Asia must balance its quest for equality with the pursuit of growth

Lee Jong-Wha says Asian countries won’t reduce inequality without both pro-growth policies and those that increase opportunities for the disadvantaged, particularly young people

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A worker rolls away carts of unused tools between rows of spinning machines at a factory in Zhuhai City, in Guangdong province. Asia’s labour market needs to be more efficient and flexible to match people with the right jobs. Photo: Reuters

Published: 10:26am, 22 Nov 2017Updated: 7:13pm, 22 Nov 2017

Asia’s rapid expansion has lifted hundreds of millions out of poverty in recent decades, yet the income distribution has worsened, with inequality potentially more severe than in developed economies of the West.

This trend is driven largely by the same forces that fuelled Asia’s economic growth: globalisation and technological progress. Increasingly open borders make it easier for businesses to find cheap locations for operations.

Meanwhile, new technologies raise demand for skilled workers, reducing demand for less-skilled counterparts – a trend fuelling expansion of the wage gap between the skilled and unskilled. As inequality becomes entrenched, it can erode the consensus in favour of pro-growth economic policies, undermine social cohesion and spur political instability.

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Asia must provide chances for all youth to ascend. The market is not enough. Governments must act, complementing pro-growth policies with those ensuring gains are shared equally and sustainably.

To be sure, some Asian governments have attempted to tackle inequality with redistribution policies. For example, South Korea’s government recently announced that it will raise the minimum wage next year by 16.4 per cent, to 7,530 won (HK$54) per hour. It will also raise taxes on the highest income earners and companies.

But such measures could end up hurting the economy by reducing investment and job creation. The first rule of thumb in combating inequality should be that simplistic egalitarian policies are not a permanent solution.

Consider the Venezuelan government’s decision in the late 1990s to implement redistributive policies without addressing overreliance on oil and lack of competitiveness. That choice pushed the country to bankruptcy, fuelling large-scale social unrest.

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Asia must balance its quest for equality with the pursuit of growth

Hong Kong wealth gap worst in five decades

.css-1mniedq{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;}Students from China paid half Australia’s $22 minimum wage as study reveals ‘endemic theft’

Students from China paid half Australia’s $22 minimum wage as study reveals ‘endemic theft’