Central Asia: reducing income inequality, part 2

In part 1 of this series, I reviewed a joint presentation of The Brookings Institution and UNU on the unequal distribution of wealth under globalizing conditions.  Once again, states are charged with redistributing this income through policy planning and the social contract, and courting investment from other states, international organizations, and most of all, transnational corporations. 

All that policy planning–for what?
In particular, the three concerns for agricultural policy, i.e. , commodity agriculture for export dollars, sustainable food prices for a states’ domestic consumers, and sustainable food prices for a states’ agricultural producers, require an enormous amount of effort and a truly educated approach.  But why?  Why not use those export dollars to buy food and feed the hungry?  The answer lies in how such a method affects income distribution patterns.  Buying food with export dollars means that those who own factors of production such as land continue to benefit, while its workers remain dependent upon a central agency of food aid. 

But even land and market owners should reflect more carefully.  Income patterns not only document current economic health, but also predict further economic growth.  These statistics also predict political stability, no matter what type of government system the state practices.

For a non-economist interested in domestic or foreign affairs, there are a few statistics to learn about that give a lot of information.  Most of these are available at the CIA Fact Book Web site by country.  Three are important for studying income inequality, two we usually see: GDP, Gross Domestic Product of a state, in other words, state income as a whole; and GDP per capita, GDP divided by population. 

I dream of GINI-25
However, within a developing state, (or for that matter, a developed one) a small elite can capture all of the revenue by owning all of the business and capturing all the revenue, leaving a vast number of poor population who live on a dollar or less per day.

Globalization advocates who cite increased average per capita income are only giving half the picture.  There is another statistic that must also be viewed, which measures income equality across a domestic economy, the GINI coefficient (called “Jeannie”).  On a score between 0 and 100, 0 represents perfect income equality, while 100 means that one person has all, and everyone else nothing.  (For a vastly more erudite explanation, check here).  GINI by itself is not useful, either; perfect income parity at a below-poverty line may be equal, but still miserable.  As a benchmark, most Scandinavian countries have what is considered a desirable GINI of 25: stable, and relatively equal.

This study found that:

1. A GINI of 45 or above limits overall state growth.
2. A high GINI of around 45 or above matters most in poor states, where GDP is USD 2000 per capita or less in terms of purchasing power parity.  These states continue to be at economic risk and their regimes cannot be called stable.
3. Income inequality as measured by GINI is increasing in developing states (15-20%), and the numbers may soon rocket up (to 40%), as China's GINI has risen to almost 45. 

Clearly income inequality has heightened world-wide, state by state, and looks to be a continuing factor for states and market investors world-wide.

Central Asia and the Stats
So how does Central Asia stack up on the GINI curve?  The CIA Fact Book has figures for GDP (official exchange rate method), GDP/per capita (Purchasing Power Parity (PPP) method), GINI, and percentage of people below poverty line, expressed in US dollars:

Afghanistan: GDP 8.8 billion; Per Person, 800; GINI, n/a;
Population below poverty line, 53%.
Kazakhstan: GDP 8.9 bn; Per Person, 9100; GINI 31.5;
Population below poverty line, 19%.
Kyrgyzstan: GDP, 2.24 bn; Per Person, 2000; GINI 29.5;
Population below poverty line, 40%.
Mongolia: GDP, 1.54 bn; Per Person, 2,000; GINI 36.1;
Population below poverty line, 44%.

Tajikistan: GDP, 2.066 bn; Per Person, 1300;
GINI, 34.7; Population below poverty line, 64%.
Turkmenistan: GDP, 16.16 bn; Per Person, 8900;
GINI, 40.8; Population below poverty line, 58%
Uzbekistan: GDP, 10.78 bn; Per Person, 2000;
GINI, 26.8; Population below poverty line, 33%.
Xinjiang: We have to use China's numbers, keeping in mind that China's economic revival has taken place on a larger scale away from the Northwest:
China: GDP, 25.12 Trillion; Per Person, 7600;
GINI, 44%; Population below poverty line, 10%

And, for comparison:

Russia: GDP, 1.723 Trillion; Per Person, 12,100;
GINI 40.5; Population below poverty line, 17.8%
United States: GDP, 12.98 Trillion; Per Person, 43,500;
GINI, 45; Population below poverty line, 12%.

Under this formulation, it appears that only Kazakhstan has the basics figured out.  They look better than the US and Russia in terms of wealth distribution, although less well than either in terms of percentage of poor people.  Not only that, but as detailed in an earlier posts, Kazakhstan is poised to make further economic gains.

The state most at risk is clearly Afghanistan, which has grinding poverty and little to offer in the way of an investment climate; this argues for more reconstruction aid in this war-torn state. The next most risky state is Turkmenistan, which may have a relatively large per capita income but a poor wealth distribution.  Both endemic poverty and wealth distribution are issues in all of the other states. 

A rising tide lifts all boats
There are two major vectors for increased economic equality and income that could reduce the risk for some of these Central Asian states.  First of all, China is developing a great deal of Xinjiang's mineral and oil wealth, constructing energy transit and transportation lines to facilitate greater economic exchange with its northwestern-most province.  While Kazakhstan stands to benefit the most, greater commerce in Xinjiang has the potential to aid Tajikistan and Kyrgyzstan.  Second of all, Kazakhstan's wish to build a Eurasian economic community can only be of benefit to Kyrgyzstan, Tajikistan, and ultimately, Uzbekistan. 

But as this Brookings/UNU presentation made clear, increasing gross income is not enough.  A greater percentage of the gains has to go to the poor in order to get the Central Asian economic miracle on the move. 

References:
CIA Fact Book, on new URL page

Thanks to Brookings Institution and UNU for a fine presentation.

Photos: Levon Group; Kazakh TV