Wednesday, 11 April 2012

Asian growth story doesn't have to follow the western model

Asian Development Bank, which works to reduce poverty in the region, warned that rising inequality could soon undermine the very basis of these countries' economic success

Given that China and India have achieved extraordinary improvements in living standards for millions of the poorest people in the world over the past two decades, it may seem churlish to berate both countries for creating a few millionaires along the way.

But the Asian Development Bank, which works to reduce poverty in the region, warned today that rising inequality could soon undermine the very basis of these countries' economic success.

The ADB's intervention is one contribution to an increasingly lively global argument that narrowing the gap between rich and poor is not just a social or political imperative, it is an economic necessity.

That's true for two reasons. First, an ever-growing gap between rich and poor is likely to have explosive political consequences, particularly when the poor in question are living on the breadline.

China's latest five-year plan, which aims at a slower but more equitable economic growth, is an acknowledgement that Beijing must address the concerns of millions of disenfranchised and frustrated rural poor, or face the potential for rising unrest.

Or as the ADB puts it, in a rather more circumspect way, if Asian governments fail to make growth fairer, they may be, "pulled into inefficient populist policies, which will benefit neither growth nor equity".

But secondly, as Stewart Lansley argued in a recent book, concentrating resources in the hands of a wealthy few is a bad strategy for achieving economic growth. The rich tend to save their cash, or tie it up in unproductive assets such as yachts; whereas the poor spend every penny they get, boosting consumer demand and generating more jobs along the way.

Having a large proportion of the adult population uneducated and lying idle, or trapped in rural backwaters far from the economic action, is not just socially unjust, it's economically mad.

The west has learned the hard way in the past five years that unleashing a super-rich elite and hoping they'll drag the rest of the economy behind them doesn't work. As they continue to develop, the Asian nations have the chance to show there's a better way.


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Source: http://www.guardian.co.uk/world/economics-blog/2012/apr/11/asia-growth-story-china-india

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