Continental Divide

Asia doesn't have Bono, Bob Geldof and Jeffrey Sachs, the tireless trio that has made eradicating misery in Africa their personal crusade. But one leader acts as if he's bucking for the job: South Korean President Roh Moo Hyun. As host of the annual Asia-Pacific Economic Cooperation summit this week in Busan, he plans to put Asian poverty at the top of the agenda. "I wish to draw attention to the gravity of the social disparities permeating both within as well as between nations," he told journalists during a Blue House luncheon in Seoul last week. "And I do wish to make a proposal for a joint effort to actually ease those disparities."

This year's APEC host seems to argue that free trade and open markets exacerbate, rather than assuage, poverty. "The more emphasis we place on forging a business-friendly environment, the more aggravated social disparities will tend to become," Roh warned. On the surface, Roh's claim flies in the face of Asia's rapid economic growth. And, certainly, many pro-trade economists would view his assertion as blasphemy. Haven't China's reforms elevated hundreds of millions of its people from the brink of famine in just 25 years--an achievement India is now trying to replicate? Don't the region's newly industrialized countries (including South Korea) rank among the world's most vibrant consumer societies?

Absolutely. Nonetheless, "the scale of deprivations in Asia and the Pacific is daunting," declared Asian Development Bank president Haruhiko Kuroda in a September address at the United Nations. "The region has more people with inadequate nutrition, more living in slum conditions and more without access to water and sanitation than any other developing region of the world."

By the numbers, Asia is home to seven in 10 of humanity's poor--about 700 million people--who subsist on $1 a day or less. Even more people dangle one rung up the socioeconomic ladder, earning just $2 a day per capita. In all, about 1.9 billion Asians live at or below that global poverty line. Put another way, Asia's impoverished masses now exceed the region's total population at the end of World War II. Sadly, that fact is often obscured by Africa-centric humanitarian efforts to end hunger and provide debt relief. "That's not to say it isn't critical to deal with the poverty problem in sub-Saharan Africa," argues Roy Prosterman, chairman emeritus of the Seattle, Washington-based Rural Development Institute. "But we need to keep in mind that the absolute number of poor living under $1 or $2 a day is substantially greater in Asia than in Africa."

For that reason, efforts to tackle the issue are now taking on a greater urgency. Governments stand or fall based on their ability to deliver growth at the grass roots--and that's just where the problem is. Next month's World Trade Organization's ministerial meeting in Hong Kong is shaping up as a battle royal between rich nations backing the WTO's next phase of liberalization (focused more on financial services than agriculture) and opponents in developing countries, who seek to dismantle huge farm subsidies in the United States, Japan and Europe.

Although many proponents of globalization would take issue with Roh's analysis, they can't deny that, in the era of regional free trade that emerged after the cold war, national GDPs have risen much more quickly in Asia than national poverty rates have fallen, leading to the dangerous perception that global capitalism punishes the poor. "Perhaps [President Roh] means that certain outcomes of the way we have done globalization could have increased inequality," says Mari Pangatsu, Indonesia's Trade minister and top WTO negotiator. "It depends on how you define globalization."

To an extent not fully appreciated outside the borders of Asia's three most populous countries--China, Indonesia and India-poverty issues now drive their politics within. In those nations, the poor are demanding concrete actions.

India alone skews Asia's poverty indexes sharply downward. It has the world's largest population of abject poor (about 300 million Indians subsist on or below $1 per day). Mumbai's Dharavi suburb is arguably the world's largest slum. The countryside, home to 70 percent of India's downtrodden, has existed unchanged for centuries. A third of rural villages lack ready access to water. Nationwide, 50 percent of children are undernourished, a higher ratio than in sub-Saharan Africa.

Voters in India tossed out the Bharatiya Janata Party-led government last year in spite of the fact it had posted some of the highest growth rates since independence. Clearly, the coalition's "India Shining" campaign triggered a backlash from the economic have-nots. "I'm sad that the majority of our countrymen are poor," declared current Prime Minister Manmohan Singh after taking office. He aims to boost foreign direct investment as a means to create millions of factory jobs, but his government has also initiated the controversial Employment Guarantee Scheme in which New Delhi plans to hire one member of every household in India (there are 50 million) to work a hundred days a year at $2 a day. When fully running, in five years, the program will cost an estimated $8 billion.

In Indonesia, populism and latent fears about globalization threaten President Susilo Bambang Yudhoyono's agenda. Since his election in September 2004, the popular former general has weathered a devastating tsunami and seen his budgets spin dangerously out of balance due to fuel subsidies that have ballooned with the rising price of oil.

Even in authoritarian China, social rebellions are becoming increasingly common. Recently China's national police chief told a pro-Beijing newspaper in Hong Kong that 3.5 million Chinese had joined in 74,000 protests in 2004--up from 58,000 a year earlier. Many, if not most, were mounted by farmers fighting expulsion from their land. Without financial, institutional and legal reforms to better protect rural populations, "there will be more and more disputes," says Wang Chunguang, an economist at the Chinese Academy of Social Sciences (CASS) in Beijing.

China's war on poverty is a telling case study of rural versus urban income disparities. In the early 1980s, after leader Deng Xiaoping broke up Chairman Mao's failed collectives into private household plots, China's farmers saw their incomes rise. Per-acre grain yields skyrocketed as peasants proved better than collective bosses at choosing the right seeds, planting at the proper moment and applying fertilizers for maximum effect. Leaders dubbed China's top rice-field capitalists wanyuanhu, or ten-thousand-yuan households.

But the rural boom soon fizzled out--and during the past two decades, China's peasant population has seen its income stagnate. In 1987, China's urban-rural income ratio stood at a flat 1.8:1, meaning that urban incomes were less than double the rural average. Today the ratio is 3.2:1 and rising fast. The reason: the massive industrialization begun after 1990, which brought widespread prosperity in coastal cities.

That's been a good thing, of course. Yet intertwined policy failures have left the farmers behind. For one thing, the government has mismanaged agricultural supply and demand, buffeting food growers with unanticipated boom-and-bust cycles. Beijing has also failed to provide secure land-tenure rights, opting instead to periodically reapportion plots based on new circumstances (rendering farmland the rural equivalent of rental cars in the West--assets to be abused). Farmers can't sell or merge their plots, because powerful village committees have authority over land leases and can arbitrarily shift tenancy. Indeed, farmers are routinely pushed off the land with little or no compensation, then forced to move elsewhere in search of wage labor. Meanwhile, corruption has led to reckless development.

Last year the average Chinese peasant household earned $353 per capita, up almost 7 percent from 2003. But as much as half of that income came from off-farm employment--the bulk in remittances from relatives in faraway cities. In a recent study, the World Bank projected a 0.7 percent drop in actual farming incomes between 2001 and 2007, a period during which China's economy is forecast to expand by 9 percent a year. "When there are profits, [peasants] get the least, and when there are burdens, they suffer the most," says CASS scholar Wang.

Rural flight leads to another regionwide phenomenon linked to poverty: unchecked urbanization. Statistically, migrants outearn their brethren in the fields. But first they must enter an urban milieu that can be openly hostile. Jakarta, for example, has dozens of illegal slums serving as monuments to misery. One of them, called Pademanga, is nestled between an aquatic park and a golf course. It was originally a camp for construction workers imported from the hinterland in the early 1990s to build modern office towers, shopping malls and apartments. No one seemed to mind it until Indonesia plunged into economic crisis in 1997-98. Suddenly, neighborhoods with barnyard animals and mucky kids in the street were no longer the homes of a thrifty working class, but embarrassing eyesores. City hall has repeatedly ordered the Pademanga squatters out; residents have resisted. In a recent sop to opponents of relocation, officials decreed that 900 of the camp's 3,000 residents could remain. Pademanga's residents are fortunate in one way: because their camp was set up before 1997, they are entitled to city ID cards and thus can receive government assistance for health care and education. The residents of more recently established squatter camps do not have those benefits.

There are no quick fixes for Asia's inequality problem. Certainly, the reduction of farm subsidies by advanced countries could help boost rural incomes significantly. If that doesn't happen, worse problems could lie ahead. Any populist backlash against global trade could end Asia's boom. More attention must be paid to weeding out rampant corruption in Asia. And governments in places like Laos, Cambodia and Burma must commit to economic and governance reform. The region is planning to create an EU-style single market by 2020, with the goals of boosting intraregional trade, enhancing Asia's global competitiveness and reducing income gaps. Last month the president of the Asian Development Bank called for the eventual creation of a single currency, much like the euro. That step would eliminate the exchange-rate disparities that now hurt some poor countries. Roh, head of one of Asia's wealthiest nations, has done a good thing by calling attention to the poverty issue. Now he and his fellow leaders must seize the moment and follow up, or risk unleashing the forces of discontent that are setting France ablaze.