Inclusive Growth: Turning aspiration into action
Over the past several years, a worldwide consensus has emerged on the need for a more inclusive growth and development model. However, this consensus is mainly directional; inclusive growth remains more a discussion topic than an action agenda.
Inclusive Growth: Turning aspiration into action
Consistent with the theme of the World Economic Forum’s Annual Meeting in Davos last month, ‘Responsive and Responsible Leadership’, we published at that time a report the aim of which is to help countries and the wider international community practice inclusive growth and development by offering a new policy framework or ‘growth model’ and a corresponding set of policy and performance metrics.
The report suggests that many countries have significant unexploited potential to simultaneously increase economic growth and social equity. But this will require them to change their approach to structural reform, reimagining it as an ongoing process of continuous improvement within a wider ecosystem of both demand- and supply-side policies and institutions, the combined effect of which is to diffuse opportunity, income, security, and quality of life, i.e., living standards, as part of the growth process.
We define a framework of 15 areas of structural policy and institutional strengths that are important drivers of both growth and inclusion. This policy ecosystem constitutes the implicit ‘income distribution system’ – or, more accurately, living standards diffusion mechanism – underpinning modern market economies. It deserves equal emphasis with the traditional focus of top economic policymakers: macroeconomic, trade and financial supervision policies.
Rebalancing policy priorities in this manner would imply a profound change in the way economic policy is conducted in many countries and indeed for the growth model that has been posited for a generation by much of the economic policy establishment. In some economies, a reimagined process of structural reform aimed at broadening the base and benefits of growth may be the best hope for accelerating its rate in the current context of diminishing returns from extraordinary monetary policy measures and limited fiscal space.
In more than a few advanced economies, this policy and institutional ecosystem has deteriorated or been inert over the past two decades as the forces propelling widening inequality – technological change, global integration, domestic deregulation, and increased immigration – have intensified. Many developing countries, meanwhile, have lagged in creating its basic elements as they have industrialized and integrated into the global economy, missing an opportunity to include more of their populations in their development process and rendering their economies more vulnerable to fluctuations in exports and commodity prices.
We have created two benchmarking databases to support governments wishing to devise and monitor the progress of a practical inclusive growth and development strategy, covering 109 countries for which data is available. One is a new Inclusive Development Index in which countries are ranked based on 12 national key performance indicators that include, but go beyond, GDP growth, incorporating key measures of economic opportunity, inclusion, and environmental and intergenerational sustainability. Many have long called for an alternative measure of national economic performance to GDP, and this is a concrete example. We compare the rankings of the two. The second benchmarking database is the Policy and Institutional Indicators, which yield a profile of each country’s relative institutional strengths and their utilization of the policy space.
Based on this framework and data, our new report recommends specific changes in the priorities of national policy and international economic cooperation – in effect a new growth and development agenda that would greatly aid progress towards both the Sustainable Development Goals and Paris climate agreement targets. We argue that a coordinated global initiative along these lines is what is required to counteract secular stagnation and dispersion, to raise growth and reduce inequality at the same time by placing median living standards – i.e., people – at the centre of national development strategies and international economic integration.
Related social frustrations being expressed through the ballot box and on the street have an essential validity. The implicit income distribution system in many economies is clearly underperforming or relatively underdeveloped, but this is mainly due to an unduly narrow conception of and sustained lack of attention to structural economic policy rather than an iron law of capitalism.
Reshaping the assumptions and priorities of the way modern market economies organize themselves to generate socioeconomic progress can only be realized with the engagement of all stakeholders. The report was developed as part of the Forum’s multi-stakeholder ‘System Initiative on Economic Growth and Social Inclusion’ and includes contributions from five international organizations, three companies and one G20 government. The initiative is intended to serve the international community as a platform for public-private cooperation to help governments and companies translate the shared aspiration of inclusive growth into collective action.
Richard Samans, Member of the Managing Board, World Economic Forum