How Inclusive Growth developed as a distinct concept?
Inclusive growth is a buzz-word in policy circles among both developed and developing countries as well as in international institutions. Its importance has been recognised and highlighted in work plans and strategies of the International Monetary Fund (IMF), G20 and European Commission. Similarly, Asian Development Bank has focussed on Inclusive Growth in Asia. As a concept, it was also included as a proposed goal by the Open Working Group on Sustainable Development Goals as a part of the post-2015 development agenda. This is evident from the following:
- In 2013, the IMF set securing inclusive growth as a key priority for its annual work programme.
- In 2014, the European Commission emphasised that the private sector should play role in achieving inclusive growth.
- G20 first committed to address inclusive growth as part of its development agenda under the 2012 Mexican Presidency which set inclusive, green growth as a cross-cutting priority for this work.
In a report on inclusive growth, OECD in 2012 identified three problems that even the record levels of growth of the 1990s and decade of 2000s failed to tackle: poverty, unemployment and inequality. These highlighted the need to address the quality of growth, in particular to improve its inclusiveness. The evolution of Inclusive Growth can be discussed in the following phases:
Simple Growth [trickledown theory]
In the early phase of the development discourse, economic growth was given the highest priority because it was believed that growth by itself would produce benefits to all people through the trickledown effect, thereby reducing poverty and inequality.
But then, it was realized that growth has not effectively contributed to the reduction of poverty and inequality in many countries. Poverty continued to persist despite the reasonably high growth performance in those countries. This was mainly because the widening gap between rich and poor, as rich getting more rich and poor getting poorer. Thus, the notion shifted from simple growth to pro-poor growth.
Pro-poor Growth [Redistributive policy / welfarist approach]
The rationale of pro-poor growth was that the economic growth will not bring its benefits to poor automatically and this can be done only can be achieved by not only directing policies towards accelerating growth but also by laying emphasis on the distribution of income. Consequently, poverty eradicating policies shifted from growth to growth with redistribution. As a result, many developing countries adopted various strategies to redistribute the benefits of growth so they would reach the lower segment too.
Inclusive Growth [Focus Shifts from Redistribution to Empowerment]
It was found that Income redistribution and social welfare services do not provide a sustainable or stable solution for poverty alleviation and elimination of inequality. What is really needed is to implement policies that empower the poor and remove obstacles that prevent them from participating more effectively in the growth process.
Since livelihood of the poor in developing countries depends mainly on agriculture, increasing accessibility to cultivable land, agricultural water and modern technology is of the utmost importance; so is increasing accessibility to labour, financial and capital markets and investing in basic social services, social protection and infrastructure.
Here, the role of inequality is very important. On the one hand, inclusive growth reduces inequality through sharing of the benefits of growth with the poor, while on the other hand, high inequality of assets and opportunities hinder the ability of poor people to participate in and contribute to the growth.
This is how inclusive growth evolved as a cutting edge concept. Ensuring high growth by itself is not sufficient for the reduction of poverty as it must be inclusive as well. According to this concept, the emphasis should be not only on the pace of growth but also on the pattern. This is the crucial difference between growth and inclusive growth.