Author: Alfredo Guerra
Our vision on Inclusive Growth
Inclusive Growth is broadly understood as output growth that is sustained over decades, that is broad-based across economic sectors, creates productive employment opportunities that a great majority of the country’s working age population can access, and reduces poverty.
We believe Inclusive Growth is about increases in human productivity that are broadly accessible to members of a society, allowing them to participate and to share in the benefits of progress.
Today, the world exhibits wide gaps in growth between countries, more than ever before in human history. And this gap keeps expanding. In spite of unprecedented growth in numerous places, many people have remained shockingly poor. What is more, the rate at which the fates of people diverge is expected to accelerate due to changes in technology. Consequences of this divergence span all levels of the economy. As global wealth has risen over the last two centuries, the difference in wealth between the richest and the poorest country has exploded.
In 1870, the United States was approximately 8.7 times richer than what would be the poorest country on Earth (Pritchett, 1997). By 1994, the United States was 45.2 times richer than the poorest country. If we move the lens into individuals, the gaps become even starker—the difference between the income of a CEO and that of an ordinary employee can easily reach a factor of 295, in comparison to a 20-to-1 difference in 1965 (Mishel & Davis, 2014). Such developments have left many of us worrying about how inclusive the growth that we are experiencing is. The world seems to become more and more divided into countries, places and people who participate in the newly created wealth and those that do not.
It is this understanding of the importance of being connected as a mean of access to opportunities to become more productive what informed our vision of inclusive growth as a way of tackling these ever-growing gaps both between and within countries, which remains one of the most prominent obstacles for development we face nowadays. The traditional way of understanding growth is that strong economic growth is the sine qua non of sustained improvements in living standards. However, the extent to which it generates broadly-shared economic opportunity and outcomes is influenced by the extent to which people have access to the determinants of productivity and participation. These include access to education and health; to networks that are physical in nature such as water, power, telecommunications, roads, urban transport, sea and air travel and logistics; and access to networks that are more social in nature such as labor and goods markets and financial services.
Recent concerns about the unbalanced distribution of the benefits of economic growth rose to prominence in both developed and developing countries. Growing dissatisfaction across the globe has led to mounting political tension, leading many to question whether the potential trade-off between growth and equity has been dealt with appropriately by societies.
And it is here where the goal for this effort (call for proposals) plays a key role. We sought to put forward the many possibilities to promote growth in ways that are inclusive and sustainable.
And part of the reason why we focused on this specific angle of growth is because the trade-off between growth and equity may not always be binding, and there may well be opportunities to take advantage of inclusive growth. We can see there are vast differences in productivity across countries, between provinces, states and even within cities. This means that part of the problem is not the distribution of the pie between those that participated in making it, but of pies of wildly different sizes. With wild differences in productivity behind this problem, we then aimed with this initiative to better understand what is behind these differences in productivity and how we can address them.
It is precisely this work of understanding and tackling these differences in productivity what all the ideas presented in this symposium aimed at, as a way of expanding the pies on their specific contexts, and doing so in ways that could be sustainable.
The place for Inclusive Growth in the Development Debate
So far, the public and academic debates have accepted the inevitability of the non-inclusivity of growth and moved on to the question of how wealth can be redistributed. As a result, an explosion of studies and philanthropic efforts focused on better ways to redistribute and analyze the impact of narrow redistributive policies as a means to achieve development. The problem with this approach, however, is its limitation to scale up and have a broader impact on societies at large. In some circumstances, these narrow policies might come at the expense of other policies aimed at achieving a broader impact on unequal societies as a whole. Instead of connecting people in unequal societies so as to make them more productive, redistributive policies just provide palliative measures to those at a disadvantage for being disconnected.
However, we need to understand why fortunes are diverging so fast so we can tackle the problem at its root. And that is the role inclusive growth should play in a broader and truly sustainable development agenda.
As we approach development problems through this lens, it is essential to understand that much of the divergence across countries and cities has to do with divergences in technology and that much of the growth we observe is very concentrated in few productive places.
This can be seen by the fact that rich places are rich because of the use of advanced technologies, whereas the poorest places are often stuck with the same technologies of self-sufficiency that have been used for generations. The rich have a stronger incentive to acquire more inputs. This happens because each additional input in a rich country will lead to more production opportunities than it would in an otherwise poor country. The puzzle of development is then why technology has not diffused to other places.
Part of the answer is that there are significant costs to being connected, which complicates the ease of access to networks that can make you more productive. We then see that wealthy places are highly connected through social networks, business travel (CITE), investments, ownership relations, etc., whereas poor places lack such connections. But what is it that successful people, businesses and places connect to? The abstract answer we give to this question is the expanding body of global knowledge. Knowledge, whether measured as the number of books and manuscripts, academic articles or patents produced, has exploded. As a result, any growth strategy that does not seek to include people into these networks that make them more productive is doomed to higher inequality.
That is why inclusive growth strategies will be essential to achieve more equal outcomes in a society by attacking at the root the reasons behind the widening gap between cities and countries. As part of this effort to level the playing field, we began this journey with a call for proposals to anyone (connected or not to our own networks), seeking novel ideas that could help integrate those outside of established networks.
The call for proposals was launched in March 2015 where we received 116 submissions from around the world. 58 ideas were carefully reviewed by a jury composed of 9 experts who selected the final 11 proposals. The winning proposals were further developed with the support of 7 editors.
Those 11 winning ideas were then taken to the Symposium on Inclusive Growth and Development at Harvard’s Kennedy School of Government. The symposium served as a prime platform to start this conversation around inclusive growth and ideas that seek to promote development through a wide array of angles. The event had excellent attendance from the private and public sector, government, and the academic sector giving a total of 107 attendees. And through its livestream reached more than 500 viewers in 28 countries.
We put together a very engaging event, in which almost a third of the audience had a role throughout the day. We had 29 speakers participating (1 keynote speaker, 6 panelists, 8 discussants, 5 moderators, and 11 authors form 8 different countries - South Africa, India, Nigeria, Philippines, Hungary, Argentina, Switzerland and USA).
The sessions throughout the day were filled with rich discussions and candid conversations about the merits of the different ways of promoting development around the world. Prof. Lawrence H. Summers kicked-off the event on the evening of October 1st to a packed JFK Jr. Forum. He presented an agenda to promote inclusion in developed countries such as the United States and the United Kingdom whilst underscoring the rising costs and barriers to accessing educational opportunities. While acknowledging the political complications an agenda to tackle these issues may involve, Prof. Summers stressed the need to address these problems. He then gave a word of advice to developing countries: GROW. He said strong economic growth is the most inclusive outcome for those trying to develop.
On the second day of the symposium, a panel with Richard Samans, Yuwa Hendrik and Ricardo Hausmann, moderated by Henry Curr from The Economist, opened the discussion for inclusion in the developing world. All three panelists agreed on the need to advance inclusion and on the benefits of doing so for growth. We discussed the need for better understanding how differences in technology adoption may be impacting the inputs each country has available and how that impacts their incentives to further acquire more inputs for growth. Ricardo also shared his view on how we can understand the problem of people being disconnected from networks due to the high fixed costs to reach them (which is why many poor people do not have landline phones available in their homes). This issue, he said, can be addressed through the sharing of these costs at a societal level, as was the case with the US Postal System, or by reducing the fixed costs of access, as the cellphone technology did for those without landline access. The selected ideas for the symposium aimed to grapple with ways to lower these costs of access to others.
In a Ted-style format, we heard from the winners who presented their ideas on how their projects can help make more productive those who are disconnected from networks. All the ideas reflected a common theme of inclusion through the need to connect people. Some stressed the need to increase productivity through behavioral nudges to help them save smartly or invest money, considering its positive externalities at a macro level. Other ideas accentuated the value of preserving and strengthening the few networks that many people in poverty have access to by connecting traditional corner store businesses to productive opportunities. Ideas also emphasized the need to connect specific groups or minorities who are left out of networks that could make them more productive, like the youth in South Africa, minorities in Hungary, or the undiscovered talent in the Philippines. Technology also featured prominently as a key in connecting people in ways that can broaden the opportunities for them to become more productive.
The lineup of faculty and practitioners, who discussed each of these ideas, raised compelling points on how to further strengthen the proposals while acknowledging the areas where genuine innovation was present. Many praised the framework of connectivity under which these ideas were operating, but also offered words of caution in terms of the impact they could have, or what the role of these ideas could be once inclusion has been achieved in the context these projects were meant to operate.
In a debate-like session, Symposium participants were able to engage in a broader discussion of the different views in the development world when it comes to achieving growth. A provocative conversation took place where a case was made for an increased role of pro-inclusion policies in the context of developing countries.
The day then ended with a reflection-session where the audience actively engaged in a conversation about the main lessons and takeaways from the Symposium. Reflections included comments about how event attendees envision inclusive growth and its role in the development agenda of the future. Many stressed the need for an active role of government, as well as other topics that deserve attention, such as agriculture. Overall, the diversity of ideas presented was highlighted by attendees and the potential for inclusion each brings to the table.
Prof. Hausmann closed the day by emphasizing that this Symposium should only be seen as the beginning of a broader conversation of how to engage in more inclusive policies as a way of achieving growth.
Much is left to be done in the arena of inclusive growth. As more organizations, academics, and governments listen to the opportunities, and how those opportunities can be promoted in a sustainable basis, the higher the chances that developing societies can take-off on strong and sustainable growth paths. It is with great pleasure that we can say that the Meta-Council of Inclusive Growth played a key role in this movement after a year with an intense focus on how to reduce the fixed costs of connecting people to networks that can make them more productive. And now, a proposed new step for our efforts next year could be to look for ways to share these costs of connection through policy initiatives.