Towards Inclusive Growth
by Dennis Görlich, Managing Director of the Global Economic Symposium
Economic growth in the past decades has been accompanied by increasing inequality in incomes and opportunities. Since the early 1980s, the average of within-country income equality of developed countries (as measured by the Gini index) has grown from 28 to 31 (see figure 1). Note that during the 1970s and early 80s, average within-country income equality has declined, even though average growth rates in these years have even been slightly higher than in period after that, showing that growth does not necessarily go along with rising inequality. Figure 2 also displays Gini Indices, but for a longer time span and more countries. It shows that income inequality in emerging and less-developed countries is much higher than in developed countries. These observations of strongly increasing income inequality in many countries in the world has led major international institutions such as the ADB, OECD or World Bank to call for actions to encourage socially inclusive growth.
The GES has taken up the challenge of promoting inclusive growth during a GES workshop in Taipei, jointly organized with ITRI, the Industrial Technology Research Institute. A key question addressed during the workshop was how innovation can be promoted in order to achieve inclusive growth. A full report of the event will be soon available at the GES Taipei Workshop Website. In this blog post, I would like to touch upon three issues that I consider interesting with regard to achieving inclusive growth through innovation.
Figure 1: Gini Index (click graphic to enlarge)
Source: Standardized World Income Inequality Database (SWIID); own calculations. Notes: Unweighted average of within-country inequality in 25 developed countries, measured by the Gini Index. (i) Data for Germany missing from 1961-1970. (ii) Data for Switzerland missing from 1970-1979. A Gini Index of 0 represents perfect equality, 100 represents perfect inequality. [Go back to top]
Figure 2 – Gini Index by region (CLICK GRAPHIC TO ENLARGE)
Source: United Nations Conference on Trade and Development (2012), Trade and Development Report, Chapter III, p. 51. The authors take the data from van Zanden et al. (2011), The changing shape of global inequality 1820-2000: exploring a new dataset. CGEH Working Paper Series, Centre for Global Economic History, Utrecht University. [Go back to top]
The Internet of Things: Inclusive or Disastrous?
As pointed out in the opening speech by GES and Kiel Institute President Dennis J. Snower, the so-called Internet of Things is an important innovation with major implications for the inclusiveness of growth. The Internet of Things can be understood as a “tsunami” of new technologies, where machines and entire factories are connected in real time, with sensors delivering any information one can think of. These new technologies are likely to spark many innovations supporting inclusive growth. Examples are health care (improving access of the poor to better medical care), city management (improving the quality of public infrastructure from which particularly poorer households may benefit).
At the same time, they will also have huge implications for the labour market, potentially offsetting any progress in inclusiveness. Machines and robots will continue to substitute labour in many areas and the consequences for employment, unemployment and the income distribution are very unclear. Many publications on the issue paint a bleak picture for the labour market. For example, Oxford researchers Frey and Osborne argue that 47 percent of US employment is at risk of being computerized [pdf]. In a Quartz article, Scott Santens discusses possible implications of self-driving trucks and concludes that this innovation may not only affect truck drivers, but the entire industry that caters to the truck drivers. For a more moderate view, the reader should take a look at this article [pdf] by MIT economist David Autor who argues that the potential for machine substitution may be overstated and that the discourse ignores the strong complementarities between technology and labour. At the upcoming Global Economic Symposium in Kiel, we will also debate these important issues in a session “Job creation in the age of robots,” presenting research-based solution proposals to cope with the resulting labour market adjustments.
How Global Supply Chains Can Help Inclusive Growth
Global supply chains have a role play in supporting inclusive growth. In fact, especially in Asia, the integration into global supply chains is an important driver of growth. In some sense, this growth has been inclusive as it has created many jobs and has increased employment in less developed countries. However, not all of these jobs can be considered good jobs. Then again, countries have often started low in the value chain and have moved up the value chain considerably. It turns out that, depending on what one considers as inclusive growth, the creation of supply chains had an impact, either positive or negative.
So what can be done for global supply chains to help the case of inclusive growth? For example, Qiyuan Xu of the Chinese Academy of Social Sciences (CASS) suggested that infrastructure investment to connect remote land-locked countries would be a way forward as it would allow the countries to participate in global value chains. However, as noted by Tony Nash of Singapore’s Complete Intelligence, the performance in terms of inclusiveness might further be improved if the focus of the investments were on capacity building rather than mere infrastructure provision. The idea that supply chains can be instrumented to encourage inclusive growth has also been worked out at the previous GES. For example, Global Summit of Women President Irene Natividad suggested that quotas and commitments should be set to include enterprises owned by minority groups into companies’ and governments’ supply chains (see p. 29 in the GES Selected Solution 2014/2015) [pdf].
Innovation is not only technical, it can be social too
Innovation does not necessarily need to be technical; there can be social innovation, too. In fact, technical innovative activities will always yield private returns, which are seldom broadly shared. It is, therefore, not clear that they will result in socially inclusive growth. However, social innovations are socially inclusive by their very nature. Tristan Ace, Head of the British Council’s Social Enterprise program in East Asia, reported about social entrepreneurship and gave some interesting examples of such enterprises that remedy a social problem while also being profitable.
Social entrepreneurship is an interesting field to explore further. While some countries like the UK have already gathered valuable experience in social entrepreneurship, it is still unknown territory for many other countries, especially emerging and developing countries. To encourage discussions on social entrepreneurs and to explore their role for sustainable and equitable development, related topics have been addressed at various GES in the past. The upcoming GES in October will facilitate an exchange of know-how and experience between social entrepreneurs and GES participants in a World Café, where a number of entrepreneurs will present their ideas. This, and other sessions around the issue of inclusive growth, will allow us to continue the important debate on how to move towards inclusive growth.