ADB: 'No magic bullet' for addressing economic inequality

    A view of Makati, Philippines. Rising inequality is one of the emerging development challenges that face Asian countries. Photo by: Roberto Verzo / CC BY

    In the face of inequality, we need to rethink economic growth.

    That suggestion, dealt with by French economist Thomas Piketty in his best-seller “Capital in the 21st Century,” has prompted a lively debate with the international aid community, but experts, policymakers and development professionals agree the message remains valid.

    Piketty’s work focuses on inequality in Europe and the United States, but inequality is even more glaring in Asia’s rapidly evolving development landscape. In its 2014 outlook report for the region, the Asian Development Bank acknowledged that technology and market reform — the same forces that set Asia on the path to economic growth and extreme poverty reduction — have also exacerbated the gap between rich and poor.

    An informal survey conducted by the bank in early 2012 confirmed that rising inequality is a concern shared by many policymakers in the region. Around two-thirds of the 504 respondents from 25 of ADB’s developing member countries said the level of income inequality is either high or very high, and more than half noted it has increased in the past 10 years. When asked whether higher income inequality is acceptable as long as poverty is declining, more than 51 percent answered “disagree” or “highly disagree.”

    These concerns are well-grounded. While income inequality in developing Asia is still lower than in other developing regions, the Gini coefficients of 12 out of 30 regional economies with comparable data from PovcalNet, the World Bank’s World Development Indicators and the International Monetary Fund increased in the past two decades. China, India and Indonesia — which account for 82 percent of the region’s population — are included in this group of 12 economies.

    The survey results and research findings are published in “Inequality in Asia and the Pacific: Trends, Drivers, and Policy Implications,” a new book published by ADB and Routledge that served as background material for ADB’s 2012 report on rising inequality in Asia and was launched Thursday in Manila.

    “Rising inequality is one of the emerging development challenges facing many countries in Asia, and hence has been a key topic of the economics and research department's research program in recent years,” Juzhong Zhuang, deputy chief economist at ADB and one of the book’s lead authors, told Devex.

    Inequality, Zhuang said in his presentation, matters because it “slows down the pace of poverty reduction.” To illustrate this point, he noted that if inequality in Asia had been stable over the past two decades, an additional 240 million people in the region would have been lifted out of poverty.

    According to Zhuang, technical progress and globalization — compounded by unequal access to opportunity — favored capital over labor, skilled over unskilled labor, and cities and coastal regions over rural and inland areas. These three different inequalities, meanwhile, have contributed to the widening income gap in the region.

    The ADB specialist offered some recommendations for governments to address these problems: efficient fiscal measures to reduce inequality in human capital, interventions to reduce spatial inequality, growth that is more employment-friendly to increase labor income share and governance reform to equalize opportunities.

    These suggestions are at least a start. Bart Edes, director of ADB’s poverty reduction, gender and social development division, said the book’s policy recommendations “recognize that there is no magic bullet to tackling inequality.”

    ADB, meanwhile, has “poverty reduction and inclusive economic growth” as one of its priorities in Strategy 2020, its seven-year road map for regional economic development that aims for increased investments in education, health care and social protection — key areas the bank has identified as crucial to inclusive growth in the region. While ADB’s 2013 spending on education and health was lower compared with its assistance in other sectors, the bank seems to be steadily meeting the education and health targets it has set for 2020.

    “For ADB, a critical issue we have been considering in recent years is how to sharpen our support for inclusive growth,” Zhuang said.

    Read more development aid news online, and subscribe to The Development Newswire to receive top international development headlines from the world’s leading donors, news sources and opinion leaders — emailed to you FREE every business day.

    About the author

    • Anna Patricia Valerio

      Anna Patricia Valerio is a former Manila-based development analyst who focused on writing innovative, in-the-know content for senior executives in the international development community. Before joining Devex, Patricia wrote and edited business, technology and health stories for BusinessWorld, a Manila-based business newspaper.