Asia, Globalization, and Inequality

♠ Posted by Emmanuel in , at 8/14/2007 02:04:00 PM
With apologies to Karl Marx, a specter is haunting Asia--the specter of inequality. While inequality in Asian countries is not yet on par with that in South American and African countries where observed Gini coefficients regularly exceed 50, it is growing nonetheless. (The alleged culprit here I will get to shortly.) Figure 1 from the Asian Development Bank's Key Indicators 2007: Inequality in Asia report illustrates the Gini coefficients of various countries. The Gini coefficient varies between 0 (perfect equality where each person has identical income) and 1 (perfect inequality where a single person has all the income). As you can see, China has marched to the top of the order, with only Nepal pipping it by a hair:

Meanwhile, figure 3 points to percentage changes in the Gini coefficient over roughly a decades' time in various countries. Once again, the PRC is only pipped by Nepal:

However, the ADB qualifies these findings by noting that it is not so much that inequality is increasing because the "rich are getting richer and the poor are getting poorer" but rather the "rich are getting faster than the poor." From a developmental perspective, the ADB's concern is that this lopsided distribution lessens the poverty reducing impact of a given amount of growth. Thus, the ADB advocates the adoption of more egalitarian policies among Asian nations. Given the widespread international distaste for warmed-over "neoliberal" policies, the ADB is not unique among international development agencies in advocating for more inclusive, less lopsided growth and a prominent role for governments in shaping social policy. Better publicly offered health and education, better anti-corruption measures, etc. You know the spiel. To be fair, I'd make pretty much the same recommendations--as would any reasonably sane person. As always, however, it's the implementation that matters and fancy charts and glossy reports won't tell us how to get it done. Cultural and historical awareness coupled with realistic goals that achieve good buy-in among various stakeholder groups is what's likely needed, but I'm throwing in my own set of buzzwords "inclusive growth":

Meanwhile, this China Daily article summarizes the points raised by the ADB well on how globalization in the form of educational and skill disparities may play a role in growing inequality:

Inequality is rising across most of Asia, darkening growth prospects and increasing the risk of potentially violent social strains, the Asian Development Bank said on Wednesday.

The bank blamed the widening gap partly on globalization, which it said favors the well educated at the expense of the less skilled, and recommended a range of policies to redistribute wealth and create more equal opportunities.

"The rise in inequality we see in Asia today constitutes a clear and present danger to the sustained growth of Asian countries," Ifzal Ali, the ADB's chief economist, told a news conference in Beijing to launch the report.

The Manila-based lender said incomes were most unequal in Nepal, emerging from a decade-old civil war, and China.

China's Gini coefficient, a standard measure of income inequality, soared to 47.3 in 2004 from 40.7 in 2003 and is now at a level more typical of Latin America, according to the ADB.

In a society where income was perfectly distributed, the Gini coefficient would be zero; if all the income was concentrated in the hands of one person, it would be 100.

The gulf between rich and poor shows up in other ways. India has a lower Gini coefficient of 36.2, but among its poorest families as many as 28 percent of children are severely underweight compared with 5 percent for the richest households.

India is a good illustration of the impact of globalization on income distribution. While wages for English-speaking graduates are rising fast as India's information technology sector thrives, pay for unskilled labor is stagnating.

"Widening differentials in earnings of the college-educated vis-a-vis less-educated individuals appear to be the single most important observable factor accounting for increasing inequality," the ADB said.

The bank said its findings did not mean Asia should turn its back on integration into the world economy or on market reforms.

Rather, "enlightened and active" state policies were needed to give everyone a fair crack at enjoying the fruits of rapid growth and to halt the trend of the rich getting richer faster than the poor. Reversing a decline in public services was key.

To help the poor, the ADB called for more public investment in agriculture, access to basic health services and a switch in spending from tertiary to primary education.

Alluding to the power wielded by Asia's rich elites, the ADB also said there was a need to recognize and limit "the very real danger that concentrations of income and wealth pose for social cohesion and growth-promoting policies and institutions".

The bank's report, "Key Indicators 2007", acknowledged the formidable challenge of crafting policies that spread income in a way that does not sap growth.

In addition to Nepal and China, relative inequality has increased sharply in Cambodia, Sri Lanka, Bangladesh and Laos over the past 15 years, the ADB said.