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Asia's exclusive growth is leaving too many behind
In two decades of spectacular economic growth and poverty reduction, Asia has nonetheless seen income inequality rising by more than 20 per cent - a growth pattern that cannot be considered inclusive. A shift to more inclusive growth that taps the contribution of people at all income levels, not just the better-off, would not only be socially desirable but also help sustain growth itself.
Overall growth has failed to translate into similar improvements in living standards. One indication that growth is not reaching a broad enough segment of the population is relatively weak household consumption. Estimates suggest this grew only 5.7 per cent annually in the 1990s and 5.5 per cent in the 2000s in the region, even as gross domestic product surged 9 per cent and 8.2 per cent respectively in the two decades.
This is particularly troublesome for countries attempting to expand domestic consumption and bring the benefits of growth to more people, such as in China. As a measure of rising inequality, China's Gini coefficient has gone up from below 0.3 in the 1970s to above 0.47 in recent years. China faces a yawning income divide, separating richer urban areas in the eastern coastal regions from western inland areas.
Another part of the problem is that many lower-income groups have inadequate access to basic services in health care, education, or safe drinking water and sanitation, leaving them ill-equipped to participate in economic advancements. This is evident in case studies from Pakistan, the Philippines and Vietnam in a recent report, "ADB's Support for Inclusive Growth" from Independent Evaluation at the Asian Development Bank.
Greater inclusion requires nations to do a better job of delivering social services. China, India, Indonesia and the Philippines need to improve organisational structures while combating corruption. In doing so, they also need to ensure the current trend for decentralising responsibilities is matched by a transfer of fiscal and human resources to lower-level governments.
Better provision of services also requires governments to boost their fiscal space and ability to finance them. China would benefit from measures to expand the tax base, boost the formal (and therefore taxable) sector of the economy, improve tax administration and curtail tax evasion.
Progress in greater inclusion could come from further scaling up or replicating some of the promising approaches already in place. China's minimum livelihood guarantee scheme, or dibao, became official policy in 1999 and is one of the largest cash transfer programmes in the developing world. It provides a transfer to registered urban households with incomes below a certain level, and aims to provide a minimum income. Its relative success has allowed its expansion, including most recently to some rural areas.
In the Philippines, a conditional cash transfer scheme provides a maximum annual grant of about US$350 for a family with three school-age children if they meet conditions linked to education and health. By last year, it had registered 3.9 million households since 2008. School participation rates have risen and health has improved among the target group.
In Bangladesh, where major rivers have frequently separated the haves from the have-nots, the ADB-supported Jamuna Bridge project linked the poorer western and richer eastern regions of the country, helping to connect more than 30 million people to the main transport and infrastructure network.
Economic growth is not sufficient to improve welfare: we need complementary measures to help translate growth into better living standards. The way to do that is to include those on a lower income in the growth process.