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Towards Equitable Growth

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 21 st Century . Rising inequality amidst growth What’s the relationship between state and market?.

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Towards Equitable Growth

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  1. Towards Equitable Growth Dr. Mah-Hui LIM Asia-Pacific CSO Consultation on a Just & Transformative Development Agend Bangkok August 23-24, 2013

  2. Two Mega-Trends/Issues in 21st Century • Rising inequality amidst growth • What’s the relationship between state and market?

  3. 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

  4. 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

  5. Countries with High Inequality

  6. Countries with Rising Inequality

  7. 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

  8. Declining Share of Labor Income in 5 Asian Economies

  9. 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

  10. Korea – Productivity Growth vs Wage Growth

  11. Malaysia Productivity vs Wage Growth – Manufacturing Sector

  12. China – Productivity Growth vs Wage Growth

  13. 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

  14. Consequences of Increasing Inequality • Financial Instability • Under-consumption for majority & with financialization > debt bubble • Over-saving & financial investment for minority > asset bubble

  15. 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

  16. 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

  17. THANK YOU

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