Background

High and (in some cases) rising inequality has emerged as a major development issue in many countries. But, what do we mean by “inequality”? Different definitions imply different stories. In the economic dimension (income or consumption or wealth) it matters greatly whether one thinks of inequality in relative terms (ratios of incomes) or absolute terms (differences in incomes). It also matters how one deals with differences in the cost-of-living, and the relative weights one attaches to different levels of income. In addition, there are important “non-income” dimensions of inequality to consider, including inequalities in access to services, empowerment and intra-household inequality. Concepts and measures matter, so clarity is needed when one talks about “inequality.” And what can be done about specific inequalities? There is little consensus today on the implications for policy. Some observers are concerned about trade-offs with other valued goals, such as economic growth and poverty reduction. Others argue that these trade-offs are often exaggerated. Indeed, some have argued that high inequality is a serious impediment to social and economic progress more broadly. Malaysia is unusual among developing countries in terms of the long-term progress it has made against relative income inequality. The official Gini Index of household income inequality has fallen from over 0.50 around 1970 to under 0.40 today. It is important to understand this success. Some observers have argued that income inequality is still too high, and further effort is needed. There are continuing concerns about ethnic and geographic disparities in levels of living, in both income and non-income dimensions.