The world is seeing a historic shift in wealth concentrations, and with that shift a new narrative is emerging on income inequality, according to two recent reports.
Asia and the Pacific have done a phenomenal job of playing “catch up” with advanced economies, according to an Asian Development Bank (ADB) paper published last month. But it found that “structural transformation, driven by technological progress, productivity growth and capital deepening” have empirically worsened wage inequality in Asian economies.
These findings are especially significant in light of last week’s announcement that for the first time in modern history, millionaires in Asia control more wealth than their ultra-rich counterparts in North America, Europe and every other region in the world.
Amid these statistics is a growing disconnect between the economic drivers of the past and the drivers of recent and future growth. Asia’s period of “miraculous” economic growth was dependent on a surplus of unskilled labor that achieved enormously high productivity rates. But this new growth in Asian wealth has been driven primarily by financial services and technology, sectors with significant “skill bias,” according to the Asian Development Bank – sectors that leave an unskilled, uneducated labor force behind.
The bank has determined that “a number of policy responses can mitigate the adverse effect of structural transformation on wage inequality in Asian economies.” The proposed solutions include competitive exchange rates to bolster high-labor export-facing manufacturing, a reasonable minimum wage and most significantly, investments in education.
The report names Taiwan and South Korea as prime examples of how thoughtful education policies can increase the supply of skilled human capital to keep up with economic evolution. As a result, not only have Taiwan and South Korea’s economies caught up to other advanced economies, but so have the education levels of their workforces.
Previous data from the ADB confirms that up to 28 percent of existing jobs in Asian economies are at risk of disappearing because of technological changes. However, increasing the quality of education would not only increase labor productivity by 17 percent, but could also double per capita income in a typical developing Asian economy over a 20-year period if “cognitive skills in workers can progressively reach levels seen in more advanced countries.”
None of this should be news to Asian policymakers, though, whose young millionaires have mostly been educated in elite schools abroad.
According to last week’s wealth rankings by management consulting firm Capgemeni, Asia’s 5.13 million high-net-worth individuals – people with more than $1 million in assets – held $17.4 trillion of wealth in 2015, beating out their Western peers in wealth and in numbers. In comparison, North America had 4.78 million high-net-worth individuals with $16.6 trillion.
Sixty percent of all new millionaires were from China and Japan in 2015, despite China’s slowest economic growth rate in 25 years and a near recession in Japan. There was a 10 percent wealth increase across Asia from the previous year, twice the growth rate in Europe and nearly fives times North America’s.
If growth continues at the current rate, millionaires in the Asia-Pacific will hold “two-fifths of the world’s high-net-worth-individual wealth, more than that of Europe, Latin America and the Middle East and Africa combined” by 2026, the Capgemeni report said, referring to the doubling of Asia’s richest 0.1 percent in population and wealth over the last decade.
This economic growth has pulled millions of the 99.9 percent out of extreme poverty. In East Asia and the Pacific, those living on less than $1.90 per day dropped from 1.14 billion in 1981 to 147 million in 2012, according to data from the World Bank. In South Asia, the drop was less dramatic, but still notable: from 538 million in 1981 to 309 million in 2012.
But in a region topping charts in millionaires and billionaires, $1.90 per day is a hard figure to stomach. And with a widening wage gap, it seems crucial now to turn to quality education and other policy changes to provide a promising future for all Asians – not just the millionaires among them.