The View From Asia

Towards more balanced distribution of economic gains

Commentators take up the issue of income inequality, which is on the rise in several countries. Here are excerpts from Asia News Network papers:

High inequality: Problems linger

Abdul Manap Pulungan
The Jakarta Post, Indonesia

Although Indonesia's economic growth in recent years has resulted in the reduction of poverty and unemployment rates, inequality remains high.

In 2000, about 38.7 million people or 19.1 per cent of the total population lived below the poverty line. Last year, the number dropped to 27.76 million or 10.7 per cent of the population. The unemployment rate also fell from 6.08 per cent in 2000 to 5.61 per cent last year.

However, inequality remains high as indicated by the country's Gini coefficient. The Gini coefficient is the most popular gauge of inequality, which marks 0 as perfect equality and 1 as complete inequality. In some countries, the Gini coefficient is generated from income data but in Indonesia, it is based on expenditure data.

Determining the Gini coefficient with expenditure may produce an undervalued result as respondents tend to under-report their expenditures.

A recent report released by Credit Suisse placed Indonesia as the fourth-most unequal country, with a disparity rate of 49.3 per cent. According to the report, 1 per cent of the richest people in Indonesia control 49.3 per cent of the assets. Russia was ranked first (74.5 per cent), followed by India (58.4 per cent) and Thailand (58 per cent).


In Indonesia, about 27.76 million people or 10.7 per cent of the total population lived below the poverty line last year. PHOTO: AGENCE FRANCE-PRESSE

The latest publication released by Oxfam Indonesia and the International NGO Forum on Indonesia Development places Indonesia as the sixth-worst country in terms of income inequality. Furthermore, the wealth of the four richest people is equal to the wealth of 100 million people.

The fundamental problems behind the increasing inequality are related to the imbalance of economic access between the richest and the poorest.

Furthermore, the richest people have easier access to government bureaucracy to tap natural resource businesses.

The rising inequality is also caused by the government's failure to maintain the price stability of (goods and services to meet) people's basic needs.

It is necessary to enhance the quality of human resources. The government should focus not only on infrastructure investments but also on humans.

Investing in humans embraces all aspects of the labour force, from funding to school curricula.

Adopt inclusive policies

Ramon Navaratnam
Sin Chew Daily, Malaysia

Prime Minister Najib Razak is right to "uplift the bumiputeras to a respected level in society". In fact, a great deal has already been achieved by the government over the years, especially since 1970.

Datuk Seri Najib also emphasised this important government commitment at the opening of the Bumiputera Education Tour (JPB) at the Bera district council field. His noble goal is "to help students from low-income families and rural areas to enter higher education institutions".

But Mr Najib, the public and especially the non-bumiputeras will ask the vital question: Will the JPB programme include bright but poor and urban non-bumi students, or will it be exclusively for the bumis?

If the JPB programme is to apply exclusively to bumi students, then we are planting the seeds for disunity and a failing state.

I agree with the Mr Najib's claim that Malaysia is not a failed state. But we can become a failing and even failed state if our public policies continue to be race- and religion-based and not income- and needs-based.

Misplaced optimism

Idrees Khawaja
Dawn, Pakistan

The PricewaterhouseCoopers (PwC) report The World In 2050, which came out a few weeks ago, forecasts Pakistan as the world's 16th largest economy - in terms of gross domestic product - by 2050, ahead of Italy and Canada.

The forecast is perceived by some to mean that Pakistan is on course to becoming a developed economy. However, a large economy is not necessarily a developed economy. India is the world's third-largest economy, much ahead of Canada, but that does not mean it is more developed than Canada.

While development is a broader and somewhat abstract concept, a larger economy is one that has greater GDP relative to others. Other things being equal, the greater a country's population, the greater its GDP.

There is not much to cheer about in being a larger economy, if being larger is due to an increase in population that earns little.

PwC has projected the GDP of 32 countries using mostly a single set of assumptions. One is that countries will follow growth-friendly policies. This is a big "if", and what makes it even bigger is that we seem to be unsure which policies are growth-friendly and which ones are friendlier.

For example, building motorways, on which negligible cargo traffic plies, versus putting the 25 million out-of-school children in schools - which one is a growth-friendly policy and which one is friendlier?

Are we following growth-friendly policies? Youth bulge, that is, more people entering the working-age bracket than leaving it, and the level of inequality are the two ticking bombs that may embarrass PwC on the projected size of Pakistan's economy. Its report says that a huge increase in working-age population delivers a "demographic dividend". However, this depends upon whether the young people entering the job market will manage to find a decent job.

A body of literature suggests that income inequality impedes growth through various channels. The PwC report also cautions that high inequality in some countries could be a huge drag on their economies.

Quoting research, it argues that a 1 per cent increase in the income share of the top 20 per cent will decrease GDP growth by 0.08 percentage points in the following five years, while a similar increase in income share of the bottom 20 per cent will increase GDP growth by 0.38 percentage points.

While including domestic (economic) policies as drivers of inequality, the report tells us that mass education, heavy taxation of the rich and large social transfers (from rich to poor) reduced inequality from 1945 to 1980 in a number of countries.

Inequality measured by the Gini coefficient has increased significantly over time in Pakistan.

The question then is: Should we expect inequality-reducing policies in years to come?

Our GDP in 2050 crucially hinges on this assumption.


  • The View From Asia is a weekly compilation of articles from The Straits Times' media partner Asia News Network, a grouping of 22 news media entities. For more, see www.asianews.network
A version of this article appeared in the print edition of The Straits Times on March 18, 2017, with the headline 'Towards more balanced distribution of economic gains'. Print Edition | Subscribe