The interaction with growth, structural change, economic openness and social and political structures

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The papers

Welcome to all interested in participating in the dialogue about Inequalities in Asia. Only when papers depart too much from normal standards of conference papers have we rejected them. Since we believe that values are necessarily involved in all papers, no paper has been rejected for ideological or political reasons. In the present situation, characterized by multifaceted and complex threats to humankind, we need an open, pluralistic debate in line with normal ideas of democracy. Participation in the discussion is not limited to the authors of posted papers and we hope that all interested WEA members will contribute to the dialogue. We look forward to a constructive dialogue.

Practical details

All papers are available for readers on this website. Commentators can write on specific papers or on several papers together. They can also make general comments on the conference. Comments on several papers, the themes discussed and/or on general issues can be posted on the “General Comments” page. If you are not a WEA member, please feel invited to join us by going to the WEA website to register (no fee required):
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According to rules of fruitful dialogue, we expect authors to respond to the comments on their papers as well as on related general remarks.

Introduction

It is generally recognized that inequalities of various kinds have been exacerbated during the period of globalization. This is true of global/regional inequalities as well as within-country disparities, except in a few countries where very conscious policies have been taken to reverse this. Concerns with growing inequality extend well beyond issues of justice and fairness, since the degree of economic inequality also affects social cohesion and political instability, and can also have negative implications for economic growth and sustainability. This conference will focus on various aspects of inequality in South, Southeast and East Asia from the broader perspective of examining their interlinkages with other economic, social and political processes. This region is known to have been among the most dynamic in terms of income growth as well as structural change, and the evidence of increasing inequalities is also marked in several major countries of the region.

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Identifying trends of inequality

The Growth Structure of Indian Economy – An Empirical Dissection

The GDP growth structure of India is dominated by the growth in service sector. The Baumolian theories argue that the higher productivity in services is primary mover behind this growth pattern. On the other hand, Kaldorian theories argue that service sector or IT sector with its strong linkages with the rest of the economy is driving the growth. This paper argues that none of these two theories explain the Indian growth structure. The demand pattern, which is independent of production structure, is the main factor responsible for this growth pattern. This demand pattern has primarily arisen out of external demand and increasing income inequality.

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The End of Egalitarian Growth in Korea: Rising Inequality and Stagnant Growth after the 1997 Crisis

This paper examines the rise in income inequality after the 1997 financial crisis and neoliberal economic restructuring in Korea. It argues that the egalitarian growth model in the past was over in Korea as inequality in income and assets became serious and economic growth has been in stagnation since then. The labor market reform, corporate and economic restructuring, and more economic opening caused a rise in wage inequality, a growing disparity between household income and corporate profit, and that between industries. The neoliberal growth model in the post-crisis period in Korea is likely to lead to a vicious cycle of rising inequality and stagnant growth through several channels, which is in the opposite direction of the East Asian miracle. This paper calls for more active efforts of the government for income redistribution and re-establishing an egalitarian growth model.

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Is inequality in Malaysia really going down? Some preliminary explorations

This paper explores inequality in Malaysia, which poses a puzzle in recent years. While official figures indicate declining household income inequality, public discourse generally perceives persistently high or rising inequality. Assembling data from a range of sources, I obtain evidence of increasing concentration of earnings and wealth in the topmost strata, an outcome not captured in official Gini coefficients. Notably, young workers’ earnings have lagged, and public services have expanded the proportion of managers and professionals. These are interesting and consequential findings, but do not present sufficient evidence to deduce patterns of overall inequality.

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Income Inequality in China

In 1980, the father of China’s Reform and Opening-up, Deng Xiaoping, put forward the idea that “China should ‘double its national income’” after referencing Japan’s “National Income Doubling Plan”. Since then, the income of Chinese citizens has doubled, or even quadrupled, every 10 years. In the 30 years from 1980 to 2010, China’s GDP grew by 9% annually and in 2010, it surpassed Japan to become the world’s second largest economy. Its export volume has also surpassed that of Germany and become the largest in the world. The IMF predicted (World Economic Outlook 2011 that if China continues its high-speed growth and the US economy stagnates, China would overtake America as the world’s largest economy in 2016, much faster than economists and international organizations have predicted1. Meanwhile, living standard of Chinese people has been better off their GDP per capita increased from US$ 313 in 1980 to US$ 42002, ranked as up-middle income economy. Furthermore, the 12th Five-Year Plan for the National Economic and Social Development, passed by the 11th National People’s Congress in March 2011, proposed that GDP per capita should be doubled again, namely to US$ 8400 by 2015.

However, behind these “lights” there exist some “shadows”. The issues of increasing income disparity, nationwide environment pollution, spreading official corruption, serious conflict between the public and the governments, and so on are some of them. On the other hand, as we knew from international experience that when a nation’s GDP per capita got to $3000 and above, it may entry a transition phase in which some problems such as income inequality, social conflict and political risk will come about. These problems may make its economic growth stagnated and induce the country into an instable situation both in society and politics if the national couldn’t pass through economic and social transition smoothly. Consequently the country may not be able to have a sustainable development and promote its income growth but fall in a “Middle Income Trap”.

China is now on the cross-road of the above transition phase and facing to the “Middle Income Trap”.

This paper will introduce you the process of China’s rapid economic growth and discuss the issue of income inequality using the data sets of China Household Income Project (CHIP) and China Urban Labor Survey (CULS) in addition to the public data of the government. Moreover, the main factors causing these problems will be examined from the aspects of the policy orientation and market factors.

This paper is composed of 5 sessions. Session 2 presents income inequality in China by different measures; Session 3 give an explanation to the Income Kuznets Curve and predicts the future trend of income distribution in China; Session 4 will implies some economic and the social meaning of income inequality for the future development.

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Inequality and social and political structures

Caste and Production Relations in India’s Informal Economy: A Gramscian Analysis

The paper explores the impact of caste on production relations in contemporary India. Caste is analysed by means of conceptual categories borrowed from Gramsci’s theory of hegemony. Partially overcoming the conventional Marxist view of caste as a ‘false consciousness’, caste is conceptualised as an institution and an ideology, which influences mental processes and social intercourse and, at the same time, defines widely accepted patterns of civil society organisation. The impact of caste on social production relations is empirically explored in the case of Arni, a rural market town in South India, which has experienced a major socio-economic transformation after the Green revolution. The analysis focuses on the forms of civil society’s organisation, which, as Gramsci shows, is an outcome of the interplay of particularistic interests.

After the introduction, Section 2 introduces Gramsci’s conceptualisation of hegemony in civil society. Section 3 relies on the evidence and argument provided by the literature on contemporary India with the aim of pointing out the two-fold role of caste as an institution and as an ideology. Section 4 summarises the results of a survey of Arni’s civil society, which explores the economic impact of social organisation. Section 5 comments on the role of caste in Arni’s civil society.

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How Close Does the Apple Fall to the Tree? Some Evidence on Intergenerational Occupational Mobility from India

Using data from the India Human Development Survey (IHDS) 2005, we examine intergenerational occupational mobility in India, an issue on which very few systematic and rigorous studies exist. We group individuals into classes and document patterns of mobility at the rural, urban and all-India levels, and for different caste groups. We find substantial intergenerational persistence, particularly in the case of low-skilled and low- paying occupations, e.g. almost half the children of agricultural labourers end up becoming agricultural labourers. We also document differences across caste groups. Overall, our results suggest considerable inequality of opportunity in India.

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State Capacity and the Sustainability of China’s Economic Growth

There has been growing concern over the sustainability of China’ s economic growth. The Chinese economy is excessively dependent on investment and exports, a pattern that has become increasingly unsustainable. The excessive dependence on investment and exports results from insufficient household consumption, which, in turn, reflects rising income inequality and inadequate provision of social welfare. The underlying cause has to do with the weakening of China’ s state capacity. Nevertheless, China’ s state capacity remains relatively strong and a strengthening of the state capacity will contribute to a more sustainable pattern of economic growth.

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Understanding Process of inequality

Growth and Distribution Regimes in India after Independence

The Indian economy witnessed four qualitatively different regimes of capitalist growth and distribution since independence. The first two regimes in the period – 1951-1980 – operated under the hegemony of the Indian state, the third one under the mixed hegemony of the state and private capital (1980-1991), and the last one under the hegemony of private capital (1991-2012). These four regimes are associated with very different growth and distributional dynamics, roles of the State, and ended with crises of diverse kinds that then ushered in new regimes. The contribution of this paper is to show how Indian political economic history after independence is a patchwork of periods of short-lived stability that were in turn shaped, and produced by various crises and contingencies. It is certainly the case that through this entire period, even as economic growth has been achieved, there is an unmistakable emergence of private capital and professional classes as the dominant (without being hegemonic) classes that have become adept at using markets and the State to further their own interests. We argue that this dominance itself has come about through a series of contingent outcomes.

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Tracing Some of the Distributional Consequences of Financial Reforms in India: 1991-2005

This paper is a chapter from the author’s PHD thesis written in 2005. It examines the history of financial reforms in India up to 2005 and the consequences for the distribution of income and wealth. A short appendix provides a very abbreviated discussion of the further changes from 2005-2012.

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Impact of Technology on Wage Inequality: Evidence from Indian Manufacturing under Globalisation

The policy reforms in India initiated in the early 1990s have brought phenomenal changes in the economy’s growth and development process. The economy during this period has experienced high growth rates on the one hand and increased inequalities on the other hand. A prominent strand of literature argues that income inequalities are aggravated due to an increase in the earning opportunities of skilled workers over unskilled workers due to increased technology. Hence, the present paper is an attempt to examine the impact of various components of technology accessed through external as well as internal sources on changing wage structure in the era of globalization. The present study has been carried out using two data sources ASI and CMIE prowess during 1992-93 to 2005-06. From an analysis of the trends and patterns of employment and wages, it is observed that the wage share of skilled workers has been increasing during liberalisation period across all the manufacturing industries. Hence, to examine the wage inequality empirically, an econometric analysis of panel data has been carried out using a cost function framework. The results showed that technology intensity in general has a positive and significant effect on wage inequality in total manufacturing, high-tech and medium-tech industries. Further, it is found that while domestic technology elements have a positive effect on wage inequality in total manufacturing and high-tech industries; imported technology is significant in low-tech industries. While imported capital goods are significantly affecting the demand for skilled workers in low tech industries, domestic capital goods are contributing for the rise in skill demand in total manufacturing and high-tech industries. Thus, the study infers that domestic technology in general has been biased towards skilled workers there by contributing to increase in their wages.

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Land Consolidation in China – A critical Review

China’s growth, after the early years, has been built on industrial development in a model of unbalanced growth. This has left the rural areas trailing urban areas in development. Rural residents earn less than urban residents, have inferior physical infrastructure, and suffer poor basic amenities. These disparities have led to extensive rural-urban migration. This migration, by leaving residences unoccupied, has exacerbated inefficiencies in rural land use. The Chinese government correctly perceives the need to redress this challenge, and sees land consolidation as the appropriate approach not only to rationalize land use but also as an important component of rural development. This approach, together with a number of consolidation models, has been endorsed by many scholars. While we agree that reducing inefficiency in land use is an important policy objective in its own right, our review shows the current approach by the government suffers from major deficiencies

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Control of Agricultural Prices, Rural-Urban Migration and Primary Distribution: Reasons behind Inequality in China, 1978-2007

Most analyses explain the increase in China’s overall inequality during the reform period principally by means of the expansion of urban-rural income gap. This paper tries to shed light on a more complex relationship that appears to exist between primary distribution of income, top income share, and the Gini index. This relationship is mediated by the same urban-rural disequalizing mechanism existing in the Chinese economy, which is based on the hukou system. After presenting the main theoretical contributions that clarify the general relationship among those three variables, we describe that mechanism which has connected them in China during three last decades. As we shall see, there exists a link between the relative impoverishment of Chinese peasants, due to declining agricultural prices, the consequent flow of rural-urban migration, its depressive effect on industrial wages, the resulting increase in the profits’ share, and rising top incomes. The enrichment of urban top income households drives the increase in the urban-rural gap, while labour’s loss of share in national income ultimately accounts for the overall increase in the Gini index. The paper ends with a reflection on the ability of the latest policy measures taken by the Chinese government to reverse this pattern of inequality during the current global economic crisis.

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Profit-Led Growth and Policy-Induced Changes in Income Distribution in a Developing Economy

In a demand-side growth model we show that a developing economy may experi- ence a steady positive equilibrium growth rate of investment and profit as long as – investment in the economy is responsive to the aspirations of the richer section of the population to match the consumption level of the developed world and imita- tion of foreign production technology is not very expensive. A worsening of income distribution is not required to sustain this kind of growth process but a sufficiently unequal initial distribution of income is enough to propel it. We also show that the technologically dynamic sector producing for the rich is incapable in generating much employment. If the process is accompanied by no change in the distribution of income then the employment share of the the technologically stagnant sector producing for the poor increases at the cost of declining growth rate of real wage. In case the growth process is accompanied by an exogenous change in the distribution of income induced by shifts in economic policy regime then the positive and stable equilibrium growth rate of investment is associated with an increasing growth rate of output though more is gained in terms of increase in output growth when income distribution improves rather than worsens. On the other hand, growth rate of employment for the entire economy might decline.

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