As the rest of the world struggles with sluggish growth, it is tempting to see Asia as a bright spot in the global economy. The region is likely to maintain what, from the perspective of Europe or the US, looks like a miraculous growth rate of 7 per cent over the next couple of years. Yet these headline rates should not lull Asian policy makers into false complacency: they mask a worsening problem of rising inequality.
Over the past 20 years, the gap between Asia’s rich and poor has widened so that the richest 1 per cent of Asian households now account for 6 per cent to 8 per cent of expenditure. Income inequality has widened in China, India and Indonesia, the countries that have powered the region’s economic growth. Taking developing Asia as a unit, the Gini coefficient – a common measure of inequality – has increased from 39 per cent to 46 per cent.
Had it only remained stable, another 240m people would have escaped poverty. More worrying still is the gap in opportunity. Children born to poor families can be 10 times more likely to die in infancy than infants from affluent households. Children from the poorest quintile are up to five times less likely to attend secondary school than wealthier peers, and up to 20 times less likely to attend university. This cuts their chances of career growth and economic security.
Widening inequality threatens the sustainability of Asian growth.
A divided and unequal nation cannot prosper. Rising inequality can lead to instability and poor political choices, as governments facing populist demands opt to curry favour – for example, with inefficient subsidies on fuel or food – rather than promoting long-term sustainable growth. Ironically, technological progress, globalisation and market-oriented reform – the main drivers of Asia’s rapid growth – are also driving this wedge between rich and poor. The opportunities created by technology and magnified by trade, finance and market-oriented reform have created a growing demand for skilled labour. Wages for graduates climb far above those with only a basic education.
The abundance of labour has depressed wages.
Capital has benefited disproportionately from Asia’s growth. Between the mid-1990s and the mid-2000s, labour income as a percentage of manufacturing output fell from 48 per cent to 42 per cent in China and from 37 per cent to 22 per cent in India. Some regions, especially cities and coastal areas, were better able to respond to new opportunities and our analysis shows that in many Asian countries 30-50 per cent of income inequality is accounted for by geography alone. The three drivers of Asia’s growth should not be hindered.
Greater use of technology and open markets can indeed expand productivity, reduce poverty, raise living standards and sow the seeds of prosperity.
To tackle inequality without stunting growth, Asian policy makers must seek more employment-friendly growth, more targeted fiscal policies and a better geographical distribution of wealth. More social spending on health and education is also vital. Governments should make social protection schemes more targeted and efficient. They need to reduce distortions that favour capital over labour and support medium and small sized enterprises to balance growth between industry, services and agriculture.
For regions lagging behind, better infrastructure is essential – as are policies to ease the flows of goods and services. Barriers to migration from poor to prospering areas should be removed. Governments must learn how to do this without creating unsustainable deficits. Fortunately, there are plenty of examples to follow. The recent energy subsidy bill in Indonesia, though much watered down, is one.
In the past, Indonesia held domestic fuel prices down by a general subsidy. In 2011, fuel and electricity subsidies totalled 3.4 per cent of GDP, dwarfing spending on education – yet by some estimates, the richest 10 per cent of households consumed 40 per cent of subsidised fuel. New legislation aimed to reduce general subsidies and use the money to boost health and education in poor areas and build infrastructure. This is a fine example of inclusive, sustainable and green growth that does not undermine fiscal soundness. Developing Asia has made great strides in reducing poverty, but widening income gaps undermine that success. The region’s policy makers need to take steps to share the benefits of growth more widely. Inequality is the real threat to Asia’s growth miracle | Asian Development Bank
Pakorn Peetathawatchai, President, The Stock Exchange of Thailand (SET)
What measures has SET taken to support listed companies’ compliance with ESG standards?
PAKORN: When we first began promoting ESG-compliant investments, we were met with little interest. We attributed this to a lack of clear data to showcase the economic benefits of ESG investment, and perhaps limited clarity as to what constitutes a sustainable or ESG-compliant investment. The launch of the THSI list and, subsequently, the SETTHSI Index, was designed to address this. Our most recent data, comparing returns for the SETTHSI Index with the broader SET and SET100 indices from April 2020 to April 2021, underscores the economic benefits of these investments: the group compliant with ESG standards outperformed the other two indices on every data point.
As of May 2021 Thailand was home to CG and ESG assets under management totalling BT54.8bn ($1.7bn) across 50 funds – up from 23 funds in 2019. Meanwhile, of the BT187.1bn ($5.9bn) raised in green, social and sustainability bonds since 2018, BT136.4bn ($4.3bn) was raised in 2020 – 83% from the government and the remainder from development banks and private players. This rising demand, in a move to manage risk and generate returns, has been complemented by growing supply and promotion: supply from ESG-compliant businesses aiming for resiliency and sustainable growth, as well as promotion from regulators highlighting investment opportunities with good CG and SD practices. Indeed, the pandemic has been a catalyst in shifting the view of ESG compliance from a luxury to a requirement in the new normal.
In what ways can enhanced standard-setting and regulatory mechanisms overcome the remaining barriers to improved ESG performance?
PAKORN: A multi-stakeholder approach is crucial for enhanced ESG performance – not only in Thailand, but around much of the globe. This can also help to address the standout incumbent challenge: access to reliable, wide-ranging ESG data. For example, the 2020 update to the 56-1 One Report established clear ESG standards and triggered online and offline capacity-building programmes to support listed firms’ compliance. SET is developing an ESG data platform with a structured template to promote the availability of comparable data, maximise value added from corporate sustainability disclosures, and foster collaboration between the business value chain and stakeholders. This is expected to support Thai companies along their ESG journey in an economically sustainable way, result in a greater number of sustainability-focused products and services, drive sustainable investing in the Thai investment community and ultimately “make the capital market work for everyone”, as outlined in the SET’s vision.
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