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Report: Rising Income Gap Threatening Stability in Asia

Pedestrians walk past a money exchange outlet in Hong Kong on August 6, 2011.
Pedestrians walk past a money exchange outlet in Hong Kong on August 6, 2011.

A report by the Asian Development Bank says the region's rapid economic growth has created a widening income gap that threatens to undermine its growth and stability.

In its annual economic development outlook, the Manila-based lender says Asia's richest one percent of households account for six to eight percent of total income, while up to 20 percent of total income went to the wealthiest five percent in most countries.  

The ADB report says inequality grew the most in Asia's three largest economies, China, India and Indonesia, from the early 1990s to around 2010.

ADB chief economist Changyong Rhee tells VOA that technological progress, globalization and market-oriented reforms, which have triggered the region's economic transformation, are also the main factors in the growing divide between rich and poor.  

"In the last two decades, technical progress has favored capital over labor, and skilled workers over unskilled workers," says Rhee. "You can easily see that in the 60s and 70s, car factories and steel mills employed lots of people, but if you go these days to the car factories, you see more robots rather than people.  And then globalization and IT technologies and...software technology favors...highly educated people over less educated people.  And the globalization and trade benefits the urban and coastal areas, much more than the inland and the rural areas."

The ABD report says unequal access to education, health and other public services also hinders opportunities for the poor to overcome their economic plight.   School dropout rates are up to five times higher for children in the poorest families, while the infant mortality rate is 10 times higher for poor infants than for babies born into an affluent family.  

Rhee says after witnessing last year's revolts across the Arab world, Asian policymakers understand the urgent need to alleviate the growing income gap.  He says the ADB is encouraging Asian nations to spend more on education and infrastructure, and promote small and medium enterprises.  

Meanwhile, the ADB is forecasting moderate economic growth for developing Asia for 2012, due to the ongoing crisis in the eurozone and weak global demand.  Rhee says this will also affect Asian nations' efforts to reduce the income gap between the rich and poor.

"If the growth is reduced, then government will be very hard to mobilize more revenues, such as tax revenues, which means they cannot rely on more spending, social spending especially, so its very important to keep the growth momentum," says Rhee.

The report says the gross domestic product will expand at a modest 6.9 percent this year, then improve to 7.3 percent in 2013.

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