Transcript Asia-Pacific CSO Consultation on a Just

Towards Equitable Growth
Dr. Mah-Hui LIM
Asia-Pacific CSO Consultation on a Just
& Transformative Development Agend
Bangkok
August 23-24, 2013
1
Two Mega-Trends/Issues in 21st
Century
 Rising inequality amidst growth
 What’s the relationship between state
and market?
2
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
3
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
4
Countries with High Inequality
5
Countries with Rising Inequality
6
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
7
Declining Share of Labor
Income in 5 Asian Economies
8
Why Is Labor Share of GDP
Declining?
 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
9
Korea – Productivity Growth vs
Wage Growth
10
Malaysia Productivity vs Wage
Growth – Manufacturing Sector
11
China – Productivity Growth vs
Wage Growth
12
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
13
Consequences of Increasing
Inequality
 Financial Instability
 Under-consumption for majority & with
financialization > debt bubble
 Over-saving & financial investment for
minority > asset bubble
14
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
15
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
16
 THANK YOU
17