Jokowi Widodo Is In Error, the Inequality or the Poverty that is being grown out of?

Villagers in Indonesia, Picture Credit: World Bank

By Tim Worstall, contributor about economics, finance and public policy.

It's always slightly worrying when the ruler, or leader, of a place manages to get the basic diagnosis wrong, which is what I think is happening here with Jokowi in Indonesia. He's saying that the country needs a more equitable distribution of the wealth when that's not the problem at all, rather, there's not enough wealth to distribute. Thus the attention should be upon creation of more wealth rather than distributing the inadequate amount currently available. It's entirely possible that at some point the inequality becomes the greater problem but I severely doubt that this is so in Indonesia as yet:

Indonesia's president on Wednesday vowed a fairer distribution of the nation's wealth and a renewed commitment to protecting diversity after volatile months in which the country's reputation for tolerance was undermined by religious tensions and attacks on minorities.

The problem is that the distribution of extant wealth has, despite what many wish to claim, negative effects upon the creation of more wealth. Thus we need to decide whether the problem actually is inequality, or poverty. If it's overall poverty then we should be skewing our rules towards more wealth creation at the expense of that inequality. If inequality is the greater problem then vice versa of course. Which you think is the greater problem will be to some extent a matter of taste of course, but with GDP per capita at PPP at around $11,000 I would still be voting for poverty being the greater problem.

In a secondaspeeches, a ate of the nation address, Widodo said his administration's focus this year was to ensure that the benefits from an average 5 percent economic growth in the last few years should be felt by everybody.

Well, yes, but we do know two things about the interaction of inequality and economic growth. The first is that some inequality boosts growth--there's no point in struggling to get ahead if the rewards are the same as not struggling--and further that growth itself creates inequality. It is again that balance, which do we care about more, the inequality or the poverty that is being grown out of? My own weighting, as above, is that it's the poverty to be got rid of first, then the inequality. That requires a concentration upon growth until rather later that the stage Indonesia has got to in my mind. Indonesia's currently about where the US was in the 1930s, 1940s, I tend to think that the American poor have done better out of general economic growth since then than anything that has been done to reduce inequality. Certainly today's American poor live better than today's Indonesian middle classes.

Copied from: Forbes