MACROSCOPE: Are Multilateral Organizations Having an Impact on Inequality?

“There is no area in economic theory we know as little about as income distribution. What we need is more research and data because otherwise we are dealing with a black box, and we need the international organizations to help open that box and make it transparent.”

- Gabriel Palma, July 2016, originator of the “Palma Ratio” measure of inequality

Three years ago in July, FES New York helped convene an intensive dialogue with leading experts on economic inequality on how to strengthen our understanding, assessment and reporting on international and national inequalities. Participants from the institutional rule makers –International Monetary Fund (IMF), World Bank, Organization for Economic Cooperation and Development (OECD), United Nations (UN), Group of 20 (G-20), and Financial Stability Board (FSB) – discussed with leading academic experts what impact they thought their institutions could have on economic inequalities and how best to construct a methodological framework to assess how the multilateral institutions impact inequality.

Lessons learned
There are two main roadblocks to strengthened understanding, assessment and reporting on inequality: (1) a lack of sufficient data to accurately assess inequality and (2) political capture of international organizations by the richest and most powerful countries and of national governments by the richest and most powerful private actors.

We need a comprehensive dashboard of measures and indicators, since our assessment and reporting suffers less from a lack of tools than a lack of adequate data on matters like the care economy, capital incomes, illicit financial flows, and even basic population data from a number of developing countries.

The international organizations must encourage countries to be more transparent about wealth and income data and to build countries’ capacities to collect this data. When wealth can buy access, inequality within a country can corrupt the political decision-making process.

Organizations dominated by the Global North (especially OECD) have historically failed to create space for developing countries to have an impact on their work. We need the United Nations to create that space.

Looking forward
The July 2019 High Level Political Forum (HLPF) at the United Nations offers an opportunity both to reflect upon the lessons learned in these debates – as countries come together assess progress toward SDG 10, reducing inequality within and among countries – and to look forward toward better policies to combat inequality.

After helping to organize the 2016 debates, Development Finance International and New Rules for Global Finance produced ground breaking Global Financial Impact Reports in <link article are-the-multilateral-organizations-fighting-inequality-2017-financial-impact-report-executive-summary-1 _blank external-link>2017 and <link article _blank external-link>2018, on the key role that multilateral organizations should be – but were not yet – playing to ensure the reversal of worrying trends in inequality that prevent the wide distribution of benefits from growth and development. These two organizations come together again on July 10 during the HLPF for the program, <link article inequality-the-1 _blank external-link>“Inequality and the 1%: Is a transformative fiscal policy possible?” with FES, UN-RISD, UN-Women and the Permanent Missions of Norway and Uruguay. 

Their current work examines progressive fiscal policy on both the tax and spending sides, reviewing lessons learned from countries in the Commitment to Reducing Inequality Index, a global ranking of governments based on what they are doing to tackle the gap between rich and poor. It also provides an update for 2019 on the impact of the multilateral organizations on inequality and proposes steps for effectively linking national and global efforts, including proposals for:

• a global indicator and tracking system;
• UN system-wide (including IMF and World Bank) determination to focus not just on domestic resource mobilization amounts but also how progressive they are;
• civil society mobilization;
• strengthening the voice of developing countries and the regional organizations in global discussions; and
• promoting and rewarding best practices in progressive fiscal policy.