Tuesday, August 28, 2007

On inequality and globalization, again

I saw an op-ed piece in Kompas this morning, written by a friend of mine Herry Priyono a.k.a. Romo Herry. The title was "Doubting Globalization."

He quoted the ADB'S Key Indicators 2007 that reported Asia's widening inequality. He rephrased the conclusion as:
... Asia's growing inequality is "not the tale of the rich getting richer and the poor getting poorer, but the tale of the rich getting rich faster than the poor."
Fair enough. But there are two things I'd like to note. First, in his article the main culprit is, of course, globalization. In other words, he blamed globalization for making the rich getting rich faster.

Unfortunately, this claim is at best only partially true. If you see the graph in this post (which I quoted from the report), it's hard to claim that "the rich getting rich faster" is the phenomenon of the most globalized countries. Come on. Is Nepal more globalized than Thailand? Is Lao PDR more globalized than Indonesia?

The report did say that globalization explained some of the story. But the other part of the inequality story lies on the domestic institutions (bad governance, race or gender-related inequality).

Second, as I implicitly argued in this post, whether the situation described in the report is a good or bad thing is hardly straightforward. True, in China for example, the consumption growth of the richest 20% is twice as high as that of the poorest 20%. In Thailand and Indonesia, on the other hand, the consumption growth of the poorest 20% is slightly higher than that of the richest 20%.

But if you focus only at the consumption growth of the poor, it is 3.4% in China, versus 2.35% in Thailand and 2.09% in Indonesia. That means, even though the rich in China gets rich much faster than the poor, still China's poorest grow faster than in Thailand and Indonesia.

Tricky situation, isn't it? (This is a more diplomatic version of Aco's remark in our private conversation, by the way).

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  1. it just doesn't make sense if the rich get richer slower than the poor. logically, the rich have more money to save/invest, agree? thus, the rich must get rich faster than the poor.

  2. Marx (are you Karl, Groucho or Richard?) -- it could happen. well, it does happen. remember that we talk about relative changes in consumption/income across people from different consumption/income groups.

    1. the result sometimes depend on where do we draw the line between the 'poor' and 'rich.' 1st vs. 5th quintile? bottom half vs. top half? top 20% vs. the rest?
    --> "not all rich are equal, and not all poor are equal."

    2. it highly makes sense especially when we use consumption instead of income, which, in some circumstances, is a more appropriate measure of living standard.

    3. even if we use income (sometimes we can), the poor may still gets rich faster (see #1).

    4. gets more complicated if we compare rich vs. poor in different regions/countries.