Wednesday 06 Oct 2021 | 22:25 | SYDNEY
Wednesday 06 Oct 2021 | 22:25 | SYDNEY

In policy world, 'inclusion' the new black


Mark Thirlwell

6 June 2012 13:26

I'm just back from a research trip that took in a couple of conferences and a bunch of meetings with think tanks. I'm still digesting the various messages (aside from the blindingly obvious one about the grim outlook for the world economy), but one thing I did notice was the ubiquitous rhetoric about the need to deliver 'inclusive' growth alongside an intense focus on the political and economic costs associated with rising inequality. 

Given the current state of play, that's not really a surprise. But it does mark a change in the rankings of policy priorities relative to the pre-GFC status quo.

Calls for a shift to more inclusive growth are particularly loud in the developed world right now. Part of this reflects concerns about a long-running rise in inequality. As a recent OECD study sets out, in the three decades leading up to the GFC, income inequality had increased across the majority of OECD member countries, rising to its highest level in more than thirty years (see also OECD video above).

Pre-crisis, the political costs associated with this growing inequality were muted. Post-crisis, it's a different story, as the absence of sustainable growth, along with governments' attempts to balance their books via austerity programs, have served to further increase social strains.

The resultant pressures are perhaps most evident around the periphery of the eurozone, where unemployment in general and youth unemployment in particular are at disturbing levels: in Spain, the overall unemployment rate now stands at more than 24%, while youth unemployment is an eye-watering 51.5%; Greece has a jobless rate of more than 21%; and in Portugal the unemployment rate now exceeds 15%.

European voters have not been slow to punish their leaders: since 2008, eleven European leaders have been kicked out of office. And with the US employment machine is still misfiring and likely to play an important role in the upcoming presidential campaign, figuring out how to get the economy working again for the majority of voters is now a matter of survival for politicians across the developed world.

The emerging economies are part of this trend, too. The Arab Spring was, at least in part, about the failure of the region to deliver inclusive growth. And even the big emerging market heavyweights like India and China face important challenges in this area: in the case of the former, there has been a disappointing disconnect between headline rates of economic growth (now faltering anyway) and other measures of social progress.

In an interesting essay last year, Jean Dreze and Amartya Sen pointed out that despite rapid growth in GDP per head, India's social indicators 'are still abysmal.' Dreze and Sen made their point with a telling comparison between India and Bangladesh: in 1990, India's per capita income was about 60% higher than Bangladesh's and by 2010 India had grown even richer, so that per capita income was almost double that of its neighbour. Yet over the same period, Bangladesh had overtaken India in terms of a wide range of basic social indicators, including life expectancy, child mortality rates, and mean years of schooling.

The much wealthier Chinese economy has done a better job than New Delhi of sharing out the benefits of economic growth, but here too there are significant problems regarding the distribution of income. Income inequality has risen significantly, and as John Garnaut points out in Foreign Policy, corruption and nepotism are now widespread, creating significant political risks.

So, expect a greater focus on inequality and making growth more inclusive. And if governments prove unable to deliver? Expect more political instability.