Growth with Equity: Trends and Challenges in the ECE Region Ján Kubiš UNITED NATIONS ECONOMIC COMMISSION FOR EUROPE Growth with Equity: Trends and Challenges in the ECE Region Ján Kubiš UNECE EXECUTIVE SECRETARY New York 3 November 2010 1

Long-run Trends in Inequality Over the last two decades inequality has been increasing throughout much of the world This has been true in the three regions of the ECE – North America, Western Europe and the European Emerging Economies of East, Central, and Southeast Europe, the Caucasus, and Central Asia This has been due to changes in technology, globalization and government policy Inequality has several dimensions including: the overall income distribution, by gender, ethnic groups, by geographical regions, and intergenerational Although inequality has increased, in the ECE the poorest have been generally protected

Inequality in the ECE Region Despite the trend towards higher inequality, the ECE region still has less inequality than most other regions of the world Inequality in the US is generally higher than in Western Europe Inequality in the UK and continental Europe is higher than in the Nordic economies The Nordic economies are generally considered as being the most successful economies in the world in terms of achieving equity with growth Inequality in the European Emerging economies varies considerably

Government Policy and Equity There are two competing social models in the ECE A “free market or American” model which emphasizes equality of opportunity, market provision of services, limited labor market regulation, and a safety net limited to the poorest A “European or social” model which emphasizes social cohesion, equality of outcomes, universal provision of health, education and other public services, labor market regulation, and generous social transfers Over the last two decades there has been a move from the European model to the American model under the belief that this will promote faster economic growth How successful this transition has been in terms of increasing growth is debatable, but it has resulted in a general increase in inequality

Source: Eurostat, OECD Social and Welfare Statistics.

Markets are not enough

Inequality in the Transition Economies With the economic collapse in the transition economies in the early 1990s, inequality increased significantly and social and health indicators declined significantly The initial increases in inequality were largest in the most negatively impacted economies of the CIS with more moderate increases in the new EU member states Since the late 1990s until 2008 sustained economic growth allowed the increases in inequality in the CIS to be partially reversed Nevertheless large disparities continue to persist in many of the transition economies and many health and social indicators are inadequate

Gini Index in the European Emerging Economies A larger index number means higher inequality

High inequality declines somewhat in CIS economies 10 20 30 40 50 60 Estonia Bulgaria Hungary Latvia Poland Romania Slovenia Armenia Azerbaijan Belarus Georgia Kazakhstan Kyrgyzstan Moldova Russia Ukraine Uzbekistan Albania Croatia Macedonia, FYR Turkey Gini coefficient (%) mid-1990s mid-2000s

Major Challenges in Improving Equity in the Transition Economies Promoting equity requires a strong, efficient government while governmental institutions in many of the transition economies are weak and inefficient It is difficult to provide social protection to those working in the informal sector and living in informal settlements and these groups are often quite large Natural resource economies often do not have a production structure which provides large numbers of stable well-paid jobs However, resource-rich economies do provide governments with revenues that can be used to finance public services and social transfers; the sustainability of this depends on high oil price Migrant populations are often poor and receive limited social protections and benefits

The Importance of Perceived Fairness in Assessing Equity How a society views the inequities within it can be as important as the actual level of the inequities For example, although income inequality is higher in the US than Western Europe, it is generally viewed by the US population as less of a problem than in Europe Although income inequality is not particularly high in many of the transition economies compared to other emerging economies, because of cultural beliefs developed under Communism, the sense of unfairness is quite high in the transition economies

The Impact of the Financial Crisis on Equity The ECE region was the hardest hit region in the world; most economies other than those in Central Asia experienced negative growth in 2009 It will be 2011 before most economies return to their 2008 levels of GDP; unemployment may not fall to 2008 levels until 2013 or beyond As a result poverty has increased in most economies and social and health indicators have declined Achieving a number of the MDGs now appears problematic The need for fiscal retrenchment throughout the region means that social programs will have to be cut back for years to come

Improving Gender Equality Progress in most ECE countries has been achieved in: Women’s participation in the labour market Women’s political participation at local levels New and strengthened legislation for gender equality Institutional mechanisms on gender equality and women’s empowerment Key challenges for gender equality remain in the following areas: The gap between legislation and implementation Decent work for women and measures to counteract labour market segregation The gender pay gap The situation of migrant women and women belonging to minority groups The persistence of gender stereotypes, especially in media and education Insufficient availability of sex-disaggregated data and gender-sensitive indicators

Gender discrimination in the labour market Gender pay gap by subregion, 2008 or latest available year (per cent) 5 10 15 20 25 30 35 40 45 50 GEO AZE TJK ARM RUS KAZ KGZ BLR UKR MDA ALB MKD HRV SRB TUR EST CZE SVK LTU POL BGR LVA ROM HUN SVN Source: UNECE Gender Database.

Ethnic and Geographical Inequality Minority groups in many of the ECE economies often have significantly higher levels of poverty and face other forms of social exclusion Dicrimination often exists even when there is no government policy against minorities Differences between ethnic groups have often led to conflict Affirmative action for minorities may be effective if properly implemented Active labor market policies and targeted educational programs have been effective Income differences across geographical sub-regions within countries are often quite large Poverty is usually much higher in rural areas Regional development strategies have often been successful in addressing regional disparities

Source: UNECE Generations and Gender Surveys.

Source: UNECE Generations and Gender Surveys.

Intergenerational Equity Intergenerational equity is often considered to be a major defect of democratic societies since future generations do not have a vote There are a number of intergenerational issues of major importance for the ECE region Provision and financing of age-related pensions and health care All of the ECE economies except for those in Central Asia face a demographic aging problem Although provision of pensions is well-developed their financing has not been adequately addressed Excessive carbon emissions and the resulting climate change may be the result of an excessive discounting of the interests of future generations

Policy Directions for Growth with Equity Integrated policy framework Balance between macroeconomic, structural and social policies Synergies between growth, employment, improved education and healthcare, and environmental sustainability Gender equality policies Cross-cutting effects on all social sectors Review of fiscal policies Income redistribution and fiscal space for social protection Better data on disadvantaged population groups Essential for monitoring the impact of pro-poor policies

THANK YOU