Inequality and the Need for Redistribution

By Khine Win 18 August 2014

Some may argue that inequality is a global trend affecting not only developing countries but developed countries as well. While that may be true, the effects of inequality are far more harmful for poor countries than wealthy ones. This is because wealthy countries have arrived at their current positions from relatively equal societies. If one looks at so-called East Asian developmental states, one will find that they had redistributed lands and their societies were quite equal owing to war or expulsion from the federation. Their governments have implemented many redistributive policies and established social safety nets for the most vulnerable, albeit imperfect ones. On the other hand, the poor countries arrived at their current status due to unequal distributions of rights and opportunities. As a result, the poor have become more vulnerable with increases in inequality.

Carles Boix, a political scientist from Princeton University, wrote that inequality and asset specificity are the two main obstacles to democratization. In other words, the wider the gap between haves and have-nots, and the more a country relies on specific assets such as oil, the more difficult it is for a country to democratize. According to Boix, the powerful elites who control natural resource-based assets have very few incentives to democratize. The majority in the country are poor while almost all the nation’s wealth is concentrated in the hands of a small minority who fear they will be forced to redistribute their wealth through higher taxes and expropriations at a grand scale if they lose power. To defend their interests, they will not give up power and hold free and fair elections, Boix’s empirical research finds in his book “Democracy and Redistribution.”

In this context, Myanmar is where it is today because of a highly unequal distribution of assets and resources. The extremely wealthy crony class was born out of this method of primitive accumulation. Although it is difficult to find a reliable figure for the country’s gini-coefficient, which measures income inequality, anecdotal evidence suggests inequality in Myanmar is getting worse. It is not difficult to grasp the extent of inequality: One just needs to go to peri-urban areas like the Yangon townships of Hlaing Tharyar or South Dagon, let alone consider rural Myanmar, where 70 percent of the country lives.

Myanmar is also dependent on its natural resources, making a transition to liberal democracy look like a faraway dream, if Carles Boix’s theory holds true.

But I hope that is not the case, and believe there is reason to hope. Here’s why:

In my opinion, if the powerful elites properly understand their self-interest, they will engage in large-scale redistribution programs. They will pay more attention to the health and education of the ordinary people. In the 21st century, economies are knowledge-based, meaning labor productivity and technological innovations will become the decisive factors for any business organization. To bring about technological change and increased labor productivity requires a lot of human capital. Cronies in Myanmar cannot expand their businesses without human capital. They are trying to shift their investments from extractive industries to the service sector in this liberalization phase. They should also try to shift from extractives-exclusive economic system to an inclusive one and bring their financial resources to the surface for more productive activities.

This will produce a win-win situation: Cronies need human capital to build their businesses, while the ordinary people, most of whom are poor, need increased access to health and education services, and greater opportunities for their futures.

Another argument in favor of a redistribution of the cronies’ wealth relates to political stability. When one looks at the instable countries of the world such as Syria, Iraq or Libya, the main drivers are inequality and poverty. Land confiscations and water scarcity in Syria drove people from rural areas to urban cities, where these people ended up unemployed. They just needed a spark to ignite social upheaval. That was the main cause of civil war there, as pointed out by New York Times columnist Thomas Friedman. And a country will be more vulnerable to global issues like Ebola if a majority of the population is poor and uneducated. In this age of globalization, policymakers everywhere should take into account the three broader goals of economic development, environmental conservation and social justice.

Some cronies have reportedly approached the inner circle of democracy leader Daw Aung San Suu Kyi. While some might cringe at this, it should be welcome news if their intention is to help empower poor people through her foundations and other charitable organizations. With the enormous resources at their disposal, they can do many things to alleviate poverty and increase human capital. They must realize that their way of doing business is unsustainable.

For decades, Myanmar’s cronies have wreaked much havoc on the environment and society as a whole, profiting all the way. Going forward, let’s hope their own enlightened self-interest and concern for the common good will encourage them to redistribute some of that wealth.

Khine Win is director of the Sandhi Governance Institute, which focuses on promoting good governance in Myanmar.