Making Transition Work for Everyone: Poverty and Inequality in ECA 4/28/2019 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? 4/28/2019 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)

The Experience of Poverty in ECA 4/28/2019 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

4/28/2019 How Many Poor? Absolute poverty significant in IDA countries and Russia; but relative poverty is a problem everywhere

4/28/2019 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.

4/28/2019 Children are at greater risk than elderly, especially in Central Europe

Capabilities of the Poor Endangered 4/28/2019 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.

Why Did Poverty Increase? 4/28/2019 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).

4/28/2019 Increases in Inequality: Small in Central Europe, Larger in FSU Countries

What Explains the Rise in Inequality? 4/28/2019 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.

What About the Increase in Inequality in the CIS? 4/28/2019 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 .

Public Action to Reduce Poverty 4/28/2019 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.

Key Building Blocks Build effective and inclusive institutions 4/28/2019 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 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

Advanced Reformer; High Income (e.g. Poland, Hungary, Czech Rep.) 4/28/2019 Advanced Reformer; High Income (e.g. Poland, Hungary, Czech Rep.)

Less Advanced Reformer; Middle Income (e.g Russia, Romania) 4/28/2019 Less Advanced Reformer; Middle Income (e.g Russia, Romania)

Less Advanced Reformer; Lower Income (e.g. Caucasus, Tajikistan) 4/28/2019 Less Advanced Reformer; Lower Income (e.g. Caucasus, Tajikistan)