Inequality

3. Economic growth and Inequality
Regarding the relationship between economic growth and income inequality, there was a hypothesis, the trickledown theory, suggesting that the results of economic growth will eventually permeate the poor segments of the population. Kuznets has argued, based on the historical experience of developed countries, that, “in the first stages of economic development, the gap in income distribution is large, but at a certain level of development, the inequality lessens" (Kuznets 1955). The most important aspects of Kuznets’ argument involve the gap between urban (industry) and rural (farming), and movements of labor and establishment of social security mechanisms. Kuznets’ theory also faced criticism, and it can be thought that by providing opportunities for the poor to participate in economic activity, the economic growth that comes with equality can be fostered. Examples include the provision of public goods by the government that support production activities of the poor and improving the functions of the credit and insurance markets to reduce risks faced by the poor. Human capital, such as health and hygiene and education are particularly emphasized as linking growth and inequality. Also, with parameters between economic growth and inequality (factors obstructing movement in the market such as segmentation in the labor market, technological disparity and poor quality of public institutions), it is possible to achieve growth and equality through correcting failures of the market and improving the quality of institutions. If we take political stability and social harmony under the wider meaning of public goods, aiming to reduce inequality by creating a social foundation that promotes these factors can also be included in the role of development policy. An equal social environment improves social efficiency by promoting the norm of reciprocity and cooperation, and there is also a perspective that considers this as “social capital” - a factor along with physical and material capital that contributes to growth.

4. New Developments in Measures to Reduce Inequality
The UNDP's Human Development Report aims to avoid conflict and social antagonism by calling for redress of the horizontal inequality of gaps in freedom and living conditions brought on by differences among people who belong to different genders, ethnicities, languages and religions, in addition to inequality from the one-dimensional perspectives of income and skills (vertical inequality) (Stewart 2000,　pp.252-255) (Horizontal versus Vertical Inequality, UNDP 2000, p.62, Box 3.4). Human Development Report 2005 appeals for public policies to correct inequalities in working towards achieving the Millennium Development Goals (UNDP 2005, pp.55-64). Further, regarding the term “pro-poor growth” that has recently been the subject of focus, Human Development Report 2005 proposes that rather than the “absolute definition of pro-poor growth” (growth of income of the poor), the “progressive definition of pro-poor growth” (which emphasizes the relative status of the poor in a society) be used instead (UNDP 2005, p.65, box 2.3).