What is inclusive economic growth?
Inclusive economic growth is the type of economic growth that is beneficial across the economy. In other words, every area or individual is not left behind as an economy grows. It means that the benefits of growth are equitably distributed in the country. The benefits of economic growth include a low unemployment rate, rising income and economic prosperity. Although gains from economic growth cannot be equally distributed, the benefits can be made to trickle down if growth is inclusive. Therefore, inclusive economic growth prevents the gains from being concentrated in certain regions or individuals in a country.
Economic growth is not fair to all
Economic growth, as measured by a rise in the Gross Domestic Product (GDP), has not translated into better living conditions or well-being for all groups and individuals within a country. GDP has now become misleading to policymakers in measuring economic performance and the impact of policies on people’s well-being. Economic growth is often associated with rising inequality which makes some regions or individuals within the country vulnerable, e.g., rural areas, older people, young people, women and people with little education.
It is unfair to the poor
The rich have benefited more from economic growth at the expense of low-income groups that are faced with increased exposure to problems created by economic growth. These people may live in low-quality houses and flood-prone areas. Carbon emissions generated from production and consumption make them vulnerable to flooding, income loss and poor health.
According to the World Inequality Report 2022 (World Bank), income inequality increased in different regions of the world. The share of national income by the top 10% of the population increased from about 31% to 36% in Europe between 1980 and 2021. India recorded the greatest rise from around 33% in 1980 to 58% in 2021.
In addition, the top 10% of the population is responsible for 48% of world carbon emissions. The bottom 50% accounts for only 12% of global emissions. Most of the emissions come from the top 10% of the population in different regions of the world.
It is unfair to women
Women are often less remunerated than men owing to limited access to education, marginalisation in politics, underrepresentation in leadership positions, lower labour market participation and less exposure to opportunities. While attempts have been made in different parts of the world to close the gender pay gap, women have yet to fully enjoy the benefits of economic growth across the world. Women on the average earn roughly 20% less than women, according to the International Labour Organisation (ILO).
Why traditional measure of economic growth does not tell the whole story?
The GDP often leads to rising income, but it is not equitably distributed
A few individuals, groups or regions usually thrive at the expense of the majority when GDP rises, an indicator of economic growth. As the economy grows, certain industries may become obsolete due to technological advances, innovations and inventions. New technologies are changing production methods and driving growth in many countries. This is making the production processes of traditional businesses, which may be regionally based, obsolete.
Individuals without new skills are becoming redundant. And the pay gap between less-skilled and more skilled workers is widening. Entrepreneurs and shareholders in thriving industries are getting a larger share of the profits at the expense of the workers, contributing to a wider income gap among individuals in the country.
Unequal access to opportunities
Despite economic growth, access to opportunities is not equal. Discrimination based on age, gender, race and nationality is leaving many people behind. There is unequal access to education, housing, better jobs and healthcare. Poverty and inequality persist where certain people are denied the opportunity to contribute to the progress of their country. Better education, for instance, can position a person to take advantage of opportunities that unfold when there are structural changes in the economy.
Environmental degradation
Economic growth may not be fair to people in places where there is pollution and environmental degradation. The aftermath of increased productive activities is that the environment becomes unsafe and unhealthy for the inhabitants of certain places. Pollution reduces the quality of life and life expectancy. But this is excluded from the GDP figure calculated by the government.
Economic growth may not be sustainable
Economic growth may not be fair to future generations. Resources are being depleted as a result of growing productive activities. Therefore, fewer resources are conserved for future use, thereby hampering future growth. Climate change caused by fossil fuels used to power factories may make the world unsafe for future generations.
How to promote inclusive economic growth
Good quality educational system
A top-grade educational system assures the acquisition of relevant skills to secure a good job, contribute to and benefit from economic growth. The system incorporates vocational education, retraining schemes and career counseling for young workers. Structural changes caused by economic growth will have less negative impact if people acquire new skills, embrace vocational education, or are counseled in making career decisions.
Labour market reforms
The government should encourage trade union membership to protect the workers from discriminatory pay, unfair dismissal and poor working conditions; everyone should work in a safe environment and be adequately remunerated.
In addition, the government can subsidise the wages of workers in declining industries or provide temporary financial support to those who have lost their jobs until they gain new skills. Financial support and mentoring should be provided to low-skilled workers to embrace self-employment after completing vocational education. This would increase the labour participation rate, reduce unemployment and improve the living standards of vulnerable people such as women, young and older people.
In some countries, women are being encouraged to embrace entrepreneurship and aspire to attain management positions in businesses.
Protecting sunset industries
Economic growth causes structural changes that lead to the long-term decline in some industries; these industries are referred to as sunset industries, e.g., coal mining. They are gradually being replaced by sunrise industries, that is, industries that are growing and likely to contribute more to future economic growth, e.g., information technology. Policies are used to protect sunset industries until the full industrial transition to minimise job losses.
The affected areas, especially rural areas, should be provided with physical and technological infrastructure such as transport networks, communication networks and digital connections. This would ensure they are linked with growing regions of the country; they can be sources of support services and components to the growing regions. For example, universities/research centres can be established there if adequate infrastructure is provided.
Reducing inequality through legislation
Laws should be promulgated to prevent discrimination based on gender, age, race, religion, marital status, disability or nationality. This would give equal opportunity to all so that the benefits of economic growth can trickle down. Every person would have access to education, jobs, healthcare and other services to take advantage of opportunities created in a growing economy.
Part-time or contract staff also deserve legal protection from unfair treatment by businesses so that they can also benefit from economic growth by being remunerated adequately.
The minimum wage should be a living wage
A living wage ensures that a decent living standard can be enjoyed by low-income earners in the country. The national minimum wage should be so high that low-income workers can meet their basic needs. A low national minimum wage is counterproductive as it dampens morale, reduces productivity and stunts further growth in the economy.
Progressive taxation
The tax rate rises as income increases in a progressive tax system. This would provide more revenue so that the government can provide basic services to disadvantaged people free of charge or at subsidised rates, e.g., education and healthcare. It also makes it possible for the government to make transfer payments to the poor.
Reduce pollution
Policies to reduce pollution will ensure that some people do not suffer unnecessarily due to the actions of others. Taxes, regulations and carbon permits are examples of policies used to reduce the adverse effects of economic growth in the society. Pollution leads to poor health for individuals and hinders future economic growth.
Subsidising housing or rent
Poor housing conditions and homelessness are indicators of low living standards. Economic growth can lead to inflationary pressure that makes life worse for low-income earners. The government can ease this by subsidising housing in low-income areas or embarking on a rent subsidy programme.
A predetermined percentage of building cost is paid by the government as a subsidy to help builders construct more houses in low-income or vulnerable areas. Alternatively, rent can be subsidised for those on low income, such that they are required to pay a specific percentage of their income in rent (e.g., 40%); any additional rent is paid by the government.
The provision of housing or rent subsidies can encourage the geographical mobility of labour. There may be a permanent decline in some regionally based industries as a result of economic growth, e.g. coal industry declines with the use of renewable energy sources. However, many affected workers are unable to move to other locations due to reasons such as housing costs, relocation costs, social ties and discrimination.