Asia’s exclusive growth is leaving too many behind
Vinod Thomas says poor must have a stake to sustain economic success
In two decades of spectacular economic growth and poverty reduction, Asia has nonetheless seen income inequality rising by more than 20 per cent - a growth pattern that cannot be considered inclusive. A shift to more inclusive growth that taps the contribution of people at all income levels, not just the better-off, would not only be socially desirable but also help sustain growth itself.
Overall growth has failed to translate into similar improvements in living standards. One indication that growth is not reaching a broad enough segment of the population is relatively weak household consumption. Estimates suggest this grew only 5.7 per cent annually in the 1990s and 5.5 per cent in the 2000s in the region, even as gross domestic product surged 9 per cent and 8.2 per cent respectively in the two decades.
China's minimum livelihood guarantee scheme became official policy in 1999 and is one of the largest cash transfer programmes in the developing world
This is particularly troublesome for countries attempting to expand domestic consumption and bring the benefits of growth to more people, such as in China. As a measure of rising inequality, China's Gini coefficient has gone up from below 0.3 in the 1970s to above 0.47 in recent years. China faces a yawning income divide, separating richer urban areas in the eastern coastal regions from western inland areas.
Another part of the problem is that many lower-income groups have inadequate access to basic services in health care, education, or safe drinking water and sanitation, leaving them ill-equipped to participate in economic advancements. This is evident in case studies from Pakistan, the Philippines and Vietnam in a recent report, "ADB's Support for Inclusive Growth" from Independent Evaluation at the Asian Development Bank.
Greater inclusion requires nations to do a better job of delivering social services. China, India, Indonesia and the Philippines need to improve organisational structures while combating corruption. In doing so, they also need to ensure the current trend for decentralising responsibilities is matched by a transfer of fiscal and human resources to lower-level governments.
Better provision of services also requires governments to boost their fiscal space and ability to finance them. China would benefit from measures to expand the tax base, boost the formal (and therefore taxable) sector of the economy, improve tax administration and curtail tax evasion.