Regional Outlook, Global Perspective

 Inequality and Identity Politics in 2018

     Most Southeast Asian economies are likely to enter a boom period in 2018 thanks to strong exports and solid domestic demand. Top performers such as Malaysia, the Philippines and Vietnam are expected to see their annual GDP expanding faster than the rest, exceeding 6 percent, as manufacturing and services sectors further recover from sluggish global demand. Meanwhile, top commodity producer Indonesia will benefit from higher prices, particularly for coal, metals and palm oil.

    Unfortunately, history shows that faster economic growth almost always means rising inequality. Some of the largest and more developed economies, namely Malaysia, Thailand and Singapore, are among those with the highest GINI coefficients in the region, indicating that there is less equitable distribution of income within these countries compared to the rest.

     This, however, is not to say that other Southeast Asian economies are in a better position. In fact, not a single economy in the region can be considered equitable by global standards. In Indonesia, for instance, four richest individuals hold more wealth than the poorest 100 million or about 40 percent of the country’s population.

     In turn, growing inequality will hamper efforts to eradicate poverty. The latest report from UNDP on sustainable development in ASEAN reveals that 36 million people live below the international poverty line of US$1.9 per day in the 10-state bloc—90 percent of whom are citizens of Indonesia and the Philippines. Rates of malnutrition also remain high in both countries as more than 30 percent of population suffer from stunting. A similar situation is also found in Cambodia, Laos and Myanmar, the report shows.

     Mixed with identity politics, a growing discontent over inequality could be destabilizing for the region. We have witnessed how public resentment over job loss and widening income gap in the West have galvanized populist movements that led to the rise of bigoted leaders, far-right political parties and protectionist trade policies. This trajectory can easily be replicated in Southeast Asia as demagogues prey on an unhappy populace.

     In Indonesia, President Joko Widodo is dealing with sectarian movements that are pedalling bogus accusations of him being a communist and un-Islamic simply because he represents the country’s nationalist and centrist factions. In Malaysia, multiracial tensions persist amid growing public anger over ongoing corruption allegedly committed by members of the ruling elite. Meanwhile, fatigue over decades of oligarch rule has further cemented the popularity of strongman Rodrigo Duterte. All this is happening when democracy is steadily retreating in Thailand and Cambodia, as authoritarian leaders there seek to extend power.

     The most worrying development in the region is, without a doubt, the massacre of the Rohingyas in Myanmar. The country’s military is largely responsible, but anti-Muslim rhetoric by ultranationalist Buddhist monks played a significant role in inciting hatred. There is little evidence that the situation will improve in the near future.

     Leaders in Southeast Asia need to recognize that addressing inequality may be their best bet in securing peace and political stability. They need to look beyond achieving GDP growth target and begin implementing measures for inclusive growth through further investments in both state and private infrastructures that would allow wider public access to healthcare, education and financing.

      This will warrant unpopular measures. In order to raise funds for social investments, governments need to improve tax collection by widening their tax base among the middle class. These governments also need to consider taxing the rich more—a panacea suggested by acclaimed economist Thomas Piketty in his seminal work, Capital. The time is ripe for most governments to do this as economic growth is likely to pick up pace, thus lessening the impact from more aggressive fiscal policies.

     Finally, countries must get together under ASEAN to review development gap within the region and execute major assistance policies on institutional capacity and financial cooperation, as well as on those that are more directly relevant to the public, namely human capital development and small business assistance. It is time that the economic integration of ASEAN countries directly benefits its people and their small businesses as opposed to just large multinational companies.

    2018 will be a year of economic blessing, leaders must not be complacent and seize the opportunity to do good by investing for a more equitable and sustainable future.

29/12/2017 in Insight, Viewpoints

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