Protection of commons or public provisioning of social services is a crucial countervailing instrument for preventing the rise in inequality during the market-driven growth process. Thus, public provisioning of basic social services through progressive taxation is fundamental for inclusive development.
This is confirmed by the findings in the recently published ESCAP’s flagship publication, Economic and Social Survey for Asia and the Pacific 2013. It finds negative associations between tax-GDP ratio and Gini and between public social expenditure and Gini.
The theme of the ESCAP’s 2013 Survey is “Forward-looking Macroeconomic Policies for Inclusive and Sustainable Development”. You may recall, world leaders have affirmed their commitment to “forward-looking”macroeconomic policies both at the Rio+20 conference (Outcome document, para 150) and at the 2010 MDGs Summit (Outcome
document, para 23b). The Secretary-General’s Report, “Keeping the Promise” for the 2010 MDGs Summit outlines “forward-looking” macroeconomic policies (para 50).
The ESCAP’s 2013 Survey outlines forward-looking macroeconomic policies by proposing a 6 point agenda to
enhance the region’s resilience and inclusiveness. These include the provision of an employment guarantee for a limited number of days (100 days) in a year, basic social services in education and health, income security to older persons and persons with disabilities and ensuring modern sources of energy for all by 2030.
The 2013 Survey also estimates, as illustrative examples, the public investment needs to deliver this package of
policies in ten Asia-Pacific countries: Bangladesh, China, Fiji, India, Indonesia, Malaysia, Philippines, Russian Federation, Thailand and Turkey, accounting for about 90 per cent of the population in the region.
Total investment for the above package of policies in China, for example, would amount to 2.6 per cent of GDP in 2013, increasing to 3.3 per cent in 2020 and 5.2 per cent in 2030. Estimates for Indonesia, Malaysia, the Russian Federation, Thailand and Turkey, range between 5 and 8 per cent of GDP.
While the amounts are not trivial, these could be self-financed by most governments by broadening tax bases, making tax regimes more progressive and tax administration more efficient, including tighter regulation on tax fraud, as well as reducing non-development expenditure. However, least developed countries and small island states would
require development partnership and cooperation, especially to prevent illicit transfer of funds.
ESCAP analysis also shows that such investment would not jeopardize fiscal sustainability or price stability. In other words, people and planet-friendly growth is affordable and economically sustainable, making this a win-win development agenda for our region. This is highly encouraging.
The 2013 Survey argues that the dominant macroeconomic policy paradigm since the early 1980s has been too restrictive and not geared towards a great leap forward to inclusive and sustainable development. In light of the region’s high degree of economic insecurity, large development and infrastructure gaps and heightened
environmental fragility along with extreme exposure to climate change related risks, it is necessary to better balance the stabilization and the developmental roles of macroeconomic policies. Macroeconomic policies could and
should be forward-looking in order to play a key role in the region’s next great transition to inclusive, resilient, equitable and sustainable development.
The 2013 Survey also claims that the region’s structural impediments have added to the problems arising from
the travails of developed countries. The rise in inequality, especially in larger countries of the region, has not only significantly wiped away economic and social gains, is also holding back domestic effective demand.
Most of these structural impediments are due to past policy failures. For too long macroeconomic policies focused on aggregate debt, deficit and inflation and neglected their developmental roles. It is assumed that managing aggregate public debt and keeping inflation at some predetermined low levels would deliver development. However, many countries have achieved them at the cost of development, for example, by cutting public investment in key areas and expenditures on education and health.
The 1997-98 Asian financial crisis and the on-going crisis in developed countries reveal that while the aggregate
debt and inflation are useful indicators, their stabilization does not necessarily produce desirable development outcomes. Rather excessive focus on these aggregate nominal targets made macroeconomic policies pro-cyclical and exacerbated the crisis.
Where such policies delivered economic growth, it has not been inclusive enough and has not translated into
increased security of jobs and livelihoods. Instead, growth has been mostly job-less, that is without a commensurate growth of decent and productive employment in the formal sector. As a result, livelihood insecurity and disparities of opportunities and outcomes, including income, assets and wealth, are on the rise and reinforcing one another, especially due to a lack of a decent social protection system in the midst of jobless growth.
Therefore, 2013 Survey argues for a shift in macroeconomic policy paradigm for bringing more balance between the
stabilization and the developmental roles of macroeconomic
Such balance could entail changing the way fiscal and monetary policies are designed and implemented and how issues of public debt or inflation are viewed. In particular, there has to be greater emphasis on the quality and composition of public expenditure, rather than on aggregate budget deficits and public debts, as argued in previous editions of ESCAP’s Survey.
Macroeconomic Policy and Development Division (MPDD) United Nations ESCAP Rajdamnern Nok Avenue
Bangkok 10200, Thailand