Making Transition Work for Everyone: Poverty and Inequality in ECA

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Making Transition Work for Everyone Poverty and
Inequality in ECA
Poor woman with winter food supply rural
Tajikistan
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Why a Study on Poverty and Inequality?

• Beginning of transition, we expected poverty
  would increase, but be shallow and
  short-livedbut
• Poverty increased dramatically from 2 in 1988
  to an estimated 21 in 1998!
• Inequality also increased five CIS countries
  have levels of inequality approaching the most
  unequal countries in Latin America (greater than
  Peru)

Poverty is pain it feels like a disease. It
attacks a person not only materially but also
morally. It eats away ones dignity and drives
one into total despair (a woman from Moldova)
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The Experience of Poverty in ECA

• Fall in living standards in context of profound
  changes in political, social and economic life
• Voices of poor lack of income or income
  insecurity is number one concern
• Psychological pain as devastating as material
  hardship
• Poverty is not easy to discuss

Imagine traveling along in a car for seventy
years, and suddenly the road disappears and your
car crashes. You dont know where to go --Kyrgyz
Republic
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How Many Poor?
Absolute poverty significant in IDA countries and
Russia but relative poverty is a problem
everywhere
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Who is at Greatest Risk?

• Households with unemployed heads (especially in
  Central Europe)
• Multi-child households but NOT the elderly
• Rural households (especially in Central Europe)
• Some localized areas or regions (e.g. Northeast
  Romania East Ukraine Imereti region Georgia ).
• But the majority of the poor are working, and
  live in urban areas.

Unemployed man engaged in petty trade Armenia.
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Children are at greater risk than elderly,
especially in Central Europe
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Capabilities of the Poor Endangered

• In some countries poor children not attending
  school, poor areas not well served
• Corruption a growing problem in health and in
  education, hurts the poor most
• Insufficient attention to nutritional
  deficiencies, communicable diseases

My children cannot go to school because, without
them, I wouldnt be able to gather enough
cardboard every day (Moldova).
Poor woman with stomach cancer, Armenia. Cannot
afford health care.
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Why Did Poverty Increase?

• Output collapse key-- but magnitude varied across
  region
• Collapse of output experienced by households as
  decline in employment and wages
• .but also as a fall in social transfers
  (especially in CIS)
• Increasing inequality also important factor

Decline output ? Falling Wages and Incomes
(especially marked in CIS).
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Increases in Inequality Small in Central
Europe, Larger in FSU Countries
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What Explains the Rise in Inequality?

• Not reforms per se ? countries further on reform
  path have lower inequality
• In CSB, rising education premiums and emergence
  of entrepreneurs . but taxes and transfers
  dampened increase
• But not the case in the CIS.

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What About the Increase in Inequality in the CIS?

• Rising education premiums explain very little of
  inequality in CIS.
• Causes lie elsewhere
• widespread corruption and rents
• capture of the state by vested interests that
  have influenced policy to their advantage
• resulting collapse of formal wages and income
  opportunities
• Result polarized society where entrenched
  economic interests control policy agenda ? leads
  to very unequal outcomes .

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Public Action to Reduce Poverty

• Large variation in policy, performance, income
  and vulnerabilities across countries
• Forward-looking policy agenda has to be country
  and region-specific
• But common themes exist and less advanced
  reformers have much to gain from experience of
  those further on the transition path.

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Key Building Blocks

• Build effective and inclusive institutions
• Provide conditions for shared growth
• Protect the poor and vulnerable
• Reduce inequality and enhance opportunities for
  the poorest

• ?Tackle state capture build communities give
  voice
• ?Stimulate labor demand and private sector
  environment build capabilities of the poor
• ? Help the destitute ensure long-run equality of
  opportunity for poor children balance
  protection, efficiency
• ?Reduce rentsmeasure to aid those at bottom,
  lagging regions anti-discrimination

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Advanced Reformer High Income (e.g. Poland,
Hungary, Czech Rep.)
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Less Advanced Reformer Middle Income (e.g
Russia, Romania)
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Less Advanced Reformer Lower Income (e.g.
Caucasus, Tajikistan)