Growing inequality challenges sustainable Asia-Pacific growth

The growing disparity in incomes and access to social opportunities in Asia-Pacific developing countries not only threatens social stability but is also a key constraint to the region’s economic dynamism, according to Survey 2014. Latest data from about 40 countries in the region show that the poorest 20 per cent of the population have less than 10 per cent of national income. Between the 1990s and 2000s, the share of the poorest fifth of the population in national income declined in Bangladesh, China, India, Indonesia, Malaysia and Turkey.

High income inequality seriously undermines the economic and social achievements within the region. Thus, the 2012 GDP per capita (PPP 2005 United States dollars) of Singapore would decline from $53,266 to $28,071 when adjusted for inequality and from $7,958 to $4,472 for China.

ESCAP analysis of data from 26 economies in the region finds household debt levels in the region are associated with inequality. This supports recent international research that shows how lagging income growth leads the poorer sections of society into debt-financed consumption and ironically causes balance of payments crises.

A key challenge in many Asia-Pacific developing countries is to address gender inequality inhibiting full participation by women in public life. “Allowing women and men to work equally in economic activities with equal pay, and realize their full potential, is integral to a nation’s economic resilience and productivity,” notes Survey 2014.

Inequality is also associated with high levels of undernourishment which affected 533 million people in the region in 2013, accounting for about 63 per cent of the world’s hungry people. “Poverty and hunger are intertwined in a vicious cycle since undernourished people are less productive, and are therefore likely to fall into poverty, thus promoting social inequality,” Survey 2014 points out.

Widening income inequality is a result of factors such as weak labour market institutions and social protection systems, poor education and insufficient access to productive resources, like credit and land. Another reason is excessive concentration of assets in the hands of a few. An analysis of ultra-high net worth individuals (UHNWIs) in the region shows that those with assets worth at least $30 million accounted for 30 per cent of Asia-Pacific income in 2013.

About 49,000 persons (around 0.001 per cent of the region’s 2013 population) were classified as UHNWIs and held about $7.5 trillion of net wealth in 2012-2013. In some countries, this class of rich account for half of the GDP. Asia-Pacific UHNWIs own 17 times more wealth than the combined GDP of the region’s least developed countries.

The high and increasing share of the super rich in GDP is a manifestation of the political-business nexus as well as lax financial regulation and tax structures in these countries. Another concern is horizontal inequality between rural and urban areas as well as the coastal and interior regions of countries. “This is particularly worrying for large multiracial countries with significant regional variations, since it can trigger social and political instability,” says Survey 2014.

It advocates increased social protection expenditure to support growth and reduce inequality in the region where half the countries spend less than 2 per cent of GDP on this. ESCAP has designed a social protection ‘toolbox’ to support policymaking for robust social protection systems in the region (