Narrowing inequality for growth in S-E Asia

Aekapol Chongvilaivan

THE distributional consequences of economic growth and development in South-east Asia have been the centrepiece of public and policy debates. Rising inequality has evidently posed a serious threat to inclusive growth and the accomplishment of the Millennium Development Goals (MDGs).

The region is in a critical juncture when ensuring that all equitably enjoy fruits of growth. Although the past two decades witnessed a persistent decline in poverty in the region, it has been apparent that the income of the rich increases at a much faster pace than that of the poor.

According to the World Bank's recent Gini estimates, income distribution is the most uneven in Cambodia, Malaysia, the Philippines and Thailand; whereas inequality in Indonesia, Laos and Vietnam is on a par with the levels of the fast-growing economies such as China and India.

What are the catalysts of escalating inequality in South-east Asia? First and foremost, unequal access to education, particularly tertiary and vocational, is by and large translated into unequal access to opportunities and, ultimately, high-pay jobs.

In Cambodia, Myanmar and Vietnam, a mere 10 per cent of people have access to higher education, in contrast to 86 per cent in the United States and approximately 60 per cent in Japan and the United Kingdom.

The Asian Development Bank (ADB) estimated that overall inequality will reduce significantly by 13-16 per cent should educational disparities be tapered.

Domestic policies and reforms also bear the blame. The export-led growth strategies that most South-east Asian economies thrive on have often been accompanied by policy pushes such as exemption of taxes on capital gains, establishment of industrial parks and capital account liberalisation.

These incentives are inherently regressive as they boost returns to owners of capital - the minority of population - thereby exacerbating income polarisation.

Additionally, social protection in developing South-east Asia is problematic. The coverage is limited, and the levels of benefits do not suffice to shield the poor against the ripple effects of negative shocks. The arising inefficiencies are attributable largely to their limited fiscal space for social safety nets, which in turn puts sustainability of the social protection programmes at risk.

The last driving factor of inequality rests with untamed corruption and deprived institutional quality. They have allowed the rent-seeking among the elites and people in power to take surpluses away from the majority of the societies through disguised policies and reforms.

According to the World Bank's Worldwide Governance Indicators, among the 10 South-east Asian countries, only three - Brunei, Malaysia and Singapore - outperform the average control of corruption in the countries with the same levels of development, while the rest noticeably lag behind.

If the surging inequality remains unaddressed, economic potentials in South-east Asia will soon reach the limit through deteriorating political stability and social cohesion, on top of resource misallocation and excessive concentration of wealth. Several policy options shed light on a panacea for ever-increasing disparities in the region.

Putting in place impartial access to education is perhaps the most prerequisite. It is essential that educational policies are well targeted at pushing forward higher education such as vocational schools and universities, which effectively augments labour productivity and enables the low-income groups to catch up with the high-income counterparts.

Inclusion and equity need to be incorporated into every aspect and pace of economic development. Inclusive growth, however, is easier said than done. Ironically, redistributive policies and social transfers, among others, have been abused to uphold political support and power without real impact on income redistribution. Hence, inclusive growth that encompasses every aspect of equitable opportunities for all will not be viable without a strong commitment to inclusion and equity, particularly at the policy-making levels.

Addressing the issues of pervasive corruption and flawed institutions necessitates the enhancement of political voice and accountability. The regional governments are in dire need of addressing political - in addition to social and economic - inclusion and participation which usher in equitable access to formulation and inspection of policies and reforms, and strengthen transparency of political and regulatory procedures.

Finally, government interventions are vital to abating unevenness of income distribution. The avenues of social expenditures that appear derisory in many South-east Asian countries include employment and unemployment benefits, insurance against work-related risks and illness, provisions and subsidies of health services, family allowances, child development programmes and public housing schemes.

South-east Asia has been hard pressed by unprecedented inequity. A right mix of policy interventions holds a key to effectively bridging the disparities and redirecting sustainable development and inclusive growth back on track.

The writer is a fellow and coordinator at the Institute of South-east Asian Studies