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Making Transition Work for Everyone: Poverty and Inequality in ECA

Making Transition Work for Everyone: Poverty and Inequality in ECA. Poor woman with winter food supply; rural Tajikistan. Why a Study on Poverty and Inequality?. Beginning of transition, we expected poverty would increase, but be shallow and short-lived…but:

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Making Transition Work for Everyone: Poverty and Inequality in ECA

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  1. Making Transition Work for Everyone: Poverty and Inequality in ECA Poor woman with winter food supply; rural Tajikistan

  2. Why a Study on Poverty and Inequality? • Beginning of transition, we expected poverty would increase, but be shallow and short-lived…but: • Poverty increased dramatically: from 2% in 1988 to an estimated 21% in 1998! • Inequality also increased: five CIS countries have levels of inequality approaching the most unequal countries in Latin America (greater than Peru) Poverty is pain; it feels like a disease. It attacks a person not only materially but also morally. It eats away one’s dignity and drives one into total despair (a woman from Moldova)

  3. The Experience of Poverty in ECA • Fall in living standards in context of profound changes in political, social and economic life • Voices of poor: lack of income or income insecurity is number one concern • Psychological pain as devastating as material hardship • Poverty is not easy to discuss Imagine traveling along in a car for seventy years, and suddenly the road disappears and your car crashes. You don’t know where to go --Kyrgyz Republic

  4. How Many Poor? Absolute poverty significant in IDA countries and Russia; but relative poverty is a problem everywhere

  5. Who is at Greatest Risk? • Households with unemployed heads (especially in Central Europe) • Multi-child households but NOT the elderly • Rural households (especially in Central Europe) • Some localized areas or regions (e.g. Northeast Romania; East Ukraine; Imereti region Georgia ). But the majority of the poor are working, and live in urban areas. Unemployed man engaged in petty trade; Armenia.

  6. Children are at greater risk than elderly, especially in Central Europe

  7. Capabilities of the Poor Endangered • In some countries poor children not attending school, poor areas not well served • Corruption a growing problem in health and in education, hurts the poor most • Insufficient attention to nutritional deficiencies, communicable diseases My children cannot go to school because, without them, I wouldn’t be able to gather enough cardboard every day (Moldova). Poor woman with stomach cancer, Armenia. Cannot afford health care.

  8. Why Did Poverty Increase? • Output collapse key-- but magnitude varied across region • Collapse of output experienced by households as decline in employment and wages • ….but also as a fall in social transfers (especially in CIS) • Increasing inequality also important factor Decline output  Falling Wages and Incomes (especially marked in CIS).

  9. Increases in Inequality: Small in Central Europe, Larger in FSU Countries

  10. What Explains the Rise in Inequality? • Not reforms per se countries further on reform path have lower inequality • In CSB, rising education premiums and emergence of entrepreneurs …. but taxes and transfers dampened increase • But not the case in the CIS.

  11. What About the Increase in Inequality in the CIS? • Rising education premiums explain very little of inequality in CIS. • Causes lie elsewhere: • widespread corruption and rents • capture of the state by vested interests that have influenced policy to their advantage • resulting collapse of formal wages and income opportunities • Result: polarized society where entrenched economic interests control policy agenda  leads to very unequal outcomes .

  12. Public Action to Reduce Poverty • Large variation in policy, performance, income and vulnerabilities across countries • Forward-looking policy agenda has to be country and region-specific • But common themes exist; and less advanced reformers have much to gain from experience of those further on the transition path.

  13. Tackle state capture; build communities; give voice Stimulate labor demand and private sector environment; build capabilities of the poor  Help the destitute; ensure long-run equality of opportunity for poor children; balance protection, efficiency Reduce rents;measure to aid those at bottom, lagging regions; anti-discrimination Key Building Blocks • Build effective and inclusive institutions • Provide conditions for shared growth • Protect the poor and vulnerable • Reduce inequality and enhance opportunities for the poorest

  14. Advanced Reformer; High Income(e.g. Poland, Hungary, Czech Rep.)

  15. Less Advanced Reformer; Middle Income (e.g Russia, Romania)

  16. Less Advanced Reformer; Lower Income (e.g. Caucasus, Tajikistan)

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