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Inequality a Defining Challenge for the World, and for Cambodia

A young Cambodian woman rides near slum homes on the outskirts of Phnom Penh, file photo.
A young Cambodian woman rides near slum homes on the outskirts of Phnom Penh, file photo.

Some 41 percent of the population in Cambodia are left behind and still live on less than $2 per day.

Leading economists have warned that income inequality is the defining global challenge of the 21st century. In Cambodia, a country where many live in poverty while ever-increasing numbers of luxury cars ply the streets, that challenge is particularly acute.

The nongovernmental organization Oxfam America recently called for action across the world to address inequality, arguing in report “The gap between the rich and poor is spiraling out of control.”

“Just 80 individuals have the same wealth as half the people on our planet,” Oxfam said. “Such extreme economic inequality is standing in the way of ending global poverty, and widening other inequalities like the gap between women and men.”

Perhaps unexpectedly, backing for the group’s rallying cry has come from the International Monetary Fund (IMF). The group earlier this month invited experts from the Fund to present research on the drivers of inequality and on the impacts inequality has on societies.

Era Dabla-Norris, deputy chief of the IMF’s strategy, policy, and review department, said that inequality was an issue of fairness and justice.

She pointed out that lifting the incomes of the poor and the middle class not only reduce inequality, but also boost economic growth.

“There is a lot of talk in the media, in academic articles, elsewhere, about the importance of the poor and middle class, and we want to say, why does equality matter?” she said. “Early work at the IMF shows that inequality matters for sustainability of growth as well as for the level of growth.”

IMF data shows that in both emerging and developing economies between 1980 and 2012, inequality had been exacerbated, putting this down to the unequal distribution of the benefits of technological progress, weak labor unions, the effects of globalization, and failures by governments to implement progressive tax policies.

Florence Jaumotte, a senior economist at the IMF, said that lower levels of unionization in the labor force had been shown to be linked to growth for the wealth of those at the top.

“There is something unexpected, you know. You couldn’t think a theory that a lower unionization leads to higher top income share,” she said.

IMF economists called on policymakers to remove tax relief, such as reduced taxation for capital gains, which benefits mainly high income groups. Doing so would “increase equity and allow a growth enhancing cut in marginal labor income tax rates,” according to an IMF report titled Causes and Consequences of Income Inequality: A Global Perspective.

The recent economic history of Cambodia fits the bill perfectly. Prolonged expansion of the economy—fueled largely by garment manufacturing and tourism—has lifted the gross national income per capita up to $1,045 annually. However, the benefits of economic growth have been felt exclusively by a small elite and parts of the urban population.

Some 41 percent of the population are left behind, and still live on less than $2 per day.

The wealth of those at the top of Cambodian society may be hard to measure, given the off-the-books nature of wealth garnered through graft and other illicit means like the illegal timber trade.

But, according to the Asian Development Bank, the unequal share of Cambodia’s growth can be seen in the contrast between urban and rural consumption.

For instance, Cambodia’s richest 20 percent of households on average consumes five times more than the poorest 20 percent per day.

The poorest 20 percent consumed goods worth an average of $0.70 per person per day. In contrast, the average Phnom Penh resident’s consumption was at least $3 per day.