The end of "growth with equity"? : economic growth and income inequality in East Asia (2011)

Over the last half century economic in Asia, especially East Asia, has fundamentally altered the world's economic and, consequently, political landscapes. In a short 50 years this region has grown into the economic powerhouse of the world. In 195 5 China, Japan, South Korea, and Taiwan encompassed over one quarter (26.66 percent) of the world's population but generated only 9 percent of the world's gross domestic product (GDP).* 1 Five decades later East Asia's population, measured against the world's total, had fallen to 23.24 percent while its share of the global economy had grown nearly three-fold to 25 percent. The region is now the home of the world's second and third largest economies. With China spearheading the region's further expansion in global economic power, followed by Japan, South Korea, and Taiwan, East Asia's economic ascendance is continuing. During the five decades since 1955 these East Asian economies grew from among the poorest to among the richest in the world.What is equally remarkable is that in the 1960s and 1970s and into the mid-1980s in three of these East Asian economies-Japan, South Korea, and Taiwan-was associated with a particular identity, that of growth with equity.2 The economic upsurge not only increased their total GDP it also benefitted most, if not all, of the population through rising income levels and rising standards of living. The economic seen in Japan, South Korea, and Taiwan was accompanied by a relatively equitable distribution of income throughout their populations. This pattern of economic coupled with a relatively equitable income distribution helped these economies avoid social unrest and develop or consolidate democratic governments.At the close (2005) of this half-century of economic progress, the future of the East Asian with equity model was already in serious question. The limited income inequality observed in the middle stages of this regional economic is today increasingly being replaced by growing income inequality. The largest economy in the region, China, which now leads the region's economic growth, also leads in the region's of income inequality.What happened to the with equity model? What caused this current reversal? And what are the prospects of a return to with equity?Growth with EquityIn the last half century, economic in the East Asian region was an unprecedented success story. Between I960 and 1987 per capita income in Japan quadrupled from $4,000 to $16,000 (these and all following income figures in US$). Similarly impressive took place in South Korea and Taiwan somewhat later. In South Korea per capita income quadrupled from $2,000 to $8,000 between 1969 and 1989. In the next 15 years it doubled again, to $16,000 by 2003. Income increased at a similar speed in Taiwan with per capita income reaching $16,000 in 1999, having quadrupled from around $4,000 in 1977. In China, the last of these economies to show massive improvement, per capita income also quadrupled in about two decades time, from around $1,000 in 1980 to over $4,000 by 2002. And, since early in the first decade of 2000, the rate of rise in Chinese per capita income has continued to accelerate.For the early economic successes in this region- Japan, South Korea, and Taiwan-the acclaimed model of with equity indeed finds empirical support, at least until the mid-1980s (Figure 1). In all three locales the degree of economic inequality, measured by the Gini index of inequality of per capita gross income, declined in the initial stages of increasing GDP. The Gini index of inequality ranges from 0 to 1, with 0 being total equality (every member of the population receiving exactly the same income) and 1 being total inequality (all income being in the hands of only one individual).Earlier trends of declining inequality were most evident in Japan and Taiwan. In Japan, where a more complete data series is available, inequality dropped substantially with the Gini index declining from 0. …