IN modern cities, citizens seek educational and employment opportunities in order to enjoy economic wellbeing, which includes the ability to consistently meet basic needs (such as food, housing, utilities, healthcare, transport, education, childcare, clothing, and pay taxes) and to access public facilities and services such as healthcare, sanitation and transport. 

In the long term, economic wellbeing also involves being able to make economic choices that empower financial security, accumulate assets, absorb financial shocks and maintain adequate income throughout life.

In reality, however, not all citizens have the ability to achieve and maintain economic wellbeing. Some people are more able than others to make use of available urban resources and opportunities to accumulate wealth, resulting in a disparity of wealth or income between different groups. The collective term coined to describe these unequal conditions is economic inequality. 

Among the various concepts that are used to gauge economic inequality, household income patterns are useful as a basic measure. Household income data taken from the Malaysian Household Income Surveys shows that the growth of urban household income has consistently exceeded national average wage growth over the past two decades (see graph 1 below).

As the above graph shows, urban households appear to have consistently accumulated greater levels of wealth, and enjoyed an equal share of urban economic growth benefits. 

However, a major caveat of the data is that it represents collective households. Broken down further to compare the differences in household income levels between different class categories, (i.e. the B40, M40 and T20 households), a different picture of equality emerges.

Over the years, the absolute income gap between T20 and B40 urban households has grown wider. In 2007, T20 households were earning an average of RM 10,576 monthly versus RM1,655 for the B40 households, amounting to an income difference of RM 8,921. By 2016, this difference had increased to RM 14,154, with T20 households earning RM 17,416 monthly on average, compared to RM 3,262 for the B40 households.  

In terms of ratio, the relative income gap between rich and poor households reduced, but only at a very gradual pace. In 2007, T20 urban households were earning roughly 6.4 times that of B40 households. Five years later, in 2012, this difference had reduced slightly, with T20 households earning around 6.1 times that of B40 households. By 2016, the gap between T20 and B40 urban households had reduced to 5.3 times. 

These trends flag two important realities: firstly, there has been an increasing disparity in the distribution of income between rich and poor households in Malaysian cities, with increasing concentration of income and wealth seen among top earners. 

Secondly, while the rich-poor income-gap ratio has been decreasing, this has happened only at a very gradual pace. In 2016, T20 urban households were still taking in over five times the amount of income earned by the B40 households, and slightly over three times the combined income of the bottom 80%. 

These patterns paint a picture of rising income inequality in the urban regions. Moreover, as the figures represent national averages, they could potentially mask concentrated pockets of inequality in urban areas with higher levels of urbanisation, population density, and average living costs. 

The phenomenon of inequality is actually not unique to Malaysian cities. Most, if not all, major cities across the world possess varying levels of economic inequality and income disparity between the poorest and the richest. 

How far is economic inequality a problem for society?  

On one hand, some economists argue that inequality is a fair outcome of a free and rationally operating market: in unconstrained markets, some will inevitably win and others will lose out, since people making different amounts of effort will see different results. From the same neoliberal point of view, others also argue that inequality is a necessary component of a successful economy because it creates incentives to work hard and compete, which in turn drives economic growth.

Yet, it is not that simple. While these arguments might be logical to a certain degree, it is also true that economic inequality undermines the fairness of the economic system itself. For example, income inequality means that some will enter the workforce much better prepared than others. Those with few assets find it harder to access the first small steps to larger opportunities, such as a loan to start a business or pay for an advanced degree. 

Moreover, from a social perspective, inequality harms social wellbeing, resulting in multiple deprivations for poorer citizens. While inequality might spur on competition, many studies have shown there is also a strong link between inequality and a range of social problems including violence, incarceration, drug abuse, teenage pregnancy and mental health issues. 

Earlier this year, a ground-breaking Unicef report highlighted tragic statistics surrounding child poverty in low cost flats in Kuala Lumpur, where 15% of children were underweight and a further 22% were stunted due to malnutrition and being deprived of adequate nutrition.

The same report also found that almost half of their parents did not have enough money to buy food, while nearly eight in 10 families lacked savings and lived from hand to mouth. 

For these children, poverty and disadvantage did not result from their own choices or actions, but from being born into conditions over which they had no control. The effects of inequality cripples their future potential, clipping their wings and pushing their starting point in life far behind.  

Are these circumstances truly “fair” and “necessary”?

For all its supposed benefits, the issue of inequality is deeply problematic because it makes it difficult, if not impossible, to create equality of opportunity. And this is especially troubling when we consider how children and youth are affected.

As development and urbanisation continue to increase, it is clearly in the government’s interest to cultivate a better quality of life for all its citizens. Above all, it should strive to implement a strong infrastructure of social security, to protect vulnerable groups such as the poor, the aged, the ill, the disabled and the unemployed, from the harsh results of capitalism. 

This will involve rethinking policies, and improving the delivery of welfare programmes and support services to ensure sufficient wages, and equal access to food, education and adequate housing. 

Critics may argue that curtailing inequality is not in the government’s best interests, based on the rationale that it will limit economic growth. But in fact, the opposite is true. Reducing inequality ensures a well-functioning collective society, and better human resources to build an economy with increasing level of goods and services. 

Reducing inequality also allows vulnerable and excluded groups to have a better share in the wealth that they help to produce, and empowers them to achieve better economic security, provide for themselves and flourish in the long run. 

Such empowerment cannot happen if wealth and income continues to be very unevenly distributed in a society. The government must ensure that its aspirations for economic progress do not override concrete actions and ideas to ensure better inclusive growth and equal opportunities for those who have been left behind. – December 18, 2018.

* Lim Su Lin is a Policy Analyst with Penang Institute in Kuala Lumpur. She graduated in 2013 with a degree in History from Cambridge University. Her research interests lie primarily in psychosocial health and wellbeing. She explores these in the context of making recommendations to improve social and development policies. The long-term goals of her work are to advocate for more equitable outcomes and reduced inequalities in society.

* This is the opinion of the writer or publication and does not necessarily represent the views of The Malaysian Insight. Article may be edited for brevity and clarity.