Author: CHUNG Yoon Ngan
Date: 04-30-12 20:51
By Karl Wilson
April 27, 2012 - 4:36pm http://www.chinadailyapac.com
Over the last 30 years, many parts of Asia have experienced unprecedented economic growth, raising living standards and reducing poverty. But the road to prosperity has also seen a startling rise in inequality.
Both the World Bank and Asian Development Bank (ADB) have acknowledged that though millions have been lifted out of poverty economic success has also created a huge disparity in wealth and income, which could eventually lead to massive social unrest.
According to Wang Feng, a senior fellow at the Washington-based Brookings Institution, a non-profit public policy organization, and director of the Beijing-based Brookings-Tsinghua Centre for Public Policy, growth with inequality leads not only to a divided society, it threatens democratic institutions and suffocates economic growth.
“Equitable distribution of benefits of economic growth requires forces beyond the market,” he said in a recent paper.
Feng said national policies are required to address the causes of rising inequality and create opportunities that will have beneficial long-term effects.
Dr Amitendu Palit, an economist with the Institute of South Asian Studies at the National University of Singapore, shares Feng’s viewpoint.
“No country in Asia can avoid inequality if it wants high growth in a short period of time,” he tells China Daily Asia Weekly.
“The best it can do is to make sure that the people who are left behind do not stay behind. The state needs to put a great deal of energy and focus into education and helping people to develop the skills high economic growth demands.”
ADB’s recent Asian Development Outlook 2012 report says “worrying inequality” has increased in 11 out of 25 economies in Asia, including the region’s three most populous nations — China, India, and Indonesia, which have driven much of Asia’s phenomenal growth.
Poverty has been reduced across the board in Asia. The number of people living below the $1.25 a day poverty line fell by 430 million between 2005 and 2010 and a rising number of Asians are now enjoying a middle-class lifestyle.
At the same time Asia’s rapid growth is leaving millions behind, causing a widening gap between rich and poor that threatens to undermine the region’s stability, the report notes.
“Apart from income inequality, the more serious problem is opportunity inequality, such as access to education, health, and better infrastructure,” says ADB Chief Economist Changyong Rhee. “Policymakers are going to have to be more responsive.”
Rhee argues that the lack of opportunities can be the basis for social tension, undermining the quality of government and leading to troubling populist politics.
He says technology and communications have allowed people to see how others are living all over the world, and their desire to live more equally is increasing.
“People are asking for more. Not only are they asking for bread, they are asking for more even distribution of bread,” Rhee says, adding that inequality in Asia is largely driven by a tech-savvy and global economy, which favors capital over unskilled labor.
In the 1970s and 1980s, Asia had high growth and low inequality because at the time technical progress was more pro-labor. Asia had more labor-intensive industries such as car factories and textile companies.
“But these days, high-tech manufacturing companies, to be internationally competitive, have to pay low wages or usually use robots rather than people,” Rhee points out.
There are stark regional differences too. While urban and coastal areas have blossomed, rural and inland areas have stagnated. For the past 30 years, many Asian economies believed high growth would reduce poverty. If you developed the coastal areas, you could move inland and the spill-over effect would solve these problems.
“But we are now realizing that the speed of this spill-over may not be fast enough to reduce the inequality,” says Rhee.
He believes continued growth and structural transformation is critical to tackling inequality. There also needs to be more investment in increasing decent, non-agricultural jobs in rural areas, alongside boosting productivity in the agricultural sector itself.
“It is a hard and long-term problem to fix,” says Rhee.
Economists say countries with large populations (India, China and Indonesia) may not see a closing of the inequality gap for at least the next 50 years. Many countries have brought down poverty but inequality still exists as their economies continue to grow. Growth by itself is a very unbalanced process and does not benefit everyone at the same time.
Mature economies like the Republic of Korea and Japan have gone through this phase.
Dr Palit says reducing poverty does not mean inequality has been controlled: “The fact is, inequality is associated with economic growth. Across Asia today, that inequality is growing as economies expand.
“It will reward some people more than others. Skilled workers, for example, who contribute to growth, will be compensated accordingly.”
As a result, the gap between those who contributed more and those who contributed less widens. Economists say the best thing countries can do to cope with this widening gap is to ensure households have access to basic necessities such as housing, education, food and health.
According to ADB, the richest 1 percent of Asian households accounts for 6 to 8 percent of total income. Unequal access to education, health and other public services contributes greatly to growing inequalities, further hindering opportunities for the poor to raise their living standards.
Highly uneven distribution of new technology, infrastructure and investment is further fueling the divide, particularly between rural and urban areas, and coastal and inland provinces.
In China, rural-urban and interprovincial differences account for the bulk of inequality, ADB reported.
Skill premiums have risen in many countries, and better educated workers are enjoying much higher income growth.
Technological progress favors capital over labor, with the share of labor income in gross domestic product declining and that of capital increasing in many countries. The abundance of labor relative to capital in the region is also a contributing factor to the declining labor- income share.
“Already, the region’s divergent socioeconomic fortunes have led to greater voter anger and social unrest, pushing officials in developing economies like Malaysia, Thailand, and Indonesia to follow efforts by China to boost salaries, in part to head off the spread of the kind of unrest that has toppled Middle Eastern regimes recently, and to calm rising labor actions,” the Wall Street Journal said on its Southeast Asia web site.
The newspaper also pointed out that even in economically advanced Singapore — now the world leader in “millionaire density” at 15.5 percent of all its households — the government has had to step up social spending and roll back its liberal immigration stance after voters gave the ruling People’s Action Party a relative rebuff — its slimmest-ever general-election win — last May.
Speaking in Singapore recently, ADB’s Managing Director-General Rajat Nag said rising inequality should now be “at the top of the public policy agenda” right around the region.
“You cannot now be in a state of denial believing that rising inequality won’t ultimately start to compromise the growth story,” Nag told a media briefing.
With economists now realizing inequality has been fueled by the same factors that lead to Asia’s growth, the so-called “Asian century” may well turn into the “Asian paradox”.