Institutional Pathways to Equity: Addressing Inequality Traps

In recent years, questions of equity and inequality have become more central in debates on development and poverty reduction, and even countries with high rates of growth experience stagnating or increasing inequality. Inequality can itself limit the poverty-reducing effects of growth. But the concerns for equity are coupled with questions of governance, since institutional arrangements not only influence overall rates of growth but also affect its distributional effects. The key question is how do given institutional arrangements emerge over time, with their particular implications for growth and equity. This question remains poorly understood by the existing literature.

The chapters in this book were originally commissioned as background documents for the preparation of the World Development Report 2006. The book focuses on the relationship between equity and development, the place of institutions in determining these relationships, and the conditions under which particular institutional arrangements can either block or promote transitions toward more equitable forms of development. The book specifically highlights the importance of institutional change through social mobilization and state policy.

Chapter 1 provides a general framework for the rest of the book, addressing the ways in which inequality affects development. Inequalities, the authors say, should be understood as differences in people’s access to economic opportunities, socio-political participation and ability to live a fulfilling life. Development is, conversely, a process of societal change that combines economic growth, poverty reduction and enhanced abilities to exercise voice.

Chapters 2 to 4 address inequality traps and institutionalized forms of inequities. Chapter 2 reviews the existing literature that answers how differential access to productive assets in the agricultural sector at various levels (regional, community and household) affects inequalities in agricultural outcomes in terms of productivity and poverty. Chapter 3, through an analysis of the case of Uganda, demonstrates that inequality and poverty can result from the exercise of power. People can become and remain poor because of the deliberate actions and inaction of others. Chapter 4 addresses the same issue in the case of Orissa, one of the poorest states in India, addressing the question of why same institutions achieve different results in different places.

The remaining four chapters observe institutional transitions and pathways toward equity. Chapter 5 examines the struggle for recognition and the rise of indigenous political voices in Ecuador and Bolivia (considered among the most politically troubled countries in Latin America for the past decade). Yet one interpretation of the mixed picture in these countries, where gains in indigenous political voice co-exist with long-lasting economic inequalities, is the possibility of equity trade-offs. This means that indigenous gains might result in increased discrimination, which keeps poverty gaps high and the returns on education low. It is probable that this equity trade-off may be more pronounced in Bolivia than in Ecuador. The victory of Evo Morales and his revolutionary policies of national resources redistribution (and its effects) tend to corroborate this thesis.

Chapter 6 analyzes pension scheme policies as essential factors for confronting the inequalities faced by the elderly. Two issues are addressed: first, the evolution of non-contributory pension programmes as institutions for poverty and inequality reduction; and second, the available evidence about the extent to which non-contributory pension programmes can reduce poverty. Chapter 7 analyzes the inequality trap generated by mineral wealth, which in theory should increase state capacities for tackling inequality, but in practice usually produces violent social confrontation, therefore scaring off investment outside the minerals sector. Finally, Chapter 8