Luohan Academy

The Balance of Fairness Enhancing Policies and Efficiency Enhancing Policies in Reducing Inequality

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  • Transcript


Erik Berglöf:

Thank you very much. And thank you for inviting me. That's hard to follow. Michael managed to cram in a lot of information and very interesting analysis into his 12 minutes. I'm going to come from almost the opposite perspective. I'm going to try to see what can we do about these inequalities. And I'm going to share a presentation. So I was given a topic. And the topic was on the balance of fairness enhancing policies and efficiency enhancing policies in reducing inequality.

So this is a topic that has the characteristics of many topics here in China when things are translated from Chinese. I’ve had the pleasure now of learning Chinese and the elegance that Chinese have been making this kind of titles in Chinese. When they come over into English, they somehow lose all that elegance. But I tried to summarize it in balancing fairness and efficiencies in reducing inequalities. And so that's I’m going to try to talk about this balance. And one of the points I’m going to try to make is that very often, efficiency and fairness are actually not contradictory that they are often actually very much in line and complement each other. I’m going to approach from the perspective of what I call a recovering academic. I’m spend most of my life as an academic, but I have had two episodes of trying to work in policy. And that’s what I’m doing now. And I think it’s from that experience that I’m going to try to think about that issue of fairness and efficiency.

As you probably, or the one who was observant, would have noticed I changed inequality to inequalities. And this is one thing that anyone who works on inequality, particularly in practice, is that one inequality seldom comes alone. They often come with others. With wealth equality comes with income inequality, access to health, and maybe education. And I think this is very important when we think about inequality that we cannot address them in isolation. And also when we manage to get traction on one inequality, we actually may be able to move whole clusters of inequality. And that's for someone who is trying to think about this in the context particular of infrastructure this is a very important insight. The second lesson is something that I come to very much for my experience at the EBRD which is that we talk a lot about equality of outcome, and we talk about equality of opportunity and of course both matter a lot. But from my experience, equality of opportunity is much easier to get consensus around and much easier to translate into something that you can operationally address in an organization.

And the way I think about it, or my own experience was that I came from EBRD, I spent 9 years actually at EBRD. From the very beginning, I had this ambition to try to make that organization much more concerned about inequality and distribution of outcomes and also gender equality having seen how the transition process particularly in Eastern Europe had increasingly been plagued by issues around inequality and how that was undermining the kind of legitimacy of the process. But it was very difficult to get support for these issues in the board, because there was the view that this would undermine the focus of the organization and making the mandate less precise.

But what really changed things was when the Bank was asked to go into Turkey and then the Middle East and North Africa in the Arab Spring. When we saw that 80% of women were outside the formal labor force and that fact that there was so much inequality of opportunity, there was such a profound impression and that really carried away and change the whole way that the Bank operated and saw the issue of inequality. There were 2 sorts of sets of arguments around equality of opportunity. One set was the efficiency argument. And there was one set that was around the political economy, the need that people were not part of political process, and they had been left out of a lot of the political changes that were happening. Both arguments are important, but what really made a difference, in that case, was the equality of opportunity as a waste of resources.

And the fact that so many people do not have an opportunity to realize their potential for whatever reason with their gender, where they were born, who their parents were and all those things that really carried weight. And that transformed that organization from an institution that didn't care about equality to one that had now more than 50% of the projects have a measurable component of inequality, or inclusion as it’s called. But it's really about equality of opportunity. Again, the efficiency argument is not the only reason why you should care about the equality opportunity, but is one that is much easier to measure. We have a lot of a very good way of measuring that. And that is something that is important. Inclusion, as I mentioned, is really a multi-dimensional concept. And it's both about equal inclusion in terms of outcome opportunity. Perhaps even more so, and something that I find increasingly important is the inclusion in political and social processes. That in order to move political change and transformational processes, that aspect is very important. I mentioned the political economy argument and that is important, but it's really about how people feel that they participate.

And I think when we talk about the opportunities from digital technologies, this is going to be extremely important. I think that the participation and ownership is really what can affect the sense of fairness and willingness to accept may be unavoidable, or maybe in some cases, even desirable inequalities of outcome and opportunities. So these are five lessons that I have as sort of a recovering academic.

So when you introduce digital technologies into this, you open up new inequalities and you may also reinforce existing ones. You have your geographic location, you have digital literacy varying a lot, particularly across developing countries. You have carbon footprint where you are in the value chain may be very different in terms of how your digital technology works or your data center or somewhere else. Exclusion also varies a lot across countries, and within organizations. So digital technology may not necessarily reduce the inequality, but it also unleashes new opportunities. So digital infrastructure can be absolutely transformational. What is very important and we have seen in so many cases, but it's not path dependent. It allows you to leapfrog. And there's plenty of examples I can come to in a minute. You can invest in human capital to encourage that the transformation. You can improve access to health education, the way that you didn't think what was possible before you can in.

And this is what I want to really emphasize is to increase the sense of participation in social political processes in a way that you can really change societies. I’ll give you two or three examples. We at AIIB just funded a satellite system in Indonesia. So those who know Indonesia is the 4th largest country in terms of population in the world. 17,000 islands. This is a project that through satellite brings broadband to 45 million new individual beneficiaries, to a number of schools, to 47,000 local villages, to health centers. This investment can be truly transformational. This was a private partnership. There's been an initiative that's very familiar to the host of this, the Luohan Academy. The Taobao Villages in China cooperation between Alibaba and the World Bank, trying to use digital technologies to bridge the income gap between urban and rural villages encouraging online vendors to use e-commerce to activate commerce in villages in China. It started in Zhejiang Province and is now in 5,000 villages across 25 provinces in China, digital infrastructure based digital skills, but these have really changed households.

In one example, here's another maybe trivial example, but still very influential example. And I think this shows also how taking digital health we can see a lot of improvements in terms of access. So 2/3 of medical students in Pakistan are females. Half of those females graduates stop working after getting their exam and getting the degrees. And through this initiative, they can serve many poor households through digital technology. 

This is a slide. I was going to say a little bit about the role of data. Data is probably changing the pictures. Of course, more people on this call have worked a lot on data. Data changes everything well as the public goods of data, how that can change the nature of development but requires regulation to ensure kindness and efficiency. We need to make sure that we protect the small people in this process. Multilateral development can help try to get the efficiency and fairness working in this.

So equality of opportunity is efficient, strict equality of outcome probably not efficient, but fairness is still very important. Digital infrastructure can open new and reinforce old inequalities, but also unleash these extraordinary opportunities. Thank you.

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