Winners of "Asia's Challenge 2020" Essay Prize

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Which brings me to the question of this essay. If there is one challenge above all others that policymakers in the region need to address within the next decade, it is this: rising economic inequality. The only way for countries to ensure that their economic growth is sustainable and remains so through their own future and that of their children is to offer Inclusive Development to their citizens.

Economic Inequality

A new measure of global poverty — the Multidimensional Poverty Index — recently made headlines when it pronounced that "eight Indian states account for more poor people than in the 26 poorest African countries combined." (3) Quite a surprise given the contrast between the images that underprivileged Africa usually conjures — that of parched landscapes and malnourished children — and the beaming headlines Indian businesses generate in the pages of the world's business and financial dailies.

But the least confounded were those living in India itself. There, poverty moves alongside opulence like chocolate in a marble cake. BMWs and Mercedes run over fly-overs that shelter shanty towns and slums. And beggars beseech the drivers and the driven when the same cars stop at the next traffic light. The top 10% of India's population possesses 31.1% of the country's income, but the lowest 10% has access to only 3.6%. (4)

The numbers don't get much better if look across the northern border to the country's larger neighbor. According to a Credit-Suisse sponsored report released earlier this year, the average per-capita income for the richest 10% in China is 65 times higher (thrice as compared to even the official estimate) than the bottom 10%. (5)

And yet, static snapshots tell only half the story. Bad becomes far more unsettling if it gets worse over time. And that is exactly what's happening with inequality in Asia. The GINI coefficient of income — a commonly used measure of income inequality — for most Asian countries has only gotten worse through the 1990s, as shown alongside. It isn't quite as much the case of the "rich getting richer and the poor getting poorer" as it is of the "rich getting richer faster than the poor." (6) Nevertheless, worsening inequality does not bode well for many countries riding the waves of economic success in Asia. Figure Source: See 17

A 2007 report by the Asian Development Bank identifies a litany of problems — economic, political and social, associated with rising inequality. (6) According to the report, in imperfect financial markets — a category even the most open of Asian economies belong to — inequality can trap the poor in an inescapable spiral, shutting them out from access to credit, education or business opportunities. To add to this, rising inequality increases pressure to redistribute income, adding potentially distorting mechanisms and making the markets even less perfect. The report declares that in the long run, "a high level of inequality may actually hinder... growth and development prospects."

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