Mr Chairman, Distinguished Scholars,
Why do Ministers of Foreign Affairs seldom have time to talk about poverty or human well-being or much else, for that matter, for two consecutive days? Because inequalities keep us so busy. As one of the keynote speakers at this conference, professor Frances Stewart has convincingly shown, ”inequitable treatment of groups – either real or perceived – can be a major source of social instability.” This social instability pours onto the agendas of Ministers of Foreign Affairs: conflicts and crisis management fill the agenda of international politics, and in most cases the root causes can be traced to poverty, inequality and perceived injustices: terrorism, war, trade disputes, climate change, migration controls, and many other problems – all caused by, or at least closely related to, inequality.
Hence, there is real demand for your research. We need better understanding of the dynamics and causal chains from poverty and inequality to redistribution and human well-being. WIDER has organized excellent conferences over the years. This time you have a focal point that could hardly have been more topical.
We ministers invest so much of our time in negotiating solutions to inequalities because we are convinced that equality would be good not only for conflict presentation but also for growth and for poverty reduction. It is easy for us to say so today.
But to say so has not always been easy. Inequality – both national and international – was on the agenda in the 1970s, but not during the structural adjustment era of the 1980s and 1990s. In 1997, Anthony Atkinson had to write about the need to ”bring income distribution in from the cold”. (1.) We all know Ravi Kanbur as one of the powerful intellectuals whose efforts were needed to bring inequality back onto the agenda of development economics. We are also aware of WIDER’s valuable work in setting up the ’World Income Inequality Database’ (WIID).
The motivation WIDER has had for this massive effort was well summarized by the institute’s former director, Giovanni Andrea Cornia, in 2001, when he said: ”In sum, rising inequality threatens growth and poverty reduction targets. In order to meet the global targets for reducing poverty, it will be essential to make pro-growth policies more distributionally favorable.”
The Government of Finland shares this concern. We are committed to taking the Poverty Reduction Strategies (PRSs) of our poorer partner countries as the main framework of our development cooperation. We regard the PRSs as country-specific roadmaps of each country reaching towards the Millennium Development Goals (MDGs) to which we all committed ourselves at the Millennium Summit of the UN in September 2000.
Income and asset distribution is a key issue that Finland has decided to monitor in the PRSs, and in our dialogue with our partner governments we explicitly state that we are interested in supporting reforms and policy actions that will enhance equality.
Inequality means different things to different people. The development of our Nordic societies has been based on the idea of “Society for all”. We believe that every citizen has a right to social security and basic social services. While not suggesting that our models should be copied unchanged to other countries, we do feel that our experiences may give some food for thought when the challenges of inequality, poverty and human well-being in developing country contexts are discussed. But first I would like to correct some misconceptions:A welfare state is not a manifestation of a centrally planned public system that ignores the potential of the private sector. Our Nordic systems have traditionally been characterized by broadly participatory decision making at the local government level. From the beginning, women have played an important role in local decision-making. Service production and insurance provision are based on a public-private mix. In other words, the involvement of both non- and for-profit civil society and decentralization are essential elements of the system.
Unaffordability and fear of high taxation are arguments often used against welfare states. Looking at our experience, it is worth noting that half a century ago, when the basis of the system was established, Finland was not a rich country but a poor, war-torn society with an economy based mainly on smallholder farming and forestry in harsh climatic conditions. Yet it was not unaffordable for Finland to implement a land reform and to establish a universal social security system.
The key was recognition of the fact that contrary to old received wisdom, well-planned and directed social reforms were not a burden on the economy; on the contrary, the redistribution of income through a planned extension of social income transfers enhanced economic growth. In other words, the major aim of our social policies since the 1960s has been to tap all the human potential of the nation, and to harness all available resources, including the energy, innovativeness, and enterprising spirit of all men and women. Social security systems that pool livelihood risks among the whole population and ensure access to services for all have formed the foundation of poverty reduction and equity in Finnish society. In terms of poverty reduction, the Finnish welfare state, like its Nordic counterparts, has managed to reduce the poverty rate to less that 4 percent, well less than half the rate anywhere outside the Nordic countries.
Manuel Castells and Pekka Himanen recently documented these Finnish experiences in their book ”The Information Society and the Welfare State – The Finnish Model”. Another highly interesting study by a team of Southern researchers, led by professor Oliver Saasa of Zambia, is currently in print. This is what we call the ”Partner Review”. Parallel with the OECD-DAC Peer Review of Finland’s development policy and action, we commissioned four independent thinkers from our Southern partner countries to study the history, culture, values and experiences of Finland, and then to look at what Finland has been doing in its development cooperation, and to assess whether we have shared with our partners those Finnish experiences that our Southern partners consider as Finland’s specific strengths.
I am not suggesting that Finnish experiences could be exported outright to the Global South. Rather, I would say that one of the key lessons we have all learned from the past two decades of Structural Adjustment Programmes is that standard, ”one-size-fits-all” models such as the ’Washington Consensus’ do not work. But I do believe that our poorer partners, while designing their Poverty Reduction Strategies and policies, would wish to have a menu of well-documented empirical case analyses whose applicability to their own country contexts and value bases they could judge themselves.
Economic and social development are interdependent. Equity and social inclusion promote growth. I know that even the IMF and the OECD-DAC agree on these tenets today. We know that inequalities give a double negative impetus to poverty by (a) lowering the pace of growth and by (b) lowering the poverty-reducing impact of growth. Countries with high inequality need unfeasibly high growth figures to be able to reduce poverty through growth.
What can we do through development policy dialogue and cooperation to help our poorer partner countries to reduce their high domestic inequality? And how could we reform the structures of global governance to reduce the existing global inequalities?
In order to answer we need multi-disciplinary approaches and broad political analyses and dialogues. The Government of Finland has committed itself to advancing a multi-stakeholder dialogue on changes needed within the structures of global governance, and to finding new ways of solving the most urgent global problems. The Helsinki Conference in December 2002 was convened as a starting point for a continuing process on these issues which we call the Helsinki process.(2.)
In the context of the industrialization, democratization, redistribution of assets (especially land reform and public education) and a gradually expanding system of institutional social policy were among the most effective permanent mechanisms that helped Finland reduce and manage poverty sustainably. Environmental policies were needed to contain the negative environmental consequences of industrialization and urbanization.
Today the question is, how best to apply these lessons in the context of the globalization. Like industrialization in its day, globalization also promises to deliver increasing economic dynamism and growth but it, too, carries its social and environmental risks and negative consequences that call for institutionalized responses such as global social and environmental policies. There are signs that the need for such global policies has been recognized by the international community, for instance the UN conferences of the past decade and a half, the global environmental and trade policy negotiations, discussion about the role of Global Public Goods, as well as the various democratization of globalization initiatives, including the Helsinki-process and the ILO World Commission on the Social Dimensions of Globalization, co-chaired by the presidents of Finland and Tanzania.
The really challenging questions are, how best to democratize the global governance system, how best to redistribute global assets and how best to expand the systems of global social policy, in order to reduce and manage global poverty sustainably.
’Empowerment’ is another important concept (besides inequality), that Ravi Kanbur has helped to lift back onto the agenda of development economists and policy makers. From history we know that the permanent redistribution of political and economic power would not have taken place in our European societies without the strong tangible pressure and threat of revolution of the poor masses against the privileged elite.
I hope it is not too much to expect this distinguished community of scholars here in Helsinki today and tomorrow to be able to show the world nonviolent, cooperative and multilateral ways to navigate away from poverty and inequality, towards equality and human well-being. Your colloquium here is an important one. I wish you success in your endeavors.
1.) Atkinson Anthony (1997), Bringing Income Distribution in from the Cold. Economic Journal 107:297-321.