Why the world’s fastest growing region is not smiling

Asian countries, including the Philippines, top economic growth charts today. But social inclusion lags both in countries that made a dash for growth decades ago, South Korea, Singapore and Japan, as well as the more recent sprinters, China, India and the Philippines. Scandinavian countries, on the other side, do well on social inclusion, which explains why they also lead the pack on measures of happiness – leaving East Asian countries behind, and South Asian nations even more so.

The extent of social inclusion is reflected in measures of happiness for countries. Scandinavian countries lead the world again on such a measure, according to the United Nations’ World Happiness Report 2018 for 156 countries.

The sunny disposition of Filipinos is rightly legendary, but the measures that make up the happiness index are far more varied than this. The happiest countries tend to have high values for well-being, which is measured by incomes among other things, a long and healthy life, social support, freedom, trust and generosity. Hard as it is to pin the concept of happiness down, many countries in Asia clearly don’t measure up to these attributes of happiness.

Income distribution is often used as a proxy to gauge social inclusion. Income disparities are generally low in economically successful Europe and Canada but not so in Asia. Indeed, a worrying trend is that income disparities have widened in the region since the early 1990s, particularly in its most populous countries: China and India.

There is one important qualification, however. A defining feature is that Asia, especially East Asia, saw much faster income growth and poverty reduction in recent decades than any other part of the world in recent decades. The high growth in the two most populous countries China and India has also meant that population-weighted differences in per capita incomes across countries in the region would have improved since the 1980s. This is good news, but the worsening distribution within countries is what underscores wellbeing and happiness at the country level.

Vast country differences in social inclusion make generalizations risky, but in the Philippines situation, investments in workers’ skills and in social protection merit particular attention.

Globalization has improved opportunities, but it is widening skills gaps in the Philippines and Southeast Asia – the difference between what employers need and what the labor force can deliver. This is a concern for countries in Southeast Asia that have large numbers of people on low incomes, because it increases their vulnerability. Smart investments are needed by governments and businesses to reduce skills gaps through technical and vocational training, and curriculums that are in sync with market needs. Among the opportunities in the Philippines is in the analysis and application of big data in service industries such as urban logistics, disaster management and tourism.

Better access to skills will be vital for enabling the transition that will affect large numbers of workers displaced by rising automation in industry. But their prospects can be strengthened by raising productivity and work-flexibility through education, life-long learning and healthier lifestyles, which is measured on the happiness index.

Tackling widening income disparities also calls for social protection interventions in Asia, particularly on formal pension systems and social safety nets that contribute to greater inclusion. Economies in the region can benefit from the increased participation of women in the workforce.

Varying demographic transitions in the region affect social inclusion in different ways. Aging populations in Japan, Singapore and South Korea will require better public pension programs. The inclusion of the youth in economic programs is a priority in demographically young countries like the Philippines and India—and without this there can be no demographic dividend. Here, improving access to financial services is an effective way to promote inclusion, especially for the young and small businesses.

Much stronger social protection systems will also be needed in these riskier times. Asia has been hit by two financial disasters in the last 20 years and is now bearing the brunt of weather disasters. Southeast Asia’s new norm is epic floods and storms seen in Thailand and the Philippines or the deadly heatwaves that swept China and India in recent years. Lower-income groups are at the sharp end of these events because they are least able to cope. The Philippines is gaining experience in disaster-resilience but it is also one of the world’s most disaster-prone.

Gaps in social inclusion in fast growing Asian economies like the Philippines, India and China are taking the shine off their strong economic performance. Governments are increasingly recognizing that the quality of growth matters. But that understanding, welcome as it is, needs to be backed up by investments and explicit policies to promote inclusive growth. - Vinod Thomas Visiting Professor, Asian Institute of Management, Manila; former Senior Vice President, the World Bank.