FAO Quotables

"But being right, even morally right, isn't everything. It is also important to be competent, to be consistent, and to be knowledgeable. It's important for your soldiers and diplomats to speak the language of the people you want to influence. It's important to understand the ethnic and tribal divisions of the place you hope to assist."
-Anne Applebaum

Wednesday, November 28, 2012

Notes on Inequality in Africa Article

BONUS LINK:  My entire (so far) grad school notes collection can be found here. 

Typical inequality measurement:
- The traditional measure of inequality is done through the Gini Coefficient.  Measured on a scale from 0 to 1.  The closer to 1 the less equal the distribution of income.  Conversely the closer to 0 the more equal the income distribution with 0 being a state where the whole population had the same income. 

- There are also less tangible measurements such as resentment, violence and political instability. 
The article gives the example of the Uganda entrepreneur who receives “juju” sticks from resentful fellow villagers outside of his home. 

Gini problems. 
1. One must be careful not to hold the Gini coefficient as the assumed standard for which all nations should strive.    It is only one measure.  The U.S. after all shares a Gini coefficient very similar to many African nations—but vastly different amounts of wealth per capita   
2. Furthermore, the Gini Coeff could rise in a poor developing country at the same time as less people are living in poverty (because the baseline could be raising). 
3.  For many African nations there isn’t even a Gini coefficient!  12/55—there are not even coefficient’s available for over 20% of the nations in Africa! 

Influences on inequality:
- Government graft and corruption, patrimonialism, neopatrimonialism, clientilism
            This cronyism can amplify problems by putting people in power without the knowledge of education to do their job. 
- inefficient economic policies (ex. Fuel subsidies in Nigeria)
- Lack of transparency.
- lack of income tax
- Lack of global attention—much more focus on gap between Africa as a whole and other nations or between different African nations—both ignore the inequality within a nation’s borders. 
- Kuznets Hypothesis: in poor localized agricultural economies, incomes are relatively equal but an relative income gap widens as the economies grow and urbanize

Solutions for to bridge the gap?
- This question assumes something should be done or must be done!  This should not be assumed nor should it necessarily be the focus of economic reform in a nation. 
- While wide income gaps may be morally repugnant, the evidence that they promote political instability and violence is inconclusive.  There is equally persuasive arguments (Walker Connor for instance)  to be made that relative political inequality contribute to instability and violence more so than economic.  There is a big difference between resentment (a mental state) and violence (a physical state). 
- That said, to answer the question, there needs to be an increase in government capacity and accountability and transparency.  Instead of regressive sales taxes and import duties, fairly delineated income taxes could be instituted.  In many nations this isn’t done because of infrastructure limitations (both physical—roads etc…)  and banking limitations.  However, with the dominance of the mobile industry (and mobile banking) this offers methods for governments to implement and collect taxes efficiently and with accountability (fairly). 
- reduction in general subsidies (these unnecessarily benefit the affluent)
- refocus revenues to baseline raising services like clean water, better roads, primary education, prenatal vitamins and immunization—this is an interesting assertion by the author since it runs counter to addressing the inequality itself and is more focused on raising the baseline. 
- the poor must be given a greater stake.

               A non-traditional measure of income inequality is given at the outset of the article.  For one Ugandan entrepreneur that started a business that expanded far beyond his small village, the inequality was measured through resentment and “juju”sticks.  Despite employing many villagers and bringing development to his region, his neighbors begrudged him for owning a nicer house (and the only one with a generator). 
Traditionally income inequality is measured, however, by using the Gini Coefficient (GC).  The GC measures the distribution of income across the population of a country.  The GC is on a scale from 0 to 1—0 being a nation where everyone had the same amount of income and 1 being a nation where one person had all the income.  Most African nations score poorly (values in the .45 to .65 range).  There are three considerations, though, with the GC.  First, one must acknowledge that it’s only one economic measure.  This limits its utility—especially when one considers that the U. S. is routinely grade with a GC in the .5 range.  A secondary consideration builds on the first limitation—a nation’s GC can rise (typically considered a bad thing) while the number of people in poverty can lessen.  This means that a developing country can have a small group of people receiving more income (thereby raising the GC) but also at the same time increasing the amount of wealth within a country.  Finally, is the problem that 12/55 nations in Africa don’t even have a GC!  In 20% of African nations there’s not even enough data (or access) available to determine the income distrubtion. 
            The author delves into the myriad factors that promote this inequality.  Most of these happen to be the usual culprits: government corruption, graft, cronyism, clientilism, patrimonialism and neopatrimonialism.  All of these factors combine with a lack of transparency and physical infrastructure that strands the poor in a permanent economic stratum. 
            The question of what can be done to close this income gap is a valid one but it must be considered as to whether this is the right question.  Should a gap reduction be the economic focus?  This question brings to the forefront a valid argument made by Walker Connor who points out that perhaps political inequality is a more significant driver of political instability and violence that economic inequality.  Connor makes a persuasive argument worth considering—perhaps its better to work to bridge political equity and avoid violence than it is to focus on economic equality which may only serve to avoid resentment.  That said, to bridge the gap Zachary advocates striking regressive sales taxes and import duties in favor of a more fairly delineated income tax.  This serves to give the poor in a better a greater stake in its future.  There is little government expectation by a nation where no one pays income taxes.  Practically such a move requires significant physical infrastructure so that the government can reach its population in the hinterlands.  Most significantly, on a continent where most people are unbanked it requires harnessing existing technology.  This means embracing mobile banking (a move already being done in many nations) to collect and levy taxes.  On a larger scale bridging the gap requires a global shift in focus.  Too often Africa is treated as a country—monolithic nations that all require the same solutions to their problems.  The reality is that each nation needs a tailored and separate approach.  The focus needs to shift to the gaps inside each nation’s borders and not on comparing them to other nations.  


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