Comments: Susan M. Collins

Ke-young Chu, Sanjeev Gupta, and Vito Tanzi
Published Date:
May 1999
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This conference focuses on a topic that is both important and appropriate for the International Monetary Fund. As I thought about my contribution, I could not help but reflect on the ongoing currency crisis in Asia. This experience highlights the fact that macroeconomic crises can very quickly undermine the significant increases in living standards achieved gradually through sustained development strategies. There is a macroeconomic dimension to equity issues, just as there is an equity dimension to macroeconomic policy and performance. I believe that there is much to be gained from interactions among the diverse groups of researchers and policymakers who are concerned about these issues but typically attend disparate conferences.

Overall, Anthony Atkinson has prepared an interesting and informative overview of key aspects of income inequality within OECD countries. I agree with much of what he says. In particular, I too believe analysts should take a much broader brush in seeking explanations for the diverse experiences of individual countries. I also agree that there remains considerable scope for policymakers to address equity concerns. The problems here have less to do with constraints of a global marketplace, and more to do with politics.

In my role as discussant, I have chosen not to summarize his main conclusions or to reiterate his arguments, but instead to emphasize those areas where I believe I have something to add. First I will briefly elaborate on two points that are raised in the paper: the diversity of experiences among countries, and the fact that even income inequality has many dimensions. Then I will discuss some additional issues that, in my view, have received inadequate attention.

The point regarding the diversity of experience among countries has been discussed extensively by previous commenters. Rather than repeating their points, let me simply add that lessons go both ways. As a Jamaican who has spent most of her life in the United States, I am often struck by how those in OECD countries are less likely to expect lessons from developing or transition economies than vice versa. In fact, I think that lessons really do go both ways, and I would have liked that point made in the paper. It is important to have on the table as many experiences as possible from which to learn.

The second issue is about the many dimensions of equity. This paper focuses on income inequality to measure inequity. As other commenters stress, this is just one of many important aspects of inequality. Income inequality by itself also has different dimensions. As Atkinson emphasizes, much of the discussion in the United States and other OECD countries has focused on what has happened to the remuneration of highly skilled workers, especially more educated workers compared with less educated workers—what is traditionally called the “skill premium.” Empirically, the skill premium explains a smaller portion than expected of the rising trend in overall income inequality in these countries. While the experience clearly differs across countries, the point is that the focus of the discussion on income inequality has been on one relatively narrow dimension—what has happened to the skill premium and why. However, research for the United States suggests that perhaps only half of the increase in household income inequalities in the United States over this period might be associated with increases in earned-income inequality of workers, and that less than half of the increase in earned-income inequality from the 1970s through the early 1990s seems to be associated with measurable characteristics of workers, including education. In the United States, for instance, the other dimensions include important changes in family structure, in the correlations among income earned by different family members, and in the correlations between earned and nonearned incomes. How, if at all, are these developments related to changes in skill premiums? Discussions of income inequality often ignore the importance of and the interactions among these factors. In bringing together participants from so many backgrounds, this conference promises to incorporate a broader perspective, and wider range of information, in trying to better understand equity issues.

Let me next raise an issue that is missing from the paper. I believe that, in discussions of equity, it is useful to distinguish between two distinct, though interrelated, considerations. The first is a long-term concern. There are groups in any society—whether an industrialized country or a developing or transition economy—with low incomes and relatively poor access to educational opportunities. These groups suffer from inequity that can be addressed only over a long time period. The second concern is what might be called adjustment issues. In a dynamic market economy, some sectors of society do poorly during specific periods and others do well. This raises all kinds of distributional issues that are familiar from standard trade theory.

It seems to me relevant to ask, Does globalization make a difference in terms of both of these interrelated aspects? And I think the answer is yes. First of all, globalization may make it more difficult to deal with long-term inequity, as has already been mentioned during this conference, because it may make it more difficult to tax certain kinds of resources in the society, such as income. It also may make things more difficult because a macroeconomic crisis, such as we are seeing in Asia, can derail the long-term strategies put in place to address long-term inequity over time.

I will focus the rest of my remarks on adjustment issues. These, too, have a number of different dimensions. Let me underscore two. One is that there are going to be winners and losers, and the losers tend to be concentrated and therefore quite visible, whereas the winners are often dispersed and not nearly so visible. The concentration of the losers has always been an issue, but I think it is a problem particularly in the context of globalization, because we know that globalization raises equity concerns that go beyond individual incomes to community-wide repercussions.

So, when we discuss the range of remedies to adjustment issues, we should move beyond the individual income considerations to recognize that, initially, during adjustment poverty may be concentrated in particular communities. For example, if a major employer in one community reduces its activity, the cutback affects health care and education systems in the area. Remedies should therefore focus not just on individuals but also on the communities in which many losers are concentrated. I don’t see as much discussion about this kind of regional issue, although it seems to me that this issue is relevant in both industrialized and developing countries.

The second dimension of adjustment on which I would like to comment is that winners and losers will increasingly be split across borders. That creates political problems. Designing policy responses is much more difficult if the losers are domestic while the winners are perceived to be abroad. Why am I concerned that equity issues are becoming more difficult? It is largely because of this mismatch between the policymakers and the distribution of the actual groups that are benefiting during an adjustment period and those that are doing poorly. Such a mismatch threatens to create deep political problems within a country as well as to create difficult political problems within international institutions and within international discussions on issues like trade policy and environmental reform. This broad-brush look at how globalization affects equity—at the adjustment difficulties, at the impact on some groups, and at the likelihood that winners and losers are increasingly going to be distributed across borders—strongly suggests that we need to think more creatively about ways to address equity.

Unfortunately, I do not have simple solutions to suggest. Instead, let me say three things in lieu of a conclusion. The first is that we need much better information about how winners and losers are distributed, and about what approaches have been tried and have worked well. Second, for economists who are concerned about inequities during adjustment, insurance schemes are a very fertile ground for creative thinking. Finally, we need to discuss these issues up front. There is a tendency to talk about equity issues only during a crisis. But it is often easier to deal with the mismatch of potential winners and losers and to design solutions before a crisis hits than when all groups feel they are losing.

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