Inequality in Asia: the Case for Inclusive Growth
Asia , July, 22 2016 -
Regional cooperation can also play a catalytic role in mobilising broad support and creating peer pressure for important causes directly related to critical economic, social and environmental issues.
Asia’s successful economic performance has lifted millions out of poverty. Because the region’s high population countries such as China, India and Indonesia grew particularly fast, the number of poor declined substantially for the region as a whole. Nineteen out of 33 economies more than halved their extreme poverty rate in the same period. But poverty remains a stubborn challenge in many countries. The region remains home to two-thirds of the world’s ‘extreme’ poor living on less than US$1.90 a day, with evidence pointing to deteriorating income inequality in recent years.
Sustained growth is essential, but growth alone is insufficient for poverty reduction and, at times, exacerbates inequalities. Given the uncertainties over the strength of the global economy, inclusive growth in developing Asia is imperative, not only for the region’s own prosperity but also for a balanced and resilient global economy.
Equality of opportunity and social equity — together with social protections against market and employment transitions — are an essential element for sustaining growth and reducing poverty. Inclusive growth is about both the pace and the pattern of growth. Inclusiveness emphasises equity — together with equality of opportunity and social protections against market and employment transitions — as an essential element for sustaining growth and reducing poverty.
Increasing the pace of growth while fostering inclusive growth requires a focus on broadening the participation of people, especially the poor and excluded, in economic activities. It requires sharing the benefits from within by providing a level playing field for all economic actors and increasing productive employment opportunities.
Education and health, which directly improve the quality of life, are also critical for human development and inclusive growth. Education enhances labour productivity, increases returns on capital and promotes innovation. Health can also advance growth through its contribution to human capital. Healthier individuals are more productive — they learn more effectively, work longer and apply skills more economically.
The challenge for policymakers is to broaden the reach of socioeconomic benefits along with rapid economic expansion. Any successful strategy for inclusive growth should address augmenting human capital and providing adequate social protection, as much as strengthening physical and social infrastructure and improving the efficiency of resource utilisation.
But structural impediments prevailing in developing countries often constrain inclusive growth. These include barriers to education, health and infrastructure, where more proactive public policy interventions are needed. A key instrument for inclusive growth is productive employment. More conscious policy efforts must be made to create quality jobs.
Because a large share of the region’s poorest work in the agricultural sector and in small- and medium-sized enterprises, removing impediments to, and increasing productivity in, these sectors is essential for the creation of productive employment and hence sustained poverty reduction. This means paying greater attention to the development of the rural sector, especially agriculture, by generating economic opportunities and fostering a business and investment friendly environment for small- and medium-sized enterprises in general.
The private sector is an important player in making growth more inclusive, but public policy interventions can help build the necessary legal and institutional framework that will enable the private sector to flourish.
There are mutually reinforcing policies that can tackle growth and inequality more effectively. In the short term, the policy for inclusive growth may be focused on switching macroeconomic expenditures around to improve income distribution relative to potential output — including government taxes on income and public spending on social programs. In the medium to longer term, the sustained reduction of poverty and income inequality will hinge on policies that help engineer growth that creates jobs and economic opportunities.
Nationally, designing and adopting an appropriate set of structural reforms and social policies will be a first step to promote economic opportunities and jobs, while ensuring that the resulting growth and economic benefits are shared widely. Regionally, it is important to strengthen policy cooperation and facilitate economic and financial integration aimed at creating jobs, enhancing productivity and building resilience.
Economic integration may have had adverse impacts on some sectors and communities, even when its overall effect on the economy is positive. The benefits of economic integration have often been unequally distributed. Urban areas that are attractive for businesses and factories advance faster than rural areas in the process of industrialisation. Coastal areas with easier access to overseas markets may grow faster than inland areas. People with desired skills will do well, especially the young, who can learn and adopt new technologies and have greater mobility both within and beyond borders.
Developing Asia must forge more forceful collaboration to maximise the opportunities arising from strong regional dynamics. There are great opportunities to be exploited through further regional cooperation for shared prosperity.
First, the strengthening of regional trade and financial ties must be effectively leveraged to bring poor countries together in regional business and production networks. Connectivity, both physical and human, can enable the poor to take advantage of regional economic and social networks, enhancing job opportunities and improving their welfare.
Second, international migration should be given particular policy attention. Migration presents large potential benefits for both the receiving and sending countries, especially through alleviating poverty among the families left behind via remittances. While cross-border labour migration should be promoted and facilitated with appropriate rules and regulations, cooperation is required to protect the basic rights and welfare of migrant workers and to stop human trafficking.
Third, investing in regional public goods — infrastructure, healthcare and the environment — helps to more effectively and efficiently tackle the common challenges facing regional economies. Effective investment in regional public goods will turn the region into an attractive place for business, investment and living.
Regional cooperation can also play a catalytic role in mobilising broad support and creating peer pressure for important causes directly related to critical economic, social and environmental issues. Strong policy coordination on the back of sharing knowledge and experience could promote best practices and maximise policy effects in addressing these critical issues.