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Inclusive growth: Buzzword or innovation?

May 9, 2017

Arjan de Haan

Senior program specialist, IDRC

When the world's richest eight people hold as much wealth as the bottom 50 per cent of the global population, we have a problem.

That disparity, highlighted in a recent Oxfam report, brings into sharp focus an issue of growing inequality that is increasingly being recognized as among the world's greatest political and economic challenges.

There is less consensus on the solution. One approach — based on the concept of "inclusive growth" — is gaining traction as a potential guiding principle for a more socially-inclusive approach to economic growth.

The World Economic Forum (WEF) brought great focus to this debate through its Inclusive Growth and Development Report, which was the subject of a recent event in Ottawa at the International Development Research Centre (IDRC).

The report's lead author, Richard Samans, argues that an inclusive growth approach is directly in line with the sustainable development goals (SDGs) agenda. This approach not only provides a framework for all countries independent of GDP, it also moves beyond poverty reduction approaches, and provides a framework that is much broader than a traditional redistribution agenda.

Why is redistribution not enough?

Many countries seek to reduce inequality by redistributing the gains of economic growth. This has produced successes. For instance, Peru's former Minister of Development and Social Inclusion Carolina Trivelli told the Ottawa audience how poverty had more than halved in Peru over the last decade, and extreme poverty has been reduced even more quickly. However, redistribution alone is not enough for two main reasons.

First, there is a fear that redistributive schemes may be fiscally unsustainable, and that grants may reduce recipients' incentives. While discussions on this are largely politically-driven, research has shown that such schemes do not need to be very expensive, and that they can be organized in ways that reduce negative incentives and help promote productive investment by beneficiaries.

Second, how growth is created is as important as redistributing the gains. There are equally important practices within the private sector that promote equality and inclusion. Data in the Inclusive Growth report shows that in east Asian countries inequality is kept low with relatively limited fiscal transfers. Among the welfare states of Western Europe some countries have much more equal market incomes than others.

Is there practical experience with inclusive growth?

Canada's approach has attracted attention from the international community. The Canadian government uses a broad set of policy levers, including direct benefits for low- and middle-income families, and reduced income taxes for middle-class Canadians.

Canada has also increased investment in public infrastructure, targeted new ways of attracting foreign capital, and promoted Canada as a hub for top global talent. To promote inclusion and growth simultaneously, it enhances access to global markets for small and medium enterprises as part of a progressive trade approach. Gender equality is promoted through gender-based analysis, aiming to make gender equality central to all actions, not just social policy schemes.

Presentations during the Ottawa event highlighted how Sweden emphasizes active government policy, an active welfare state, and organized labour market as ingredients for inclusive growth. Social dialogue is a critical element, which Sweden is now also supporting internationally. Other participants highlighted the potential of place-based policies, for example in Canada and Peru, to ensure that a wide range of private and public stakeholders are included in economic development and that community priorities are incorporated into public policy.

How do we know what works?

Global examples demonstrate there is no single solution. We are left with two fundamental questions: Is it possible to measure success in promoting inclusive growth? And will that convince policymakers and citizens alike that inclusive growth is worth the investment?

The Inclusive Growth and Development report and the event at IDRC suggest both questions can be answered affirmatively. The Inclusive Development Index (IDI) provides a nuanced assessment of countries' level and performance of development. The index goes beyond GDP per capita to include measures of gender equality. The index shows, for example, that Canada is doing well in many areas, but there are also areas for improvement. In fact, no country is a top performer in every area. All countries can do more to foster a more inclusive growth process.

This op-ed was first published by on May 3, 2017.

Arjan de Haan is the Program Leader, Employment and Growth at IDRC.