Global Policy Forum

Income Distrubution in the 1997 Trade and Development Report

From a Press Briefing by UNCTAD
September 15, 1997

The 1997 Trade and Development Report of the United Nations Conference on Trade and Development (UNCTAD) was introduced this morning by Anthony Woodfield, a senior economist with UNCTAD's Globalization and Development Strategies Division in Geneva, during a press briefing at United Nations Headquarters.

The report examines trends in the world economy, also focusing on the impact of globalization on income distribution and economic growth. In addition, it touches on polarization and income inequality among and within countries, as well as policies for turning the profits of the few into economic growth for all.

Mr. Woodfield said the overall finding of the report was that, contrary to expectation, there had not been a convergence of incomes between developing and developed countries since the 1980s. At 2 per cent per annum in the 1990s, worldwide growth had been slow as compared with the 1980s, when it was about 3 per cent, or with the 1950s and 1960s, when it was between 4 and 5 per cent. Poverty in developing countries had not shown much change, but it had been reduced in some areas, such as East Asia, where there had been rapid economic growth. The rich had gained everywhere, and a "hollowing out" of the middle class in terms of income distribution had become a prominent feature in many developing and developed countries.

Reasons for that trend included the growing role of finance over investment and manufacturing, Mr. Woodfield said. Finance had increased the disparities between middle and upper classes, with the share of income accruing to capital gaining over that assigned to labour. Profit shares had risen in developed and developing countries alike, and there were increases in job and income insecurity. As rising interest charges ate into business revenues, corporate restructuring, labour shedding and wage repression had become the order of the day in much of the developed and developing world. There was also a growing wage gap between skilled and unskilled labour -- a well-documented phenomenon in the United States, the United Kingdom and other developed countries. It was also particularly prevalent in middle-income developing countries.

He said UNCTAD was adopting a number of approaches to deal with those problems, including strong support for and encouragement of market forces, Mr. Woodfield said. It did not recommend that income be redistributed across the board, as that could slow growth while creating political and economic instability. Rather, it stressed reinvestment of profits for productive use. That not only fostered future growth, but also supported improvement in income distribution by generating more employment and increasing wage incomes.

Mr. Woodfield said the report also drew upon the experience of some East Asian economies in achieving gains, noting the role of State involvement, as well as of policies to induce entrepreneurs to reinvest rather than consume.


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