IMF Talks Inequality Again

It’s not really their role, but the IMF is shadowing the World Bank’s renewed emphasis on “inclusive growth”:

The Other Rebalancing: Asia’s Quest for Inclusive Growth
By Anoop Singh

For the past two or three decades, rising inequality—inequality of incomes, of economic outcomes and of economic opportunities—has taken a back seat to the goal of boosting overall growth. But growing discontent with the fallout of the global financial crisis has put inequality back on top of the policy agenda. While the symptoms may be different, tackling inequality is no less an issue in Asia.

Indeed, research shows that inequality can be counterproductive to sustaining longer-term growth. So, in increasingly turbulent global economic times, this gives added importance to promoting shared—or inclusive—growth in Asia that is more likely to be sustained...

...Over the past two decades, growth in most Asian economies has been impressive; higher on average than in other emerging regions. This, in turn, has translated into significant reductions in poverty, highlighting the fact that growth in per capita incomes remains the key ingredient to poverty alleviation. Notwithstanding these successes, Asia still remains home to the largest number of the world’s poor.

It may then seem counterintuitive that inequality across the region has also increased over the same two decade period. This sits in stark contrast to the previous three decade record of equitable growth across much of Asia—in Japan, the newly industrialized economies (NIEs), and the Association of Southeast Asian Nations (ASEAN). The rise in inequality has been much more pronounced than in most other emerging regions, leaving parts of Asia less equitable than the Middle East and approaching levels of inequality in Sub-Saharan Africa and Latin America.

Rising inequality has dampened the impact of Asia’s fast growth on poverty reduction and, in many countries in the region, the gap between rich and poor has been growing.

Our analysis confirms that growth has been significantly less inclusive in many Asian economies. The income of the bottom fifth of the population has grown much more slowly than average incomes in China, the NIEs, and South Asia (excluding India). By contrast, in India and the ASEAN countries, incomes of the poorest fifth have kept pace with average income growth. And in Brazil, the poorest fifth have seen their incomes rise even faster than average, highlighting the much more equitable nature of its recent growth experience.

Based on this, Malaysia’s record is…ok. But the basis of comparison is average income growth, not the distribution of income. And, as I was just discussing with someone over lunch, it’s the levels that matter not just the rate of change.

So even if in the past two decades measured inequality has not changed, that doesn’t mean we can’t or shouldn’t do something about it.