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Rising inequality a danger for Asia: ADB

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

business Updated: Aug 08, 2007 17:26 IST
Alan Wheatley
Alan Wheatley

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 globalisation, which it said favours 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 globalisation on income distribution. While wages for English-speaking graduates are rising fast as India's information technology sector thrives, pay for unskilled labour is stagnating. Continued...

"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.

Englightened policies, please

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 recognise 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.

"But the need for redistributive policies will not go away -- especially if increasing inequalities turn out to be an enduring feature of developing Asia over the next two or three decades." Continued...

In the absence of such policies, political pressure for a fairer share-out of wealth could lead to everything from peaceful street protests to violent civil war -- as shown in Nepal.

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.

Absolute inequality -- measured by actual dollar differences in incomes -- has also increased virtually everywhere, with the richest 20 percent of Asians enjoying much bigger increases in living standards than the poorest 20 per cent.

This trend was evident even in countries like Indonesia and Malaysia where relative inequality had declined, the report said.

First Published: Aug 08, 2007 15:14 IST