Defining inclusive growth
There is widespread agreement that IG offers the best conceptual route to devising an understanding of growth that is beyond economics and promotes poverty and inequality reduction. However, this is where the consensus stops.
Activity 1.1: Comparing understandings of IG
Read the two extracts below and then watch Video 1.1. They are taken from three different multilateral agencies and describe how each defines IG. As you read and watch, make notes of the similarities and differences.
A development strategy anchored in inclusive growth will have two mutually reinforcing strategic focuses. First, high, sustainable growth will create and expand economic opportunities. Second, broader access to these opportunities will ensure that members of society can participate in and benefit from growth.
Without proper attention and planning, it will become increasingly difficult for growth to reach the impoverished who remain excluded by circumstance, poor governance, and other market-resistant obstacles. The region must promote greater access to opportunities by expanding human capacities, especially for the disadvantaged, through investments in education, health, and basic social protections. It must also improve the poor’s access to markets and basic productive assets by putting in place sound policies and institutions.
Finally, social safety nets must be strengthened to prevent extreme deprivation. ADB’s support for achieving inclusive growth in DMCs will include investment in infrastructure to achieve high sustainable economic progress, connect the poor to markets, and increase their access to basic productive assets. ADB will support investment in education and essential public services, such as water and sanitation, which particularly benefit the poor and women. These investments will provide the opportunity for all to improve their standards of living, thereby contributing to economic growth, poverty reduction, and the mitigation of extreme inequalities.
The majority of the poor in the region, including most of the absolute poor, are women. Women comprise the largest group among those excluded from the benefits of the region’s economic expansion. ADB will continue to emphasize gender equality and the empowerment of women as fundamental elements in achieving inclusive growth. It will also work to increase investments aimed at providing women with better access to education and other economic resources, such as credit.
Inclusive growth deals with the idea that economic growth is important but not sufficient to generate sustained improvements in welfare, unless the dividends of growth are shared fairly among individuals and social groups. At the same time, there is increasing recognition that, in addition to income and wealth, people’s well-being is shaped by non-income dimensions, such as their health and education status.
The level and distribution along these non-income dimensions are therefore key aspects of inclusive growth, making it a multidimensional concept. Moreover, to be relevant inclusive growth needs to be policy actionable, allowing policy makers to better understand the trade-offs and complementarities that exist across policy areas and the tools that can be used to achieve improvements in both the level and distribution of income and non-income outcomes. This is why it is important to consider the various dimensions of inclusive growth simultaneously and not one by one.
Inclusive growth builds on different strands of OECD work. In particular:
- The multidimensionality that is at the heart of inclusive growth has been a defining feature of the OECD’s work on well-being (OECD, 2011b), which identifies health and education outcomes, social connections, personal security, work-life balance, environmental quality of life and subjective well-being as important non-income aspects of well-being (see also Stiglitz, Sen and Fitoussi, 2009).
- The emphasis placed in inclusive growth on distribution builds on OECD work on the analysis of trends and drivers of income inequality in OECD member and selected partner countries, not least in Divided We Stand and related work, as well as on the evolution of non-income outcomes across individuals and social groups in OECD work on well-being.
- The policy orientation of inclusive growth builds on OECD work such as Going for Growth that analyses the policy levers for raising GDP per capita, and various strands of OECD work on labour markets, health and education policies, innovation and entrepreneurship, and regulation, among others.
The OECD project on inclusive growth develops a measure of ‘multidimensional living standards’ that accounts for selected non-income dimensions of well-being and their distributional aspects.
Transcript: Video 1.1 Expert answers: why is inclusion important for sustainable growth? Conversation with Pinelopi Goldberg, Chief Economist of the World Bank Group.
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| Similarities | Differences |
Discussion
Some examples of similarities and differences are shown in the table below:
| Similarities | Differences |
ADB, OECD and World Bank
ADB and OECD
ADB and World Bank
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ADB
OECD
World Bank
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These were the key similarities and differences we see but you may have noted others. What is striking is in just these three short pieces there are significant differences in how these agencies understand and define IG.
The Asian Development Bank places emphasis on poverty reduction and social welfare that is not mentioned at all by Pinelopi Goldberg of the World Bank. In fact, she makes a point of saying it is not a discussion about making everyone equal and redistributing wealth. What is needed are greater incentives for people to access and participate in market activity.
The similarities and differences are not always clear-cut. The OECD stresses the need to acknowledge the complex nature of economies, which will require balances and trade-offs across sectors. Although not the same language, Pinelopi Goldberg is making a similar point when she says IG is not a one-size-fits-all solution, but will be context and challenge specific in an economy and its different dimensions. The only clear point of convergence appears to be that IG requires expanding opportunities and greater access to them.
This insight into how a few of the different key multilateral actors see IG is symptomatic of a wider issue. There are as many definitions as there are organisations advocating for IG, and an OECD report in 2012 highlighted that many understandings of the topic are vague.
It must be recognised that some of this is to be expected. Ideas that reorient conventional thinking around complex problems cannot be expected to be fully conceived overnight; they change and evolve as understandings develop. This is already happening as, over the past few years, IG has morphed in some circles to overlap with ‘inclusive development’. With the pressure of climate change increasing, there are calls for ‘green inclusive growth’, while others are talking about ‘digitally inclusive growth’.
One of the main points of contention that muddies the waters around how IG is defined relates to the issue of non-income outcomes. Both the Asian Development Bank and OECD extracts placed prominence on this dimension and talked in terms of improved health, education and social security. While the economic aspects and outputs from growth are well defined and understood, the IG literature becomes less clear when thinking about less tangible aspects of growth and development.
Activity 1.2: What do non-income outcomes mean to you?
Spend a few minutes noting down what non-income-related growth means to you. Then, as you have now looked at how several organisations frame IG, write your own definition. We will revisit this at the end of the week.
| Non-income related growth | |
| Inclusive growth |
1.2 What is inclusive growth?