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Towards Equitable Growth

Dr. Mah-Hui LIM

Asia-Pacific CSO Consultation on a Just & Transformative Development Agend

Bangkok

August 23-24, 2013

Two Mega-Trends/Issues in 21st Century

Rising inequality amidst growth What’s the relationship between state

and market?

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International Context

International economy in worst crisis since Great Depression

Global slow growth hitting Asia economies esp the export-led ones

Asia’s growth, like elsewhere, accompanied by rising inequality

Trickle down theory of growth - discredited

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Inequality Statistics in Asia & Pacific

13 of 36 Asian economies had Gini index of 40 and above

11 Asian economies with 82% of Asia’s population experienced worsening inequality

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Countries with High Inequality

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Countries with Rising Inequality

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Why Is Inequality Increasing?- Functional Income Distribution

Not simply technology, trade, skills, education, social services etc

More fundamental – the way income is distributed btw capital and labor

3 approaches to GDP – Expenditure Y=C+I+G+X-M Production Y= Agr+Ind+Services Income Y= Lab+Cap+Tax-Subsidies

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Declining Share of Labor Income in 5 Asian Economies

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Wage Growth falling behind Productivity Growth due to globalization forces: Global arbitrage of labor with >1 billion

entrants into global lab market Declining bargaining power of labor Export-driven growth based on wage

competitiveness = wage & labor repression

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Why Is Labor Share of GDP Declining?

Korea – Productivity Growth vs Wage Growth

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Malaysia Productivity vs Wage Growth – Manufacturing Sector

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China – Productivity Growth vs Wage Growth

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Consequences of Rising Inequality

1) Social and political instability “If wages for the average U.S. worker do

not start to rise more quickly, political support for free markets may be undermined (Greenspan: 2007)

2) Unsustainable Growth–IMF study While its possible to produce growth

spells.. Income distribution is the most robust predictor of sustained growth

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Consequences of Increasing Inequality

Financial Instability Under-consumption for majority & with

financialization > debt bubble Over-saving & financial investment for

minority > asset bubble

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What To Do? Ex-Ante

Wages rise with productivity growth to support healthy aggregate demand- should not be less than or more than to be sustainable

Minimum wages based on average productivity plus inflation

Countries coordinate on exchange rate and wage rates rather than each offering lowest wage & racing to the bottom

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What to do ex-post

Restructure fiscal system Change tax system is now favoring

capital rather than labor Higher capital gains tax, death duties More progressive income tax More social spending on education,

health, public transportation, social security etc

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THANK YOU

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