Reducing inequality important for increasing growth

September, 12 2017 | 10:06 am _L1130499

Good and steady growth requires a lowering of inequality, according to International NGO Forum on Indonesian Development (INFID) director Sugeng Bahagijo.

“The debate isn’t whether lowering inequality hampers growth. It’s the opposite, in that lowering inequality will lead to ever higher growth,” Sugeng said at a talk during the Forum Merdeka Barat 9 ( FMB9 ) media forum on reducing inequality on Sept. 9.

Sugeng cited a decade’s worth of International Monetary Fund (IMF) research, particularly the work of Jonathan D. Ostry, which demonstrates the importance of government intervention, such as redistribution.

According to the IMF, inequality and unsustainable growth are two sides of the same coin. From its accumulated macroeconomic data, there is not a lot of evidence that redistribution undercuts economic growth, except in extreme cases.

A 2014 IMF report noted that “one should be careful not to assume therefore […] that there is a big tradeoff between redistribution and growth. The best available macroeconomic data do not support such a conclusion.”

“Redistribution is good to a certain point,” Sugeng said, adding that the government’s focus needed to be on redistribution toward the lower 40 percent of society as a way of reducing extreme inequality.