The late 2000s, witnessed the birth of the inclusive growth (IG) paradigm, from a combination of pro-poor growth debates outcomes and the new, but firmly neoclassical growth framework developed by the World Bank and its associates. It is acknowledged that poverty and inequality are mutually reinforcing, and that IG is the best way to address both of them simultaneously. IG stresses the importance of growth for poverty reduction, admits that a wide range of policy combinations can deliver these outcomes, and aims to select the appropriate policies through “growth diagnostics”. Inclusive growth refers both to the pace and pattern of growth, which are considered interlinked, and therefore in need to be addressed together … Traditionally, poverty and growth analyses have been done separately.
However, according to the World Bank, 2009, encouraging broad-based and inclusive growth does not imply a return to government-sponsored industrial policies, but instead puts the emphasis on policies that remove constraints to growth and create a level playing field for investment.
In an attempt to answer the question “Inclusive growth: merely desirable or essential?’ Thomas, (2011) (World Bank), argues that, “the concern for inclusive growth, or a growth pattern that includes all income strata, is not new.
What is different is the urgency for achieving greater inclusiveness, and a nascent realization that without it sustained growth will not be possible in the future”. It will be increasingly difficult to raise economic growth without a larger share of the population participating in that process. Inclusiveness means levelling the playing field, getting rid of special enticement for lopsided development, and making the effort to engage every segment of the population, (including women, youth, people living with disability, among others).
There is a crucial connection between income inequality and poverty, in the sense that, empirically, where growth was more inclusive, poverty was reduced more sharply. The East Asia and Pacific region reduced poverty from 78 per cent in 1980 to 17 per cent around 2005. Globally, a one percentage point growth in income is associated broadly with a decline in poverty by about 2.4 percentage points104. In addition, inclusive growth can promote stability and peace. Sociopolitical instability and violence have been seen to follow episodes of highly uneven growth, either from absolute deprivation for some people or from a sense of unfairness when economic gains are shared very unequally.
Interestingly, highly unequal societies such as Brazil and Mexico have become more equal in the past two decades, while relatively more equal ones such as China and India have become more unequal, signalling a degree of convergence in inequality across Asia and Latin America.
For the World Bank, IG is broader than pro-poor growth, as highlighted:
“Rapid … growth is unquestionably necessary for substantial poverty reduction, but for this growth to be sustainable in the long run, it should be broad-based across sectors, and inclusive of the large part of the country’s labour force … [T]he [relative] pro-poor approach is mainly interested in the welfare of the poor while inclusive growth is concerned with opportunities for the majority of the labour force, poor and middle-class alike”105.
Inclusiveness is understood as providing equality of opportunity “in terms of access to markets, resources, and unbiased regulatory environment for businesses and individuals”106. Equality of access is instrumentally valuable, since “systematic inequality of opportunity [is] “toxic” as it will derail the growth process through political channels or conflict”.
Not surprisingly, “The inclusive growth definition is in line with the absolute definition of pro-poor growth, but not the relative definition. Under the absolute definition, growth is … pro-poor as long as poor people benefit in absolute terms … In contrast, in the relative definition, growth is “pro-poor” if and only if … inequality declines. However, while absolute pro-poor growth can be the result of direct income redistribution schemes, for growth to be inclusive,
104 V. Thomas, World Bank, 2011.
105 World Bank, 2009, p. 1.
106 World Bank, 2009, p. 2.
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productivity must be improved and new employment opportunities created. In short, inclusive growth is about raising the pace of growth and enlarging the size of the economy, while levelling the playing field for investment and increasing productive employment opportunities … [IG] focuses on productive employment rather than income redistribution … IG is typically fuelled by market-driven sources of growth with the Government playing a facilitating role”107. The World Bank’s shift towards growth diagnostics and the identification of constraints (to inclusive growth), which should be addressed sequentially, replicates the debates about the “order of liberalization” in the 1980s that took place after the collapse of the first wave of radical reforms in Latin America, and the controversies about the speed of transition/reforms in the former Soviet bloc and Southern Africa. The IG paradigm is different in two respects: first, the “correct” policies are, drawn up inductively from successful growth experiences around the world, in an effort to carefully incorporate selected insights from the developmental-state debates. Despite this reversal towards empiricism, IG policies are essentially identical to the Post-Washington Consensus, plus a government-led push for growth. Inequality issues are still underplayed in the IG model.
There seem to be four steps countries can pursue for greater inclusion, namely:
• Focusing on the access to high quality, relevant (skill formation) education, at basic, secondary and tertiary levels, including addressing high unemployment among educated populations;
• Paying special attention to areas with high labour intensity such as agriculture, to ensure improved agricultural productivity and key linkages with agribusiness; Channelling remittances into productive investment can help small businesses to flourish and stimulate job creation, leading to more inclusive growth; and
• A State that is accountable to all its citizens, including efficient social protection systems108. Box 2.4 summarizes the main characteristics of IG approaches.
107 World Bank, 2009, pp. 3-4.
108 V. Thomas, World Bank, 2011.
Box 2.4
What is Inclusive Growth?
Inclusive growth:
• Focuses on economic growth which is a necessary and crucial condition for poverty reduction.
• Adopts a long term perspective and is concerned with sustained growth.
-For growth to be sustained in the long run, it should be broad-based across sectors. Issues of structural transformation for economic diversification therefore take front stage. Some countries may be exceptions and continue to specialize as they develop due to their specific conditions (for example, small States).
-It should also be inclusive of the large part of the country’s labour force, where inclusiveness refers to equality of opportunity in terms of access to markets, resources and unbiased regulatory environments for businesses and individuals.
Focuses on both the pace and pattern of growth. How growth is generated is critical for accelerating poverty reduction, and any IG strategies must be tailored to country-specific circumstances.
Focuses on productive employment rather than income redistribution. Hence, the focus is not only on employment growth but also on productivity growth.
Has not only the firm, but also the individual as the subject of analysis.
Is in line with the absolute definition of pro-poor growth, not the relative one.
Is not defined in terms of specific targets such as employment generation or income distribution. These are potential outcomes, not specific goals.
Is typically fuelled by market-driven sources of growth with the government playing a facilitating role.
Source: World Bank, 2009, “What is Inclusive Growth?” Washington, D.C., USA.
However, there are several limitations of the IG paradigm identified to date. Critical assessment of IG demonstrates that it belongs squarely within the mainstream neo-liberal tradition, whose policy prescriptions have been successful only exceptionally. For example, IG assumes that economic growth is the most powerful tool for elimination of poverty, disregarding the structural inequalities which can create poverty even as the economy expands. Clearly, if income and productivity growth are sufficiently rapid, most people benefit even if inequality rises, as was the case in Brazil and Mexico from the 1950s to the 1970s, the Gulf economies between the early 1970s and the early 1980s, and in China since the 1980s. However, if GDP growth is insufficient or erratic, this may lead to the stagnation or even decline of the welfare of large sections of the population, witnessed in Russia and other former Soviet Union countries in the 1990s, and in most Middle East, African and poor Latin American countries in the 1980s and early 1990s.
Although the World Bank increasingly recognizes the significance of asset ownership in its definitions of poverty, IG ignores the role of asset transfers in its own selected experiences of growth, including the radical land reforms in China, Japan, Republic of Korea and Taiwan Province of China, and the distributive implications of resource rents in Botswana and Oman. IG largely underplays the numerous episodes of rapid and sustained growth
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before the “reforms” and neoliberal “globalization”, for example, in Brazil, China, India, Mexico, Norway, Poland, South Africa and the Russian Federation, not to speak of heavily selective “global integration” in the Republic of Korea and Taiwan Province of China until the mid-1980s.
Under IG, countries are assumed to fail largely because they do not implement the “correct” policies. However, it is equally plausible that countries could fail because their preferred policies could not be implemented due to other problems such as currency or balance-of-payments crises, insufficient aid, lack of market access, domestic or external debt overhang, and overburdening conditionalities. Naturally, conditionality is the enemy of experimentation, since it weakens contextual links with economic policies. Failure victims are likely required to try harder, instead of the policy package being re-visited.
In addition, IG does not address the limitations of previous neo-liberal economic reform strategies, including the contradictions between policy legitimacy, ownership and participation, the cost of adjustment, and the absence of self-correcting mechanisms in such policy packages. Social safety nets in IG, although primarily instrumental, often encounter serious financial constraints, particularly, in poor implementing countries. In fact, re-distribution is purely incidental to IG, as the focus of this strategy is entirely on growth and on the potential welfare gains for the poor which might ensue from high growth.