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Rising inequalities in income and access to employment and social services in Asia are casting a shadow over its unprecedented economic boom, and governments and the private sector need to work together to make the benefits of growth more inclusive, says a new book from the Asian Development Bank (ADB).

Poverty, Inequality and Inclusive Growth in Asia: Measurement, Policy Issues, and Country Studies, edited by Juzhong Zhuang, Assistant Chief Economist in ADB’s Economics and Research Department, examines the growing discrepancies in wealth and persistent gaps in access to social services that have emerged during Asia’s extraordinary economic expansion in recent decades, and lays out policy options to address inequities and support inclusive growth.

Over the past 20 years, the region’s per capita gross domestic product has expanded almost three-fold, with the percentage of people living in extreme poverty ($1.25 a day or less) nearly halved. At the same time Asia is still home to two-thirds of the world’s poorest people, while in a large part little progress has been made on key social indicators, such as child and maternal mortality rates. Despite market liberalization and globalization creating new wealth and economic opportunities, inequalities in both income and non-income indicators have widened in many countries, particularly between large urban centers and the countryside.

“Developing Asia’s stellar growth rates have masked rising inequality, leading to two faces of Asia – one shining and the other suffering,” said Mr. Zhuang. “Merging them will be a development challenge for many years to come. Inclusive growth with its focus on creating economic opportunity and ensuring equal access will play a pivotal role in narrowing the gap.”

The book – which draws on research papers carried out by ADB economists and their collaborators – looks at recent trends of income and non-income inequality and poverty in the region; discusses the underlying driving forces; examines the concept of inclusive growth; and provides in-depth analysis of key policy pillars of an inclusive growth strategy, including employment, access to public services, social protection, and governance and institutions. The book also includes six country studies presenting detailed information on growth, poverty, and inequality dynamics in the People’s Republic of China (PRC), Nepal, the Philippines, Thailand, and Viet Nam.

It says an effective inclusive growth strategy needs to focus on high growth to create productive jobs, social inclusion to ensure equal access to opportunities, and social safety nets to mitigate risks and cushion the most vulnerable groups. To do this, governments should address existing policy, governance and institutional weaknesses, promote social inclusion, and invest in, and improve access to, basic services.

“Fighting poverty and inequality by focusing public policy on improving delivery of basic health care and education services, especially to the disadvantaged, strengthening social protections and significantly increasing the productive employment opportunities of a wide population should be a minimum agenda to which developing Asia’s policy makers must commit,” said Mr. Zhuang.

The book notes that many economies in the region, including India and PRC, recognize the potentially negative social, economic, and political consequences of increasing inequality in access to economic opportunity, and are now embracing inclusive growth as the central element of their development plans.

Developing Asian economies need to make growth more inclusive and sustainable with less income inequality and environmental degradation, says a forthcoming book by the Asian Development Bank (ADB) and the Asian Development Bank Institute (ADBI).

The book, Rebalancing for Sustainable Growth: Asia’s Postcrisis Challenge, argues that Asian economies export-led growth model, which was so spectacularly successful in Asia in earlier decades, has significant limits. Asia now needs to rebalance growth by adopting policies to promote a greater reliance on domestic and regional demand. Balanced growth, the book says, means growth that is consistent with smaller global imbalances and is less dependent on exports, as well as growth that is inclusive and environmentally sustainable.

“Although Asian economies have begun to recover from the global financial crisis, the longer-term implications of the crisis for Asia are perhaps even greater than the short-term ones,” said ADB Vice-President Laurence Greenwood, who introduced the book at ADB’s 43rd Annual Meeting in Tashkent. “The period of rapid Asian export growth was, at least in its later stages, accompanied by a sharp worsening of global payments imbalances, which contributed to the global financial crisis. Asia’s future growth path needs to avoid such large and risky imbalances.”

Mr. Greenwood said that the aftermath of the global financial crisis provides an opportunity to correct distortions and develop policy measures to support more balanced and sustainable growth.

Some of the book’s key recommendations to achieve these goals include:

• Establish an effective framework for monetary, macroprudential, fiscal, and exchange rate policies
• Deepen social protection to support social resilience
• Increase infrastructure investment to create a “seamless Asia”
• Enhance productivity in the services sector
• Establish a region-wide free trade agreement to encourage intraregional trade and investment
• Promote a shift to a low-carbon society and support green growth, and
• Deepen and integrate the financial markets to facilitate the recycling of Asia’s high savings for investment within the region.

“This new development paradigm for Asia could enable the region to not only remain the world’s factory of manufactured products but also become a more important source of global demand,” said Masahiro Kawai, Dean of ADBI. “A stronger, balanced, and more resilient economy, with multiple sources of growth, is a foundation for a prosperous Asia and at the same time provides benefits to the global economy.”

Tokyo-based ADBI, which is a subsidiary of Asian Development Bank, was established in 1997 to help build up knowledge on poverty reduction and actions needed to support long-term growth in developing economies in Asia and the Pacific.

If long-term global problems are ignored, the economic crisis could lead to a social crisis

In his opening address at the World Economic Forum Annual Meeting, President Nicolas Sarkozy of France said that it will not be possible to emerge from the global economic crisis and protect against future crises if the economic imbalances that are at the root of the problem are not addressed. “Countries with trade surpluses must consume more and improve the living standards and social protection of their citizens,” he remarked. “Countries with deficits must make an effort to consume a little less and repay their debts.” The world’s currency regime is central to the issue, Sarkozy argued. Exchange rate instability and the under-valuation of certain currencies lead to unfair trade and competition, he said. “The prosperity of the post-war era owed a great deal to Bretton Woods, to its rules and its institutions. That is exactly what we need today; we need a new Bretton Woods.” Sarkozy said that France would place the reform of the international monetary system on the agenda when it chairs the G8 and G20 next year.

In his address, Sarkozy also called for an examination of the nature of globalization and capitalism. “This is not a crisis in globalization; this is a crisis of globalization,” he said. “Finance, free trade and competition are only means and not ends in themselves.” Sarkozy added that banks should stick to analysing credit risk, assessing the capacity of borrowers to repay loans and finance economic growth. “The role of the bank is not to speculate.” He also questioned the rewarding of high compensation and bonuses for CEOs whose companies lose money. Capitalism should not be replaced but it has to be changed, the French president declared. “We will only save capitalism by reforming it, by making it more moral.”

Speaking before Sarkozy, Doris Leuthard, President of the Swiss Confederation and Federal Councillor of Economic Affairs, told participants that the international community has to bridge the gap between rhetoric and reality as it tackles major challenges such as the global economic crisis, climate change and the Doha Round of multilateral trade negotiations. “We must all sit down together in a responsible manner, bring our part of the solution to the table and allow a conclusion to be reached that benefits us all.” While “rhetoric and reality all too often diverge by large margins,” Leuthard said, the bottom line is that “people need jobs and a salary.” She concluded: “We have talked enough. It is now time to get moving.”

Earlier, World Economic Forum Founder and Executive Chairman Klaus Schwab warned of the consequences if countries are too preoccupied by domestic problems and ignore long-term challenges such as global warming. “We hope that governments don’t become overwhelmed by internal issues and constraints to the detriment of exercising the necessary global stewardship.” Added Schwab: “We run the risk that 2010 becomes the year of the social crisis following the financial crisis of 2008 and the economic crisis of 2009.” He noted that one of the top priorities for this Annual Meeting is to encourage entrepreneurship and job creation.

The International Air Transport Association (IATA) reported December and full-year 2009 demand statistics for international scheduled air traffic that showed the industry ending 2009 with the largest ever post-war decline. Passenger demand for the full year was down 3.5% with an average load factor of 75.6%. Freight showed a full-year decline of 10.1% with an average load factor of 49.1%.

“In terms of demand, 2009 goes into the history books as the worst year the industry has ever seen. We have permanently lost 2.5 years of growth in passenger markets and 3.5 years of growth in the freight business,” said Giovanni Bisignani, IATA’s Director General and CEO.

International passenger capacity fell 0.7% in December 2009 while freight capacity grew 0.6% above December 2008 levels. Yields have started to improve with tighter supply-demand conditions in recent months, but they remained 5-10% down on 2008 levels. “Revenue improvements will be at a much slower pace than the demand growth that we are starting to see. Profitability will be even slower to recover and airlines will lose an expected US$5.6 billion in 2010,” said Bisignani.

Seasonally adjusted demand figures for December compared to November 2009 indicate a 1.6% rise in passenger traffic while freight remained basically flat with a 0.2% decline.

International Passenger Demand: December 2009 passenger demand recorded a 4.5% improvement compared to December 2008, with a load factor of 77.6%. While this is an 8.4% demand improvement from the February 2009 low point, it is still 3.4% below the early 2008 peak.

• Carriers in Asia-Pacific, Europe and North America recorded year-on-year declines in passenger demand of 5.6%, 5.0% and 5.6% respectively in 2009. Asia-Pacific carriers stand out as benefitting most from the year-end upturn with an 8.0% year-on-year improvement in December. This reflects their 35% contribution to the year-end rise boosted by the significant economic upturn in the region. By contrast, European carriers saw a 1.2% decline and North American carriers declined by 0.4%. While both North American and European carriers saw demand improvements in the first half of the year, the second half was basically flat.
• Middle Eastern carriers generated the fastest growth in passenger traffic at the end of the year with a 19.1% increase in December (and 11.2% growth for the entire year). These gains result from Middle Eastern carriers taking a larger share of long-haul connecting traffic over their hubs.
• Latin American carriers recorded 7.1% growth in December. Full-year traffic growth was constrained to 0.3% due to the impact of Influenza A(H1N1) fears during the second and third quarters.
• Africa’s carriers experienced a sharp decline of 6.8% in 2009 primarily on an exceptionally weak first half. Their year ended with December demand at 3.1% above previous year levels.

International Freight Demand: December 2009 freight demand showed a 24.4% improvement on December 2008 with a load factor of 54.1%. This improvement is exaggerated by the exceptionally weak performance in December 2008 which was the low point on the cycle. Freight demand is still 9% lower than the peak in early 2008. Optimism is returning to the industry as purchasing managers survey indicators reached a 44-month high in December pointing towards increased freight volumes in the coming months.

• Asia-Pacific carriers accounted for over 60% of the increase in international air freight markets over the past 12 months—outperforming their 45% market share. Despite this improvement, Asia-Pacific carriers’ freight volumes remain 8% below peak levels.
• European carriers remain 20% below 2008 peak levels reflecting the glacial pace of economic recovery in Europe compared to Asia-Pacific.
• Middle East carriers and Latin American carriers are smaller market participants, but ended the year better than peak levels by 7% and 21% respectively.

“The industry starts 2010 with some enormous challenges. The worst is behind us, but it is not time to celebrate. Adjusting to 2.5-3.5 years of lost growth means that airlines face another spartan year focused on matching capacity carefully to demand and controlling costs,” said Bisignani.

“We also face a renewed challenge on security as a result of the events of 25 December 2009. The approach of the Obama administration is encouraging with Department of Homeland Security Secretary Janet Napolitano visiting IATA’s offices in Geneva to engage industry to find solutions. We agreed that governments and industry must cooperate and we are preparing for a meeting in the coming weeks to follow-up on our recommendations which focused on finding more efficient ways to implement intelligence-driven and risk-based security measures,” said Bisignani.

“Governments and industry are aligned in the priority that we place on security. But the cost of security is also an issue. Globally, airlines spend US$5.9 billion a year on what are essentially measures concerned with national security. This is the responsibility of governments, and they should be picking up the bill,” said Bisignani.