THE INFORMAL ECONOMY

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Inequality

• Inconsistent with UN Charter vision
• Worsened by aspects of globalization
• Confounds poverty reduction efforts
• Not only in developing countries
• Multidimensional and compromises development,
  security and human rights
• Frustrates achievement of MDGs

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We cannot advance the development agenda without
addressing the challenges of inequality within
and between countries the widening gap between
skilled and unskilled workers, the chasm between
the formal and informal economies, the growing
disparities in health, education and
opportunities for social and political
participation. Kofi Annan, Secretary-General, UN
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Inequality hinders growth and increases poverty
Poverty
Lack of economic power
Lack of socio-political power

• Low income
• Low assets

• Denial of human rights
• Discrimination

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Unequal GDP distribution
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Per capita GDP in 20 poorest and richest
countries
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Income gap widened in recent years

• Since 1980s, inequality has risen in most
  countries in all world regions
• Income inequality trends in 73 countries for
  which data are available (1950s-1990s)
• Risen in 48 countries
• Relatively constant in 16 countries
• Declined in 9 countries
• Wealthiest 10 of global population increased
  share of global income from 51.6 to 53.4
  (1980-92)
• Related to greater wealth concentration

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Global income inequalities (Gini coefficient
values)
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Shares of Global Private Consumption
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Hunger and Malnutrition

• Since 2000, the average number of food
  emergencies per year has been 30, compared with
  15/year in 1980s
• Sustained nutrition deprivation affects 852
  million people
• 1 billion overweight adults globally

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Inequality Exacerbates Poverty
Income distribution
Political representation
Productive resources
Opportunities
Basic social services
Markets and information
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Poverty
Levels and Trends
Change in proportion and number of poor people
between 1981 and 2001
millions
living on lt 2/day in 2001
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Unemployment

• Remains major source of inequality
• Between 1993 and 2003
• Global number of unemployed rose by 31 to 186
  million
• Unemployment rates decreased slightly in
  developed countries while increasing in most
  other parts of the world
• Spread of jobless growth

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The informal economy

• Those in informal economy typically have-nots
  in society
• - 60 women
• - 535 million earn less than 1/day

• Likely to be
• Excluded from legal protections
• Precluded from enjoying basic rights and
  benefits of formal economy
• Working in hazardous conditions

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Informal employment dominant in many regions

• Share of informal workers in non-agricultural
  workforce by region
• North Africa 48
• Latin America Caribbean 51
• Asia 65
• Sub-Saharan Africa 78
• (excl. South Africa)

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Informal economy share of Gross National Income,
2000

• Developing countries 41
• Transition economies 38
• OECD Countries 18

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Why Rapid Growth of Informal Economy?

• Jobless growth
• Labour market flexibility
• Reduction in public sector jobs
• De-industrialization
• Economic crises
• Greater outsourcing
• Household survival strategies

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Health Inequalities

• Great differences between and within countries
• Access to healthcare
• Life expectancy
• Under-five mortality
• Intellectual Property Rights and Patent
  Monopolies
• High drug prices
• Unequal access
• Compromised capacity to react to crises

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HIV/AIDS

• Highly unequal global and regional impacts
• Lowers growth, increases dependencies
• Worsens existing inequalities between women and
  men
• Depletes human resources, threatening stability,
  security and development

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Education, 2001Despite progress, substantial
inequities exist by region
Indicator Highest Lowest
Net Primary Enrolment Ratio 95.7 Latin America Caribbean 62.8 Sub Saharan Africa
Net Secondary Enrolment Ratio 89.2 N. America W. Europe 21.3 Sub Saharan Africa
Girls Primary Enrolment per 100 boys 99-100 CIS, Europe, E. Asia 76 Southern Asia
Girls Secondary Enrolment per 100 boys 107 Latin America Caribbean 79 Southern Asia
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Financial Liberalization

• Net capital flows from capital poor to capital
  rich
• Increased financial volatility
• Undermines use of inclusive targeted
  developmental credit
• Slower economic growth in recent decades

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Trade Liberalization

• International terms of trade moving against
  developing countries
• Primary commodities vs. manufactured commodities
• Tropical agriculture vs. temperate agriculture
• Generic products vs. those protected by
  intellectual property rights

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Tariffs biased against developing countries

• Imports between developed countries average 1
• Tariffs on textiles from developing countries as
  high as 9
• Tariffs on agricultural products from developing
  countries as high as 20

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Retreat of the state

• Stabilization and structural adjustment programs
• Less progressive taxation
• Reduced redistributive role
• Reduced role of government in many developing
  countries
• Public education
• Health
• Housing
• Utilities

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Government Spending Priorities

• High-income countries spend 2½ times more of
  national wealth for health, education and welfare
  than low income countries.

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Inequality and Violence

• Violence often rooted in inequality
• No simple causal relationship
• Vicious cycle mutually reinforcing
• Poverty
• (Horizontal) Inequalities
• Authoritarian governance
• Lack of opportunities
• Armed conflict
• Reduced growth and development
• Links between inequalities and extreme aspects of
  social disintegration

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Poor Countries More Likely to Suffer Civil War,
Adversely Affects Growth
Predicted probability of onset of civil war
within 5 years
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Global Economic Agenda Dominated by Issues
Important to Developed Countries
Free Trade
Intellectual Property Rights
Investment protection
Financial Liberalization
Capital Account Liberalisation
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While Issues of Importance to Developing
Countries Cant Make it to the Agenda
International Economic Governance Dominated By
Rich
Doha Round, IPRs, etc. Not Developmental
International Economic Instability
Washington Consensus Not Developmental, Not
Equitable
Meaningful Debt Relief
Capital Flight
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Thank you