Wrong end of the stick

The Asian Development Bank report on inequality in Asia argues that inequality is increasing across the continent and leading to a lower rate of poverty reduction while also hindering growth. It is important to recognise, when reading such headlines, that the rise in inequality is more due to inter-country differences rather than intra-country differences. Thus, while the (Thein) inequality index rose from 0.3654 in 1993 to 0.4665 in 2003, the inequality within countries rose from 0.3211 to 0.3358 while that between countries rose from 0.0443 to a dramatically higher 0.1307. In other words, 85 per cent of the increased inequality took place due to the rise in inequality between countries, almost certainly a reflection of China growing much faster than its neighbours. Or compare India and China, the two emerging giants on the continent. For India's poorest quintile, per capita expenditure according to the ADB grew just 0.85 per cent annually in the last decade, compared to 2.03 per cent for the top quintile""which clearly points to growing inequality. But in China, where the inequality is much greater than in India, the corresponding figures were 3.4 per cent and 7.1 per cent. If you focus on the growing inequality within India, you will most likely be led to one set of policy options. But if you focus on the fact that per capita incomes for China's poorest quintile have risen by more than they have for India's richest quintile, then the policy options that suggest themselves are quite different.

What of the impact of this inequality? It is difficult to argue, as the ADB report does, that inequality seriously compromises growth without explaining why China is growing faster than everyone else. Nor is the picture on malnutrition and stunting, as clear. India appears to have the highest levels of underweight children and sharper variations across income groups, but countries with a better record have both lower and higher levels of inequality. The real issue here may have less to do directly with inequality and much more to do with the effective delivery of public services. The figures show that immunisation levels are much lower in India than even Bangladesh; surely this has to do with the failure of India's public health programme. Similarly, the percentage of undernourished children in India is higher than in Bangladesh; it might be relevant here that the World Bank has pointed out that while India's Integrated Child Development Scheme (ICDS) focuses on supplementing food instead of on nutrition, and on children above the age of three, malnutrition sets in much earlier. If one turns to the UN Development Programme's Human Development Index, India has done consistently worse on sanitation (important from a health perspective) than many poorer countries. Income levels do make a difference, of course, but even if inequality in India had not gone up over the decade being reported on, the failures would have been there.

The primary issue of public concern must therefore be the government's failure to provide the basics in terms of public health, sanitation and nutrition support, causing India's indices to compare poorly against even a much poorer neighbour like Bangladesh. There is, all too often, sterile debate about whether markets or governments fail more often. The relevant point is that markets work better in some areas and in the right conditions, while in others it is only the government which can make a difference""especially when you are dealing with people who are mostly outside the scope of organised markets. What the numbers tell us is that, in the areas where the government should be focusing its efforts and making more of a difference, it is not doing so.