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Report: Economic Mobility in Developing Countries Has Stalled for the Last 30 Years

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Generations of poor people in developing countries are trapped in a cycle of poverty determined by their circumstance at birth and unable to ascend the economic ladder due to inequality of opportunity, says the World Bank Group’s Fair Progress? Economic Mobility across Generations Around the World’ report, released today.

Mobility has stalled for the last 30 years, says the report, which tracks economic mobility between parents and their children through the prism of education, a critical asset that influences an individual’s lifetime earnings. It looks at people born between 1940 and 1980, and finds that 46 out of 50 countries with the lowest rates of mobility from the bottom to the top are in the developing world.

Gender gaps, however, are closing with girls in high-income countries now out-performing boys in tertiary education and catching up in the developing world. In the not too distant future, the share of girls with more education than their parents will exceed the equivalent share for boys globally.

The ability to move up the economic ladder, irrespective of the socioeconomic background of one’s parents, contributes to reducing poverty and inequality, and may help boost economic growth by giving everyone a chance to use their talents, the report notes. People living in more mobile societies are more optimistic about their children’s future, which is likely to lead to a more aspirational and cohesive society.

“All parents want their children to have better lives than their own, yet the aspirations of too many people –especially poor people – are thwarted by unequal opportunities,” said World Bank Chief Executive Officer Kristalina Georgieva. “We need to invest in children from a very early age so that they are well-nourished and well-educated; ensure that local communities are a safe place for children to grow, learn, and thrive; and level the economic playing field by creating good jobs and improving access to finance.”

The report draws on a newly developed Global Database of Intergenerational Mobility with unprecedented coverage of 148 countries, home to 96 percent of the world’s population. It paints a uniquely detailed picture of socio-economic mobility and inequality of opportunity around the world. It also sheds light on the patterns and drivers of income mobility and their relationship with educational mobility by examining available data from 75 countries.

The data show that, on average, upward mobility from the bottom has declined and the numbers of people remaining trapped at the bottom has increased in developing economies. For individuals born in poorer households, the opportunity to climb up the ladder is narrowing in many economies in which average living standards are already much lower compared with high-income economies.

Countries with higher mobility in education are better placed to generate future growth, as well as reduce poverty and inequality. And, conversely, stalled mobility raises concerns about future progress, particularly for Africa and South Asia, where most of the world’s poor live and where the prospects of children are still too strongly tied to the socioeconomic status of their parents,” said Carolina Sanchez, Senior Director of the Poverty and Equity Global Practice at the World Bank.

But the report also finds huge variation in the extent of intergenerational mobility in the developing world. For example, only 12 percent of the people born in the 1980s in the Central African Republic, Guinea, and South Sudan have achieved education levels higher than their parents, compared with 89 percent of people from South Korea and 85 percent from Thailand.

A close examination of six large developing countries – Brazil, China, Egypt, India, Indonesia, and Nigeria – reveals that economic mobility rose in all of them from the 1940s to the 1980s, albeit to varying degrees. However, since the 1960s, progress has slowed in four of these countries and completely stalled in China and Nigeria. The global trends in gender convergence are seen in Brazil, China, Egypt, and Indonesia, where the mobility gaps between girls and boys are close to zero. No such convergence has taken place in India or Nigeria, where the gender gaps are almost as large today as they were a half century ago.

However, the rise in educational mobility in many high-income economies and in parts of East Asia, Latin America, and the Middle East gives some room for optimism, suggesting that inequality of opportunity can be reduced with the right policy actions. Educational mobility in Brazil, Egypt, and Indonesia, for example, increased significantly from people born in the 1940s to those born in the 1980s – even though income mobility remains low in these countries.

“This report paints a sobering but nuanced picture of economic mobility and inequality of opportunity in the developing world. On the one hand, the average developing country has very low rates of economic mobility across generations and, most worryingly, there has been no real improvement in the last three decades. On the other hand, the experience of some countries shows that with political will and the right policies, that can be changed,” said Francisco Ferreira, Senior Advisor on poverty and inequality at the World Bank.

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Cash flow the biggest problem facing business during COVID-19 crisis

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A new report  on the impact of the COVID-19 pandemic  on businesses shows that their greatest challenges have been insufficient cash flow to maintain staff and operations, supplier disruptions and access to raw materials.

With businesses already undergoing significant competitive pressure prior to the crisis, government restrictions, health challenges and the economic fall-out brought by COVID-19 further set back many enterprises.

Interrupted cash flow was the greatest problem, the survey found. More than 85 per cent reported the pandemic had a high or medium financial impact on their operations. Only a third said they had sufficient funding for recovery. Micro and small enterprises (those with 99 employees or fewer) were worst affected.

The survey, carried out by Employers and Business Membership Organizations (EBMOs), involved more than 4,500 enterprises in 45 countries worldwide. EBMOs gathered data from their enterprise members between March and June 2020. The businesses were asked about operational continuity, financial health, and their workforce.

At that time, 78 per cent of those surveyed reported that they had changed their operations to protect them from COVID-19, but three-quarters were able to continue operating in some form despite measures arising from government restrictions. Eighty-five per cent had already implemented measures to protect staff from the virus.

Nearly 80 per cent said they planned to retain their staff – larger companies were more likely to say this. However, around a quarter reported that they anticipated losing more than 40 per cent of their staff.

Looking into the future, preparing for unforeseen circumstances and mitigating risks associated with a disruption of business operations is needed. Fewer than half the enterprises surveyed had a business continuity plan (BCP) when the pandemic hit, with micro and small businesses the least likely to have made such preparations. Additionally, only 26 per cent of the enterprises who responded said they were fully insured and 54 per cent had no coverage at all. Medium-sized enterprises, (those with 100 to 250 employees), were most likely to have full or partial coverage.

Strengthening government support measures for enterprises are also vital for their recovery. Four out of ten enterprises said they had no funding to support business recovery while two-thirds said funding was insufficient. Of the sectors analysed, the tourism and hospitality sector, followed by retail and sales, were most likely to report funding issues.

The report production was facilitated by EBMOs who collected and shared the survey data with the Bureau for Employers’ Activities  (ACT/EMP) at the International Labour Organization. ACT/EMP is a specialized unit within the ILO Secretariat that maintains close and direct relations with employers’ constituents.

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Lithuania: COVID-19 crisis reinforces the need for reforms to drive growth and reduce inequality

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Effective containment measures, a well-functioning health system and swift public support to firms and households have helped Lithuania to weather the COVID-19 crisis to date. That said, the pandemic still carries significant economic risks, and the recent upsurge in infections is very concerning. Once a recovery is under way, Lithuania should aim to reform public companies, strengthen public finances, and ensure that growth benefits all people and regions, according to a new OECD report. 

The OECD’s latest Economic Survey of Lithuania says that prior to COVID-19, good economic management and an investment-friendly business climate were helping to lift average Lithuanian incomes closer to advanced country levels. While the recession provoked by the virus has been milder than elsewhere – with GDP projected to drop by 2% in 2020 before rebounding by 2.7% in 2021 – Lithuania’s small and open economy will be vulnerable to any prolonged disruption to world trade. Increasing public investment and improving governance at state-owned enterprises could help lift growth and productivity. Other reforms should focus on improving the effectiveness of spending and taxation. Over the longer term, Lithuania should establish a clear debt reduction path and a long-term debt target.

“Lithuania’s sound economic management of recent years, and its swift response to both the health and economic aspects of the pandemic, are helping the country to weather the COVID-19 crisis,” said OECD Secretary-General Angel Gurría. “It is now key to build on these achievements and restart the reform engine to ensure robust, sustainable and inclusive growth for the future.”

The pandemic has exposed high levels of income inequality in Lithuania, where relative poverty is high among the unemployed, the less educated, single parents and older people due to a tax-benefit system that is insufficiently redistributive. The Survey recommends Lithuania to continue providing temporary support to people and businesses hit by COVID-19, as well as to increase regular social support while retaining incentives to work.

In terms of support to the economy, the Survey notes that while Lithuania’s government spending has increased considerably over the past two years, it remains below the OECD average. Public investment also remains low. Given the importance of modernising infrastructure and stimulating crisis-hit demand, the Survey recommends maintaining or increasing current levels of investment and improving investment quality by carrying out rigorous cost-benefit analysis for individual projects. Increasing investment in rural areas, and giving local government more say in tax policy and spending, could help reduce regional disparities and promote inclusive growth.

The Survey also recommends phasing out environmentally damaging fossil fuel subsidies and increasing environmental taxation, which would benefit public finances while helping the shift to a lower-carbon economy.

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United States confirms its leading role in the fight against transnational corruption

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The United States continues to demonstrate an increasing level of anti-bribery enforcement, having convicted or sanctioned 174 companies and 115 individuals for foreign bribery and related offences under the Foreign Corrupt Practices Act (FCPA) between September 2010 and July 2019. The United States is thus commended for a significant upward trend in enforcement and confirming the prominent role it plays globally in combating foreign bribery.

The 44-country OECD Working Group on Bribery has just completed its Phase 4 evaluation of the United States’ implementation of the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions and related instruments.

Given developments since the United States’ last evaluation in 2010, the Working Group made a range of recommendations to the United States, including to:

  • Consider ways to enhance protections for whistleblowers who report potential FCPA anti-bribery violations by non-issuers and provide further guidance on available whistleblower protections;
  • Continue to further evaluate and refine policies and guidance concerning the FCPA;
  • Make publicly available the extension and completion of NPAs and DPAs with legal persons in foreign bribery matters as well as the grounds for extending DPAs in FCPA matters;
  • Continue to evaluate the effectiveness of the Corporate Enforcement Policy in particular in terms of encouraging self-disclosure and of its deterrent effect on foreign bribery; and
  • Continue to address recidivism through appropriate sanctions and raise awareness of its impact on the choice of resolution in FCPA matters.

The report praises the United States for its sustained commitment to enforcing its foreign bribery offence as well as its key role in promoting the implementation of the Convention. This achievement results from a combination of enhanced expertise and resources to investigate and prosecute foreign bribery, the enforcement of a broad range of offences in foreign bribery cases, the effective use of non-trial resolution mechanisms, and the development of published policies to incentivise companies’ co-operation with law enforcement agencies.

The report also notes a large number of positive developments and good practices, such as the DOJ’s reliance on several theories of liability to hold both companies and individuals responsible for foreign bribery, and the United States’ successful co-ordination that has allowed multi-agency resolutions against alleged offenders in FCPA matters. In parallel, the United States has increasingly sought to co-ordinate and co-operate in investigating and resolving multijurisdictional foreign bribery matters with other jurisdictions. Finally, the United States has helped foreign partners build their capacity to fight foreign bribery through joint conferences and peer-to-peer training thus enabling the law enforcement authorities of these countries to better investigate and sanction prominent foreign bribery cases.

The United States’ Phase 4 report was adopted by the OECD Working Group on Bribery on 16 October 2020. The report lists the recommendations the Working Group made to the United States on pages 111-113, and includes an overview of recent enforcement activity and specific legal, policy, and institutional features of the United States’ framework for fighting foreign bribery. In accordance with the standard procedure, the United States will submit a written report to the Working Group within two years (October 2022) on its implementation of all recommendations and its enforcement efforts. This report will also be made publicly available.

The report is part of the OECD Working Group on Bribery’s fourth phase of monitoring, launched in 2016. Phase 4 looks at the evaluated country’s particular challenges and positive achievements. It also explores issues such as detection, enforcement, corporate liability, and international co-operation, as well as covering unresolved issues from prior reports.

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