Current Economic Inequality

While economic growth has certainly been witnessed in the region, the growth has been worryingly unequal. Recently, with the growth of digitalisation and improvements in technology, while productivity has increased, there has been a trend to favour capital over labour. This has contributed to income equality, which is exacerbated by another trend of favouring skilled labour over unskilled labour. Most ASEAN countries are currently stuck in a middle-income trap. 

The data from ASEAN countries is surprising – they all score highly on the Gini Index, which is used to measure economic inequality. Among all ASEAN countries, Thailand scores the worst. According to the Bank of Thailand’s research institute – the Puey Ungphakorn Institute for Economic Research – Thailand’s 36 per cent of corporate equity is held by just 500 people, while they have a population of about 69,625,582 people. The average yearly household income of these people is around US$10,000. But in stark contrast to this meagre amount, the aforementioned 500 reap around 3.1 billion baht (US$102 million) per year in company profits. 

Economic Inequality and Political Instability

Economic inequality can lead to political turmoil and therefore threaten the peace and security of the region. Unmet expectations can lead to a lead to a dissatisfied voters’ base. Such a voters’ base is likely to vote for populist governments or cause civil unrest. Rattana Lao, lead author of a study by the Asia Foundation called Thailand’s Inequality: Myths and Reality of Isan said that “Research has shown that one of the leading indicators that pushed people toward political turmoil and protest is the fact that they are not satisfied with their economic condition and the uneven treatment that they receive.”

A crucial realisation that fails to be accounted for in most discussions surrounding economic inequality is that regional disparities also constitute as a worry. Specifically, when talking about political instability, people from poorer regions rely more on government supports and can have unrealistic expectations from their governments. These people are more likely to be engaged in politics and hence can determine voting outcomes. The dissatisfaction of electors can turn into a series of protests, as witnessed in the case of the Arab Spring. 

Thomas I. Parks, the Country Representative for Thailand at The Asia Foundation writes in regard to the aforementioned report, “The challenge now for Thai leaders is to find the best mix of programs and policies and stick to them. In the coming years, the government must carefully monitor and evaluate the results of its policies and programs, and the lessons learned, and then make adjustments whenever needed.” Regional disparities and the level of income inequality has to dictate policies if governments want to avoid civil unrest. 

Economic Inequality and Hindrance to Trade

Unfortunately, income inequality goes beyond political instability. Persistent-income inequality can significantly impede growth and weaken demand, therefore affecting trade and ASEAN’s goal of economic integration. Believers of trickle-down economics are proven wrong if we look at the experience of ASEAN countries. According to the International Monetary Fund, if the income share of the top 20 per cent increases by 1 per cent, we witness an associated 0.08 percentage point decrease in Gross Domestic Product (GDP) growth in the next 5 years.

There is a clear correlation between economic equality and sustainable economic growth. Policy measures need to strive for equal access to resources and opportunities, otherwise, we may witness some sort of economic growth, but it will only be limited and unsustainable. Economic development, which is what countries should strive for, includes sustainable growth – and it is only possible when there is an overall economic upliftment of everyone in society.

Moreover, ASEAN’s goal of promoting trade in the region is affected when we look at the driving factors of income inequality. Factors that have been identified as contributors include globalisation and warped fiscal policies of governments. For example, Multinational Companies (MNCs) do not pay proper taxes which helps them retain profits but also indirectly takes away crucial funding from government schemes, and therefore this help never reaches the poor. Organisation for Economic Co-operation and Development’s Chief Economist, Laurence Boone said: “At the global level, we must ensure that firms pay their fair share of taxes to create value and employ people.” On the one hand, it is impossible to reject globalisation due to the adverse damage it would do to trade, but on the other hand, it is crucial to make sure the benefits of globalisation are reaped by everyone. Similarly, fiscal policies of countries cannot seek to just remove income inequality – they need to be in line with ASEAN’s policies of economic integration (and therefore, globalisation). In these aspects, ASEAN needs to make sure that it’s member countries remain in tune with its agenda, while at the same time make sure that income inequality is eradicated. 

Conclusion

Both the main objectives of ASEAN are put in jeopardy with the context on economic inequality. In fact, having one objective threatened also affects the other – for example, political instability also disincentivizes people to invest and drives down economic growth. Similarly, slow trade and economic growth leads to resentment amongst the people, and therefore political instability. Ultimately a dangerous cycle can form.

Political instability reduces the likelihood of proper collaboration on an effective economic agenda and trade policies. Frequent regime changes and different leaders might essentially make ASEAN’s goal of proper and effective economic integration difficult to achieve. This, in turn, will lead to poor economic policies, followed by low and unsustainable growth fuelling economic inequality. Economic inequality and hindered trade by creating dissatisfaction amongst citizens will again lead to continued political instability and fragmentation.

In order to make sure that officials’ capacity to implement proper trade policies is not undermined, it becomes crucial to recognise the real-life impact of income inequality and understand the disastrous affects it can have on just numbers and figures of growth, but in lifting people’s social class and living standard. ASEAN’s objective of a better region is threatened by the security risks that economic inequality poses. For example, the recent coronavirus pandemic also disproportionately will affect the poor. In situations such as these, economic equality and consequently equitable access to resources (healthcare, information, a steady source of income etc.) becomes a priority. Poverty and economic gaps don’t just make it tougher for people on the lower end to recover, it also makes every situation tougher for a nation to escape from, and therefore also makes it tougher for a regional entity such as ASEAN. 

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“Health is the core of human development”

– Gro Harlem Brundtland

Economy and health are inseparable. Healthy people can live a prosperous life leading to more productivity, saving and investment, boosting economic growth and development. When an economy is interrupted by an unusual happening, economic effects follow up. Morbidity rate – the percentage of people infected, mortality rate- death rate, duration of the pandemic’s existence, number of workweeks lost, level of inequality during and after pandemic are some of the variables which can be used to estimate the economic effects of the pandemic.

Effects on supply

At the very initial stage when the disease starts spreading it creates panic among workers and there are possibilities for the rise in the rate of absenteeism. When the situation turns worse and the government intervenes by preventive and curative actions through lockdown and quarantine then it leads to loss of working weeks, shut down of businesses and industries at least till the restrictions are eased. Even after industries resume its functions, there will be a restriction on the number of workers, possibilities of workers getting affected by the disease or being deceased or laid off. This will not only affect a separate industry but there will be a break in the supply chain due to the breakdown of linkages– the flow of intermediate inputs in production. In the present time where many countries have trade liberalization, international flow of goods and services may also get severely affected. Businesses will hesitate to make an investment. Tourism, aviation, automotive, real estate, manufacturing industries of non-essential commodities may face loss while health care product industries, E-commerce may become some of the potential gainers at least for a short term.

Effects on wage

The Black Death of the 14^th century wiped out a quarter of Western Europe’s population, had economic effects like a drop in GDP, hike in the price of basic commodities and hit in the agriculture sector. But on the perspective of income, some thought to have positive or no effect on income per capita at least in France and England. Even 1918 influenza has had a positive impact on income per capita in the US. 

In a simple economic model, when the supply of labour is reduced in the manufacturing sector, initially there will be an increase in the marginal product of labour and capital per worker, increasing the real wage for a short term. The same way in a research it was found that over the period of 1914 to 1919 there was a greater increase in the manufacturing wage growth in the cities and states of the United States where influenza mortalities were greater. This may be possible only in short term but in the long run, fall in demand, loss of skilled workers, political pressure to control the wage, higher mobility of workers, reduction in human capital may result in equalization of wage. There is no clear view on both short and long term effects, as it depends on various circumstances.

Effects on demand

The anxiety created by the pandemic situation may result in loss of consumer confidence, people may hand back to spend. The economic cost may rise irrespective of whether the morbidity and mortality rate is high or low. The anxiety created during SARS (2003) outbreak which relatively had low mortality rate led to the economic cost of over 11 billion dollars in the areas where tourism and business were affected. The precautionary measures to avoid the spread of disease may isolate people from other activities like going to gymnasium, theatre, hotels etc. There may be effects on savings too.

Poverty and Inequality

Generally, the most vulnerable section, prone to diseases, is the poor due to lack of good sanitation, health care facilities and insufficient nutritious food. Even if the pandemic affects people indiscriminately the degree of an economic burden to be borne by the poor will be more.  During the lockdown, they have to face a hard time as most of their lives depend on day to day wages. Poor people may not have life insurance due to non-affordability or lack of information/awareness, in such a case if the principal earning person dies in that family the economic situation of that family will become worse and it will prolong until another person from the family enters into the working population with sufficient income. Education may become a distant dream, as the unfavourable economic situation may force them to send their children to work than to school, but education is one of the significant factors for the development of an individual as well as the economy a whole. 

The historians noted an improvement in economic equality after Black Death of 14^th century but currently, the pandemic situation which we are facing is quite different, now technology has taken lead. Right from health care services to education to work, for time being, is dependent on the internet. In the case of education students who cannot afford to electronic devices with internet connections or from remote rural areas will be set back. Half of the world’s population does not have access to the internet. If the gender gap prevails in access to the internet then it will increase the disparity between men and women. According to research, nearly 15% of the workforce on an average from 35 advanced and emerging countries, among 189 member countries of IMF is unable to do their works remotely. Even when vaccines are developed, distributional inequality may arise both within and between countries. Not only during its existence but even after COVID-19 vanishes a fear emerges that it may have an impact on inequality in different ways.

Loss of life can never be comparable at any cost.  

“Hope is important because it can make the present moment less difficult to bear. If we believe that tomorrow will be better, we can bear a hardship today.”

 -Thich Nhat Hanh

Even when Spanish flu led to the death of nearly 3-5% of the population and having a severe impact on the economy by increasing the unemployment and poverty, history shows that humankind with resilience fought back and got recovered soon. There is a greater chance of being flexible to the unforeseen circumstances to bounce back to normality. Fiscal and monetary measures used by the government, funds from international organizations, improvement in public health, infrastructure, education, cooperation by the people, love and compassion for others, giving a helping hand to the needy and most importantly faith in healing to have a better future will definitely lead us to recovery.

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