By Max Lawson
Head of Inequality Policy at Oxfam International & EQUALS Podcast co-host
Having spent much of my career studying or working on Africa, I remember the first time I went to East Asia with work. I remember thinking ‘so this is what development looks like!’ It is in East Asia that development is really happening – you see countries where ordinary citizens are two or three times richer than their parents or grandparents, able to afford not just the basics to get by, but also having a little extra, to buy a television, or to go on a short holiday. To start to live life and not just survive life. So inspiring to see.
This week we launched a book in Asia, called ‘Getting Even: Public Policies to Tackle Inequality in Asia’, which was organised and edited by my friend and colleague Mustafa. It is a fine achievement, pulling together academics from across South and East Asia to reflect on the trends in inequality in their countries, and some of the concrete steps being taken to tackle inequality. It was a fascinating read, and a very positive one too.
East Asia was for many decades the region that had famously managed to disprove the Nobel economist Kuznets, who said that developing countries will automatically see inequality increase as they develop. Instead countries like Korea, Taiwan, Indonesia and Malaysia saw decades of rapid economic growth where inequality did not increase, between the 1950’s and the 1980’s. This was known as the ‘East Asian Miracle’ and had a huge positive impact on hundreds of millions of people. This was not the case for South Asia, where poverty has remained rife, and equitable growth elusive.
This all hit a wall with the East Asian financial crisis of 1997, itself a result of neoliberal economic reforms taken on by many Asian countries, notably opening up their economies to large flows of international capital with no controls. The crisis hit Asia hard, and tens of millions were pushed back into poverty. The IMF had huge power over the region and forced a wave of austerity, privatisation and liberalisation in the wake of the crisis which made things so much worse that countries in the region resolved never to have to go to the IMF again.
Since then, growth has returned, but this time with it the spectre of rapidly growing inequality too in many countries, and for most of the population. Levels of inequality in Asia have historically been lower than in other regions but are increasing rapidly. China has seen its levels of inequality rise rapidly in particular, to levels like those found in the United States.
Growth has been so rapid that although the incomes of the richest have risen much faster than the incomes of the poorest, hundreds of millions of poor people have seen their incomes rise substantially. But there is no doubt that had inequality been kept in check, things would have been even better. The Asian Development Bank (ADB) in 2012 estimated that if inequality had been stable, an additional 240 million people would have stopped being extremely poor in Asia between 1990 and 2012. This is equivalent to 6.5% of the regions’ population.
An excellent presentation at the conference by Dr Zhuang of the ADB identified educational inequalities, spatial inequalities (between coast and inland mainly) and increased returns to capital owners over workers as the three main causes of growing inequality. The third has led to a very big increase in wealth inequality.
There are two ways an economy can tackle inequality – either through the process of pre-distribution, where the economy delivers more equitable growth from the start (for example millions of decently paid new jobs for ordinary workers as opposed to increased profits for wealthy owners), or through redistribution, when taxation and public spending is used to reduce the inequality produced by the market. Historically East Asia has been good at the former- at pre-distribution, but is getting less good at this, meaning that the importance of redistributive measures is increasing.
Yet when it comes to redistribution, Asian countries are generally very poor at raising taxation progressively. Only four countries have inheritance tax for example, and corporate taxation is very low. Social spending on health and education is better in many countries, but still far from ideal, and social protection systems are very weak and fail to cover citizens adequately. As this chart shows, the amount of reduction in inequality from redistribution in the region is minimal. Tax and spending reduce inequality by just 6.3%, compared to 36% in the EU for example.
The exciting thing, that is captured by the book, is that many countries in the region have recognised the inequality problem, and the dangers it represents for their economy, and are beginning to take steps to tackle it. Countries are introducing new taxes and social spending. Countries like Korea have increased the taxation of the richest corporations and individuals, have increased social protections like pensions, and have dramatically increased their minimum wage. Not all countries; others like India are going in the wrong direction, slashing their corporate tax for example. But many are taking progressive steps.
Far more needs to be done and could be done. Just imagine if countries in Asia managed to collect as much tax as countries in Europe and put this to good use, it would have an incredible impact on inequality and on billions of people’s lives. What is needed is some of the same ambition that Europe had after WW2, to really create progressive welfare states in Asia in the next twenty years, providing universal benefits and ensuring the richest citizens pay their fair share of tax. This is well within the reach of the region, and certainly glimmers of hope can be found in many countries.
What can be done with ambition to fight inequality: Healthcare in Thailand
The conference was held in Bangkok in Thailand which was very appropriate because Thailand can boast some really equalising policies, like their Universal Pension Scheme (UPS) introduced in 2009, or the guarantee of 12 years of free quality education introduced in 1999.
But the jewel in Thailand’s crown is their healthcare system called the Universal Coverage Scheme (UCS). It is amazing, and if copied by other nations, could transform the lives of billions of people. Thailand has demonstrated that good quality healthcare that is available to all, rich and poor, is within the reach of developing countries. Indeed, we calculated for our Davos paper last year that when Thailand introduced universal health coverage in the early 2002 they had a similar per capita income to the United States in 1930.
The Thailand paper in the Getting Even book is great on the story of the Thai health system, as is this paper in the Lancet from March 2018. The graph below looks at skilled birth attendance by income for Thailand and Indonesia. Whether or not a mother gives birth with the help of a midwife or doctor is a key indicator of a functioning and high-quality health system. In Indonesia, if you are from the poorest 20% you have about a 6 in 10 chance of giving birth safely, compared to every mother from the richest 20%. For Thailand the difference between rich and poor mothers is so small as to be negligible.
The Thai system is also a testament to the power of publicly provided healthcare. The Thai government employs 180,000 nurses and 50,000 doctors. Over 80% of all care is delivered by the state. Funded by progressive taxation, quality health services are available free to everyone, and benefit the poorest people most. It is not a perfect system, and there are not enough doctors in some areas, but there is no doubt that the Thai system has virtually eliminated most inequalities in access to health in the country.
 Own calculations based on the World Bank’s World Development Indicators (WDI) database. GDP per capita figures for Thailand were rebased from 2011 purchasing power parity (PPP) $ to 1990 PPP $. This was done by multiplying each value of the real GDP in 2011 PPP $ by the ratio of the 2011 GDP per capita in 2011 PPP $ to the 2011 GDP per capita in current $. Note, this is only an approximation to the ideal real GDP per capita in 1990 PPP $. US GDP figures taken from J. Bolt, M. Timmer and J. Luiten van Zanden. (2014). GDP per capita since 1820 OECD https://www.oecd-ilibrary.org/economics/how-was-life/gdp-per-capita-since-1820_9789264214262-7-en P. Espinoza Revollo. (2019). Public good or private wealth? Methodology Note, op. cit.