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Uncorking the genie

Need to update your must-read list? Include the book, launched this week by Asian Development Bank, “Inequality in Asia and the Pacific: Trends, Drivers and Policy Implications.”

It tackles a paradox. Gains in reducing extreme poverty set off a surge in “inequality” that shackles too many lives in the region. The book asks three key questions: What are the recent trends of inequality? What forces stoke them? How do countries respond? It does not spell out the consequences of failure.

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The authors are Ravi Kanbur, professor of economics at Cornell University; Changyong Rhee, the ADB’s current chief economist; and his deputy, Juzhong Zhuan.

Technological change, globalization and market-oriented reform are key drivers of Asia’s economic surge. They uncorked the genie of “significant distribution consequences.” Capping these three would stifle productivity gains that have improved the quality of life.

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Income inequality surged in 12 out of 30 countries studied, affecting 82 out of every 100 who live in this region. Disparity takes the shape of unequal access to schools, healthcare and other basic services.

This lopsided pattern differs from the “growth with equity” pattern set by newly industrialized economies in the 1960s and 1970s. Income inequality in Latin America has declined since the 1990s.

Expanding trade, financial integration, cyberspace technology plus market-oriented reform usher in economic opportunities. But better-educated individuals with skills corner as much as 35 percent of the benefits.

The income gap between “rich man and poor man” here is far worse than what household-income surveys tally, the World Bank says in the Philippine Development Report. Rich respondents duck the surveys.

The Top 50 richest Filipinos, led by SM Group’s Henry Sy, amassed a combined net worth of P2.8 trillion ($65.8 billion). Forbes includes 17 Filipinos among the dollar billionaires of 2013, with a combined net worth of $54.4 billion.

The net worth of the Philippines’ Top 10 billionaires “accounts for 15.4 percent of the country’s gross domestic product. [This] is the highest among lower-middle-income countries in the region.” Neighboring countries like Thailand, Indonesia and Vietnam have notched up larger gains in poverty reduction.

Despite higher economic growth, the National Statistical Coordination Board reports that poverty incidence “hardly declined” from “the first half of 2009 to 27.9 percent in the first half of 2012.” This points to “deeper structural problems [expressed] in a pattern of economic growth that makes poverty reduction stubbornly difficult.”

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The ADB study notes that labor income shares have slumped regionwide. Too many unskilled hands depress wage rates. And less equally distributed capital feeds rising inequality.

Add to that increasing “spatial inequality.” Urban and coastal areas are better able to respond to the new opportunities. They have advantages in infrastructure and market access. Metro Manila, for example, outstrips Lanao del Sur, whose power plants are hacked by thieves with little letup.

These jell into “a self-perpetuating process of increasing concentration.” About 30-50 percent of income inequality stems from “spatial inequality due to uneven growth.”

Until recently, most Asian countries’ spending on health as a share of GDP was less than 5 percent. The 34 member-countries within the Organization of Economic Cooperation and Development average out at 7.4 percent.

“Health inequality” here is seen in Filipinos who live in affluent communities with access to modern facilities. Their healthcare resembles that of developed nations. Out of every 100,000 who give birth, 15 die from child-bearing complications each year. The exact opposite happens in poverty-strapped communities. Infant mortality rate is as high as 90, and maternal mortality significantly more than 150. Basilan or Sulu are clones of the least developed countries of Africa and South Asia.

Less than 10 percent of the poorest women deliver in a health facility. But 84 percent of their affluent counterparts get adequate medical care. “Most Filipinos in the lower-income levels tend to refuse medical services because they have a perception that they cannot afford it.”

Instead of using powers to raise hometown revenues, local government units panhandle for internal revenue allotments. That subservience exacts a toll in unnecessary deaths.

The ADB study says there is elbow room to jack up spending on education and health. “Even if education and health services were available, poor households may not able to use them because of economic pressures.” They lose income by sending kids to school.

Start with efficient fiscal policy. Broaden the tax base and improve tax administration. Switch spending from subsidies to targeted transfers. Address lagging regions by developing new growth poles. Use public employment schemes as a temporary bridge to address pockets of joblessness, among others.

Develop better-targeted social protection schemes, including conditional cash transfers that target income to the poorest. The beneficiaries of President Aquino’s  Pantawid Pamilyang Pilipino program now exceed 3 million households. The World Bank and the ADB have loaned $805 million to expand the program and refine its targeting systems.

Above all, reduce corruption and strengthen the rule of law.

Jailed Sen. Bong Revilla would improve on that. Stage a legal zarzuela where he’d ask the court to summon the President and other high-ranking officials to prove his defense against sentencing. Is he for real?

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TAGS: ADB, Book, inequality, Juan L. Mercado, opinion, Viewpoint
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