Canada Gets Failing Grade on Income Inequality Report

01/20/2012 05:33 EST | Updated 03/21/2012 05:12 EDT

Given the phenomenal economic success of "emerging" powers like China, India, and Brazil, it's easy to forget that most of the world's poorest people live there. That's right. The G20 is home for the majority of the 1.3 billion people who subsist on less than $1.25 a day.

These countries are increasingly rich -- and at the same time outrageously poor. All of them grew their economies over the past 20 years, but how well growth translated into freedom from poverty varied enormously.

Korea, Mexico, and Brazil were great success stories, while South Africa and India ended up with more poor people today than when they began. Contrary to popular myth, a rising economic tide does not necessarily lift all boats, and can in fact sink some of them.

In a new report called "Left Behind by the G20?" Oxfam crunches the numbers, and finds that inequality -- the rallying cry of the Occupy movement -- helps explain the difference. Not just how unequal countries were when they started growing, but whether the way they grew made them more equal or less equal.

In decades past, development economists viewed inequality as an unavoidable outcome of progress and even a necessary ingredient for growth. Now, a mass of recent evidence from the International Monetary Fund and the World Bank shows the opposite: that inequality can be reduced while an economy grows, and more important, that inequality acts as a brake on growth.

The logic is straightforward: If the richest 10 per cent get all the benefits of growth it won't have much of an impact on the poorest. What's more, people trapped in poverty add little to a country's GDP. Inequality in access to credit, for example, can prevent these individuals from making productive investments. Inequality in access to education and healthcare prevents them from realizing their productive potential.

Oxfam offers a report card for all G20 countries except Saudi Arabia. Only four have managed to reduce income inequality since 1990 and they are all emerging powers: Brazil, Korea, Mexico, and Argentina. Inequality increased fastest in Russia, China, Japan, and South Africa.

While starting from a much lower level, inequality in Canada rose as fast as India's and nearly as fast as South Africa's. Notably, over the same period, inequality fell in most low-income countries, substantially so in Mali, Malawi, Sierra Leone, and Ethiopia.

South Africa, a booming economy with rising poverty, is the most unequal country in the G20. Oxfam's economic modeling predicts that even with steady growth over the next decade more than a million more South Africans will be pushed into poverty, unless inequality is addressed.

Korea is now the most equal country in the G20 save France. If Brazil and Mexico, which have combined growth with reduced inequality, manage to further reduce their levels of inequality to that of Indonesia (close to the G20 median) they could cut the number of people living in poverty by 90 per cent in the space of a decade.

Many factors influence income distribution, especially gender. Even in the world's richest countries, women's wages lag far behind men's. Oxfam identifies five key policies G20 governments have used effectively to reduce inequality: cash transfers to the poorest; universal health and education; progressive taxation; removal of barriers to equal rights and opportunities for women; and land reform.

All governments have the power to close the distance between richest and poorest. Reducing inequality multiplies the impact of economic growth on poverty, and frees formerly poor people to contribute their energy and assets. Reducing inequality is not only morally right, it makes economic sense.