17/05/2014 Talking Business with Linda Yueh


17/05/2014

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Now on BBC News, Talking Business. In chlamydia quality is the highest

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in nearly a century. `` income inequality is the highest in nearly

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a century. Is it bad for economic growth? What can be done about it?

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Here in Singapore, I'm Linda Yueh and we are Talking Business.

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A warm welcome to the programme. Income inequality has risen to be as

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high as during the worst period of the 1920s. The Gilded Age captured

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by the great Gatsby. Firstly, the share of income going to the top 1%

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has grown since 1980 into the richest Americans now hold one fifth

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of all of the income. In fact, the top 10% hold half of all the income

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in the country. It is no wonder that this era has been dubbed the second

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Gilded Age. And it is not just in the developed world. Poverty has

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fallen `` fallen dramatically in developing countries. 1 billion

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people have been lifted out of poverty since 1990. But income

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inequality has been unchanged since 1960. Worldwide, nine out of the ten

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richest people still live in the US and Europe. What is striking is how

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unequal the US has become. Inherited wealth is part of the reason. But it

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doesn't explain the high income is earned by executives and those in

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the financial sector. Samira Hussein sends this report from New York.

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New York, a city of glitz and glamour. If you've got cash, few

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other places are better than the Big Apple. But if you are only making $8

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an hour, like many of these workers, living here is not easy. New York

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does have its stereotypes, that we are making so much money, we are

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spoiled, we take advantage of opportunities that we have here. But

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we are struggling here as well. Nowhere is the gap between rich and

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poor more clear than New York. Some are just scraping by. Others are

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making millions on Wall Street. But this is not just a New York model.

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It's an American one. Between 1993 and 2013, average income growth for

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all Americans was 17.9%. But the growth for the top 1% was a

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staggering 86.1%. Compare that to the bottom 99%, who only saw 6.6% of

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income growth. Income inequality in America has reached such heights

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that people like Jesse are trying to do their part to spread the wealth.

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I inherited money when I turned 21, from my grandparents and I

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personally felt the dissonance between graduating from college

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without debt and having a pot of money that I had personally not done

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anything to earn. She has already given away two thirds of her

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inheritance. Through the organisation she runs she is showing

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others how to do the same. But for those who don't have the benefit of

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a generous inheritance or any money at all, moving up is tough. I think

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a lot of young people who don't get these wealth transfers are kind of

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stuck in a low financial rut. This tends to last a good part of their

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lifetime. It is very hard for them to move up economic Lee. Much of

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what makes the gap between the rich and poor so vast it actually

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systemic. Until some of those issues are addressed as time goes on the

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disparity will get worse, putting the quality of life for future

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generations into question. So across the world it seems that

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inequality has been and continues to be an issue. It has caught the

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attention of policymakers, who are debating solutions. I caught up with

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the head of the OECD in Paris to discuss how severe the problem is.

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We have been looking at inequality for more than ten years now and of

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course in the crisis inequality grew faster than in the 12 years before

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that. In the first three years of the crisis inequality just exploded

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because most of the inequality is born in the labour markets. In the

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wage differentials, or in the end, if you don't have a job, clearly

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that is a big source of inequality. Now why is it that inequality became

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a big issue today? Well, I don't think it is because people were

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unaware of its importance, but the fact that it is now clear that you

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have to deal with inequality specifically. It is not going to go

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away by the mere recovery. Second, the causes of inequality are not the

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recession, are not the crisis itself. It can be worsened by a

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crisis, when people lose their jobs. But that is not the only

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explanation. Actually inequality was growing before the crisis. Now it

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has deepened and it continues to grow. The more unequal a society,

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the less trust it will have in the institutions we have built over the

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last 100 years. That includes the prime ministers and presidents and

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ministers and political parties and the multinationals and the banking

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system. Everything that we have built, these institutions today do

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not tell very much to the people who are out there trying to get a job or

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improve their income. I think one of the reasons why inequality continues

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to rise in, as you say, it is not a new problem, it has been a problem

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that has been around for quite a long time, and one of the

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instruments which has been proposed as a wealth tax to try and tackle

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some of the accumulation of wealth which can happen in different

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countries. Is that an instrument that you think is worthwhile

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imposing? It is not a question of just a wealth tax. It sounds so

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simple. It is not so simple. It doesn't work like that isolated from

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a much more organised, much more structured approach to dealing with

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the question of inequality in a more societal way, but one that has the

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support of the whole of the members of society and that is understood

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better by the members of society. Where does this all go? What it is

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all meant `` what is it all meant to be? Why is it that societies were

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inequality is lower do better? Why is it that societies were inequality

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is lower are more competitive, have more employment, have a better

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quality of life? A lot of what you outline in terms of active labour

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market policies, fiscal spending and taxing in different ways, to push

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towards employment, all of these things again are policies that I

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would think most governments are not unaware of. So why has, what would

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it take for governments to really implement these? Not only are they

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aware, we documented extensively. They are measured. They are

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compared. They are benchmarked. Clearly this depends on domestic

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political conditions and also on the type of concerns and the type of

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mandates that governments have when they are sworn into office, or when

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they are voted into office. But I would say that this question of

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employment and unemployment, equality, inequality, is one that is

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very much shared and there the answer to your question would be one

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would imagine that there would be much greater awareness and at the

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same time much greater willingness to bite the bullet, if you will, and

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more and more we are going in that direction. So how our country is

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tackling inequality? The experience of Brazil, which has one of the

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highest levels of incoming `` income inequality in the world, reveals

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worrying picture. Our South America business reporter Katy Watson has

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this report. This is Helly obelisk, Sao Paulo's

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biggest favela, home to more than 200,000 people. This is one of the

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residents, sharing a house with 17 other members of her family. She

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gets help to pay the bills through a welfare programme as long as she

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keeps her two children in school and gives them regular medical

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checkups. The government gives her just under $30 a month to top up her

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income. TRANSLATION:

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It is not much but in my case, with two children and at the moment I am

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unemployed, it helps. It should be more but it definitely helps. More

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than 13 million people receive the payment. It benefits around one

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quarter of the country's population. It is seen as one of the most

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successful programmes to reduce inequality in the country and it is

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neighbourhoods like this that have seen some of the biggest benefits.

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But lifting people out of extreme poverty through the project is just

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part of Brazil's story. The past decade has seen strong economic

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growth, which has narrowed the gap between rich and poor. The most

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important thing that has contributed to reducing policy in Brazil has

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been a labour market. The minimum wage has increased in real terms

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quite substantially in the last 15 years. Moreover, growth has

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benefited the less skilled workers in Brazil, contrary to what has

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happened in developed countries. Despite the estimated 4 million

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people that have entered the new middle class here in Brazil, the

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country is rated as one of the most unequal societies in the world and

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it is easy to see that here. But with economic growth slowing,

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frustration is building. Salang G Conn sees that life is better than

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it was. Her grandmother was one of the first residence here in

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Heliopolis. But the challenge to reduce inequality is far from over

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in Brazil. Joining me now to talk about the

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experiences of different countries when it comes to inequality and

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potential policy solutions are a senior research fellow at the new

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America foundation, the World Bank's chief economist and in Hong

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Kong, a spokesman from the global Institute tomorrow. What is the

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evidence of inequality when you look between countries? Well, on the very

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global level, if you put every person in a row, and look at the

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inequality in income, global inequality has declined. The reason

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for that is that developing countries have been growing more

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rapidly than developed economies so their average income has come up.

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Some continents like Latin America, traditionally very high in

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inequality, a lot of countries have seen a decline in interest country

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inequality. Other countries, especially in the region, like China

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and Indonesia, they have seen a rise in income equality. When you look at

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the issue of inequality, what are the differences that most concern

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you, comparing what is happening in developing countries to developed

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countries? It is very interesting that much of the discussion about

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inequality has been distilled down to one basic issue which is

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essentially how financial capital plays out in terms of the

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measurements of inequalities. The first four are most important,

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national compact ash compatible `` capital. And then we have human

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capital, social capital, managing capital and financial capital. In

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most business platforms etc, we have distilled the wages to the lower

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rank which is essentially financial capital. It has no value in itself,

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it is purely a way to organise the way we owe and trade assets. That is

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actually one of the drivers inequality. Financial capital, that

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has been the reason why inequality has risen to very high levels in

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some countries in a rich world. Is it about then? Is it something

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policymakers should worry about? In countries where inequality has

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increased, where you have had rapid urbanisation, that urbanisation has

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been something we have celebrated. Opportunity for people to move out

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of agriculture into cities to access public services and get higher

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paying jobs but that does increase the gap between the rich and the

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poor, between the urban and connected and the rural and

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disconnected. You have that job creation. One of the things that is

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important is that nothing creates jobs like urbanisation and

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manufacturing and basic services and those parts of the economic value

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change that are often concentrated in cities. If we can couple that

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with more public investment, you would see much greater opportunities

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for large numbers of people and that could serve to diminish inequality.

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I'd like to pick up on your point about whether we should be worried

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about it. Inequality gives people motivation to work harder and go to

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school and invest in companies so that is good. But at some middle of

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inequality, you might have the very rich say, I want to stay rich. And

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they start tweaking them. Rich people usually have a lot of

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political into red `` influence. They start tweaking things so they

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stay rich. Secondly, that every put cannot get the type of services. The

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rich don't want to pay in after taxes so the poor don't get those

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services, health care, schools, social protection. That means you

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exclude part of the population, and that is bad for the whole society

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because you could grow more rapidly than you actually do. Thirdly, and I

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think that is what we see a lot in the number of countries, if there is

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a perception of inequality, of unfairness in society, political

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support for measures that continue to be good for countries and make

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countries grow will dissipate, they will not be there. People will say,

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that is only for the bridge. So, high income inequality bad for

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countries. At what point is inequality worrying or do you

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disagree that it can be good at some initial level when it countries are

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industrialising and urbanising? I have a more fundamental disagreement

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with this narrative. The narrative seems to be that if you can

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replicate the way in which the West became rich and modern, the

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developing world will achieve the stability and all of those other

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things that have become the mantra is for how progress is to be

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achieved. But the simple question is this. There will be five to 6

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billion people in Asia and can they aspire to live the lives of the

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Europeans and Americans except at a time when we are absolutely clear

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that the economic model of the 20th century which was based on consumer

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relentlessly through exploiting resources, plundering the planet,

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externalising the cost, is crumbling. And yet we are saying

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that these formulas, because they have almost become doctrines of

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economic theory in the West should be exported to Asia. I cannot

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advocating that urbanisation is a solution, I am observing that

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urbanisation is happening, it has happened in Western societies and it

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is happening rapidly in Asian societies and that is not because

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they are copying the Western model but because there is a demand for

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high wage jobs and public services. I am not denigrating the rural

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populations of the world who do provide the most essential natural

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organic nutrition that people need, whether they lead `` live in cities

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or rural areas, and having that others is essential. But I think to

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connect both of the point that you both have made, what is healthy in

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all of this is that the political discourse is shifting. What we are

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witnessing in Istanbul and New Delhi and Sao Paulo and maybe going back

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to the occupier Wall Street movement, this sense of injustice

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due to inequality and a backlash demanding much better use of public

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funds and potentially more Brit disputed it `` more redistribution.

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What policies have worked to address inequality? It is important that

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everybody has equitable access to opportunities. There has been a

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whole report about that. It will never be perfect but it does mean

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supplying for everybody accessible health and education and some social

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protection for extreme outcomes. Second, more open markets. That

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means labour markets. A lot of labour market regulation protects

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the very few but doesn't give access to the very many. So, giving more

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flexible regulations while providing protection gives more access to

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people of income opportunities. And the third most important is

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financial markets. Often, they are distorted in many ways and so the

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money goes to the connected firms. The evidence is there be clear that

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the more developed the financial system is, the more equitable

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society is, and that tells you something. You speak to a lot of

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stakeholder groups. What kind of policies are most likely to make a

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difference, given all of these complicated issues? From an external

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standpoint, I would say the opportunities for negativity,

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whether internet access or physical infrastructure that allow for

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mobility, one of the things we have seen is that some people have said

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these are white elephant projects. The World Bank has demonstrated that

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they have been huge in able as of social and economic mobility, they

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allow people to move and look for work and to service clients faster.

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The physical basic connectivity is a huge enabler of growth and economic

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opportunity. Countries need not just physical master plans, but economic

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master plans. How will we aligned the labour force and the education

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sector and the global, me so that our citizens have the skills to take

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advantage of the opportunities that exist to attract investment, to be

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part of global supply chains. I see not nearly enough of that kind of

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strategic thinking going on in countries and I think we reassured.

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The wealthy do know how to generate capital and preserve it. It is not

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the government of Mac job to take care of them, it is the government

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of Mac job to enable people. `` government's job. Thank you for

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joining us. The causes of a return to win a return to inequity are

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complex and include workers earning less, inheriting wealth and tax

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regimes, if the causes, located, then the solution is certainly are

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as well. But more than any other issue, inequality and poverty go to

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the heart of the type of society that we want to live in and that

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explains why this issue is at the forefront of global policy debates.

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That is all we have time for. Check out our website. IM Linda Yueh. Join

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us next time. `` I am Linda Yueh. No need for an expensive mini break

:22:28.:22:47.

this weekend. If you want hot

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