1.2 What is inclusive growth?

The notion of IG has become a framing concept in development policy over the last ten years and a powerful idea driving global growth agendas. Its prominence and the attention it commands is because it is, first and foremost, a product of international multilateral agencies (Felipe, 2012).

The term first appeared in the early 2000s, when there was growing recognition and criticism that the received wisdom for growth may be problematic and flawed. Organisations like the World Bank noticed that their policy prescriptions for developing countries would translate into growth in terms of overall real GDP increases, but were not leading to reductions in inequality or positive transformations in the living conditions or standards of many in those countries – particularly the poorest and marginalised sections of society.

For decades, economic development had been guided by an ideology and principles that were formalised in the late 1980s in the Washington Consensus (Williamson, 2008). The Consensus was a set of ten market-oriented policy recommendations that, in combination, were to be a cure and provide the path to recovery for countries in financial crisis.

Recommendations included measures such as:

• privatising state enterprises
• trade liberalisation
• redirecting public spending from subsidies
• deregulating markets.

One of the most notorious uses of the Consensus measures were as part of Structural Adjustment Programmes (SAPs) of the 1990s. These were loans given by the International Monetary Fund (IMF) to countries, most notably in Latin America, that were on the verge of financial collapse. The loans were conditional, and these conditions consisted mainly of implementing the Washington-style market policies. The relevance for IG is that these policies were driven by the belief that development and human progress came through economic growth.

The limits of this model were beginning to show by the early to mid-2000s, and calls for a new approach began to emerge. The reasons and theoretical arguments for why IG is needed are covered in more detail in the following section, but at its core, and at its simplest, IG is about the failure of economic dividends to reach and benefit the majority of people who are engaged in the economies that are driving this growth. At its heart, it is growth that benefits everyone: economic success combined with a more equitable society.

The need for a new model for growth, away from purely economic outputs towards a more socially oriented and inclusive form, has been the basis for the rise of the IG agenda. This has been adopted and quickly become the mantra of major multilateral financial and development actors, and many see IG as a political imperative for governments to pursue. Yet, despite widespread agreement that IG may be the answer to the rising inequalities gap, once you begin looking at what it is, the picture becomes problematic.