How Inclusive is the Growth in Asia

and what can Governments do to

Make Growth More Inclusive?

Presentation in the 5th ChinaASEAN Forum on Social Development and Poverty Reduction:

Poverty Reduction through Quality of Growth

14-16 September 2011, Jakarta
For inquiries: Dr. Armin Bauer, Principal Economist, Regional and Sustainable Development Department, ADB (Manila), abauer@adb.org

Structure of the discussion:

Asia is not in a trap, but we need to change the track

1. 2. 3. 4.

The myth of the middle income trap Recent growth in Asia is not poverty reducing Asia should move from Poverty Reduction to Inclusive Growth How to make growth inclusive?
Employment is the key challenge Social protection another and governments have to increase public social spending for social and municipal services

5.

Where does the money come from ?

1A: Growth and the myth of MIC trap

Asia and particularly SE and E Asia could maintain high growth rates despite of global recession and rising inflation

all Asian countries except LAO are MICs ($1,000-$12,000) Study of 124 countries world-wide 1950-2010:

Trap = 28 years in the lower middle income group, and 14 years in the upper middle-income group In Asia, only 2 countries are in the LMIC trap (PHI, SRI) and 1 in the upper MIC trap (MAL but may get out of it soon); INO and PAK will most likely fall in the MIC trap soon

Whatever definition of the MIC trap one chooses, growth matters but its importance is overstated (avoid the trap by changing the track of MIC towards better integrating economic and social policy)

1B: Growth and the myth of MIC trap

2A: Recent growth is not much poverty reducing

Especially between 2005 and 2010 continued success in poverty reduction ($1.25) is due to poverty reduction programs and not due to pro-poor growth, because reduction in $2 poverty much less Quasi poverty elasticity: despite of lower growth in 2002-2005 the PE was substantially higher (0.35) than in 2005-2008 (0.22) where growth was higher For some countries less poverty but more poor

2B: Less Poverty but more Poor

Shining and real success stories: IND and PRC

Less Poverty andLess Poor: PRC

900 800 700 number of poor ($1.25, 2005 PPP, million people) 600 500 400 300 200 100 0 198119841987199019931996199920022005 90 80 70 poverty incidence (% of population) 60 50 40 30 20 10 0

More Poor Despite of Less Poverty: India

p o v e rty in c id e nc e (% of p op u latio n) 470 n u m b e r o f po o r ($ 1.2 5 , 2 0 05 P P P , m illion p eo p le) 460 450 440 430 420 410 400 390 1981 1984 1987 1990 1993 1996 1999 2002 2005 number of poor people poverty incidence 30 20 10 0 70 60 50 40

number of poor people

pov incidence erty

2C: Less Poverty but more Poor:

Stagnating poverty with more poor in the Philippines

Stagnating Poverty and More Poor People in the Philippines ($12.25) in the Philippines
70
35
poverty incidence ($1.25, 2005 PPP, %)
poverty incidence ($1.25, 2005 PPP, %)

Less Poverty and Less Poor ($1.25) in Viet Nam

60 50 40
31.9

30 25 20 15 10 5 0 1991 2000 2006 18.7 19.9 17.2

42.2

30
19.5

20 10 0 1992 2000 2006

million poor people ($1.25) number (million people) incidence (%)

m illion poor people ($1.25)

number (million people) incidence (%)

2D: Further challenges for poverty in Asia

Employment, social protection, social services delivery Equity ( legitimacy of growth) The environments of the poor: less (a) pro-poor growth potential and (b) less coastal, wetland and upland poverty, but (c) more slum poverty and dryland poverty Urbanization and small town development Food security and the left behind rural development Demographic transition (the elderly, the youth) Poverty is mainly concentrated in MICs and weak states

2E: Poverty is more than lack of income

Asia is not so successful in addressing social and environmental poverty (MDGs)
most important is mother and child health and slum upgrading (higher education and skills training)

People living in social and economic poverty in Asia, latest value

Sanitation, rural Underweight children poverty $1/day TB prevalence TB death rate Malnourishment Sanitation, urban Water, rural Water, urban Infant mortality Primary enrolment Under-5 mortality Maternal mortality HIV prevalence Malaria prevalence Malaria death rate

20

40

60

80

100

Asia's share in world total (percentage)

Source: ADB/ESCAP/UNDP: MDG 2010 Report for Asia and the Pacific

2F: Rising inequalities in Asia

Source: ADB (2007): Theme Chapter of ADB Key Indicators - Inequality in Asia

10

Inequality matters and is now of deep concern to many countries in the region: harmonious society (PRC), inclusive growth (IND)

2G: Urbanization and slum poverty

11

Asia is rapidly urbanizing (from 41% in 2010 to more than 50% by 2030, and 64% by 2050) Doubling of the Urban population in Southeast Asia: from 43% in 2010 (252 million people) to estimated 65% (520 million) in 2050 Urban population growth is underestimated due to floating population Urban growth reduces poverty , but not urban poverty Cities but not mega-cities - need to be a main focus of addressing poverty and vulnerability in the future

2H: The environments of the poor: dryland and slum poor need biggest attention
The Environments of the Poor
different reasons for being poor the dryland poor

0.6 percent of total population 0.5 0.4 0.3 0.2 0.1 0 2005 very poor ($1.25) dryland upland coastal flood affected wetland slum 2020 2005 2020
does not affect the poor (defined as those living with less than $1.25/$2 a day) live in spatial areas where the environment affects the situation of the poor people the upland poor the flood-affected wetland poor the coastal poor

the slum poor

other poor (living in propoor growth potential areas)

vulnerable poor ($2) poor in pro-poor growth potential areas

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See ADBs Environments of the Poor website: http://www.adb.org/Documents/Events/ 2010/Environments-Poor/default.asp

TheEnvironmentsofthePoorinAsiaPacific verypoor($1.25) vulnerablepoor($2) 2005 2020 2005 2020 "environmental"poor 488.2 300.8 1,001.9 1,040.0 dryland 190.3 103.6 377.9 473.1 upland 68.5 27.5 129.7 125.8 37.7 125.0 163.2 coastal 63.2 8.2 103.7 50.0 floodaffectedwetland 58.1 slum 108.1 123.8 265.6 227.9 poorinpropoorgrowthpotentialareas 458.3 127.6 895.9 592.9 tiotalpopulation 3,467.0 4,041.5 3,467.0 4,041.5 totalpoor 946.5 428.4 1,897.8 1,632.9 percentoftotalpopulation 27.3% 10.6% 54.7% 40.4% environmentalpooraspercentoftotalpoor 51.6% 70.2% 53.0% 63.7%

3: From Poverty Reduction to Inclusive Growth

Do we really all sit in one boat, and is that boat moving?
What is Inclusive Growth? IG is not growth + inclusiveness ? (trickle down growth) IG is a process and an outcome (pattern and path) of growth that reduces disadvantages and grants equal non-discriminatory access (non-discriminatory)
Inclusive Growth
% of population in Asia the real rich th e th e m id d le v u ln e c la s s ra b le 2% upper middle lower middle class income groups $10,000 S20 S10 S4 $2 $1,25 special poverty reduction decent, productive jobs with sufficient wages affordable and relevant social protection

Growth is inclusive, when the lower income groups (as well as vulnerable and socially excluded) create, participate in and benefit from growth.
m o re e q u ita b le e c o n o m ic g ro w th a n d s o c ia l d e v e lo p m e n t

54%

22% 22%

for social cohesion and more harmonious society

For it to be legitimated by the masses of the people, it has to : -generate sufficient decent jobs -thrive equity (regions, population groups, classes, gender, young-elderly) - create better living for all (health, education, municipal services) -provide for social protection against live, climate change induced and economic risks -Sustainable and systemic approach; l t dt

th e v e ry poor

4A: Recent growth in Asia and its impact on employment

Growth did not create enough jobs: it is not about unemployment (6%), but about under-employment (20-40%) Employment is increasingly becoming informal (69% in 1990 67% in 2008) and vulnerable Major problem with youth employment implications for social cohesion and harmonious society Related to structural transformation which does not follow any more the neoclassical model due to globalization Migration (rural to urban; and overseas) is not the solution Employment impact of public investment and social expenditure is often low

4B: The need to broaden social protection towards a universal right

Expenditures on social protection is low and unbalanced need to shift

From CCT to employment guarantee schemes From pensions for the public and well organized formal sector to universal health insurance From pension to savings (provident fund of SIN) From private education to skills training and higher education scholarships for those in need

High level of informal labor markets require new financing modalities with more public budget involvement (PPP and community involvement is possible, but )

4C: Public social spending

Key problem is not education but health.

Mother and child health is the key problems governments and donors give up the sector Health costs are increasingly becoming the main reason of poverty Health issues change, aggravated by climate change

Costs of higher education and skills training Investments in municipal services neglect housing and slum upgrading Asian governments spend less than Sub-Sahara African governments MDG indicators do not help much; need to be adjusted and point to tripe win opportunities for poverty reduction/inclusiveness, environmental sustainability and climate change adaptation

5. Where shall the money come from?

More public finance for:

Active labor market policy Social protection for the lower income groups Social and municipal services

MICs can increase the revenue basis through general taxes (not through increasing user fees charged to the poor and low
income)

Reprioritization

Infrastructure Climate change

immediate impact)

(adaption matters for the poor, while mitigation has little

The financial and banking sector

6. Finding more information

ADBs Poverty Reduction website (www.adb.org/poverty) ADBs Poverty Knowledge Database (http://www.adb.org/Poverty/knowledge-products.asp) Subscribe ADBs Poverty Matters Newsletter http://www.adb.org/Documents/Periodicals/Poverty-Matters/default.asp) AsiaPovNews http://www.adb.org/Poverty/AsiaPovNet/apf-newsletter.asp MDG Update 2011 (http://www.adb.org/Poverty/mdgs/adb-escap-undp-partnership.asp) Inclusive Growth
Policy paper: http://www.adb.org/Documents/ERD/Working_Papers/WP097.pdf Poverty, Inequality, and Inclusive growth: http://www.adb.org/documents/books/inequality-inclusive-growth/ Operationalizing Inclusive Growth : http://www.adb.org/Documents/Reports/Consultant/measuring-monitoring-inclusive-growth.pdf

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Inequality in Asia (Sept 2006) (http://www.adb.org/documents/books/key_indicators/2007/pdf/Inequality-in-AsiaHighlights.pdf) The World Banks New Poverty Data: Implications for Asia and ADB (Nov 2008): http://www.adb.org/Documents/Presentations/New-Poverty-Estimates/Poverty-Data-Implications.pdf Poverty in Asia and Pacific. An Update (Sept 2011) Social impact of the global recession: http://www.adb.org/documents/books/poverty-sustainable-development/default.asp Quality Jobs (Aug 2011): http://www.adb.org?Documents/Books?Key_Indicators/2011/ Inclusive Growth, Full Employment, and Structural Change. http://www.adb.org/Documents/Books/Growth-EmploymentStructural-Change/default.aspn The Rise of the Asian Middle Class (Aug 2010): http://www.adb.org?Documents/Books?Key_Indicators/2010/ Environments of the Poor: http://adbweb/Documents/Events/2010/Environments-Poor/default.asp ADBs Annual Poverty Reduction and Development Effectiveness Reports: http://www.adb.org/poverty/progressimplementing-prs.asp