Income Disparity Growing in Asia

Back at my desk after over two weeks of holiday and wanted to get at least one post out before responding to some comments that seemed to call for a reply and getting back in touch with news and commentary.

The Asian Development Bank issued a report that found that income inequality is on the upswing in Asia. 15 countries showed a rise in the difference in incomes of the rich and poor, while only 7 saw a decline. And the countries with the largest populations, namely China and India, are among those exhibiting a larger gap.

While the report noted that the level of poverty was declining, in many countries the gulf between the haves and have-nots is getting so large as to have the potential to lead to political instability.

From the BBC:

The gap between rich and poor has widened sharply in China and many other Asian countries as their economies have boomed, research has suggested. The Asian Development Bank (ADB) found that relative inequality had widened more substantially in China than any other Asian country except for Nepal.

Other countries with rising wealth gaps include India, Cambodia and Sri Lanka.

More spending was needed on education, training and healthcare to alleviate the situation, the ADB argued.

The bank said the main reason for widening wealth gaps in recent years was the discrepancy in investment between urban and rural areas which favoured better-educated, better-off urban populations.

Improvements in rural infrastructure were being held back by government policies which deterred private investment.

Relative inequality, measured as the change in proportionate differences in income between the richest and poorest in society, has risen in 15 countries studied since the early 1990s, according to the bank’s Key Indicators 2007 report.

In only six – Indonesia, Mongolia, Malaysia, Kazakhstan, Armenia and Thailand – did it narrow over the period in question.

Although basic poverty levels have fallen as Asian economies have expanded, the living standards of the wealthiest in society have improved at a much faster rate, leaving the poorest lagging even further behind.

While increased income disparities were not unusual in countries such as China experiencing rapid economic growth, the ADB said such extreme differences were socially harmful.

“In a region as dynamic and vibrant as developing Asia, low growth in incomes of the poor is reflective of weakness in the pattern of growth,” said Ifzal Ali, the ADB’s chief economist.

“Growing inequalities can weaken social cohesion.”

Urban-dominated growth in China and India has caused social friction as a result of the high levels of migration to cities and a shortage of foreign investment in more isolated areas.

But the ADB said the answer was not to try and turn back the tide of globalisation but to ensure employment opportunities were made more widely available.

“Inequalities in life start early and they begin with extreme circumstances that deny millions the opportunity to have adequate nutrition, health and basic education,” it noted.

Governments must ensure their health and education programmes were “targeted” and implemented in a way which did not destabilize the overall economy, the bank added.

The report in focused on China and was more pointed in discussing social and political implications:

China has had Asia’s second-biggest and second-fastest-growing wealth gap since the 1990s, exceeded only by war-wracked Nepal on both counts, the bank said in an annual survey.

China has seen thousands of protests in recent years, some of them violent, over land seizures and other economic grievances blamed on the growing gap. The communist government has made improving incomes for the poor a priority, warning last year that inequality has reached “alarming and unacceptable” levels.

“High inequality, particularly high absolute levels of inequality, leads to a disruption in social cohesion. You could have street demonstrations which could lead to violent civil wars,” Ifzal Ali, the bank’s chief economist, said at a news conference.

Ali said it was inappropriate to speculate when asked whether China should expect worse unrest. But he cited the experience of Nepal, where he said a recently ended, decade-long civil war was most intense in areas with highest inequality.

Tensions over China’s growing gap between an urban elite, who have profited most from two decades of economic reform, and the poor majority are a key political issue for communist leaders. They have promised to spread prosperity by spending more on social programs for the countryside and the urban poor.

Ali said China’s poorest people have benefited from its boom – which saw the economy expand by 11.9 percent last quarter – but incomes for the richest 20 percent have grown much faster.

Cambodia, Sri Lanka and Bangladesh also saw rapid growth in the gap between rich and poor, the bank’s report said.

China’s Gini coefficient, a measurement of inequality in income distribution, was 47 in 2004, the most recent year for which figures were available, up from 40.7 in 1993, according to the bank.

That brought China close to the levels of Africa and Latin America, which have the greatest inequality, Ali said….

[T]he gap could slow the spread of prosperity, because the poorest people have less access to education, health care, bank loans and other things needed to benefit from economic growth.

“Increasing inequality lowers the impact of economic growth on poverty reduction,” said Ali

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