Tuesday, November 06, 2007

Is the world getting unequal?

Is the world getting unfair? It’s so easy to form that impression these days especially if you live in the Philippines. In a study, NSCB director general Romulo Virola and company said the ranks of the middle class have been shrinking. The study however only covers from 1997 until 2003 and surely the rapid growth of outsourcing may have some positive effect on the fresh numbers. I really hope Dr. Virola updates us on this thing one of these days.

But in the US, Americans are also complaining about the same trend. Take if from political economist Robert Kuttner who recently said that:

For three decades, the [American] economy has increasingly become more unequal and more precarious for ordinary people. During the same period, risks that used to be absorbed by large, stable employers or social programs have been transferred back to individuals and families.

Meanwhile, the financial economy has become steadily more speculative and corrupt, as insiders, often with severe conflicts of interest, extract wealth from the real economy. The dot-com bust of 2000-2001 was the result of those conflicts -- accountants who were supposedly guardians of honest books colluded with management to pump up stock values and deceive investors; stock "analysts" compensated on the basis of their success in duping the dumb money.
Sounds familiar?

In the case of the Philippines, the supposed rising inequality could be due to the emergence of new growth drivers that are essentially urban-based: outsourcing, electronics, construction, real estate. Inequality however could also be “good” especially if its temporary. Let’s face it, any surge in economic growth usually starts from certain sectors of the economy (say certain sectors in manufacturing and services) before others catch up through demand linkages. We have yet to see whether or not this pattern will eventually manifest in the Philippine context, now that we started to have decent economic growth rates (5-7 percent).

I’m crossing my fingers.


Urbano dela Cruz said...

it's the champagne glass.

it's universal, and the disparity is apparently growing. Is the Matthew Effect driven by (Barabasi's) rules of scale-free networks?

"Inequalities of the distribution of income have long been the Achilles' heel of economic growth and development. In an era of IT-enabled globalization, that seems more the case than ever. History tells us that the pressures of widening income disparities are often vented in the political arena." -Stephen Roach

Will we manage it better the more we understand the power of networks?

will the econphysicists have solutions?

I'll keep my fingers crossed, too.


BURAOT said...

in theory, and now we see the practical side of it, that is how market economy works. even with the smokescreens, we could still see it on the 1st worlds. on 3rd worlds like ours, corruption makes it astoundingly clearer.

but even if we get rid of corruption, which is unlikely at this moment, the distribution of wealth would still be the same.