It’s often argued that development is the panacea for poverty in Asia. Rapidly growing emerging markets like Indonesia have adopted this as a mantra, putting development ahead of things like human rights, justice and enduring democratic reform.
Here’s what Professor Hal Hill, Professor of Southeast Asian Economies at Australian National University, said on the subject during a lecture in Canberra:
On the question of these trade liberalisations and poverty, I would draw the following link. We know in general that more open economies tend to do better than closed economies and generally that leads to higher growth. The question is: Does the growth translate into reduced poverty.
Most poverty reductions tend to be highly associated with growth – faster growth, higher incomes, higher incomes lower poverty. So it is growth plus – the key thing being what is in the plus. What it denotes is the capacity of the poor to connect to a faster-growing economy and typically the poor have only their labour to sell, and to the extent that the growth creates employment opportunities it is most likely to lead to a reduction in poverty.
However, it has to combine with education and health and other public goods which enable people to participate in the growth process.
So the evidence is pretty clear that higher growth leads to faster poverty reduction, but not necessarily at the same pace. You get cases like China where you get rapid growth and rapid poverty reduction but also a rapid rise in inequality.
He could have cited Indonesia as another case in point. Journalists often mention Facebook usage to illustrate Indonesia’s growing wealth and burgeoning middle class. The number is indeed impressive – Indonesians clearly love wasting time on Facebook. But the bigger picture lies in the internet penetration figures. At around 16 percent of the country’s 240 million people, it’s a lot closer to Pakistan on 11 percent than to neighbouring Malaysia at 64 percent. In other words, the vast majority of Indonesians have little or no access to the internet and probably don’t even know what Facebook is. The wealth associated with having an internet connection and a laptop or a smartphone is not reaching more than a tiny minority of the people.
Indonesia’s economy may be growing at 6% but the courts remain riddled with corruption, the hospitals are so bad people who can afford it (the five-percenters) fly to Singapore for treatment, and the education system is, to put it mildly, a joke.