Thursday, October 11,
2018 06:45AM / Oxfam with additional reporting
The “Commitment to Reducing Inequality Index” is a global ranking of governments based on what they are doing to tackle the gap between rich and poor.
The 2018 report was released on Tuesday at the annual International Monetary Fund and World Bank (IMF/WB) meeting holding in Bali, Indonesia.
The ranking was done based on three major indicators – social spending, tax and labour rights. These indicators are the critical areas necessary to reduce the inequality gap.
According to CRI, an increase in the number of labour rights violations and the social spending deterioration over the past year has caused Nigeria’s position to remain stagnant. It added that Nigeria performed low with regards to respect for women in the workplace and the enforcement of gender rights.
The report stated that:
Nigeria has the unenviable distinction of being at the bottom of the Index for the second year running. Its social spending (on health, education and social protection) is shamefully low, which is reflected in very poor social outcomes for its citizens. One in 10 children in Nigeria does not reach their fifth birthday, and more than 10 million children do not go to school. Sixty percent of these are girls. The CRI Index shows that in the past year Nigeria has seen an increase in the number of labour rights violations. The minimum wage has not increased since 2011. Social spending has stagnated. The CRI Index shows that there is still significant potential for Nigeria to raise and collect more tax, so it scores very badly on this aspect too. There have however been very recent improvements in this area in 2018, which will show up in next year’s CRI. The IMF has given clear advice on the importance of tackling inequality, referring to Nigeria’s score in the CRI Index. The president of the country has also said that tackling inequality is important, as inequality leads to political instability. Yet little has been done.
The index is topped by Denmark, based on its high and progressive taxation, high social spending and good protection of workers.
Among the emerging economies, China was ranked 81st on the list, Brazil 39th and Russia 50th. Regarding China, the report said it “spends more than twice as much of its budget on health than India, and almost four times as much on welfare spending, showing a much greater commitment to tackling the gap between rich and poor.”
Matthew Martin, Development Finance International’s director, said, “what’s most striking is how clearly the index shows us that combating inequality isn’t about being the wealthiest country or the one of the biggest economy.
“It’s about having the political will to pass and put into practice the policies that will narrow the gap between the ultra-rich and the poor,” he said.
The report noted that inequality slows economic growth, undermines the fight against poverty and increases social tensions. A part of the report read: “Government spending on health, education and social protection is woefully low and often subsidizes the private sector. Civil society has consistently campaigned for increased spending.”
It also cited other countries that have taken strong steps to tackle inequality in the past year. Ethiopia, although at the 131st place, has the sixth highest level of education spending in the world. Chile, at 35th, increased its rate of corporation tax and Indonesia, at 90th, has increased its minimum wage and spending on health, the report noted.
Winnie Byanyima, Oxfam International’s executive director said that inequality traps people in poverty. “We see babies dying from preventable diseases in countries where healthcare budgets are starved for funding, while billions of dollars owed by the richest are lost to tax dodging.”
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SUMMARY OF REPORT
THE INEQUALITY CRISIS, THE FIGHT AGAINST POVERTY AND THE ROLE OF GOVERNMENTS
Many countries across the world, rich and poor, have experienced rapid growth in the gap between the richest people in society and everyone else over the past 30 years.1 Failure to tackle this growing crisis is undermining social and economic progress and the fight against poverty. Oxfam’s research has shown that, since the turn of the century, the poorest half of the world’s population have received just 1% of the total increase in global wealth, while the top 1% have received 50% of the increase.
Inequality is bad for us all. It reduces economic growth, and worsens health and other outcomes. The consequences for the world’s poorest people are particularly severe. The evidence is clear: there will be no end to extreme poverty unless governments tackle inequality and reverse recent trends. Unless they do so, the World Bank predicts that by 2030 almost half a billion people will still be living in extreme poverty.
The rise of extreme economic inequality also undermines the fight against gender inequality and threatens women’s rights. Women’s economic empowerment has the potential to transform many women’s lives for the better and support economic growth. However, unless the causes of extreme economic inequality are urgently addressed, most of the benefits of women-driven growth will accrue to those already at the top end of the economy. Economic inequality also compounds other inequalities such as those based on race, caste or ethnicity.
Development Finance International (DFI) and Oxfam believe that the inequality crisis is not inevitable and that governments are not powerless against it. Inequality is a policy choice, and our findings this year show this clearly. All over the world, governments are taking strong policy steps to fight inequality. President Moon of South Korea tops the class, having increased tax on the richest earners, boosted spending for the poor and dramatically increased the minimum wage. But others are doing well too. Ethiopia has the sixth highest level of education spending in the world. Chile has increased its rate of corporation tax. Indonesia has increased its minimum wage and its spending on health.
These positive actions shame those governments that are failing their people. Nigeria remains at the bottom of the CRI Index, failing the poorest people, despite its president claiming to care about inequality. Hungary has halved its corporation tax rate, and violations of labour rights have increased. In Brazil social spending has been frozen for the next 20 years. And Donald Trump has slashed corporation tax in the USA, in one of the biggest giveaways to the 1% in history.
THE COMMITMENT TO REDUCING INEQUALITY INDEX
This is the second edition of the Commitment to Reducing Inequality (CRI) Index, which ranks 157 governments across the world. The full rankings, along with regional rankings, can be found in Annex 1. The Index is based on our comprehensive database, including countries where DFI has strong data and research contacts or Oxfam has country programmes or affiliates, to build up a unique perspective on the extent to which governments are tackling the growing gap between rich and poor in three key policy areas. This year’s Index has seen significant changes in methodology from 2017, including new indicators on tax avoidance and on gender-based violence.
The CRI Index was reviewed by the Joint Research Centre of the European Commission in both 2017 and 2018. Following the 2017 review, several adjustments were made to match best practice in constructing composite indicators. A number of refinements along the 2018 review are in the pipeline for next year's version. Thereafter, both indexes were statistically audited. In 2018, the JRC concluded that the CRI is robust statistically and is ‘paving the way towards a monitoring framework that can help identify weaknesses and best practices in governments’ efforts to reduce the gap between rich and poor’.
The CRI Index measures government efforts in three policy areas or ‘pillars’: social spending, taxation and labour. These were selected because of widespread evidence6 that government actions in these three areas have in the past played a key part in reducing the gap between rich and poor.
1. Social spending on public services such as education, health and social protection has been shown to have a strong impact on reducing inequality, particularly for the poorest women and girls who are the most dependent on them. For example, a study of 13 developing countries that had reduced their overall inequality levels found that 69% of this reduction was because of public services.7 Social spending is almost always progressive because it helps reduce existing levels of inequality. Despite this, in many countries, social spending could be far more progressive and pro-poor. Social spending can play a key role in reducing the amount of unpaid care work that many women often do – a major cause of gender inequality – by redistributing child and elder care, healthcare and other domestic labour.8
2. Progressive taxation, where corporations and the richest individuals are taxed more in order to redistribute resources in society and ensure the funding of public services, is a key tool for governments that are committed to reducing inequality. Its potential role in reducing inequality has been clearly documented in both OECD countries9 and developing countries,10 and highlighted recently by the International Monetary Fund (IMF) in its October 2017 Fiscal Monitor.11 However, taxation can be progressive or regressive, depending on the policy choices made by government. Equally, a belief that taxation is gender-neutral has led to a lack of attention to how taxes levied have increased the gender gap. The ability of countries to collect progressive taxes is also undermined by harmful tax practices which facilitate tax dodging.
3. There is strong evidence that higher wages for ordinary workers and stronger labour rights, especially for women, are key to reducing inequality.12 Governments can have a direct impact here by setting minimum wages and raising the floor of wages; they can also have an indirect impact by supporting and protecting the right of trade unions to form and organize. Evidence from the IMF and others shows that the recent decline in trade union organization has been linked to the rise in inequality, as workers lose bargaining power and more of the value of production goes to profits and the owners of capital.13 Women are disproportionately represented in the lowest-paid jobs, with poor protection and precarious conditions of employment.14 Governments can help correct this by passing and enforcing laws against discrimination and violence against women, and laws that promote equal pay and parental leave.
Actions across all three areas are mutually reinforcing. While progressive taxation is a good thing in itself, its impact is greatly increased when used for progressive spending, and the CRI Index reflects this in the scoring of countries’ efforts.
Clearly, tackling inequality requires other policy interventions: but, like the UN’s Human Development Index (HDI), the three critical variables – action on social spending, taxation and labour – can arguably be used as a proxy for a government’s general commitment to tackling inequality.
Why monitor government policy? Why not just monitor levels of inequality?
There are three reasons why DFI and Oxfam have chosen to measure the commitment of governments to reducing inequality.
First, in 2015 governments across the world made a commitment to reduce inequality and eradicate poverty through the Sustainable Development Goals (SDGs) and specifically Goal 10 on reducing inequality. Goal 10 will be reviewed in 2019, and the CRI Index will contribute to this in enabling citizens to hold governments to account for their progress or lack of it.
Second, DFI and Oxfam strongly believe that the different levels of inequality that exist from one national context to another show that inequality is far from inevitable; rather, it is the product of policy choices made by governments. There are, of course, contextual challenges to consider in every situation, as well as contextual advantages in some cases. All countries are also subject to global forces that they cannot fully control (e.g. pressure to reduce wages and tax rates), and this is particularly true of developing countries. The worldwide system of tax havens, which undermines scope for government action, is a clear example.
Nevertheless, despite these global issues, DFI and Oxfam believe that governments have considerable powers to reduce the gap between rich and poor women and men in their countries. If this were not the case, there would not be so much variation in the policy actions of different countries. Therefore, it is vital to be able to measure and monitor government policy commitments to reducing inequality.
The final reason for developing the CRI Index is that existing systems to measure incomes and wealth (e.g. national household surveys) collect data infrequently and contain major data errors – notably under-reporting of the incomes and wealth of the richest people.15 This means that the data are very weak and rarely updated, especially for the poorest countries, so they are a poor measure by which to hold governments to account. There is a need for urgent and significant improvements in both the coverage and frequency of national data on levels of inequality.
The relationship between the CRI findings and the level of inequality in a given country was discussed at some length in last year’s report.16 In short, there was no automatic relationship, but a more complex one. Some countries, like Namibia, have very high levels of inequality but are strongly committed to reducing them. Others, like Nigeria, have high levels of inequality and are failing to do anything about it. Other countries, like Denmark, have relatively low inequality levels because of policies they have followed in the past but which they have increasingly stepped away from, which is now leading to an increase in inequality. This is true for most high-income, low-inequality countries. However, others, like Finland, remain committed to keeping inequality levels low.
METHODOLOGY IMPROVEMENTS TO THIS YEAR’S INDEX
Figure 1: The CRI 2018 pillars and indicators
The first edition of the CRI was launched in July 2017, covering 152 countries (CRI 2017). It was published deliberately as a ‘beta’ version, and comments were sought from experts across the world. These invaluable inputs have led to some significant refinements to the Index this year (CRI 2018). The core methodology remains unchanged, focusing on the three pillars of spending, tax and labour. Nevertheless, at a more detailed level there have been some important additions and changes.
The most significant change is the inclusion of three new sub-indicators, one in the tax pillar and two in the labour pillar. One of the concerns voiced by many who commented on the Index last year was that we had not considered the extent to which a country was enabling companies to dodge tax. This meant that countries like Luxembourg or the Netherlands were getting higher scores than they should. The negative role played by the Netherlands as a corporate tax haven has become a hot topic in the country and Oxfam and allies are putting pressure on the government to take clear steps to stop this. This year we have added a new indicator on harmful tax practices (HTPs) to address this.
In the labour pillar, many suggested that women’s labour rights are fundamentally undermined by violence and harassment against women at work. Working women can sometimes experience greater levels of domestic violence in response to greater economic autonomy. In India for example, 6% of women (15–49 age group) have experienced spousal sexual violence in their lifetime, with 5% experiencing this type of violence in the past 12 months. This has led to new indicators on the quality of laws against sexual harassment and rape.
In addition to these new indicators, there has been a lot of detailed work on improving data sources, ensuring that we are using the most up-to-date sources. Across all pillars, major progress has been made on including more recent data. In CRI 2018, virtually all tax and labour data are for 2017, compared with 2015 in CRI 2017. The average years for education and health spending data have improved from 2014 to 2016, and for social protection from 2012 to 2015. The cut-off for data for this year’s Index is the end of 2017, so any policy changes from 2018 are not included, although we do refer to some of the more notable ones in the text. We have also managed to add five new countries this year, bringing the total to 157.
These changes to the methodology and improvements in the quality of data mean that a straight comparison between the scores of a country this year and last year may not give an accurate picture of its performance. Countries’ movements up and down in terms of their scores are the result of a combination of changes in their policies and changes to the methodology of the Index.
For this reason, our analysis does not focus on simple comparisons of the scores for countries between CRI 2017 and CRI 2018. However, it is possible to compare concrete policy changes between the two editions of the CRI Index; for example, increases in health spending, or cuts to the top rate of personal income tax, or increases in maternity leave; so we have highlighted these. We also look at some of the key overall trends emerging since the first CRI Index.
WHAT ARE THE MAIN FINDINGS OF THE CRI INDEX?
All countries could do more, even those near the top
The first and most important point is that no country is doing particularly well, and even those at the top of the listings have room for improvement. Even the top performer, Denmark, does not get a perfect score and could be doing more. Furthermore, 112 of the 157 countries included in the Index are doing less than half of what the best performers are managing to do.
WHICH COUNTRIES ARE DOING BEST?
The full CRI rankings, along with regional rankings, can be found in Annex 1 of the full report. The top 10 performers in this year’s Index are highlighted in Table 1.
Table 1: CRI Index ranking out of 157 countries – the top 1024
Box 1: The best and the worst
Most of the countries near the top of the index are OECD countries, headed this year by Denmark. In this way, the rankings are similar to those of the HDI. With more national wealth, these countries have much more scope to raise progressive tax revenues because there are more citizens and corporations with higher incomes that can pay more tax; likewise, they have greater scope to spend those revenues on public services and social protection. The leading countries are also trying to tackle wage inequality by increasing the minimum wage and supporting labour rights and women’s rights. Finally, they have a smaller informal sector than is typical in developing countries, although precarious forms of employment are on the increase.
For most rich countries, the main body of policies measured by the Index was introduced in a different period of history, when significant action in these areas was broadly accepted as the right thing to do and paid dividends in terms of social and economic progress. Today, however, in many rich countries, political support for these measures has eroded, with governments across the industrialized world chipping away at progressive spending, taxation and labour rights (see Box 4).
Most of the highest-ranked non-OECD countries in the CRI are in Latin America, the most unequal region in the world (see Box 3). They are headed by Argentina, followed by Costa Rica and Brazil. In the last decade, in all of these countries, governments have made strong efforts to reduce inequality and poverty through redistributive expenditure and (in some) by increasing minimum wages. In Argentina, for example, the Gini coefficient fell from 0.51 in 2003 to 0.41 in 2013 and the poverty rate fell from 23% to 5.5%, with 40% of the reduction in inequality and 90% of the reduction in poverty due to redistributive policies. Unfortunately, however, the new governments in Brazil and Argentina have already moved to reverse many of these policies. In Brazil social spending has been frozen for 20 years. In Argentina, government austerity has led to sweeping cuts in the social protection budget (see Box 3).
Lower-middle-income countries (LMICs) can also show strong commitment to reducing inequality. The CRI 2018 shows that Lesotho, for example, spends 14% of its national budget on education and 12% on health, and has a progressive tax structure as well as progressive policies on trade unions and women’s labour rights; Georgia has strong and progressive social spending and progressive tax collection and has implemented big increases in education spending. Low-income countries can also demonstrate strong commitment to tackling inequality. For example, since the 2017 CRI, Ethiopia has increased its budget for education to 23% from 22%, the sixth highest proportion in the world. This continued high investment has seen the numbers of children going to school increase dramatically.
Namibia remains one of the highest-ranked African countries in the Index and is fifth among the middle-income countries. It is a good example of the difference between a country’s CRI ranking and traditional measures of inequality. Despite being one of the most unequal countries in the world, its high CRI score reflects the commitment of the Namibian government to reducing inequality, particularly through its high levels of social spending (with secondary education free for all students) and some of the most progressive taxation policies. Its commitment has been recognized by economist Joseph Stiglitz and others and, although inequality remains very high, it has been continually reducing inequality since 1993 and is no longer the world’s most unequal country.Since CRI 2017, the government has increased spending on social protection and has also increased the minimum wage substantially, and a new study has shown that its taxation and spending policies are reducing inequality significantly.
WHICH COUNTRIES ARE DOING WORST?
Table 2: CRI Index ranking out of 157 countries – the 10 countries at the bottom of the Index
The degree to which rich OECD countries are using government policy to tackle inequality varies dramatically. The USA and Spain among the major economies, for example, are much further down the list of rich countries in the CRI Index.
As this report highlights, many middle-income countries (MICs) have the scope to do far more to tackle inequality than they are doing currently. For example, Indonesia today is richer in terms of per capita income than the USA was when it passed the Social Security Act in 1935. Yet Indonesia has some of the lowest tax collection rates in the world, at just 11% of gross domestic product (GDP); the new finance minister has made increasing this her priority. Recently, a paper from the Center for Global Development demonstrated that most developing countries could if they chose raise enough resources of their own through tax to eliminate extreme poverty. This also echoes Oxfam’s previous research into inequality in the BRIC countries, Turkey and South Africa.
India also fares very badly, ranking 147th out of 157 countries on its commitment to reducing inequality – a very worrying situation given that the country is home to 1.3 billion people, many of whom live in extreme poverty. Oxfam has calculated that if India were to reduce inequality by a third, more than 170 million people would no longer be poor.54 Government spending on health, education and social protection is woefully low and often subsidizes the private sector.55 Civil society has consistently campaigned for increased spending.56 The tax structure looks reasonably progressive on paper, but in practice much of the progressive taxation, like that on the incomes of the richest, is not collected. On labour rights and respect for women in the workplace India also fares poorly, reflecting the fact that the majority of the labour force is employed in the agricultural and informal sectors, which lack union organization and enforcement of gender rights.
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2. India ranks among the bottom 15 of Oxfam world inequality index – Economic Times
3. Nigeria Ranks Lowest in Reducing Inequality Index - Thisday
4. Pay Power and The Future Of Work, BoE; Oct 10, 2018
6. How to Solve Income Inequality in Nigeria June 11, 2018
7. POCKET Economics: Addressing Income Inequality June 07, 2018
8. Poor Nations v. Rich Nations: Why The Difference? Apr 26, 2018
10. Uganda: Succession And Inequality Will Pose Risks To Stability Aug 28, 2017
11. The Great Income Stagnation Sept 09, 2016
12. A decline in poverty but not inequality May 26, 2015
13. VIDEO: BudgIT/Oxfam engage stakeholders on "Corruption & Inequality in Nigeria" Oct 09, 2015
14. The Top 1%: The Avoidable Causes and Invisible Costs of Inequality Jul 06, 2012
15. Paradox of Nigeria’s Economic Growth and Poverty Levels Mar 22, 2012