MacroScope

Growth not enough to ease inequality: Oxfam

Rising income inequality in rich nations has cast doubt on the old adage, often upheld by the economics profession, that a rising tide lifts all boats. A new report from Oxfam reinforces the notion that wealth does not trickle down of its own accord. The anti-poverty advocacy group says sometimes actively redistributive policies may be needed to address huge income gaps. It also says that, contrary to conventional economic thinking, such policies will directly contribute to better growth rather than impede it.

Inequality, often viewed as an inevitable result of economic progress, in fact acts as a brake on growth. Among the best ways to assure inclusive, sustainable growth and fight poverty, finds the study, are policies that reduce inequality. […]

Inequality erodes the social fabric, and severely limits individuals’opportunities to escape poverty. Where income inequality is high or growing, the evidence is clear that economic growth has significantly less impact on poverty: a trickle-down approach does not work.

The report notes that the United States is the most unequal of the world’s wealthy nations – but that’s old news. More interesting is the finding that even strong rates of growth will not be enough to lift more people out of poverty over the next decade, particularly in the less wealthy G20 nations. The report found that inequality increased in 14 of 18 G20 countries since 1990 despite rapid rates of growth in some countries. Oxfam recommends the following:

The exact policy mix should be tailored to each national context, but policies in successful developing countries suggest the following starting points:

from Davos Notebook:

Will Goldman’s new BRICwork stand up?

RTXWLHHJim O'Neill, the Goldman Sachs economist who coined the term BRICs back in 2001, is adding four new countries to the elite club of emerging market economies. But does his new edifice have the same solid foundations?

In future, the BRIC economies of Brazil, Russia, China and India will be merged with those of Mexico, Indonesia, Turkey and South Korea under the banner “growth markets,” O'Neill told the Financial Times.

Hmmm.  Doesn't quite grab you like BRICs, does it? The Guardian helpfully offers an amended branding banner of  "Bric 'n Mitsk" (geddit?). But which ever way you cut it, it's hard to see a flood of investment conferences and funds floating off under the new moniker.

United Korea: bigger than Japan?

North Korea, one of former President George Bush’s “axis of evil” countries and one of the few remaining Stalinist states, deserves to be re-evaluated given the prospect of a power succession and the changing economic landscape in the region, according to Goldman Sachs.

Apart from the robust military establishment (absorbing at least 20-30% of GDP vs 3% of GDP in South Korea),  Goldman says North Korea has large untapped potential, including rich human capital, abundant mineral resources (valued at around 140 times 2008 GDP) and significant room for productivity gains.

“We project that the GDP of a united Korea in dollar terms could exceed that of France, Germany and possibly Japan in 30-40 years, should the growth potential of North Korea, notably its rich mineral wealth, be realised,” the bank’s economist Goohoon Kwon says in a paper.