Asia's challenge: Ensuring that growth helps the poor

Hundreds of millions of people across the region, including in China, Indonesia, Malaysia, Thailand and Vietnam, have lifted themselves out of extreme poverty and enjoyed greater prosperity, largely because of more labour-intensive and inclusive growth.

The success didn’t come without challenges. As of last year, 100 million people in East Asia still lived on $1.25 (Bt45) a day. About 260 million still live on $2 a day or less and could easily fall back into poverty if the global economy takes a turn for the worse or if they face health, food or other shocks at home. Their uncertain future shows the increasing inequality of East Asia’s galloping growth.

The income divide was exacerbated by the 2008 global financial crisis. Income inequality has worsened in China and Indonesia, and stagnated at high levels in countries such as Singapore, Malaysia and the Philippines.

The broadening income gap reflects challenges for economic policy-making, including adopting a more inclusive approach that promotes job creation, improves education and skills training, and builds environmentally sustainable infrastructure. The lack of adequate social protection programmes also plays a role.

Amid the current climate of slowing global growth and market instability, it has become increasingly clear that inequality presents a long-term challenge, and failure to address it means more people are at risk of being left behind, weakening economic prospects for the region.

How can East Asia sustain strong growth and create better opportunities and more prosperity for everyone?

The topic will be a central theme at the Asia-Pacific Economic Cooperation (Apec) finance ministers meeting being held today and tomorrow in the Philippines. 

The organisation, with 21 member economies from North and South America, Asia and the Pacific region and Russia, will discuss strategies for structural reforms and integrated approaches to building resilient and sustainable economies.

At the World Bank Group, we believe the way forward is to take steps to ensure that the poor – and those on the margins of impoverishment – share the benefits that come with economic prosperity. We can do this by creating more income and prosperity for the bottom 40 per cent of the population, otherwise this group runs the risk of falling behind again.

That means focusing on bolstering economic growth while helping people get the education and skills they need – beginning in early childhood – so they can compete globally.

That means countries should provide equal economic and social opportunities to everyone, not just the elite. It also means better governance and fiscal policies, more infrastructure development and building stronger resilience to the financial risks of accelerating climate change. After all, dealing with inequality needs long-term solutions and always centres on human development. 

 

Sustainable solutions

To tackle these challenges we need comprehensive and sustainable solutions to address income inequality. We can learn from the experience of other countries and also seek better cooperation through multilateral platforms such as Apec, Asean and various Latin-American organisations. This cooperation should include knowledge-sharing and policy action that supports economic growth, trade, direct investment and other financial cooperation. It can also create a level playing field to support competition, markets and trade across the Pacific region.

In addition to an overall supportive macro-economic environment, direct support may be needed to provide immediate stimulus to those left behind. Apec’s Latin-American members like Mexico (Oportunidades and Prospera), Peru (Juntos) and Chile (Chile Solidario) have used conditional cash transfers to expand school attendance, preventative healthcare and nutrition programmes among the poor and vulnerable. We have also seen how successful conditional transfers have improved lives in countries like the Philippines.

It is encouraging that at its meeting in the Philippines, Apec finance ministers are taking on this issue and plan to finalise the Cebu Action Plan. It ultimately aims to improve the lives of all of the people in member countries through improved coordination on financial integration, fiscal transparency, infrastructure financing and disaster resiliency, among others.

In a period of volatility in economies around the world, the plan sets the Apec region in the right direction – helping people rise out of poverty and share in the benefits of growth.

 

Axel van Trotsenburg is World Bank regional vice-president for East Asia and the Pacific.