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East Asia’s challenge: ensuring that growth helps poor

Axel van Trotsenburg's picture
Also available in: 中文 | 한국어

Unprecedented economic growth in the last three decades propelled East Asia into an economic powerhouse responsible for a quarter of the world’s economy.

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

The success didn’t come without challenges. As of last year, 100 million people in East Asia still live on $1.25 a day. About 260 million still live on $2 a day or less, and they could fall back into poverty if the global economy takes a turn for the worse or if they face health, food and 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 policymaking, 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 programs also play a role.

Amid the current climate of slowing global growth and market instability, it becomes 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 finance ministers’ meeting to be held on Sept. 10-11 in the Philippines. APEC, with 21 member-economies from North and South America, Asia and the Pacific, and Russia, will discuss strategies for structural reforms and integrated approaches to build 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 percent of the population, or 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 increasing climate change. After all, dealing with inequality needs long-term solutions and always centers on human development.

To address inequalities 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 organizations. 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 macroeconomic 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 health care and nutrition programs among the poor and vulnerable. We also have seen how successful conditional transfers have improved lives for the better 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 finalize 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.

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