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Wednesday, October 21, 2020

What is inclusive growth and which strategies, policies and programmes can best promote it?

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By Lamin M Manneh

The 2016 edition of the World Economic Forum (WEF) at Davos will be long remembered for two indelible hallmarks. The first is the introduction in a very vivid manner of the notion of the “Fourth Industrial Revolution” by Professor Klaus Schwab, the founder and executive chairman of the World Economic Forum itself. This was underpinned by a book just then completed by Professor Schwab, entitled: The Fourth Industrial Revolution: What it Means and How to Respond to It, whose publication was timed to coincide with the eve of the opening of the 2016 WEF. The predicted highly revolutionary nature of the Fourth Industrial Revolution was captured by the following words: “We stand on the brink of a technological revolution that will fundamentally alter the way we live, work, and relate to one another. In its scale, scope, and complexity, the transformation will be unlike anything humankind has experienced before”.

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The second memorable hallmark of the 2016 WEF, and which is of direct relevance to this paper, was the presentation at the Forum of an equally attention – catching publication by Oxfam International, entitled: “An Economy for the 1% – How Privilege and Power in the Economy Drive Extreme Inequality and How this Can be Stopped”. It should be recognized from the outset that concerns for equity and equitable development had occupied important places in economic thought and theory, even before the classical period. Aristotle talked about the need for human-centered development, implicit in which was concern for equitable development.

In less ancient and more modern times, issues of rising inequalities within and across nations have preoccupied international and national policy makers and researchers alike In this regard, the eminent neo-classical development economist, Simon Kuznets’ “Inverted U- Hypothesis” comes to mind. Within the context of this hypothesis, Kuznets believed that as modern economies grow, overall inequality first rises, then stabilizes for some time and eventually falls. Implicit in Kuznets’s hypothesis is the notion that the market will take care of inequalities in the long run as the growth process continues. The modern version of this is the well – known “trickle down” theory. It is true that for Africa the structural adjustment programmes implemented in the 1980s and 1990s diverted attention from the inequality issues, income and non-income, owing mainly to the preoccupation with stabilising the macroeconomic conditions in the countries and restoring the economies on sustainable growth paths.

Although the introduction in 2000 of the Millennium Development Goals (MDGs) was underpinned by anti-poverty concerns and measures, it was not until the negotiations for 2030 Agenda and the Sustainable Development Goals that a stronger focus on tackling inequalities and promoting inclusive growth was center – staged in the international development discourse and agenda. However, the extreme extents to which inequalities have reached in most parts of the world seemed to have eluded researchers, not to talk about most policy makers, until the publication in 2016 of Oxfam International’s above-cited seminal paper. This is how the publication vividly painted the state of extreme inequalities in the world: “The global inequality crisis is reaching new extremes. The richest 1% now have more wealth than the rest of the world combined. Power and privilege are being used to skew the economic system to increase the gap between the richest and the rest. A global network of tax havens further enables the richest individuals to hide US$7.6 trillion. The fight against poverty will not be won until this inequality crisis is tackled”.

A bevy of statistics the paper compiled goes to reinforce the picture painted above of the extreme state of inequalities in the world, including the following shocking revelations: 62 individuals control the same wealth as the poorest 3.6 billion people in the world; the increase in wealth of the richest 62 individuals since 2010 amounted to US$542 million; since 2000, the poorest half of the global population received only 1% of the increase in global wealth; and the rise in the average annual income of the poorest 10% of the people in the world was only 3% in almost a quarter of a century. Evidently, no other set of statistics could better portray the extreme levels that global inequalities have reached in recent years.

Admittedly, the point has long been made over the preceding years by several international organisations, including the United Nations System, academicians and observers that growing inequalities constitute not only a moral issue, but are also inimical to sustainable growth, social cohesion and stability of societies. There is close interrelationship between inequality and poverty, but there are important differences between them as well, which is of relevance to the kind of policy policy making for which this paper is strongly advocating. This point will be dealt with later in the paper. Citing the notable progress made globally in halving the ratio of the world population living below the extreme poverty line between 1990 and 2010 (largely due to the push made globally towards achieving the MDGs), the Oxfam paper argued that had inequality within the countries not grown during this same period, an extra 200 million people would have escaped poverty. Furthermore, it argued that had the poor people benefited more from the economic growth registered during that period than the rich, that number would have risen to 700 million! The imperative for, and the key elements of, inclusive growth could be gleaned from these observations.

However, they also reveal that the rate of decline in the overall poverty levels in African countries as a whole has slowed down measurably in recent years despite the relatively strong growth performance registered in the continent in general, raising concerns about the feasibility of attaining the goal of ending poverty and “leaving no one behind” by 2030. In large measure, growing inequalities account for the latter trend. This brings us to the first major hypothesis of this paper, which is that equitable patterns of development and their sustainability are very much linked to both the levels and inclusivity of growth as well as meaningful poverty reduction. The second hypothesis of this Paper is that reducing inequalities operates in a different way to a large extent from the pro-poor growth measures per se. Both of them have to be at the heart of Agenda 2030 and its Sustainable Development Goals (SDGs), which emphasises the imperative for not leaving anyone behind (SDG 1) as well as more vigorous tackling of inequality in all its forms (Goal 10) than is the case currently. A third hypothesis of this paper is that while tremendous work and analysis have been carried out on the key dimensions of poverty and inequalities as well as the major underlying causes of them, there is still a dearth of knowledge on, and political will for, the programmatic elements of the requisite strategies and policies for effectively and sustainably tackling them. I believe that organisations like UNDP are well placed to help address these critical gaps.

In this regard, it is pertinent to recall that UNDP’s 2019 Global Human Development Report comprehensively and rigorously analysed how persisting historical inequalities have constrained attainment of optimal levels of human development within and across societies and how new forms of inequalities will contribute significantly to widening and deepening unequal access to resources, basic and advanced services, economic opportunities and political power within and across countries in the coming years.It also rightly noted how theses inequalities, if not decisively addressed, will increasingly trigger social unrest in countries across the world, thereby posing serious risks to social cohesion and stability within them. To illustrate this, it points out that “the evidence is everywhere. Inequalities do not always reflect an unfair world, but when they have little to do with rewarding effort, talent or entrepreneurial risk-taking, they can be an affront to human dignity. Such inequalities in human development hurt societies, weakening social cohesion and people’s trust in government, institutions and each other. Most hurt economies, wastefully preventing people from reaching their full potential at work and in life. They often make it harder for political decisions to reflect the aspirations of the whole of society and to protect the planet, if the few pulling ahead flex their power to shape decisions in their interests. In the extreme, people can take to the streets.”(UNDP 2019 GHDR).

The UNDP administrator, Dr Achim Steiner, further puts it as follows: “The wave of demonstrations sweeping across countries is a clear sign that, for all our progress, something in our globalised society is not working”. I would add that what is not working is largely related to the persisting and, in many cases, growing inequalities in several areas of human development.

The devastating impact of the on-going coronavirus pandemic, particularly on the disadvantaged groups, underscores not only the critical importance of robust public health systems but also broader policies for addressing perennial and emerging inequalities in societies. By now, the glaring disproportionate impact of the pandemic on the mostly disadvantaged social and income groups has been wildly acknowledged by observers and researchers across the world.

Given the foregoing, we aim at achieving in the paper the following three main objectives: first is to contribute to a better understanding of inclusive and equitable growth and what it entails for more impactful policy making; secondly, to shed more light on which policies, strategies and programmes could best promote its realization, particularly in the context of Agenda 2030 and Africa’s Vision 2063; and thirdly to make concrete suggestions regarding the more robust support that the next Generation UNDP could provide to these processes.

Thus, the main preoccupation of this paper will not be to provide an overly academic treatise on the issue of inclusive growth or conduct rigorous empirical/econometric analysis (both of which have been very well done by Ayodele Odusola et al in the book entitled Income Inequality Trends in Sub-Saharan Africa: Divergence, Determinants and Consequences (2017) but rather to do a more practical analysis of the Next Generation UNDP’s contribution to the inclusive and equitable growth agenda in Africa over the next few years through stronger policies and better programme formulation in the member countries for attaining sustainable and inclusive development and transformation, that leaves no one behind. It is also useful to relate the attainment of these objectives to the realisation of the broader goals of social cohesion and durable stability in the African countries.

Director, UNDP Regional Service Centre for Africa, Addis Ababa, June 2020
The views expressed in this article are not necessarily sanctioned by UNDP.

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