WB article on economic growth and income inequality

[Tuan Pham <tuan.pham@unsw.edu.au>]

Dear friends

Thank you An Hai for posting the WB paper.

All the books (not that many! :) I've read on economic
development indicate that the initial stages of development
is always associated with worsening income distribution,
as investment is spearheaded by a small group of rich. 
Then, when development reaches a certain stage, income
starts to level up as a middle class develops. So, the 50-50
split between developing countries with worsening gaps and those
without may be a result of what stages of development the 
countries are in.

Given that, I think the role of government is not to interfere
with income distribution in general but in ensuring that the
poorest people do not suffer excessive hardships, and that
social equity is maintained. These measures are not economic but
legal and social:

- Develop and enforce a legal system to prevent corruption, 
abuse of power, ensure equality of all before the law, preserve
the rights of the poor (the recent unfortunate golf course
incident is an example).

- Encourage the activities of voluntary aid agencies

- Microcredit schemes to help the poor start up their own 
businesses

- A clear set of law

- Transparency and accountability of the law enforcement
agencies. Clear separation of national security matters
and ordinary criminal and other legal matters, which must be
handled by different agencies.

Unless the government take an active approach, the poor
will be at the mercy of the rich developers and corrupt
officials. If this can be prevented, then increasing
income gaps is a fair price to pay for economic development,
not to mention that they will ALSO greatly stimulate
the rate of economic development itself by providing a
clear legal framework and encourage investors, foreign 
and local.

Cheers
Tuan Pham