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«SIG WORKING PAPER 2013/1 January 2013 This paper is one of a series of reports supported by the International Development Research Centre (IDRC). ...»

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Inclusive Growth:

More than Safety Nets

Arjan de Haan, International Development Research Centre, Ottawa

Sukhadeo Thorat, Jawaharlal Nehru University, New Delhi


January 2013

This paper is one of a series of reports supported by the International Development Research Centre (IDRC). However, the views

expressed in this paper are those of the author and do not necessarily represent those of IDRC or its Board of Governors.

Contents Foreword iii

1. Introduction 1

2. Where did the inclusive growth concept come from? 2

3. From structural adjustment and growth-first to inequalities 3 4. ‘Sharing the benefits of growth’ and ‘inclusive growth’: do definitions matter? 6

5. Beyond economic process: governance and social cohesion 9

6. An inclusive growth agenda post-crisis 10 References 12 ii Foreword Growth is less likely to be sustainable with high and/or growing inequalities, and inequality can hamper growth. The first paper in this series, by Naila Kabeer, explored these questions with regard to women’s economic empowerment. In this Working Paper we look at the broader concept of inclusive growth, how this has emerged in the international debate, and how this differs from other and earlier concepts.

The need for more ‘inclusive growth’ has now been recognised in many countries. It has been the objective of the Indian Congress Party-led government since 2004, as response to the growing inequalities and neglect of those under the ‘Shining India’ model. International agencies have since adopted the term in increasing numbers. The Asian Development Bank proposed the concept as yardstick for its sector investment, and the African Development Bank has used the term in response to the Arab Spring, which is thought to have been prompted by failures of growth models to deliver progress in well-being.

A meeting hosted by the Indian Institute of Dalit Studies (IIDS), New Delhi and Canada’s International Development Research Centre (IDRC), in December 2011, summarised the growth experiences in a dozen countries, across Latin America, Africa, and Asia. What these countries have in common is that they have had stable and often high rates of economic growth for a number of years: notably of course China and Vietnam alongside India, but also for example Mozambique and Bangladesh. But the extent to which this growth is shared, differs greatly, with many of the countries having seen increasing income inequalities.

As these countries experience economic growth, their development challenges remain. Income inequalities have risen in many countries. Regional inequalities tend to be deeply entrenched, such as in Ghana where the North has historically been deprived of access to opportunities. Inequalities between social groups remain stubbornly high, in Vietnam and India for example. Governments have put in place programmes to reduce these inequalities, but their successes remain limited, including in China despite years of declared commitment towards creating a ‘harmonious society’.

There has also been good news. Many Latin American countries have reduced income inequalities substantially. Cash transfers played an important role in this, alongside other government investment, and macro-economic stability. Bangladesh has done well, not only in terms of economic growth but also in impressive improvements in human development indicators. But continued progress towards more inclusive economies and societies is not a given, because of the continued threat of economic instability, but also because more is needed than the sustained economic growth and the – very successful – human development and social protection programmes.

iii1. Introduction

This paper describes the history and genealogy of the debate on inclusive growth and comparable terms, and the conceptual and measurement issues that are relevant for the debate. 1 We focus in particular on the process aspects of growth, taking us beyond definitions that merely focus on the question whether the poor benefit from growth, important as those are, towards a conceptualisation that sees the poor, and non-poor, as participants in growth processes, as the people who create economic growth. This thus takes the debate on inclusion beyond a common focus on social protection and cash transfers, and investigates inclusiveness at the core of how growth is created, of investment, business and employment, and economic institutions and policies, thus setting out an ambitious research agenda. Considering these definitional issues and following research priorities is not merely an academic exercise, as there are links between what is measured and researched, and what is prioritised in policy.

This paper is written at a time of continued economic uncertainty, with unknown very significant political global and national implications and shifts. These are posing important questions for the future of the debate on inclusion, including because the sovereign debt has now pushed the economic crisis into a political phase. In the OECD, at least in Europe, the recession appears to deepen or be extended, and the austerity measures in many if not all of the countries does not provide confidence that inclusiveness will be a high priority – despite public protests about ‘the other 99%’. The story in emerging economies is of course very different, and they have done well throughout the financial crisis, but are now also feeling the impacts of the downturn, while questions of inclusion remain central to their development paths. Many of the imbalances that caused that crisis and remain responsible for persistent deprivation continue to exist.2 The need to find policies that promote growth and inclusion, thus, is as urgent as ever.

The rest of this paper discusses the follow themes. Section 1 reflects on the genealogy of the concept, and section 2 focuses on how inequality has come ‘back on the agenda’ after periods of dominance of adjustment and ‘growth-first’. The third section looks in more detail at how a definition of inclusive growth can be, and in our view ought to be different from concepts that emphasise sharing the ‘benefits of growth’. The subsequent section takes up the question whether definitions and measures can and should move beyond economic processes, and include or be accompanied by measures of governance and/or social cohesion. The concluding section discusses research priorities that follow from this discussion and approach to inclusive growth.

1 The current paper is a revised version of the background note prepared for the IDRC-IIDS workshop on Inclusive Growth. It includes insights gained at the workshop, and draws in particular on the papers by Binayak Sen (Bangladesh Institute of Development Studies) and Jose Fanelli (CEDES, Buenos Aires). Bibliographical research was provided by Tatiana Nesviginsky, at IDRC.

2 Saith (2011), UNDESA (2011), Ortiz and Cummins (2011).

2. Where did the inclusive growth concept come from?

By and large, the discussion on inclusive growth has come from and has been led by public and policy debates in emerging economies.3 This is not to say ‘inclusion’ has been absent in northern debates, and for instance the Commission on Growth and Development (2008) that was set up primarily to renew interest regarding economic growth, added the term ‘inclusive development’ to the title of its flagship publication.4 However, much of the recent debate has surfaced in emerging economies, where increased rates of growth have been accompanied by growing inequalities, with associated perceptions of political risk, including that of national unity.

In India, inclusive growth emerged as a major theme with the change in government in 2004. This followed criticism that the growth model that had emerged during the previous years (and the slogan ‘Shining India’) had excluded large parts of the population, and had undermined earlier policies to promote the well-being of all. The 11th and 12th Five Year plan detail the type of development envisaged in an inclusive growth model, while recognising that a measure of inclusiveness is complex, and that data become available only with a lag.5 In practice much emphasis has been put on ‘flagship’ social programs reaching out to the poorest and socially marginalised, for example in the National Rural Employment Guarantee Act, efforts that are likely to be intensified in the run-up to the next national election.6 The terminology in Brazil and South Africa has been different, but in all cases the extent to which the poor participate in growth has been central to policy processes and debates. In South Africa addressing deep-rooted racial inequalities with colonial origins of course has been a central objective of the post-Apartheid government, including in economic empowerment programs.

However, overall income inequalities have not come down since 1994, and rising intra-group inequalities in fact have been highlighted as a challenge.7 Brazil’s efforts to reduce inequalities have been well documented, and attributed to a combination of economic and social policies, with sustained targeted cash transfer programs a key part of the success to reduce income inequality.8 Increasing attention also has been paid to the importance of racial disparities, with for example a recent bill for reservation of spots at prestigious universities.9 3 OXFAM (2011). The concluding comments at an OECD workshop (White 2011) provide a useful overview of the debate, including questions of definition, and global challenges to address inclusive growth effectively.

4 Earlier origins of the debate can perhaps be traced in the new-Labour policies in for example the UK; see Porter and Crag (2004) for a discussion of ‘inclusive neo-liberalism’. Concepts of social cohesion had earlier entered debates (e.g. Ritzen et al. [2000]), but attempts to integrate this within a notion of growth appears relatively new.

5 Government of India, Planning Commission (2011). A recent interesting short exposé on the type of growth was presented by the deputy chairman of the Planning Commission, http://ibnlive.in.com/videos/190233/ftn-montek-singhexplains-the-rs-32-bpl-cap.html (also Ahluwalia 2011).

6 See Dev (2008), Chandra (2010), Kannan (2012), Hussain (2012), Thorat and Dubey (2012) for discussion and critiques. Weisskopf (2011) argues why India should focus on inequality – among individuals and identity groups – alongside poverty.

7 http://www.irinnews.org/Report.aspx?ReportId=88038.

8 Ferreira et al. (2006), Ravallion (2009). Lopéz-Calva and Lustig (2010) describe trends in Latin America.

9 See de Haan and Thorat (2011) for comparison of affirmative action approaches in major emerging economies.

2 China’s growth path since 1978 involved a period of ‘growth first’ which contributed to enormous reductions in poverty but also a rapid increase in inequalities. From the early 2000s these have been addressed increasingly forcefully, under the motto of ‘harmonious society’, with the postcrisis stimulus package reinforcing these efforts, at least in the official policy language. Following the Asian Development Bank, Chinese leaders have also used the terminology of inclusive growth,10 and international organisations including the IMF11 share concerns around the need to enhance the inclusiveness of China’s growth model, including as a way to stimulate domestic demand.

Finally, the social revolutions in the Middle East have brought inclusiveness to the centre of debates, often with (youth) unemployment as a key concern.12 According to Egypt’s Minister of Planning and International Cooperation, the “upheavals that occurred in Egypt and elsewhere in the MENA region, illustrate that economic growth is no guarantee against the existence of fragility within the society.”13 For Egypt’s Five Year Plan, therefore, inclusive and pro-poor growth are seen as fundamental to the government’s goals, with raising minimum wages, giving permanent status to temporary workers, consumer subsidies and pensions as key channels to enhance social justice.

Over the last couple of years, thus, the language of inclusiveness has found entry into the global debates, and vocabulary of international organisations and forums. Of course, the debates were not entirely new, as comparable concepts like pro-poor growth had been on the agenda before. The growth-distribution question notably in the idea – though not at the time empirically established – of the Kuznets (1955) curve – has been as old as development practice itself.14 But the neoliberalism of the 1980s and 1990s largely neglected these earlier concerns, as described next.

3. From structural adjustment and growth-first to inequalities The period of the 1980s-90s was one where ‘growth-first’ ideas dominated. The global politics under which this occurred can be summarised under the term ‘neo-liberalism’. Politically, the period was symbolised by the conservative policies of the the Reagan-Thatcher period, while in the South the Chilean turn towards dictatorship in 1973 marked a reversal from earlier democratisation, while much of the development world was deeply impacted by the continuation of the Cold War. The neo-liberalism of the Northern politics also drove much of the economic 10 http://www.chinadaily.com.cn/china/2010-10/13/content_11405073.htm. The publication by the World Bank and DRC (2012) sets out a perspective on reform deemed necessary to promote inclusiveness alongside growth and environmental sustainability. Yu Min and Wang Xiaolin (2012) develop a measure of inclusive growth for China.

11 http://www.imf.org/external/pubs/ft/survey/so/2012/CAR060812A.htm.

12 For example in the 2011 Annual Report of the African Development Bank, with reference to Morocco, Tunisia and Egypt (AfDB 2011).

13 http://www.pema.gov.eg/FileUpload/Publication/Files/328.pdf.

14 In the classic development literature, the growth and inequality linkages have always been a major theme (e.g., Adelman and Morris 1973, Ahluwalia 1974, Acemoglu and Robinson [2002] on the political economy of a Kuznets curve), as has been the debate over ‘trickle down’ (Pernia 2003).

3 globalisation, which has been behind the Washington-Consensus style of structural adjustment particularly in Africa and Latin America.

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