety of caveats and conditionalities, which, if ignored, can lead to wasted resources and few results.

As simple a message as "equality of access and opportunity" may be, effective provision has proven to be quite difficult. However, despite this, the report clearly advocates firm resistance against the temptation to find short-term solutions, such as punitive taxation of the rich, to deal with the problem.

It argues that the experience of the developed world suggests that societies can deal with inequality of outcomes as long as there is perceptible equality in access and opportunities.

As sage as this advice is, it is probably cold comfort to ruling political parties facing re-election with a far shorter time horizon than it takes development policies to show results. Perhaps next year's theme could be "how to do the right thing and still win elections".