Inequality within and poverty reduction

TIWONGE BINDULA and ROBERT KAMWELA
Contributors

Several countries across the world struggle with containing economic or income inequality to balance the economy and allow markets to operate smoothly as well as reduce poverty.

This has multi-faceted dimensions of occurrence. Nonetheless, globalisation has led to the reduction in income inequalities between countries, while at the same time, increasing inequality within nations. This is so because globalisation allows those with significant access to capital to trade in international markets and; hence, acquiring additional capital (means of production) than poor counterparts who, due to their financial levels cannot access such capital.

This makes those able to participate on the international market competitive and comparatively advantageous over others, thereby enlarging the income gap which previously existed between them and their poor counterparts, but reducing the income gap between them and their international colleagues in other countries participating in same market.

Therefore, we can summarise that by allowing or facilitating for nations to ably participate or trade in the same market we can reduce the income inequality gap existing among them.

Similarly, bringing the analysis to national level, we can rightly argue that facilitating for, or allowing people to ably trade in the same local market, reduces income inequality gap among them, and allows the country to trade competitively on the international market because of economies of scale emanating from many players on the market.

Such competitive advantage also gives a country price bargaining power on its products/exports on the international market and helps with international trade agreements, which reduce barriers such as export and import tariffs. In this way, such a country will be able to reduce its vertical poverty within as well as horizontal poverty against international counterparts and stand aloof from exploitation by donors and lenders.

Income inequality among Malawians also means greater inequality in political participation in our democracy, rendering it ineffective. As a country, we should strive to reduce inequality of income among individuals in order to encourage and empower all people to participate in various activities of life that boosts personal and national economic growth and development, which eventually also makes them able to participate in various political positions (to influence policies affecting their lives) in such a non-efficient political system where mostly ‘money talks,’ just like in many developing democratic countries.

A research paper by Oxfam, conducted by renowned professors and researchers at the University of Malawi, titled A Dangerous Divide: The State of Inequality in Malawi discovered that in 2015, 50 percent of Malawi’s population lived in poverty. And that if inequality was to continue to rise as it had in recent previous years, by 2020 1.5 million more Malawians would live in poverty.

It further recommended that for Malawi to reduce poverty in the next five years [from 2015 to 2020] and beyond, inequality has to decrease significantly. We just concluded 2020 recently, but there is no data yet on the same.

However, we have not seen any deliberate policies or programmes by government aimed at reducing this inequality in the past five years. Growth and development programmes have been there, but the assumption that growth will always trickle down to the grassroots does not always hold, and; hence, particular programmes to actually reduce inequality are direly needed.

The paper further argues that lack of recognition of inequality as a problem in its own right in any of Malawi’s development strategies worsens inequality. Therefore, it is expected that 2020 data on inequality will justify the projections of this paper.

Low-income inequality means that most people will have competitive capacity to earn a living because they can ably participate in the same market by doing various economic activities. In addition, like in any other competitive market, by giving capacity to most people (especially women and youths) to participate in politics or businesses through reduction of income inequality within, we are also reducing the arbitrage on corruption that is there as the most corrupt people can be competitively booted out by the less corrupt in an election as money would no longer have the loudest voice to talk.

In the long run, therefore, we can reduce corruption, which diminishes at decreasing income inequality, so that contestants in political positions will no longer be driven by the desire to amass wealth, but be compelled by passion to serve and do the right job just like any other employment.

Malawi’s Vision 2020 states that; “Malawians aspire to have a fair and equitable distribution of income and wealth. To this effect, they endeavor to reduce disparities in access to land, education, employment and business opportunities between urban and rural people, men and women, people with and without disabilities.”

It is evident now that Vision 2020 failed miserably. The Tonse government, however, has taken a right stance through National Economic Empowerment Forum by putting a major focus of loans on women and youths who are usually marginalised and with less income comparative to the rest. This direction, no doubt, will help reduce such inequality gap, suffice to say that more still needs to be done.

It is, however, unfortunate that mostly decision-makers are the seeming beneficiaries of income inequality.

The politicians, blinded by irrationality, through corruption, renders themselves untouchable. Their money (or our money with them) talks. Nonetheless, solutions to income inequality, other things remaining the same, can have various dimensions, ranging from progressive taxation, regressive salary increments, youth and women empowerment, and social cash transfers.

However, in Malawi, more progressive taxation means more money at the exposal of corrupt government officials, and; hence, more money being used inefficiently, through corruption and thus pushing inflation upwards and concentrating money back to the few, while making tax payers poorer for no reason. As a result, this is not recommended for now in a Malawian scenario.

The nearer solution, therefore, becomes slow down on taxation and improve efficiency on public funds management. Secondly, government needs to slow down on borrowing and manage their expenditures because the more it borrows the more it crowds out efficient private sector investment, and the more the country renders the funds to the exposal of corruption.

At the same time, the private sector and individuals need to gear up with ultimate innovations to use the funds for best rewards.

We just hope these will be considered in the Malawi2063 which was launched on Tuesday in Lilongwe.