May 13th 2010 | from the print edition of The Economist | Banyan
Editor's note: I've witnessed first-hand that wealth in emerging countries does not distribute itself equally and so Banyan's article really strikes a chord. It's hard to see politicians being driven in Mercedes limousines on your way to slums occupied by millions of citizens of the same country. His key point - "income inequality matters" is as clear to me as the restaurant business point (that so few remember) that treating your employees well leads to great customer service. Instituting complex systems such as equal education access in such developing economies is a gain for all, not just the working poor. [more]
SHINY Asia’s rapid economic growth over the past two decades, driven by cheap land and labour, technological change and the play of globalisation, has had a spectacularly improving effect on the lives of hundreds of millions. Since 1990 the number of those in extreme poverty, defined as earning less than $1 a day, has been halved, to under a fifth of developing Asia’s people.
So far so miraculous. Yet the shiny face has a tarnished flip side. Poverty and the vulnerabilities associated with it remain entrenched. Further, inequalities are rising fast. The realisation is spurring a rethink among development experts. Until recently, economic growth and social policy were thought of separately. Inequalities and social exclusion, as Sarah Cook of the United Nations Research Institute for Social Development puts it, were viewed as a residual outcome of necessary market-led growth. The development response was to get markets right first and then deal with any remaining pockets of the poor. Persistent poverty and growing social exclusion call the approach into question.
China and Vietnam have seen huge improvements but in South Asia extreme poverty remains widespread. What is more, Ifzal Ali and Juzhong Zhuang of the Asian Development Bank (ADB) argue, when measured by a $2-a-day threshold, Asia’s performance in cutting poverty is less impressive, with about half of developing Asia remaining poor, and so susceptible to natural disasters, global economic turmoil and daily uncertainties.
Almost everywhere, success is inequitably shared. Measured by the Gini coefficient, income inequality has leapt in Bangladesh, Cambodia, Nepal, Sri Lanka and China. The few countries where inequality has not worsened, notably Indonesia, Malaysia and Thailand, were those worst hit by the Asian financial crisis of 1997-98—hardly a commendation.
Income inequality matters. For one, it entrenches discrimination in other areas, such as access to education and health care. Child mortality, school enrolment and the like have improved more slowly than have straight measures of poverty. Second, exclusion raises social and political tensions. The evidence lies not only with persistent armed conflicts, especially in South Asia. In China, President Hu Jintao’s call for a “harmonious society” recognises the risks from growing inequalities between regions, between cities and the surrounding countryside, and within cities.
Yet a seminar at the ADB’s annual meeting in Tashkent this month brought home how hard it is to agree on a common framework for ensuring “inclusive” growth and social protection. True, imaginative policy is multiplying. In 2001 the then prime minister of Thailand, Thaksin Shinawatra, introduced universal health care, a radical move. Known as the 30-baht project after the co-payment patients had to make, it was too popular to scrap even after Mr Thaksin was ousted in a coup. Indeed, the co-payment has since been abolished. Since 2005 Indonesia has won praise for cash-transfer schemes directed at the country’s 19m poorest households at a time of rising food and fuel prices, followed by global turmoil. To pay for the scheme, the government slashed subsidies on fuel that, as ever, mainly benefited the rich.
The most ambitious social-protection scheme is India’s National Rural Employment Guarantee Act (NREGA). Every rural household has the right to 100 days of work a year spent improving village infrastructure such as irrigation systems. In 2009 some 50m Indian households signed up, in places slowing migration patterns from poor to rich regions. The long-run benefits of such schemes, however, remain unclear. In the case of Indonesia, indicators for health and education remain dismal. As for the NREGA, even in the short-term demand for work outstrips supply and wages and benefits are often paid late or not at all. Ms Cook says that the scheme misses a trick by not building schools and redeveloping slums. And that the scheme was needed at all is a consequence of India’s abject failure to create enough jobs.
This begs a closer look at the political roots of social exclusion. At the ADB meeting several angry Asians blamed, for the umpteenth time, the IMF’s harsh adjustment programmes following the Asian financial crisis. They might instead look closer to home. Commendably, China is attempting a dramatic expansion of health care and other social welfare, largely by imposing obligations on county governments. But in failing to provide portable benefits, the government excludes the country’s hundreds of millions of rural migrant workers, treated as second-class citizens in the cities which they have largely built.
Get your political house in order
And it is one thing to build a new road, but quite another to put in place complex new systems providing social security. In China, with mounting inequalities and disparate interests that need accommodating, it is not clear that the country’s political system, top-heavy and authoritarian, is up to the task. Not that democracies have fared much better: witness India, Indonesia and the Philippines, where the presidential election this week underscored how power and wealth lie in the hands of a few families.
They do, however, offer the poor a better chance of genuine electoral retribution; unlike, for example, most Central Asian countries. Until April’s coup in abject Kyrgyzstan, the ruling clan attempted to commandeer almost the entire state economy. And in Uzbekistan, the ADB’s host this month, the regime shows more interest in its own survival than in citizens’ well-being: shadowy business groups control much of the economy, and Soviet-style agriculture is chiefly a tool of social control, to keep pesky people out of the cities. It all throws light on why development experts struggle to devise frameworks for social inclusion: they would not be in business if they took rulers to task over their unwholesome politics.