The London School of Economics and SciencesPo

Institute of

Global Affairs

Bringing Inequality Back on the Agenda A collaboration between LSE and Sciences Po, along with other G7 universities, addressing the global challenge of growing inequalities within countries.

LSE GLOBAL POLICY LAB

CONTENT

02 Introduction Inequality Matters

to the G7

Erik Berglof

04 A University Alliance

To Weigh in on the

G7 Agenda 08 Why a More Systematic Approach to Assessing and Addressing Inequality Is Required Abigail McKnight

10

If You Care About Poverty, Do You Have to Worry About Inequality Too?

John Hills

12 Is It Possible to

Make Capitalism

Fairer and More Sustainable?

Rana Zincir Celal

14 Ebola Inequalities

Tim Allen & Melissa Parker

18 The Trust Crisis

Yann Algan

19 Inequality

in Education

Carlo Barone, Denis Fougère & Agnès van Zanten

20 More and Better

Education to Face

New Inequalities

Enrico Letta

25 Globalization

Requires an Ambitious

Reform of International Taxation

Philippe Martin

26 Corporate

Tax Justice

Cornelia Woll

Institute of

LSE GLOBAL POLICY LAB

Global Affairs

Introduction Inequality Matters to the G7 Erik Berglof

Professor, Director, Institute of Global Affairs, London School of Economics and Political Science

Inequality within countries has not traditionally made it to the tables of international cooperation. Rather, individual countries have to determine the extent to which unequal distribution of income and wealth should be tolerated, and within countries the topic was politically divisive. There has also been little agreement within the social sciences on the drivers of inequality and the impact it has on economic growth and development but also on general wellbeing.

Rising populism in both advanced and emerging economies has now catapulted inequality onto the agendas of the G7 and the G20. There is a growing consensus that we need to better understand the distributional dimension of economic policies and how inequality affects the effectiveness of different policies.

We are only now beginning to seriously consider how inequality and perceptions of inequality affect people’s sense of wellbeing.

It is against this background that researchers from London School of Economics and Political Science and Sciences Po in Paris have come together in this issue of the LSE Global Policy Lab to discuss research on inequality and what it says about the impact of unequal distribution of outcomes, but also of opportunity, on different parts of the population. In this series of articles, they discuss the implications of their findings for policymakers at the national as well as the global level.

The engagement on inequality is part of a broader commitment of these institutions along with 25 other universities across the G7 countries and beyond to address important global challenges. In June 2019 the

G20G7.COM

02

While the world with some glaring exceptions has been quite successful in reducing differences in income and wealth across countries, inequalities within countries have been growing, in some cases at unprecedented speeds and to combustible levels.

leaders of these institutions signed the U7+ initiative identifying a set of urgent topics and a division of labour (the document is presented in this issue).

While the world with some glaring exceptions has been quite successful in reducing differences in income and

wealth across countries, inequalities within countries have been growing, in some cases at unprecedented speeds and to combustible levels.

These inequalities in outcome reflect and produce large inequalities in opportunity. There is a wide range of views on what inequality of income and wealth are acceptable but most people agree that factors beyond the control of an individual, like gender, ethnicity and place of birth, should not affect success in life.

In the opening article Abigail McNeal advocates a broader approach to inequalities. She argues that we need |a framework that goes beyond just economic consequences and considers differences in people’s needs and ability to convert resources into valuable things they can do or be.

Such a framework should also help select the dimensions on which to focus – gender and ethnic inequalities appear particularly important. But McNeal also identifies drivers of and policies to address inequalities.

It is tempting to suggest that high income inequality is necessary to generate economic growth which can alleviate poverty. But John Hills argues that there is no support for this idea, at least not in industrialised countries.

On the contrary, countries with high income inequality also tend to have high poverty, with often the same underlying variables driving each.

He also points out that labour market discrimination correlates strongly with both poverty and inequality.

It is hard to tackle poverty without addressing inequality.

Rana Zincir Zelal points to the need for a new language and new measures to address inequalities.

We also need to engage much

more those with lived experience of inequality in shaping that language and those measures. Only then, she suggests, can we make capitalism fairer and more sustainable. One could say the same thing for democracy. She points to examples from Africa, like Cape Verde, Mauretania and Senegal to show that it is possible to tackle inequalities.

We know that inequalities in wealth and income often amplify inequalities in access to health care and life expectancy. In an extreme example Tim Allen and Melissa Parker look at access to treatment in the West African Ebola epidemic in 2014-15. Western governments were much more willing to intervene in parts of the region that were more connected to their own interests.

This does not bode well for the current outbreak in eastern DRC where the stakes of the West are much smaller.

But how is the issue of inequality linked to rise of populism and nativism.

In an attempt to understand this link Yann Elgan suggests that inequality feeds lack of trust in institutions along with elites and experts that fail to deliver improvements in living standards. In the absence of widely trusted institutions and a society where citizens share common interests also general trust between individuals break down further feeding populist tendencies.

Inequalities must be addressed through many different policies.

Education is a prime candidate, according Carlo Barone and coauthors. A wide range of inequalities can be tied to variation in higher education achievement, and the [propensity] to attend university is very much determined by social

background. To promote equalisation it is not enough to encourage highschool students to go to university.

Intervention has to come much earlier – counselling in secondary schools can encourage students to make more ambitious choices in high school, but what really matters is early child care and targeted measures to support parents.

Another anchor in the fight against inequality has been taxation.

In discussions about economic growth and inequality it is often claimed that we should first find the most efficient solutions and then use taxation and other forms of redistribution to compensate “losers”. Philippe Martin refers to overwhelming evidence suggesting that these compensation schemes rarely work. Tax evasion, particularly by corporations, as Cornelia Woll shows, is an important part of the explanation. Recent global efforts have helped reduce evasion and some progress has also been

made in the G7 to impose minimum tax rates for tech companies.

All this leads us back to the U7+ initiative and the role of universities in helping to inform the public debate and ensuring that political decisions are based on careful academic research. In the agreement LSE and Sciences Po have agreed to champion different aspects of the broader agenda. With respect to inequality Sciences Po will focus on broader community engagement as a selection criterion for higher education and how to encourage students’ international experience, while LSE will take leadership on widening recruitment.

As Enrico Letta puts it in the context of international exchanges between universities an increasing number of students can now benefit from spending time at universities abroad, but we must ensure that these students come from all parts of society. ◆

BIARRITZ_FRANCE

03

A University Alliance To Weigh in on the G7 Agenda University alliances, be they national or regional -- much like airline company alliances, are common within their own realm -- that is, the realm of higher education. But an alliance of world universities whose mission is to weigh in on the agenda of an inter-governmental summit such as the G7, did not exist until June 2019, when 47 university leaders from 18 different countries came together to create the U7+ Alliance.

In the scope of the G7, there are a number of active engagement groups dedicated to providing specific input and recommendations within their relevant fields: Youth7, Women7, Business, and several more. However, until the U7+, never has such an international crosssection of universities representing a total of 2 million students and some of the highest-end research worldwide come together as a collective force for action on this multilateral scale.

On July 9 & 10, 2019, the U7+ Alliance gathered for its own inaugural summit at Sciences Po in Paris, under the high

2019

patronage of French President Emmanuel Macron, who would later be given the final conclusions in person. Opening with a statement by Frédéric Vidal, French Minister of Higher Education, Research and Innovation, the mission of these 47 university leaders was made clear: “The U7+ summit (...) will be a unique space for debate on the global roles of universities beyond academia.” Frédéric Mion, President of Sciences Po, reminded fellow university leaders that this meeting would not be yet another academic symposium, nor a place to advocate for increased support. “This summit is a circle for group reflection and action on the future and development of higher education in the world, and our role as global players,” he said. At the closing of the U7+ Summit, the participants presented the final U7+ conclusions to President Emmanuel Macron during a dinner at the Elysée Palace.

In preparation for the summit, five major global challenges had been identified to structure the debate:

universities as global actors, climate and energy transition, inequality and polarized societies, technological transformation, and community engagement and impact.

Over the two days, university rectors, deans and presidents formalised a Mission Statement and collectively drafted 6 founding principles. Once they were voted, university leaders signed 247 individual commitments to actions to tackle global issues within their own communities.

The universities of the U7+ Alliance are already proving to be a pioneering civil society network dedicated to addressing global challenges and to educating the future generation of responsible global citizens. Thanks to an invitation for 2 representatives of the U7+ Alliance, the summit conclusions were presented at the final under-Sherpas meeting in preparation for the G7. The hope now is that the U7+ will continue to prosper, and that their combined impact will be the influence and change we need to see in the world.

Presidential Declaration Mission Statement

The U7+ brings together universities from G7 countries and beyond, who are committed to academic freedom and scholarly values and convinced of the key role of universities as global actors, to engage in discussions leading to concrete action to address pressing global challenges. Our students, faculty and staff are instrumental in the definition and implementation of the U7+ actions. The first summit, held in Paris in the context of the G7, is a unique opportunity for 47 university leaders from 18 countries to discuss a common agenda and establish a framework for universities’ action in today’s global landscape.

G20G7.COM

04

BIARRITZ_FRANCE

05

PRINCIPLE 1

We recognize that the U7+ embodies our common will to identify and address the global challenges our contemporary societies face in order to accelerate the development of solutions. We commit to pursuing joint action through the U7+, including meeting each year in the context of the G7 process, so that our actions can weigh in the discussions and contribute to making positive change a reality.

PRINCIPLE 2

We recognize that our universities have a distinctive responsibility to train and nurture responsible and active citizens who will contribute to society, from the local to the global level.

As illustrations of this voted principle, we are pleased to announce that below are examples of actions that several universities have chosen to implement and to champion: › Increasing the scope of our partnerships so that our institutions work with a wide variety of actors in their communities and beyond. To that end, we will ensure that we partner not just with universities and Colleges but with Citizens, Community organizations and NGOs, with Corporations and Cities, with Countries and supra-country organisations that are all critical to helping build a more just, sustainable and prosperous world. Our universities may seek to map their existing relationships in this expanded 6Cs framework and measure progress throughout the year with the idea of building a common monitoring and measurement platform.

Championed by: University of British Columbia. 16 U7+ universities will take part in this action.

› Emphasizing the educational and civic value of community engagement.

To that end, we will strongly value and vigorously promote that prior community engagement experience is included as a highly sought after quality for admission. As a direct consequence of this, we as universities will be incentivized to provide or extend opportunities for community engagement to our undergraduate student body.

Championed by: Sciences Po and University of British Columbia.

12 U7+ universities will take part in this action. › Underlining the importance of exposure to an international experience for our students and to cultural diversity for future generations. To that end, we pledge to recognize the importance of an internationalization indicator of our student experience. This indicator will include the ratio and the distribution across programs and schools of: a. international students within the university; b. the diversity of nationalities represented; c. the level of student mobility including study abroad programs, international dual degree programs, as well as alternative international experience (ex: global virtual classrooms to connect our students with students from international partner institutions to facilitate interactive learning sessions, and co-create projects with partners based on this agenda); d. international diversity within Faculty members.

Championed by: Università Bocconi and Sciences Po. 29 U7+ universities will take part in this action.

In preparation for the summit, five major global challenges had been identified to structure the debate: universities as global actors, climate and energy transition, inequality and polarized societies, technological transformation, and community engagement and impact.

G20G7.COM

06

PRINCIPLE 3

PRINCIPLE 4

› P romoting that, at the latest by 2025, all students of our universities, beginning with the undergraduates, will have access to courses related to climate, biodiversity and sustainability during their studies (be it in traditional format or online), as a way of enabling exposure to the key challenges and mitigation strategies with regards to the Earth. Such courses might include experiential learning opportunities on our campuses and/or in the community.

Championed by: University of Toronto and Paris Sciences et Lettres. 28 U7+ universities will take part in this action.

› W idening access and success for students by promoting routes to university and accompanying students from marginalized backgrounds in their curricula, in order to facilitate social mobility.

Championed by: The London School of Economics and Political Science (LSE). 27 U7+ universities will take part in this action.

We recognize that our universities have a major role to play in addressing the environmental issues and challenges to sustainability such as climate change, biodiversity and energy transition.

This should include leading by example on our own campuses.

As illustrations of this voted principle, we are pleased to announce that below are examples of actions that several universities have chosen to implement and to champion:

› E ach university commits to improving energy efficiency and reducing their level of GHG emissions from 2018 levels by 2030, and at a minimum, commits to developing and publishing a specific target for this reduction by 2020. Examples of how we might do so include developing international travel policies, encouraging more environmentally benign forms of transportation to campus, reducing GHG emissions from our facilities and operations. Sustainability goals might also include reduction of waste such as plastic bags or bottles, or other sustainability goals which are relevant to particular contexts/ cities/countries.

Championed by: University of Edinburgh and University of Toronto.

18 U7+ universities will take part in this action.

We recognize that universities have a distinctive and major responsibility in widening access to education and promoting inclusion and opportunity.

We will also foster respectful and evidence-based public debate, in order to combat polarization in our society.

As illustrations of this voted principle, we are pleased to announce that below are examples of actions that several universities have chosen to implement and to champion:

› D eveloping students’ inclusive leadership and global citizenship competencies by expanding the offer and giving access to relevant courses in the matter.

Championed by: Université d’Ottawa and Université de Bordeaux. 13 U7+ universities will take part in this action.

PRINCIPLE 5

› E nsuring that our universities continue to reach beyond the scope of academia, to engage with the wider public in local communities and organisations, and focus on sharing research results on key societal challenges.

Championed by: McGill University.

23 U7+ universities will take part in this action.

To engage with stakeholders and solve complex issues of global relevance we recognize that universities must promote interdisciplinary research and learning, in particular bridging in our research and teaching between social sciences, humanities, the life sciences and STEM disciplines.

As illustrations of this voted principle, we are pleased to announce that below are examples of actions that several universities have chosen to implement and to champion:

› L everaging our existing capacities in entrepreneurship, social innovation and incubation in order to create economic value and ensure societal impact. We are in a unique position to share practices within our universities to empower future generations of entrepreneurs to create economic impact and social well-being.

Championed by: HEC Paris. 24 U7+ universities will take part in this action.

›Collectively pursuing and creating interdisciplinary and cross-border research projects that have a societal impact on the areas captured by the UN Sustainable Development Goals, in particular Food and Health, Climate and Energy transition, Sustainability, Equal rights and opportunities.

Championed by: University College London. 29 U7+ universities will take part in this action.

› C reating pluridisciplinary core technology competency curricula, |open to all students across our programs, and that will be counted towards pre-requisites within a degree.

These curricula should ensure not just an understanding of technology but of the impact of technology on people and society, seeking to create critical learners and engaged citizens who leverage technology for social good. To that end, our universities will implement new courses, and aim at improving significantly the number of students taking such courses defining clear targets and measurable indicators.

Championed by: Ecole Polytechnique.

11 U7+ universities will take part in this action. Convening objective-driven forums using various mediums to explore research-driven actionable options to manage the impact of technology on society, the economy, and the labor market, among academia, government, employers and the broader public. The results of these forums will be accumulated to create a U7+ “agenda for action” to be reviewed by member schools at the end of 2020. Championed by: HEC Paris. 7 U7+ universities will take part in this action. › E xercising strong leadership, alongside tech companies and governments, in developing and promoting guidelines about how data sciences and digital innovation should be handled. To that end, our universities may seek to establish a first version of a position paper by 2020, that shall be built on the universities’ best practices and whose aim is to shape technological transformations for the broad benefit of society and individual wellbeing.

Championed by: Université de Montréal. 11 U7+ universities will take part in this action.

PRINCIPLE 6

We recognize that the U7+ has the power to serve as a lab to consolidate best practices that can be shared both within our network and more broadly with universities and similar institutions worldwide for inspiration.

BIARRITZ_FRANCE

07

Institute of

LSE GLOBAL POLICY LAB

Global Affairs

Why a More Systematic Approach to Assessing and Addressing Inequality Is Required Abigail McKnight

Associate Director and Associate Professorial Research Fellow, CASE, LSE

The recent focus on inequality by a number of important international bodies and organisations is a welcome development for those who have been concerned about the deep and profound divisions that exist between people around the world. However, although our knowledge and understanding of inequality has grown, there continues to be too narrow a focus.

We now know a fair amount about inequalities in income, earnings, wealth, health, life expectancy, and education. But these measures only provide a partial picture of inequality.

It is true that inequalities in the financial resources that people have available are important, as are inequalities in life expectancy.

Nevertheless, there is a concern that the choice of outcomes which inequality studies have focused on is somewhat arbitrary, and often has more to do with the availability of data than theoretical consideration. We argue that first, it is important to be clear about what aspects of peoples’ lives we should be concerned about.

When we assess the outcomes of people’s lives we think about the quality of their lives and their overall well-being. Attempts have been made to estimate holistic measures of well-being but from a quality of life perspective, the most common approaches are problematic. This is because, on the one hand, measures based on economic outcomes fail to consider differences in need between individuals or differences in individuals’ ability to convert these resources into valuable things they can do or be (such as going on holiday, being well-nourished, feeling physically secure, or having friends).

G20G7.COM

08

We now know a fair amount about inequalities in income, earnings, wealth, health, life expectancy, and education. But these measures only provide a partial picture of inequality.

On the other hand, subjective outcomes such as happiness are shaped by people’s expectations of life, and these expectations are influenced by social and cultural norms as well as upbringing. In response, the eminent economist and philosopher Amartya Sen, developed a capability approach to evaluating the quality of people’s lives in terms of a set of valuable things that people can be or do (like being physically secure,

well-nourished, having self-respect, or having influence over decisionmaking), and the freedom they have to choose the kind of life they value.

Adopting this approach to assessing the quality of people’s lives provides a clear direction on which inequalities we should focus on. The Multidimensional Inequality Framework (MIF) is designed specifically to provide a framework for measuring and analysing these inequalities.

The MIF is organised around seven key life domains: life and health; physical and legal security; education and knowledge; financial security and dignified work; comfortable, independent and secure living conditions; participation, influence and voice; and, individual, family and social life. Its focus is not simply on deprivation but on broader inequalities and it operationalises the concept that it is possible for some individuals to have ‘too much’ (for example, too much power and influence) while others don’t have enough.

Through the use of systematic disaggregation, the MIF can help identify a number of key types of inequality, such as gender and ethnic inequality. Using the capability approach to measure and assess inequality not only provides a comprehensive picture of inequality but leads us to develop a more complete understanding of the drivers of these inequalities and identify the most effective inequality reduction policies. For example, applying the theory to identify inequality drivers we see how social and cultural norms, particularly gender norms, have to be addressed to achieve gender equality.

We also find a number of key global drivers of inequality which cannot be

tackled without international collaboration, such as the rise and power of global corporations, dominant narratives, ineffective global taxation, and climate change and environmental degradation. A systematic approach to assessing and addressing inequality, like that offered by the MIF, means that we focus on the inequalities that matter most and can develop a more comprehensive policy response, that in some case will require collaboration between countries. ◆ About: The Multidimensional Inequality Framework was developed as part of a collaboration between academics at the London School of Economics and the School of Oriental and African Studies (SOAS), and practitioners at Oxfam. It is free to download from a dedicated website http://sticerd.lse.ac.uk/inequality/ where there are additional resources designed to help adapt and apply the MIF, identify drivers, and policy solutions.

Dr Abigail McKnight is Associate Director at the Centre for Analysis of Social Exclusion (CASE), LSE. Her research interests span multidimensional inequality, low wage employment, evaluation of active labour market programmes, earnings inequality and mobility, through to the graduate labour market, household wealth inequality and household debt. She is a co-editor of two volumes published

by Oxford University Press in 2014 covering the findings from a major international study of inequality across thirty countries spanning a period of thirty years Changing Inequalities in Rich Countries and Changing Inequalities and Societal Impacts in Rich Countries.

BIARRITZ_FRANCE

09

Institute of

LSE GLOBAL POLICY LAB

Global Affairs

If You Care About Poverty, Do You Have to Worry About Inequality Too? John Hills

Richard Titmuss Professor, Social Policy and Chair of the Centre for Analysis of Social Exclusion (CASE) and at the London School of Economics

While some people see reducing inequality as important in itself, for others eradicating poverty is what matters, and inequality in itself is unimportant.

But can one, in fact, be concerned about poverty but indifferent to inequality? As a corollary, does tackling poverty also require policies to reduce inequality?

For some in the philosophical debate, inequality is in fact the prime concern, with poverty a consequence.

But for others, poverty is the starting point and inequality of concern just for instrumental reasons, if it leads to or exacerbates poverty.

For many, though, the concerns are not exclusive. Both are relevant for human deprivation and violate human dignity. They can also reinforce each other. A pluralist approach suggests one can prioritise poverty while also allowing that inequality matters, both in itself and instrumentally.

There is therefore a core empirical issue: in practice are poverty and inequality linked? There are two competing propositions: › That high inequality is associated with high rates of poverty, either through a causal relationship, with higher inequality leading to greater poverty, or through the same factors driving both, so tackling one is likely to reduce the other. › That high inequality is good for poverty reduction, measured against a fixed standard at least, through the incentives it creates leading to economic growth, benefiting poor people in absolute terms, even if they are left behind relative to others. China over the last 30 years could be an example.

G20G7.COM

10

Across the EU and other industrialised countries, higher income inequality is also associated with higher relative poverty. We do not see countries with high income inequality and low relative poverty.

Precise definitions matter, so you need to look at a variety of measures of both inequality and poverty—any observed relationship could simply be the mechanical result of the definition used.

That said, the empirical evidence LSE colleagues and I review in recent research shows an association between higher income inequality and higher poverty in industrialised countries that is not the result of a simple arithmetical link.

Over the last fifty years in the UK, years with comparatively low inequality had lower relative poverty, and those with high inequality had higher poverty rates (although falls in relative poverty from the early 1990s to 2010 were not matched by similar falls in inequality).

Across the EU and other industrialised countries, higher income inequality is also associated with higher relative poverty. We do not see countries with high income inequality and low relative poverty. However, there is no consistent pattern in how the income shares of the very top of the distribution relate to poverty.

Wider indicators of material deprivation and multi-dimensional poverty are also significantly associated with income inequality in EU countries. These relationships are not simply the result of the other underlying factors separately associated with both poverty and inequality.

We also looked at the evidence for the competing proposition—that income inequality may be good for poverty reduction, against fixed standards. But we saw the opposite.

In Europe recent increases in inequality were associated with slower reductions (or faster increases) in poverty against even an anchored standard.

Maybe this should not be a surprise.

While one economic tradition suggests a trade-off between equality and growth, given the incentives for work, investment and risk-taking that go with wider inequalities, other economists suggest reasons why inequality damages growth.

The empirical evidence is also divided, with some studies suggesting inequality helps growth, but many

finding the opposite. This suggests that the positive links between greater inequality and greater poverty should remain the main focus, rather than concerns that lower inequality would reduce growth.

There are several explanations supported by other evidence. Labour market factors, such as discrimination, may drive both poverty and inequality.

Inequality at one time—and especially in one generation—reinforces both inequality and poverty in the next.

Even if market incomes are unequal, governments can break the link with poverty, but there are limits to what redistribution can achieve when inequality is high. If inequality means less knowledge of how others live and geographical polarisation, popular demands for something to be done about poverty may be reduced. Media control and political funding are often dominated by those with greatest

resources, while high inequality and lack of involvement may lead to lower turnout amongst those who might gain from redistribution.

The range of potential drivers means that public policies matter, not just social security, taxation and anti-discrimination legislation, but also education, housing, regional investment, policy rhetoric, and factors affecting culture and social norms, and democratic safeguards.

The evidence suggests that for those whose primary concern is to tackle poverty, it is hard to do this without simultaneously reducing inequalities, given the strong empirical associations between them, and the ways in which inequality can itself drive of poverty.

At the same time, for those for whom both poverty and inequality are concerns, the links between them mean policies to tackle either can have a double dividend. ◆

John Hills is Richard Titmuss Professor of Social Policy and Chair of the Centre for Analysis of Social Exclusion (CASE) and at the London School of Economics. His research interests include the distribution of income and wealth, the welfare state, social security, pensions, housing and taxation. Recent books include Good Times, Bad Times: The welfare myth of them and us (Policy Press, second edition 2017), Social Policy in a Cold Climate (co-editor, Policy Press, 2016) and Wealth in the UK (co-author, Oxford, 2013). He was a founding Co-Director of the LSE’s International Inequalities Institute, Chair of the UK government’s National Equality Panel (20082010), and was one of the three members of the UK Pensions Commission from 2003 to 2006.

BIARRITZ_FRANCE

11

Institute of

LSE GLOBAL POLICY LAB

Global Affairs

Is It Possible to Make Capitalism Fairer and More Sustainable?

Rana Zincir Celal

Lead, Atlantic Fellows for Social and Economic Equity programme, LSE’s International Inequalities Institute

Making capitalism fairer and more sustainable.1 With this bold statement, the G7 is embarking on a highly relevant agenda, driven by the 2019 French Presidency’s focus on tackling inequalities. But how will the leaders of the world’s largest economies actually deliver this ambitious goal? To what extent can capitalism offer this broader vision: will it be able to generate bold and imaginative responses, and how will it credibly pursue them, given the dispossession and debt it has brought to the vast majority of the world’s citizens?

For the first time in the G7’s history, the table at its annual meeting has expanded to include a few non-G7 countries and international organisations. This act recognises the wider leadership context required to achieve change within the key focus areas of the G7 programme: addressing inequalities between countries and within advanced economies, climate breakdown, gender inequities, and technological change.

Despite the scale of these challenges, there are grounds for hope in the range of significant proposals already on the table for G7 leaders to consider. The most critical and effective actions involve instituting fiscal policies that favour social spending and progressive taxation, in tandem with curtailing tax havens and overhauling corporate taxation.

But more must be done. Oxfam’s Commitment to Reducing Inequality Index2 offers policy-makers a useful roadmap to these and other measures that produce greater equality. Their most recent report on West Africa revealed an underreported yet deeply disturbing finding that “five of Nigeria’s richest men have a combined wealth

G20G7.COM

12

During their year at the London School of Economics, our Atlantic Fellows for Social and Economic Equity have shared many memorable insights drawn from their work advancing equity through social change. of US$29.9 billion – more than the country’s entire national budget for 2017. However, about 60 per cent of its citizens live on less than US$1.25 a day, the threshold for absolute poverty.”3 With figures as stark as these, there can be no doubt that world leaders must play a decisive role in putting equality at the top of the global policy agenda. The report also found that Cape Verde, Mauritania and Senegal have shown the most commitment within the region to tackling

inequalities, in testimony to the importance of political leadership.

However, while it is both tempting and timely to focus on solutions, emphasis must also be placed on the principles and values guiding policy discussions. When the term “fairness” is applied in framing a policy agenda, it inevitably raises questions of what is fair and who gets to decide. What does it really mean to advance fairness and sustainability against a backdrop of the centuries of wealth accumulation that have made G7 countries what they are today? What is a just response to the structures and systems that have enabled power and privilege to be amassed by such a narrow segment of the world’s population?

These questions point to the ethical dimensions to policy discussions on inequality. Without a broader reframing grounded in vision and values, proposed solutions will remain contested, robbed of their potential to support those struggling to overcome inequality. If world leaders are serious about fairness and sustainability, then we must find ways to talk about the real scope of the social and economic transformation required to move us in that direction. This cannot be done without new language, new measures and new voices.

Addressing the entrenched divisions produced by deep-seated social and economic inequalities demands moral leadership that bridges and connects rather than excludes and exploits.4 This bridging and connecting can only be done with a broader vision for a just and inclusive society, where all human beings belong, are valued and have a role to play in our collective success.

A compelling case needs to be put

forward, grounded in values and supported by evidence, about how everyone should and will benefit from a transformed social and economic system. G7 leaders should join with the young people of Friday for the Future and the many others who are already speaking the language of tomorrow.

This new language also needs an updated and expanded vocabulary, one in which prosperity and performance are defined in terms of social, economic and environmental well-being. Narrow and outdated metrics such as GDP distort perspectives and deflect attention away from areas essential to livelihood, hampering the ability of countries to pursue policies that make a positive difference to the lives of ordinary citizens. Many countries and global institutions have already upgraded their systems to do so, such as those within the Wellbeing Economy Alliance, and the OECD, which produces the Better Life Index.

These new measures are the result of decades of work by policy-makers and scholars, including the economist and Nobel laureate Joseph Stiglitz.

Crucially, they are not only sound and sensible, but also offer a sightline to our common aspirations as a global community.

During their year at the London School of Economics, our Atlantic Fellows for Social and Economic Equity have shared many memorable insights drawn from their work advancing equity through social change. One that has stayed with me comes from the Malian writer Amadou Hampâté Bâ: “Have you heard about the river? Have you seen the river?

Have you swum in the river?” It is a reminder that the leadership required

to confront inequality and build sustainable responses must be shaped by the insights and voices of those with lived experience of inequality.

Rather than replicating patterns of inequality which enable a few to have a seat at the table and exclude countless others, the trajectory towards fairness and sustainability must honour the achievements and aspirations of those living at inequality’s frontlines. Who are the leaders who will deliver this ambitious goal? ◆ 1 h ttps://www.elysee.fr/en/g7/2019/07/20/g7- finance-ministers-meeting-what-are-the- outcomes, accessed 8 August 2019.

2 https://policy-practice.oxfam.org.uk/publications /the-commitment-to-reducing-inequality-index- a-new-global-ranking-of-governments-620316 3 https://www.oxfam.org/en/pressroom/ pressreleases/2019-07-08/west-african- governments-are-least-committed- reduce-inequalities 4 For more on this, see the work of john a. powell at Berkeley’s Haas Institute for a Fair and Inclusive Society https://haasinstitute.berkeley.edu/

Rana Zincir Celal leads the Atlantic Fellows for Social and Economic Equity programme at the LSE’s International Inequalities Institute.

She has spent the past 20 years advocating for social change through engagements in academia, philanthropy, arts and culture, and peace-building and citizen diplomacy. Before joining the LSE in 2018, she was based at Columbia Global Centers Istanbul and the Chrest Foundation, where she channelled philanthropic resources to champions of social change. In Cyprus, she was instrumental in establishing the Home for Cooperation, developing educational programmes with The Elders and the International Center for Transitional Justice, and advocating for a gender perspective in the peace process. Before relocating to Turkey and Cyprus, Rana worked with the Ford Foundation and with Domini Social Investments in New York. Rana is a Greenpeace International trustee and Greenpeace Mediterranean board member.

She served on the Greek Turkish Forum and Anadolu Kültür’s Executive Committee and was an advisor to the European Cultural Foundation, where she also served on its jury for the Princess Margriet Award for Culture. She holds degrees from Columbia University and the LSE.

BIARRITZ_FRANCE

13

Institute of

LSE GLOBAL POLICY LAB

Global Affairs

Ebola Inequalities Tim Allen (LSE)

Professor of Anthropology at the London School of Economics and Political Science

Melissa Parker (LSHTM)

Professor of Medical Anthropology at the London School of Hygiene & Tropical Medicine Ebola responses highlight chronic problems with public authorities and multiple inequalities in health assessments and responses. Our team’s research has explored the implications (http://www.lse.ac.uk/ africa/centre-for-public-authority- and-international-development/ Public-authority-and-Ebola). With respect to the 2014/15 epidemic in West Africa, the problems were extreme, and apparent to anyone who cared to notice. A basic statistic underlines the point: the estimated amount spent on Ebola was 150% more than the annual government budgets of the three most affected countries combined. This was primarily because West Africa is situated relatively close to Europe, and the affected populations have close connections with both Europe and the United States. There were serious concerns about infection spreading to rich countries. Containment was the priority, and protection of international staff shaped events on the ground.

Indeed, unprecedented steps were taken. Unlike previous Ebola epidemics, the West African epidemic was categorised by the UN Security Council as ‘a threat to international peace and security’.

In Sierra Leone, an expensive British operation involved deploying hundreds of military medics and logistical personnel. Many were based offshore on HMS Argos, and others in protected locations near the site of a treatment centre they helped construct and run in Kerrytown, at the edge of Freetown.

The centre took so long to complete that the worst of the epidemic was over by the time it was effective.

Noteworthy, too, is that care was initially provided for infected

G20G7.COM

14

In Sierra Leone, an expensive British operation involved deploying hundreds of military medics and logistical personnel.

Many were based offshore on HMS Argos, and others in protected locations near the site of a treatment centre they helped construct and run in Kerrytown, at the edge of Freetown. expatriates in a separate space to Sierra Leonean citizens. However, the numbers coming forward were small.

Rumours abounded, including stories about soldiers collecting body parts.

The situation was not helped by the fact that infected expatriates were, in practice, evacuated to their home countries.

Upcountry, Médecins Sans Frontiers (MSF) and other NGOs were on the front line, working with national colleagues. Speaking to some of those involved, it is clear that the situation in mid 2014 was harrowing, and involved making troubling

choices. It was decided that it was too dangerous to attempt intravenous rehydration of infected people arriving in crowded ambulances at Bo and other large treatment centres. Instead, those sent there were triaged and the infected segregated and quarantined – such that relatives could not access them to administer intensive individual care. Most patients died quickly, and were then buried in ways that set aside local customs, thereby preventing infection from corpses.

Independent assessments of the Ebola programmes have been highly critical. Evaluations of the World Health Organisation are scathing, and MSF, which was instrumental in calling for military deployment, has openly expressed doubts that it was useful. Overall, there is a prevalent view that neither soldiers, nor medics were particularly influential in containing the epidemic – even if they were important in finding and treating the last recorded cases. So, what worked? The answer is far from clear. Acquired immunity may have been a factor, and probably also the behavioural responses of the population. The latter is often misleadingly referred to as ‘community mobilization’. It suggests that social changes are externally directed, and begs the question of what the word ‘community’ implies. In Sierra Leone, like everywhere else, communities are far from homogeneous or cohesive – and they have contested hierarchies.

Here, too, inequalities are a crucial factor in assessing events, in so far as there is evidence.

It has been argued that paramount chiefs were key. These are a legacy of British indirect colonial rule, and were rehabilitated with support from the UK

government after Sierra Leone’s civil war. They took responsibility, it is maintained, for quarantining and reporting patients. That was surely the case in some circumstances, but to equate claims made about (or by) paramount chiefs with pervasive experiences across the country is absurd. Our research shows that chiefly authority is very variable, and location specific.

In places where we have carried out fieldwork, notably Ribbi Chiefdom, there were many surprises. To begin with, far more people were diagnosed with Ebola than was officially reported.

Moreover, the majority were treated by their families in secret. Everything was done to hide what was happening from the paramount chief, and information from the radio and from educated friends and relatives was used to protect those looking after patients, and to bury those that died. Intensive oral rehydration was attempted from the outset, and the majority of those with suspected Ebola survived. People are proud of how they acted towards one another, and how they resisted efforts to control them. They successfully prevented loved ones being taken away to die with strangers.

The prevalence of such procedures is unknown. Indeed, the number of people who died from Ebola in Sierra Leone can only be guessed. The 3,955 deaths officially reported are based on data from the treatment centres, which people tried to avoid, and often did so successfully. Ebola control measures required families to make decisions that potentially violated moral norms.

For many, that was not a choice at all.

Social inequalities do not mean that hierarchies are unquestioned or resisted. On the contrary, they are

likely to encourage the rejection of public authorities associated with political office in favour of public authorities grounded in mutual social relations. When it comes to matters of life and death, it is predictable that systems associated with maintaining social stratification are subverted.

Given the dreadful symptoms of Ebola, the lack of trust towards outsiders, histories of exploitation, and experiences of oppression, conspiracy theories are likely ways of trying to make sense of things. Those who most compellingly interpret events are unlikely to be government agents or aid workers, unless they engage very seriously with understanding local dynamics, and work sensitively in that context. It is a lesson that has not been learned, as evidenced by the aggressive, exclusionary, poorly communicated and socially divisive responses being applied to the ongoing epidemic in eastern Democratic Republic of Congo. Efforts at control, treatment and vaccination continue to make every effort to co-opt, exploit and reinforce existing hierarchies. Political realities of the region make it a risky strategy. ◆

Home-made Ebola protection equipment, used to protect a secret burial team, Ribbi Chiefdom, Sierra Leone.

Photo: Melissa Parker

Tim Allen is professor of Anthropology in Development, Department of International Development, London School of Economics.

He is Director of the Economic and Social Research Council Centre for Public Authority in International Development, and is the inaugural Director of the Firoz Lalji Centre for Africa. He has carried out extensive ethnographic research various parts of Africa since the 1980s. This has mostly focused on health, healing, war, security, and justice. His books include the wildly use textbook, Poverty and Development, and a much-cited study of the International Criminal Court and the Lord’s Resistance Army.

Melissa Parker is a professor of Medical Anthropology at the London School of Hygiene & Tropical Medicine. Since the 1980s, she has carried out research in Sudan, Uganda, Tanzania, Sierra Leone and the United Kingdom on a wide range of global health issues.

In 2014, she established the Ebola Response Anthropology Platform with colleagues from Sierra Leone and the UK, which was awarded the UK’s Economic and Social Research Council ‘Celebrating Impact Prize’ for ‘Outstanding International Impact’.

BIARRITZ_FRANCE

15

Scholars on Rising Inequalities Sciences Po deans and scholars assess the challenges of tomorrow’s society.

Inégalités Croissantes Chercheurs et doyens de Sciences Po évaluent les défis de la société de demain.

G20G7.COM

16

BIARRITZ_FRANCE

17

The Trust Crisis

Inequality in Education

Yann Algan Dean, School of Public Affairs, Sciences Po Full Professor, Department of Economics

Carlo Barone, Full Professor, Sciences Po Denis Fougère, Agnès van Zanten, Research Directors, Observatoire Sociologique du Changement (CNRS), Science Po

T

he rise of antisystem forces and populism testifies to a deep trust crisis of citizens, both towards their institutions and others, as we show in a new book “The origins of populism” (with D. Cohen, E. Beasley, M. Foucault).

The votes for antisystem parties is fueled first and foremost by a sharp deterioration of citizens’ trust in their institutions, experts and elites over the last three decades. According to the World Values Survey, the share of people who do not trust Parliament has increased from 47% to 77% in the United States, from 37% to 64% in France, and from 60% to 77% in Britain since the early 80s.

The erosion of trust in institutions seems closely linked to the deterioration of the living conditions of the middle and lower classes, hit by economic insecurity and rising inequalities, especially since the 2008 economic crisis. The financial crisis provoked an immense resentment towards the traditional parties, considered to be incapable of protecting the popular classes from the disturbances of contemporary capitalism. Beyond the financial crisis, the failure of governments and institutions to protect people from more structural risks such as the expansion of inequalities, globalization or the digital transition, has fueled distrust. As an illustration,

The votes for antisystem parties is fueled first and foremost by a sharp deterioration of citizens’ trust in their institutions, experts and elites over the last three decades. According to the World Values Survey, the share of people who do not trust Parliament has increased from 47% to 77% in the United States, from 37% to 64% in France, and from 60% to 77% in Britain since the early 80s.

G20G7.COM

18

in a series of articles analyzing the “China Shock”, David Autor, and his co-authors, highlight the effects of globalization on the destruction of employment in American industrial strongholds, leading to a strong resentment towards institutions and a political radicalization. The digital revolution and rising inequality have had the same effect in Europe and the United States But the rise of antisystem forces tells us something more about trust: it also refers to the feeling of loneliness of individuals and more generally to a degraded relationship to others. This is where another essential dimension of trust is at work: trust in others. This distrust crisis seems to be also linked to a civilizational crisis: the emergence of a society of isolated individuals in our post-industrial world. Industrial society and the Fordist model were based on enterprises organizing the socialization of workers within the enterprise, including the presence of powerful unions. The post-industrial society has exploded this structuring of common spaces: the development of services and new ways of working has been accompanied by greater social loneliness. The same loneliness is at work in our territories. Driven out from cities and large metropolises, the middle and lower classes are overrepresented in mid-size units where local services, whether public services or bakeries, have collapsed. To paraphrase Hannah Arendt in The Origins of Totalitarianism, we have moved from a class society, not to a mass society, but to a society of individuals. In the post-industrial society, interpersonal trust is what remains for individuals to develop a common social project, which implies urgent policies to rebuild trust. ◆

I

n mass education societies, participation in primary and secondary education is quasiuniversal. Hence, social inequalities are most visible in the continuation to Higher Education and in the length and quality of tertiary programmes selected by students from different social backgrounds. Therefore, it seems natural to promote educational equalization by focusing on economic and cultural barriers faced by high school seniors.

This is an optical illusion. Inequalities become visible in Higher Education, but they are generated much earlier.

Secondary education is everywhere tracked into academic and vocational curricula. These often take the form of school tracks in Continental Europe, while in Anglo-Saxon and Scandinavian countries the model of subject choice prevails. But the pattern is everywhere the same: academic curricula offer much better training for Higher Education, thus enhancing the chances of enrollment in (and completion of) tertiary programmes, and into the best ones. Upper class, native students are hugely overrepresented in classes offering these curricula.

To be sure, equalization measures at the end of secondary education are important, particularly outreach interventions combining academic support with the provision of information on Higher Education.

But the problem is that they arrive too late, when students differ already too much in their skills and aspirations.

Late interventions can have effects at the margins, but we have now increasing evidence that earlier counseling programmes targeting curricular choice in secondary education are more effective. There are just too many students with good school performances from disadvantaged

families that fail to make ambitious choices in secondary and tertiary education. They, and their parents, tend to overestimate their risks of failure in the academic path. They thus adapt their ambitions downwards and end up selecting shorter, applied programmes.

Light-touch counseling interventions can correct their misperceptions and sustain their aspirations, before it’s too late.

But we can take one more step back.

Many working-class children fail to access academic curricula because they underperform in primary and lower secondary education. And our final step backwards is easily taken: when students enter the school system, they are already highly unequal. Longitudinal evidence on skill gaps through the life course is unequivocal: these gaps rapidly increase in the preschool years, and later stabilize or keep on growing (the less you know, the less you can learn). Inequalities in the cognitive and language stimulation received in early childhood, when our brain is particularly plastic, are a key driver of later inequalities in educational attainment. Less educated households fail to provide enough stimulation to their children.

Sure, fostering childcare is important.

And, even more important, fostering high-quality, economically accessible childcare. Evidence on the effectiveness of such public policy is now quite strong.

Long-term studies of large publicly

To be sure, equalization measures at the end of secondary education are important, particularly outreach interventions combining academic support with the provision of information on Higher Education.

funded programs in the U.S., Europe and Latin America, and newer studies on state and local prekindergarten programs, find that these early interventions do improve outcomes for young children, particularly for those from disadvantaged families.

But here comes a second, fundamental optical illusion: the idea that we can equalize education while leaving the home environment of low-educated families unchanged. This is just illusory, not the least because even children attending early childcare on a full-time basis spend no less than 40% of their time under the supervision of their parents.

That is why the policy debate in the last decade has paid increasing attention to parenting interventions, which encourage parents to provide a more enriching environment to their children, explaining in simple terms what to do, why and how. Informal learning activities at home have an enormous potential to boost school success, but many low-educated parents just don’t know it. Reading storybooks to children, singing nursery rhymes together, even just talking to them and inviting them to explain why they do things. And yes, even finding the right videogames when they are at least 4 or 5. The good news is that sociologists, economists and psychologists have developed several cost-effective, light-touch parenting interventions that impact on the skills of disadvantaged children. Technology helps: text messaging programmes, parental book reading interventions based on video-sharing on the web, for instance. We have rigorous, impact evaluations showing what works and what doesn’t to reduce these early inequalities. So, policymakers have no excuse: they just have to choose, fund, monitor and evaluate effective programs. ◆

BIARRITZ_FRANCE

19

More and Better Education to Face New Inequalities Enrico Letta Dean, School of International Affairs, Sciences Po President, Association of Professional Schools of International Affairs (APSIA)

A

ccess to education has always been one of the main criteria for assessing levels of inequality and inclusiveness in a community. Numerous studies have focused on the topic in the past. It is interesting to highlight the impact that increased global mobility has had and is having in this field.

Due to major changes over the last two decades the resulting growth in mobility opportunities has profoundly altered the world of education, both in secondary and above all in university education.

Before the mobility revolution that began years ago and which has accelerated since the beginning of the century, the option of studying abroad was limited to a small number of people. There were few exceptions to the widespread norm of cycles of studies carried out in the local area or at the furthest elsewhere within the same country.

The times we are living in have radically changed this pattern.

Nowadays there is a global education market that is no longer exclusively available to small minorities or limited to individual countries. A subset of educational supply and demand

has been formed on a global scale and is rapidly and continuously growing.

It travels the planet breaking down the limits and barriers of the past and even provoking competition between distant and different locations. Something which was once limited to only a few people, today extends on a global scale like never before.

There are many causes for this revolution. These dynamics are strongly affected by the growth of the middle classes in the countries that would once have been called developing countries, thanks to which today, for the first time in history, half of the world’s population is part of the middle class, a demographic event unimaginable only a generation ago. These countries, in addition to now being widely developed, have led the main growth in demand for education on a global scale. The main acceleration started in Asia in many of its largest countries, but now other countries in Africa and Latin America are also contributing to this impressive growth.

It is mainly middle and upper middle classes with increasing purchasing power who are revolutionising and

There are many causes for this revolution. These dynamics are strongly affected by the growth of the middle classes in the countries that would once have been called developing countries, thanks to which today, for the first time in history, half of the world’s population is part of the middle class, a demographic event unimaginable only a generation ago.

G20G7.COM

00 20

have already partially radically changed the world education market. They have certainly altered the criteria and facilitated the creation of quantitatively and qualitatively very different options than those available last century.

On the other hand, the increased ease of travel is undoubtedly one of the main drivers for the birth and growth of this new global phenomenon. The opening up of borders within the European Union and the birth and development of low-cost flights have undoubtedly been two impressively effective drivers in increasing the number of people with mobility opportunities. In just over twenty years, the free movement of people has become a reality in Europe and has perhaps been the most important success of the entire integration process. The impact has been so impressive because it is not simply limited to making the different European countries accessible to other European citizens. The idea of the Union as a single area in which people are able to freely move around in, making it possible to consider living one’s life or parts of it in another country other than one’s own, has now been consolidated. Migration affected European countries in the past, but it was different to in the current area of free movement in the EU born of the Schengen Agreement. Intra-European migration in the past was usually permanent movements, one-way tickets, so to speak. It mainly concerned migration of low-skilled workers for work reasons. The current intraEuropean movement is very different.

It generally depends on the type of population and the countries affected.

It is much more flexible and potentially fragmented.

The movement rarely becomes permanent, just as today people’s working lives are based on flexibility.

In this sense, the European area fits well with the very flexible way in which people - especially the younger generations - live today. The possibility of living in another country, not far from one’s country of origin for a short period of time, with the idea of returning or moving to another country when life choices make it possible, represents an opportunity for freedom that exceeds the constraints of borders from the past; especially during the second half of the twentieth century. Mobility has become a mass phenomenon, especially in Europe, which affects more and more people and which has above all become multigenerational. It often concerns young people, but it is growing even amongst older people, especially pensioners. And, of course, the number of people working in countries other than their countries of origin is growing. The area of free movement is becoming increasingly popular among the European population as a way to broaden horizons and of opportunities.

It is therefore natural that the younger generations are the most natural beneficiaries of this enlargement. And it is natural that studying is the first activity to be affected and revolutionised by these changes. The numbers speak for themselves: according to UNESCO data, the number of international university students in the world rose from 800,000 in 1975 to over 4 million in 2013.

The application of the principles of free movement from the Schengen Agreement and the European Union’s Single Market are probably enough alone to account for this increased mobility in studies. But there is no doubt that the great success of the Erasmus programme - 9 million young people involved over thirty years - is the other factor which has triggered something which has become a mass movement. The use of this term “mass” must not, however, be misleading. The Erasmus programme is limited to small numbers of young people when compared to the entire populations of our countries.

However, in absolute terms, it has affected millions of people in Europe

and even outside Europe. And above all it is something very visible, which has managed to reach the public awareness and make education something internationally available, no longer seen as something exceptional for only a privileged few or for brave pioneers.

Erasmus has made something normal that was previously seen as a rarity.

In addition to the reasons mentioned above, there is undoubtedly another factor that has driven such impressive growth of a global education space. The world of work has changed and today’s education can no longer follow the same patterns it has always followed. This is not the time or place to examine these changes in depth. However, it is clear that work and jobs have changed so much that very different forms of preparation are needed. Greater flexibility, more adaptability to move between different sectors, the impact of new technologies and the need for

ever greater multilingualism are just some of the challenges that new training schemes need to adapt to. In particular, one of the most significant transformations concerns the system of organisation by study subject which is being totally called into question.

Twentieth-century education was built around specialisations that began with secondary studies and continued on to university studies with insurmountable walls between one subject and another.

It was unimaginable, except in exceptional cases, to consider multisubject study paths on a large scale.

Today the trend goes in the opposite direction. The world of work, and life itself, today push for ever greater interactions between different sectors and subjects. The need to combine knowledge and make this combination bear fruit is one of the new, fascinating, but complex challenges of the new world of education. →

BIARRITZ_FRANCE

21

→ As a result, modern training is moving towards innovations in which openness, flexibility and mobility are fundamental.

It is precisely these characteristics that define the challenge of renewal, but simultaneously the great risk of social exclusion and the growth of inequalities brought on by the rapid changes in the world of education. Though it is true that a global market is forming based on a growing demand for higher education with a consequent growth in courses meeting these challenges; it is also true that the distance between this world and that of mass education, based only nationally or locally, is also growing impressively.

It is no longer a question of the historical separation between a very small minority and the majority of young people in different countries; between the exception and the rule; between a small number of individuals - the cosmopolitan and globalised elite who had access to advanced education and studies abroad - and the mass of all the other students on the other hand.

1% of the population on the one hand and 99% on the other hand, if we were to massively simplify. This used to be the norm.

Today the world of education is moving towards a separation between students who take advantage of the new opportunities offered by mobility and the rest who do not. But the first group, those who are mobile, are no longer the tiny minority of the past. They are becoming a more substantial part of the world of education, while remaining a minority. Large and growing, but still a minority. In most countries throughout the world the majority of students stick to educational paths that are not very open, not at all mobile and extremely rooted in the local area.

The futures of people emerging from these two different worlds is increasingly divergent. It is difficult for the type of training received, whether it be a modern education, open to innovation and movement or training lacking these characteristics, not to have an impact on the rest of your life. Inequalities will grow instead of shrinking if the education world fails to meet the

G20G7.COM

22

The most ambitious, and at the same time, most necessary goal nowadays is setting ourselves the enormous challenge of creating an educational system capable of facing these forms of inequality and providing equal opportunities to truly everyone in our societies.

challenges of this growing gap.

And the inequalities that are created or accentuated while training are the most rigid and difficult to break down later.

As I have tried to describe before, it is not just a question of increasing the number of students who have access to modern, mobile and innovative forms of education. If it were this simple, we would be able to successfully fight inequalities. The issue is much more complex. In our societies, due to the impact of new technologies, increasing automation and imbalances due to globalisation, the bar has been raised for the training requirements necessary to obtain and perform certain types of jobs.

Automation has destroyed and is destroying large numbers of decent, secure jobs which required little training.

The crisis the middle classes in western countries are experiencing is partly due to these issues. And the violence of the social upheaval affecting our societies is partly the consequence of the speed with which these changes have arrived, depriving the welfare systems and the world of work of the transition times necessary to adapt to these changes. A sense of insecurity, growing nostalgia for the past, a feeling of inadequacy with respect to the requirements necessary

to keep up with the changes in progress, are all issues that can be explained by these changes and the speed with which they are happening.

Therefore, if the world of work is changing so rapidly, it is not enough that only a minority of students - even though this is now fairly large - can access the most advanced, mobile and innovative forms of education. Because the gap that is created is becoming wider than those of the past and because the majority of students are in danger of finding themselves trapped in a tunnel of frustrations and inadequacies, given that it does not seem like the transformations underway in the labour market are set to change.

Added to this is another fundamental consideration which is the cost of

education. If we look at the matter in the extremely simplistic terms of two large training groups - one mobile and innovative, the other traditional and domestic - then the question of cost takes on great importance. The average cost of educational courses for the first group is on average much greater than for the second. And the cost factor obviously has a significant impact on the social inequalities that are generated as a result.

This growing division is also partly the explanation for the radicalisation present in societies. Frustration leads to rejection and growth of resentment against the system. Some recent political trends which are now deeply rooted in the societies of advanced countries can also be explained by looking at these changes.

The most ambitious, and at the same time, most necessary goal nowadays is setting ourselves the enormous challenge of creating an educational system capable of facing these forms of inequality and providing equal opportunities to truly everyone in our societies.

First of all, we need to recognise what a central position the problem has. This would already appear to be a complex and ambitious challenge in itself. It is then necessary to remove the prejudices and inertia which lead to setting up tired schemes and giving the same old answers, relevant to a time long in the past that, as I have tried to argue, has nothing to do with the challenges that technological innovation and globalisation hold today.

National and multifaceted responses

based on public policies need to be arranged, both in the fields of education and fiscal and social policies. Above all, we need to build responses that can bring the public and the private sectors together effectively, because it is clear that the scale of the challenge is so great that this is the only way there can be any chance of yielding positive results.

Everyone needs to be involved. It is European countries and in general those in the West that are the most affected and it is they who need to be the main drivers for change. For this reason, the G7, the organisation that represents most of all what was once called the Western world, seems like it could be, together probably with the EU and the OECD, to be a major player in an huge effort to address these new and growing inequalities. â—†

BIARRITZ_FRANCE

23

Globalization Requires an Ambitious Reform of International Taxation Philippe Martin Full Professor, Department of Economics, Sciences Po

T

he multilateral trading system is now under attack by the country which has been its main inspirer, the United States. The current view of the US administration of trade as a zero sum game where some countries (with trade surpluses) gain at the expense of others (with trade deficits) marks a stark departure from previous administrations as well as from the consensus of economists. It is therefore important to have in mind the losses that a trade war would entail. A simulation of a trade war (see Jean, Martin and Sapir, 2018 and Vicard 2018) shows large permanent losses (around 3% to 4% of GDP for the EU, US and China and much larger for smaller countries) that are similar to the estimated permanent effect of the Great Recession. Benefits of trade (and losses of a trade war) should not be overestimated (there are also decreasing returns to trade liberalization) but they do exist.

This is not to say that benefits of trade liberalisation are evenly distributed. In fact, it has been known for a long time that international trade can not only increase inequalities but also create losers (be they individuals or regions inside countries).

This may partly explain the striking contrast between economists support to trade and public opinion. 60% of French people have a negative opinion of globalisation and only 13% are favourable to a deeper trade openness. The French are more critical of trade integration than the Germans: 75% of the French and 57% of Germans are favourable to greater protection against foreign competition.

Also, 68% of the French and 55% of Germans consider that globalisation increases social inequalities. Economists broadly share these concerns on inequality and point out that over the last thirty years increasing globalisation in trade has increased competition between markets, often at the expense of certain categories of workers in developed countries. This is in particular the case for the impact of Chinese imports, (see Author D.H., D. Dorn and G.H. Hanson (2013) for the US case and Malgouyres C. (2017) for the French case). Several empirical studies have assessed the impact of increased imports from emerging and developing countries (mainly China). The increase in inequalities and the effects on wages and employment in developed countries

The standard response of economists is that if trade generates aggregate gains but with winners and losers, it should always be possible to transfer some of the gains from the winners to compensate the losers or to use increased resources to improve (through retraining for example) the fate of those who lost their jobs. However, with the possible exception of the Scandinavian countries, industrialised countries have failed to redistribute the benefits of globalisation.

G20G7.COM

24

can be partly attributed to the increase in imports from emerging and developing countries. The studies found that the regional employment areas most exposed to competition from Chinese imports –intensive in unskilled work– are the ones that have experienced the greatest decline in manufacturing jobs.

The standard response of economists is that if trade generates aggregate gains but with winners and losers, it should always be possible to transfer some of the gains from the winners to compensate the losers or to use increased resources to improve (through retraining for example) the fate of those who lost their jobs. However, with the possible exception of the Scandinavian countries, industrialised countries have failed to redistribute the benefits of globalisation. This is true both in the US and in the EU. Instruments seeking to mitigate the negative consequences of trade liberalisation exist (for example the European globalisation adjustment fund), but the tasks and resources assigned to these instruments are manifestly insufficient. It may be that trade is a positive sum for countries as a whole but we have failed to make it a positive sum gain for all inside countries. Why? Political reasons exist but financial ones should also be mentioned. At the same time as trade globalization should have led to more redistribution from winners to losers to make it socially and politically sustainable, financial liberalization made it more difficult for governments to tax the winners. The mobility of capital, of production and of the taxable base indeed makes this redistribution more difficult because it means that

the gains of globalization and of technology by individuals and multinational firms can more easily be shifted to low tax countries. In practice, along with competition and tax optimisation (or even tax evasion) it puts an unprecedented pressure on our redistribution systems. Trade integration also acts as an incentive to play the game of tax competition as it facilitates the relocation of production in response to tax advantages. Trade integration (in particular in services which is a key vector of profit shifting towards tax heavens) and trade liberalization make it more difficult for countries to tax the winners (for example large multinationals) and redistribute efficiently to the losers. Moreover, profit shifting by multinationals reduces the willingness of ordinary citizens to pay taxes (a clear issue of fairness during the recent “gillets jaunes” crisis in France) which puts even more strain on public finances. Assessments of the magnitude of profit shifting are subject to uncertainty due to the lack of detailed and comprehensive information at the firm level and comparable data across countries. By comparing profit to wages ratios of multinational firms in tax heavens and in high tax countries, it is still possible to identify the “abnormal” profits attributable to profit shifting.

Globally, in 2015, recent work by economists (see Torslov, T., L. Wier et G. Zucman, 2018) estimates that 600 billion euros of profits were placed by multinational companies in tax havens, nearly 40% of their foreign profits, a large increase since the mid-1990s.

Multinationals not only shift profits to tax heavens, they also shift sales so as to further disconnect sales and production to avoid paying corporate taxes (see Laffitte and Toubal, 2019). This is amplified by digitalization of the economy but the international taxation problem is not limited to the digital sector.

Governments have been slow to react but the present G20-OECD project on Base Erosion and Profit shifting (BEPS) is a promising avenue. The international tax system is in a deep crisis and must indeed be urgently reformed. Reducing

profit shifting not only would increase tax revenues for most countries, it would also reduce the global incentive to reduce taxes on corporate profits.

The period where the sole objective of the international tax rules was to facilitate the development of international trade and investment through the elimination of double taxation is over. An equity objective (so that countries get their “fair” share of tax revenues but also that mobile factors pay their “fair” share) should now be at the core of the reform of the international tax system. Only if the perceived lack of fairness on the contribution of the winners of globalization and technological progress is addressed, will globalization itself be politically and socially sustainable. ◆

Author D.H., D. Dorn and G.H. Hanson (2013): “The China Syndrome: Local Labor Market Effects of Import Competition in the United States”, American Economic Review, vol. 103, no 6 Jean, Sébastien Philippe Martin and André Sapir, International Trade Under Attack: What Strategy for Europe? Les notes du conseil d’analyse économique, no 46, July 2018 Laffitte, S. et F. Toubal. (2019) : “A Fistful of Dollars? Foreign Sales Platforms and Profit Shifting in Tax Havens”, CEPII Malgouyres C. (2017): “The Impact of Chinese Import Competition on the Local Structure of Employment and Wages: Evidence from France”, Journal of Regional Science, vol. 5, no 3, pp. 411-441.

Torslov, T., L. Wier et G. Zucman (2018): “The Missing Profits of Nations”, NBER working paper, n°24701 Vicard V. (2018): “Une estimation de l’impact des politiques commerciales sur le PIB par les nouveaux modèles quantitatifs de commerce”, Focus du CAE, no 22, July.

BIARRITZ_FRANCE

25

Corporate Tax Justice Cornelia Woll Full Professor, Political Science, Sciences Po (CEE, MaxPo & LIEPP)

T

ax cooperation seems to be more difficult to achieve through multilateralism than any other economic issue, despite growing consensus about the detrimental effects of corporate tax competition for both market integration and economic inequalities. Repeated attempts to harmonize corporate taxation have gained momentum since the financial crisis, with important proposals made by the OECD and the European Union.

Yet failure to implement or even reach agreement on these proposals shows the need for leadership of the G7 in order to address the concerns of those countries that stand to lose most from corporate tax harmonization.

Detrimental effects In the past, proponents of tax competition have underlined its positive effects on government efficiency, which were supposed to improve the provision of public services to respond to fleeting income. This argument generally does not hold for corporate taxation, since companies are much more mobile than

Figure 1: Decrease in corporate tax rates

Statuatory corporate income tax rates (Federal and subnational combined, %)

Source: OECD.Stat

G20G7.COM

00 26

citizens. As a result, we can observe a “race to the bottom” of corporate tax rates. Public choices are distorted in favor of the most mobile companies, with an increasingly important part of the tax burden born by the least mobile parts of a country’s population.

In addition, tax competition places administrative burdens on companies operating in more than one country, where they have to adjust to often changing and diverse tax regimes, without the possibility to consolidate profits and losses at the company level.

Initially, the desire to avoid double taxation on companies and thus discrimination against foreign subsidiaries was a principal driver of early calls for European corporate tax harmonization.

The diagnosis of a problem changed in the last decade, not least in response to revelations about the extent of tax evasion or optimization by multinational companies. Moreover, the sovereign debt crisis in Europe brought fiscal capacity into sharp focus, either when countries with low levels of corporate taxation required international assistance to

avoid sovereign default or when countries with high corporate tax rates saw their public budgets dwindle.

It is instructive to look at the increasing importance of tax havens in the profits of American companies.

While profits have barely moved in the major economies where their consumers are located, they have grow more than seven times in only twenty years in seven low-tax nations: the Netherlands, Ireland, Bermuda, Luxembourg, Switzerland, the British Caribbean and Singapore, as Brad Setser showed in a NY Times Op-Ed on 6 February 2019.

Today, Ireland alone is as important for US corporate profits as Italy, France, Germany, Japan, India and China combined.

It comes as no surprise that the tax privileges for large multinational companies creates an outrage among ordinary citizens that do not have the same options to reduce their legal tax obligations. Fighting inequalities requires upholding social cohesion between the shareholders of companies, workers and consumers. Fair corporate taxation is crucial to achieving it.

Difficult agreement This realization has pushed governments to seek multilateral solutions to stop the downward spiral of corporate taxation.

Most centrally concerned is the European Union, whose integrated and non-discriminatory market is now being exploited by small member states using taxation as a means to attract foreign direct investment. Taxation as a key attribute of national sovereignty has always been a difficult issue for the member states and is bound by unanimity requirements until this day.

As a result, proposals to accompany the single market with corporate tax harmonization were unsuccessful until the end of the first decade of the 2000. In 2016, the Juncker Commission – under pressure from the recent Lux Leaks scandal – proposed a two-step scheme f,or a Common Consolidated Corporate Tax Base that provides a single set of mandatory rules for corporate taxation, allowing national variation, but redistributing tax revenue among the

member states where revenue was generated.

The adoption of these schemes in the Council is still pending, but one can expect opposition by the member states that stand to lose an important part of their tax revenue. The tensions were visible this spring, as the Council was unable to reach a consensus on the digital tax proposal that would have allowed taxing corporate giants such as Google, Amazon or Facebook.

Fearing effects on other aspects of their digitalized economies, Ireland and the Scandinavian countries rejected even a watered-down version of the proposal France and Germany had tried to push for. When it comes to corporate taxation, which goes to the heart of economic development models within Europe, the EU is unable to find a common stance.

Not only does it fail to become a global rule marker, the current fragmentation is also bad for European member states, companies and citizens. Moreover, it impedes moving forward on integration in much needed areas, such as banking union or capital market integration, and thus hampers the single market.

Without corporate tax harmonization, the European Union stands to lose on all fronts.

A more promising route might be the OECD’s Base Erosion and Profit Sharing (BEPS) initiative launched by the G20 in Kyoto in 2016. By trying to improve the coherence of international tax rules, enforcing information sharing and closing loopholes for tax avoidance, BEPS counts 125 voluntary member countries today from both the OECD and the developing world. With minimal standards against harmful tax practices and tax treaty abuse, country-bycountry reporting and mutual agreement procedures, BEPS paves the ground for coordination of corporate tax policies in a more transparent way.

The effectiveness of such coordination is already visible in the area of offshore accounts.

Through the Automatic Exchange of Information initiative of the OECD, tax information is now transferred through 4500

bilateral agreements. As a result of this sea-change, bank deposits by individuals and companies in international financial centers has dropped by 34% over the past ten years, which represents 489 billions euros, and led to an additional tax revenue of 95 billion euros worldwide.

As tax coordination and informationsharing within the OECD advances, countries and multinational companies are getting used to a new environment of global tax rules that will impact foreign investment strategies and define the rules for taxing the digital economy.

This paved the way for a rare moment of consensus among the G20 this June to endorse a minimum tax rate for big tech companies and a framework on how taxes should be calculated, despite earlier concerns from the United States that the Franco-British proposal targeted in particular US companies. With the ambition to publish a work plan for implementation by 2020, the OECD has emerged as the most central coordination sight in global tax competition.

G7 leadership needed The recent OECD agreements and Japan’s decisive role in facilitating this agenda need to be saluted as one of the most promising paradigm changes in global Figure 2: Country of origin of US corporate profits Source: New York Times, analysis of Bureau of Economic Analysis data by Brad Setser and Cole Frank Profits as a percentage of U.S. USD

tax governance that would go a far step in fighting inequalities. But everything now hinges on the actual steps undertaken to get there. All the benefits of a multilateral consensus can be dashed in the implementation process.

This is why G7 leadership is crucial to pave the way for the ambitious G20 objectives. It is paramount that the G7 as well as the EU work in parallel to the OECD recommendations to facilitate cooperation between tax authorities. For all countries involved in the negotiations, the key question will be what will happen in the absence of agreement. If that default position allows the countries that benefit from the current lack of regulation to continue reaping benefits, agreement will be more difficult to come by. Countries most eager to move forward, however, have underlined that they are willing to take unilateral steps.

The United Kingdom for example has already announced a 2% levy on sales of digital services starting in April 2020.

This is a strong signal that a return to the past is not likely. To avoid a myriad of country-by-country solutions that companies could again seek to play against one another, the G7 will need to lock shoulders and move ahead on this important issue together.

The G7 has the opportunity to send a clear message about global inequalities by further strengthening the fight against corporate tax optimization.

It should bolster minimum tax rates jointly, reiterate the central principles that will guide implementation and be pioneers in tax authority cooperation that will make abuse less and less likely in the world’s major economies. Strong support by the G7 will help set a standard for the G20 work plan and facilitate a European agreement on a common and consolidated corporate tax regime. The alternative is a world were multinational companies benefit from global markets and governments fight a losing battle within their much smaller political jurisdictions. In such as setting, the fight against global inequalities would be doomed. ◆

BIARRITZ_FRANCE

27

LSE GLOBAL POLICY LAB

Institute of

Global Affairs