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Addressing Inequality: Strategies for Equitable Growth in Asia-Pacific

This document analyzes the challenges of rising inequality amid economic growth in the Asia-Pacific region, highlighting two major trends: the global economic crisis and the correlation between state and market dynamics. It presents statistics indicating that a significant number of Asian economies have a Gini index above 40 and discusses the decline in labor income share. Key consequences of increasing inequality, such as social instability and financial crises, are outlined, alongside actionable recommendations for enhancing wage growth, restructuring fiscal policies, and implementing more progressive taxation.

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Addressing Inequality: Strategies for Equitable Growth in Asia-Pacific

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  1. Towards Equitable Growth Dr. Mah-Hui LIM Asia-Pacific CSO Consultation on a Just & Transformative Development Agend Bangkok August 23-24, 2013

  2. Two Mega-Trends/Issues in 21st Century • Rising inequality amidst growth • What’s the relationship between state and market?

  3. International Context • International economy in worst crisis since Great Depression • Global slow growth hitting Asia economies esp the export-led ones • Asia’s growth, like elsewhere, accompanied by rising inequality • Trickle down theory of growth - discredited

  4. Inequality Statistics in Asia & Pacific • 13 of 36 Asian economies had Gini index of 40 and above • 11 Asian economies with 82% of Asia’s population experienced worsening inequality

  5. Countries with High Inequality

  6. Countries with Rising Inequality

  7. Why Is Inequality Increasing?- Functional Income Distribution • Not simply technology, trade, skills, education, social services etc • More fundamental – the way income is distributed btw capital and labor • 3 approaches to GDP – • Expenditure Y=C+I+G+X-M • Production Y= Agr+Ind+Services • Income Y= Lab+Cap+Tax-Subsidies

  8. Declining Share of Labor Income in 5 Asian Economies

  9. Why Is Labor Share of GDP Declining? • Wage Growth falling behind Productivity Growth due to globalization forces: • Global arbitrage of labor with >1 billion entrants into global lab market • Declining bargaining power of labor • Export-driven growth based on wage competitiveness = wage & labor repression

  10. Korea – Productivity Growth vs Wage Growth

  11. Malaysia Productivity vs Wage Growth – Manufacturing Sector

  12. China – Productivity Growth vs Wage Growth

  13. Consequences of Rising Inequality • 1) Social and political instability • “If wages for the average U.S. worker do not start to rise more quickly, political support for free markets may be undermined (Greenspan: 2007) • 2) Unsustainable Growth–IMF study • While its possible to produce growth spells.. Income distribution is the most robust predictor of sustained growth

  14. Consequences of Increasing Inequality • Financial Instability • Under-consumption for majority & with financialization > debt bubble • Over-saving & financial investment for minority > asset bubble

  15. What To Do? Ex-Ante • Wages rise with productivity growth to support healthy aggregate demand- should not be less than or more than to be sustainable • Minimum wages based on average productivity plus inflation • Countries coordinate on exchange rate and wage rates rather than each offering lowest wage & racing to the bottom

  16. What to do ex-post • Restructure fiscal system • Change tax system is now favoring capital rather than labor • Higher capital gains tax, death duties • More progressive income tax • More social spending on education, health, public transportation, social security etc

  17. THANK YOU

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