The Financial Express

Moving towards inclusive development paradigm

Moving towards inclusive development paradigm

Over the last few years, especially since the adoption of the sustainable development and 'leaving no one behind' agenda in 2015, equality and inclusion have emerged as the major themes in global development. The need for 'inclusive development' has been articulated forcefully in different forums along with heightened concerns about the unsustainability of high and rising inequalities. Studies on inequality such as Piketty's (2014) 'Capital in the Twenty-First Century' focuses on wealth/GDP ratios, and Wilkinson and Pickett's (2010) 'The Spirit Level: Why Equality is Better for Everyone' emphasises the negative consequences of inequalities, all of which stress the need for inclusive institutions for sustainable socioeconomic transformations.

Since the 1990s, growing evidence on the relationship that reducing inequalities and growth may not be con?icting objectives prompted a debate and research on 'pro-poor' or 'broad-based' growth. While there is consensus that growth is pro-poor if it reduces poverty, alternative de?nitions have also emerged--such as focus on the rate of income growth of the poor without necessarily bringing about a change in income inequality; or alternatively, growth is pro-poor if inequality falls or if the income share of the poorest rises. Overall, the perception of inclusive growth is the most recent conceptual innovation that looks at the interrelationship between economic growth and various aspects of distribution.

Although the perceptions vary, inclusive growth deals with policies that allow people from different groups such as gender, ethnicity, religion and across sectors -agriculture, industry, services--to contribute to, and bene?t from economic growth. In the literature, several specific conditions of inclusive growth in low-income countries are also highlighted, given the importance of asset inequality and the limited fiscal capacity of these countries. The policy emphasis is directed to business environment and boosting productivity in labour-intensive production; along with the primary role of the private sector in production and the state's role in redistribution.

The differing de?nitions of inclusive growth primarily highlight the differences between outcome measures of well-being (e.g. income, human development), and those that focus directly on access to economic opportunities (employment, asset ownership). This brings into the forefront policies and institutions that directly impact how wealth is generated and takes the issues beyond the redistribution and safety nets agenda. The conceptualisation of inclusive growth that focuses on access to or participation in markets and economic opportunities can support the explicit consideration of governance and social inclusion into the analysis of growth. The emphasis on the importance of institutions has brought into focus various measures of governance on voice and accountability, political stability, government effectiveness, quality of regulation, rule of law, corruption, and so on.

Regarding the type of institutions relevant for inclusive growth, it is argued that there are links between inclusive institutions and (inclusive) growth. The hypothesis is that inclusive political and economic institutions -e.g. property rights that create a level playing ?eld and encourage investment, and an 'inclusive market economy'-enable countries to grow, while concentration of power and opportunity in the hands of a few is more likely to lead to failure. There is evidence that inclusive political institutions are associated with more equality of outcomes. Power sharing in the political process is likely to impact distribution of income and opportunities with employment opportunities remaining at the centre of inclusive growth. Similarly, governance -notably the expansion of voice -is important in creating mutually beneficial and reinforcing public expenditure and economic growth relationships.

In effect, the conceptualisation of inclusive growth helps the policy makers to move to the issues of whether and how the poor participate in and contribute to growth and the institutions -formal and informal -that can enhance their participation. Thus, the inclusive growth agenda highlights the need for an inter-disciplinary perspective on growth. This makes it relevant to incorporate the 'non-economic'factors into the growth analysis and extends the focus on identifying the type of institutions that can promote both growth and more equal distribution at the same time. In the traditional poverty literature, less attention is usually paid to understanding the institutions that promote or hinder the participation of the poor and disadvantaged in, or sharing of, the bene?ts of growth. For example, little is known about the institutions that can articulate the voices of the poor, particularly the more marginalised groups in society and the type of alliances that can create inclusive growth patterns in specific contexts.

In the ultimate analysis, inequality reflects political choices. As Piketty (2014: 20) identifies the danger of economic determinism and stresses that the 'history of the distribution of wealth has always been deeply political, and it cannot be reduced to purely economic mechanisms'. This requires a better understanding of the institutions that mediate political preferences and outcomes for the poor. In many developed countries, the route has been the sustainable redistributive mechanisms including through social insurance and tax-funded bene?ts. In the developing countries, the experience with cash transfers shows growing interest in and commitment to redistribution, and how this can promote productivity as well. But, particularly where the state's ?nancial capacity to redistribute is limited, broader institutions, at national and international level, such as tax regimes, competition authorities, consumer organisations, and trade negotiations and institutions, impact growth at least as much as growth, whether it is inclusive and whether it can be sustained.


Dr Mustafa K. Mujeri is Executive Director, Institute for Inclusive Finance and Development (InM)

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