The Hindu Business Line : A question of inequality

Put the equality factor under the scanner, and it does not appear to have performed satisfactorily when seen against the background of growth stakes.

"Increasing inequality in tandem with high growth" has been a point of growing concern in the Asia and Pacific region, says the latest ESCAP report.

In these times of impressive growth rates — particularly in China and India — the focus of the world's attention has invariably been drawn to the economic success of the so-called newly emerging economies, mainly to the impact this will have on the structure of the international economy 50 (or even 20) years from now. On the face of it, this is an eminently sensible subject of study because what the new development essentially means is a shift in the economic order of things on the world scale towards what was previously called the Third World — a shift which, though inevitable, actually stands the world economic order, as it was in the last century, on its head.

Without going into the statistics of the development, the changing order would essentially mean a new situation where the erstwhile `poor' would call the shots as it were; where the emerging economic giants would be in a position to dictate economic (and through them political) terms to the old `rich' nations; and where, at international forums, the voice of the `poor' would no longer be brushed aside imperiously, as they have been for centuries.

INCREASING WEIGHT

In fact, it is clear that, beyond the seven per cent-plus growth rates, the increasing weight of the developing world is already having an impact on international economic negotiations, so much so that the developed economies are today finding the going very tough indeed in, say, an organisation such as the World Trade Organisation.

So prominent has been the alteration in the nature of the game regarding international trade that, today, an issue as crucial to the future growth of world trade as the successful conclusion of the Doha Round of multilateral trade negotiations is considered to be entirely dependent on the negotiating stand adopted by the developing economies.

The inference one can draw from this is that, unlike yesteryear, the developing countries today are in a position to resist the carrot-and-stick policy of the rich economies, which the latter have traditionally used in international trade negotiations to have their inequitious way.

This is what the world is talking about and, seen from a holistic and strategic point of view, it is certainly a subject worth studying. But to one school of thought, the picture is far from complete.

What is even more important is that it may also be quite misleading as far as the depiction of the intrinsic economic strengths of the poor countries involved are concerned.

The gist of the argument is that while the GDP growth figures have accurately measured the rate at which the value of production has increased, it does not convey a faithful idea of the `real' economic strength of a nation — which should actually flow from the level of well-being of its people.

FACETS OF WELL-BEING

The well-being of a people has many facets, but for our purposes here it is the equality factor that is under the scanner, a factor that does not appear to have performed satisfactorily when seen against the background of the growth stakes. One of the latest reports to confirm this development is the 2006 annual report of ESCAP which says in no uncertain terms that "increasing inequality in tandem with high growth" has been a point of growing concern in the Asia and Pacific region. On income equality, the report says that though "perfect equality is probably unattainable," inequality "becomes a problem when differences in income across sections of society are deemed to be excessive, with the definition of 'excessive' varying across countries and societies, or self-perpetuating."

Of the other types of inequalities, the report refers to unequal access to public services such as health and education, "a problem compounded in many countries by gender, ethnic and cultural biases."

Indeed, the report clearly says that while growth rates per se have been impressive, there has been a regression on the equity front. To quote: "Within countries, there is ample evidence of high rates of growth being accompanied by growing inequality.

This is an unfortunate departure from the region's reputation until the 1990s of having managed to retain a significant degree of equity along with the growth in incomes. Inequality manifests itself across a great diversity of circumstances.

"For example, inequality is increasing in the rapidly growing large economies of China and India, in the middle-income developing economies of the Republic of Korea and Thailand, in Vietnam, the Lao People's Democratic Republic and Georgia, as well as in the Philippines, Nepal and Sri Lanka.

In some countries, such as in China, India and Thailand, the income gap has a significant urban-rural bias and these income differences have increased over the 1990s."

FREEDOMS ON WANE

How strong can a nation be when the `freedoms' it is enjoying internally are on the wane?

Clearly, not much because inequality in its many forms fundamentally eats away the bindings of nationhood, which in turn saps productivity and efficiency — the building blocks of sustainable economic growth.

This is perhaps why both Indian and Chinese leaders have recognised the problem as being crucial to future growth prospects and have, in their own very different ways, begun tackling it.

Last November, the Prime Minister, Dr Manmohan Singh, spoke of the Government "walking on two legs," adding: "We cannot ignore the dualism in our society and economy any longer.

There is an India that wants to move forward even faster. There is an India that is unable to catch up."

At the recent National People's Congress, the Chinese provided ample evidence that they too were seized of the problem, their declared policy-objective being to build the "New Socialist Countryside," which would focus less on indiscriminate growth and more on redistribution of resources and balancing of incomes.