Robert Wade believes tackling inequality will be very problematic. Photo / Steven McNicholl

Robert Wade believes tackling inequality will be very problematic. Photo / Steven McNicholl

Another plunge into global recession in 2010 or 2011 is being tipped by expatriate New Zealand economist Robert Wade - unless governments tackle the underlying causes of the past year's crisis.

Wade, a professor at the London School of Economics who made his name analysing East Asia's economic "tigers", believes the crisis was driven by a combination of unregulated lending and a huge upswing in borrowing, which he links to widening income gaps in major economies such as the United States.

But he is "not optimistic" that governments will seriously tackle either side of the problem.

"I think we are in for a period of very considerable turbulence and it's quite possible we will have another plunge into recession," he said in Auckland yesterday.

"I don't think this is going to be a stable rise out of recession.

"If we have another double-dip recession in 2010 or 2011, then those pushing for more serious action along the lines I've talked about may be strengthened and the forces reining it in may be weakened.

"Unless something like that happens, I don't see that very much will be done beyond cosmetics."

He said sharemarkets were already over-valued, especially in emerging markets, such as China, India and Brazil.

"Relative to historic valuations and any other measure you care to use, such as historic price-earnings ratios, emerging stockmarkets are in big-time bubble territory," he said.

Wade's 1990 book, Governing the Market, argued that Asian "tigers", such as Taiwan and South Korea, owed their success to active state protection and support for target industries, including managed exchange rates which kept exporters competitive.

He said yesterday that the past year's crisis was partly because of relaxation of controls on international financial flows and domestic banking capital ratios, fuelling huge imbalances between overspending economies, such as the US, and under-spenders, such as China.

The other side of the picture was a surge in borrowing, fuelled by a massive rise in inequality which linked back to the rise of the financial sector.

He said the top 1 per cent of income-earners increased their share of total US income from around 16 per cent to a peak of 22 per cent in the decade up to the 1929 sharemarket crash - "the age of the robber barons".