Many developing countries have experienced strong economic growth in recent years. Nevertheless, 1.2 billion people are still living in extreme poverty. More than 70 % of these live in middle-income countries. While distribution between countries is becoming more equal, economic growth within countries is not being distributed fairly. The global trend is towards increasing income disparities within countries. This white paper focuses on the distribution of resources within countries, not just between them.
The Government intends to place more emphasis on fair distribution and growth in poor countries through more targeted efforts to promote democracy, human rights and transparency, and reduce inequality.
Inadequate distribution of formal and informal power impedes the fair distribution of resources. One reason is that people may not have sufficient opportunity to hold their democratically elected authorities accountable. There are many different formal and informal power structures, and these must be analysed on the basis of the local context.
Norway’s efforts will follow four main approaches:
In low-income countries that themselves are seeking to achieve social development with low levels of inequality, we will engage in direct dialogue with the authorities and use aid strategically to improve fair distribution and increase growth. At the same time we will continue efforts that we know help reduce poverty, such as strengthening the health and education sectors.
In our dialogue with the authorities in middle-income countries, we will draw more attention to the fact that these countries need to prepare for the time when they no longer receive international aid and have to take greater responsibility for providing services and welfare to their people.
In countries with authoritarian regimes, or where there is marked discrimination or secrecy, the Government will give priority to cooperating with agents of change in civil society rather than providing aid via the authorities.
In the international arena, the Government will seek to draw greater international attention to national distributive policies.
Responsibility for ensuring that human rights are respected lies with the authorities of each country. Norwegian development policy takes a rights-based approach. This entails not only strengthening the national authorities’ ability to protect their citizens’ rights, but also increasing citizens’ knowledge of their rights and their ability to claim these rights. Gender equality, including enhanced respect for women’s rights, better access to resources and greater opportunities for women to exert an influence, also contributes to economic growth and poverty reduction.
This white paper signals a stronger focus in Norwegian development policy on sustainable growth and fair distribution within individual countries. The Government will attach more importance to sustainable management of natural resources, job creation, fiscal and financial administration, human rights, democracy, transparency and the fight against illicit financial flows and tax havens.
The international discourse and lessons learned
The 2006 issue of the World Bank’s World Development Report established that there is no contradiction between growth and equity. This recognition was partly based on the experience of the Nordic countries where greater equality bolsters rather than impedes long-term economic growth. There is a basic understanding in the international debate today that social development requires a balance between access to social services, sustainable economic growth and fair distribution. Various concepts and approaches to promoting social development are used.
Even if the Millennium Development Goals (MDGs) are reached by 2015, significant challenges will remain in terms of fighting poverty. The UN has started work on developing a new set of goals for the post-2015 period. There is general agreement that the new goals must address the major changes the world has seen over the last decade. Norway will attach importance to the inclusion of fair distribution and gender equality in the new agenda, and will in addition take particular responsibility for the integration of energy issues into the post-2015 agenda. The work on the new goals is linked to the decision at the UN Conference on Sustainable Development (Rio+20) to launch a process to establish sustainable development goals (SDGs).
The Nordic model has become a familiar concept internationally. It can serve as an inspiration for developing countries in their efforts to promote fair distribution, and many developing countries are interested in Norway’s experience of well-organised labour relations and a highly developed welfare state.
Latin America is the continent with the highest level of inequality, but several Latin American countries have seen a reduction in inequality in recent years. The main reason for this is the pursuit of deliberate policies to combat poverty and reduce disparities in response to demands from broad segments of the population.
There is a close link between the distribution of economic goods and the distribution of political power. Research indicates that democracy fosters economic growth. The Government would like to steer bilateral government-to-government cooperation towards countries showing a positive democratic trend. Having the expertise and capacity to assess democratic development over time and on the basis of the local context is crucial. An active civil society and popular engagement are important for a successful democracy in any country. In countries where the trend is negative, the Government will support pro-democracy civil society actors rather than the authorities.
A diverse civil society is an important supplement to elected bodies. Civil society and the independent media can act as interest groups, watchdogs and agents of change. By entering into partnerships with local organisations, Norwegian actors are able to build competence and develop alliances between groups and interests, and thus help to mobilise a broad popular front against poverty and oppression and in support of the redistribution of power.
Corruption at all levels exacerbates disparity and inequitable distribution. A high level of corruption undermines confidence in democratic institutions and in institutions that are supposed to protect citizens’ rights. The fight against corruption is an important element in the Government’s efforts to promote good governance at the local, national and global levels.
Sustainable growth that creates jobs
Creating decent jobs is the best way of lifting people out of poverty and ensuring fair distribution of social goods. Regular income is the single factor that has the greatest impact on people’s living conditions. Employment in decent jobs is in itself an effective distribution mechanism, and is at the same time good for productivity and growth. However, today an increasing proportion of the unemployed are young people under the age of 25 and as many as 60 % of workers worldwide are working in the informal sector.
Social dialogue has played a key role in ensuring social development, promoting fair distribution and improving general welfare in Norway. The Government will share Norway’s experiences with social dialogue wherever this is of interest. The Confederation of Norwegian Enterprise (NHO) and the Norwegian Confederation of Trade Unions (LO) and other organisations in the labour sector will be partners in this work.
The right to organise and collective bargaining are fundamental in this context and have a natural place in the debate on decent work, development and fair distribution. It takes time to define the roles of employers’ and workers’ organisations, and these will vary according to the situation in the country concerned. The Government will encourage closer cooperation between trade unions across national borders through South-South cooperation and cooperation with regional organisations.
Norfund – the Norwegian Investment Fund for Developing Countries – is the Government’s most important development policy instrument for stimulating investment and job creation in developing countries. At least half of the new capital replenishment for 2013 is earmarked for the renewable energy sector. Access to energy is vital for job creation.
Reliable access to better and more modern energy services increases opportunities for economic growth and social development. A total of 1.3 billion people worldwide do not have access to electricity. Access to modern energy services is particularly important for women’s time-use, income opportunities and health. The Government has implemented several measures to improve access to energy and to enhance knowledge about the role of energy in development policy. We will increase our support for renewable energy developments, with access for all as the overarching goal.
The electricity sector is dominated by commercial actors, and electricity prices must therefore cover actual production and transmission costs. In many areas, electricity is too expensive for the poorest segments of the population. For most developing countries, it will take several decades to develop a nationwide grid, and this will require a huge level of investment that is unrealistic at present. Alongside our support for developing national electricity infrastructure, the Government will also support programmes to develop renewable energy production facilities in areas that will not be linked to a national grid.
Management of natural resources
Many developing countries have abundant natural resources. Sound management of these can create a basis for fair distribution and sustainable growth. Norway’s expertise in this field is in demand internationally. The Government intends to increase aid to countries that are willing to take action to ensure that their natural resources are managed responsibly and to the benefit of the whole population.
In many countries, large revenues from non-renewable resources have led to what is known as the “resource curse”. Norway is one of few countries that have avoided the resource curse because petroleum resources have been soundly managed. We share this experience through our Oil for Development programme. The aim of the programme is to assist developing countries in managing their petroleum resources in a way that contributes to long-term poverty reduction and takes proper account of the environment. The programme is already in great demand, and will be further strengthened, for example by ensuring that the four components – resource management, financial management, environmental management and safety management – are seen as a coherent whole.
In 2011, the Tax for Development programme was established. While Oil for Development looks at petroleum taxation in the context of integrated resource management, Tax for Development considers the taxation of non-renewable resources as an important element in the overall taxation policy and administration. The perspectives and approaches are different, but the main principles are the same, and the two programmes complement one another.
The extractive industries in many developing countries were privatised towards the end of the 1990s. Since then, prices of minerals and metals have increased markedly. It is important that developing countries are enabled to renegotiate unfair agreements with actors in these industries. The Government will initiate the establishment of an international independent group of experts to provide assistance to developing countries to renegotiate such agreements.
Agriculture is the most important industry in many developing countries, and poverty reduction in these countries will depend on increasing productivity in this sector. Fish is a renewable resource that contributes to both food security and good nutrition, and Norway has built up expertise about the whole value chain. In 2012, the Government presented a strategy for increasing aid aimed at strengthening food security, Food Security in a Climate Perspective, and will increase funding for developing agriculture and enhancing food security by NOK 500 million in the period up to 2015.
Over the last ten years, several international organisations have drawn attention to the rise in organised natural resource crime. The Government will increase its efforts to fight natural resource crime, with particular emphasis on illegal logging and illegal fishing.
Active distributive policies
An effective distributive policy entails government investment in public services that safeguard the population’s fundamental rights and provide a safety net for the most vulnerable and marginalised segments of society. Norway intends to provide support to partner countries that show willingness to develop good distributive policies. Establishing a taxation system is a vital element in state-building, not only to fund public expenditure, but also to give the state legitimacy and develop democratic structures. Safeguarding the right of all citizens to basic education and health services is a cornerstone of distributive policy.
The challenge of ensuring that tax systems are fair is even greater at the global level. Support is growing for the introduction of global taxes that can finance global public goods. A global currency transaction tax of 0.005 % could raise as much as NOK 200 billion a year. However, the introduction of such a tax will not be possible without broad international support, including the support of influential countries. The Government is working in the international arena to win the support needed to introduce a currency transaction tax of this kind.
Direct cash transfers to certain groups have proven a cost-efficient and well-targeted instrument of redistribution. The Government will support the development of schemes for facilitating direct cash transfers to vulnerable groups.
The UN and the multilateral financial institutions
In recent years, multilateral organisations have directed more attention to equitable distribution, and the Government will work to ensure that this issue is given a more prominent position on the international agenda. The UN derives legitimacy from its universal mandate and membership. This, combined with the UN’s rights-based approach, means that it is well placed to promote fair distribution. The UN plays a key role in developing international norms and standards and in helping member countries to implement them.
The World Bank has renewed its focus on poverty, and is in a position to intensify its efforts to promote inclusive and sustainable growth and social development. The International Monetary Fund has also emphasised that employment and equitable distribution are crucial for economic stability and growth, as well as for political stability and peace.
The United Nations Development Programme (UNDP) underlines the importance of taking into account the increasing disparity in income levels and developing policies to promote inclusive growth, productivity, employment and redistribution of wealth and income.
The Government will invite selected countries to form a group of friends to champion fair distribution in the multilateral arenas.
Illicit financial flows from developing countries
Corruption, tax evasion and other forms of economic crime exacerbate inequality and poverty and threaten democracy. Illicit financial flows from poor countries, as well as the use of tax havens and other international structures, means that huge amounts of money are siphoned off instead of being used for the common good. Tax havens make corruption and economic crime more profitable and attractive by making it possible to conceal income gained from illicit financial flows.
Greater financial transparency would make it easier to uncover and stop illicit financial flows. There is an urgent need to strengthen international control of financial flows, and to combat tax havens and illicit transfers of money out of the country of origin.
The Government will initiate an international dialogue on the development of stricter rules for financial transparency, for example in the form of a convention or agreement. This would be an important tool for promoting transparency. Country-by-country reporting is one way of gaining insight into financial flows in multinational companies. Norwegian legislation on country-by-country reporting is planned to enter into force in 2014. A transparency guarantee would ensure that developing countries have access to the information they need from extractive companies. The Government intends to promote an initiative to develop a transparency guarantee that can be used by the authorities in developing countries.
Most of the work being done to combat illicit financial flows takes place in Western countries. The Government will seek to establish a South-based network to combat illicit financial flows. The Government will also support the proposed upgrade of the UN Committee of Experts on International Cooperation in Tax Matters to an intergovernmental body.