In this paper on Inclusive Growth, we take a step by step approach.
Firstly, we look at Global Systemic Transformations, analysing the shift in global economic equilibrium from Western hegemony to Asian resurgence from different country and regional perspectives. Secondly, we look at Governance of Global Trade, the institutions and rules that govern world trade. Thirdly, Tackling Poverty and Global Inequities, assessing the underpinnings of liberalisation in the light of global poverty and inequities. Next we look at The Long View on Interlocking Crises, setting out the interconnectedness of the multiple synchronous challenges (indeed, threats) facing humanity in the early 21st century, especially those of climate change and economic development, both of which will be stretched in light of the global demographic boom that will occur in the next decade. And at the end we assess and prescribe Global Business Responsibilities. The 2008 financial crisis exposed clear failures of responsibility & accountability.
Inclusive Growth: A survival question for the Indian Economy?
Profound Turbulence in the Global Order
The post-war period has been characterized by unparalleled prosperity. During the period from 1947-97, world output grew six times and international trade increased 16 times. With the collapse of communism and the radical reform programme embarked upon in 1979 by the Chinese leadership, in the course of the 80s and especially 90s, countries all over the world liberalized their markets, facilitating globalization and wealth creation. We witnessed “irrational exuberance” during the 1990s and 2000s, a period of tremendous optimism and unprecedented growth (albeit interrupted by the East and Southeast Asian financial crisis in 1997-8, which no doubt could have served more as a warning than they did). During the late 1990s, there was innovation in the financial sector and the proliferation of new financial instruments including derivatives, such as options, futures, forwards and swaps, as well as hedging instruments.
In 2009 the world can be described as composed of two globes:
Two globes between which there is no intercourse and no sympathy; that are as ignorant of each other’s habits, thoughts, and feelings, as if they were dwellers in different zones, or inhabitants of different planets. The rich and the poor.
This is clearly unsustainable morally, economically, socially and politically. The great and urgent challenge of the early 21st century – especially now as we enter its second decade – is to generate inclusive and sustainable growth.
With a vision based on a strong sense of reality, real commitment and leadership, the necessary transformation can be brought about.
Reality: What does Poverty Mean Today? And Tomorrow?
For many, being poor means spending hours every day walking to collect water and fuel (especially girls), defecating in public, seeing your malnourished children die in your arms from preventable disease, being vulnerable to rape, being invisible to those with power and money, and having no hope in the future.
The poor lack more than money – they lack safety, food, health and living conditions with basic human dignity. They also lack access – to information, technology, networks, credit and skills – which would allow them to take advantage of opportunities to improve their personal, social and economic well-being. Without the means or the power to affect their destiny, many simply give up.
Poverty continues to be a predominantly rural phenomenon. 70% of the rural population lives below $2 a day, while the proportion in urban areas is less than half that figure. Most of the rural poor depend on agricultural production to survive, growing crops on their plots (which are often less than one acre). Of the 525 million farms in the world, 445 million are smaller than five acres; the average farm size in both Asia and Africa is 3.75 acres. Many farmers regularly do not grow enough food from their land. To buy additional food for themselves and their families, they seek work several months per year in the nearest urban centres. If they don’t find work, they go hungry.
The Inclusive Growth Imperative
The growth of the last two decades has not been the expected tide that lifted all boats: some have remained marooned; others may have been lifted, but only marginally, as they see the new global speedboats racing by. This has created marginalization, fragmentation, resentment and a backlash against globalization.
Governments have a central role to play in building the policy framework required to stimulate more inclusive forms of growth, including through investment in public infrastructure and education. They also need to provide the leadership and good governance required to implement the right policies.
The rise of the South and the East is already changing dynamics in the global marketplace and will continue to do so. Business needs to shift its focus from North and West, to South and East, where the vast majority of opportunities in the future will lie. One of the most dynamic current driving forces of the global business environment is the growth in south-south trade and investment.
Improving Access to Opportunities
There is rising inequality in the world – both between countries and within countries. Figure shows the annual change in Gini coefficient in 59 countries over a time period varying from the late 1980s and early 1990s to later 1990s and early 2000s (depending on data availability).
Figure: Gini Annual Change in 59 countries
Source: World Bank, Global Monitoring Report 2008.
Both equity and equality of opportunity are essential to sustainable growth strategies, according to the Growth Commission. While equity refers to outcome of results, equality of opportunity refers to access. The Growth Commission’s report goes on to say that while most people understand that markets do not produce equal outcomes for all, they expect governments to contain inequality by ensuring that the poor receive some income and essential services, and that wealth is shared to some degree.
Key Enablers of Inclusive Growth
Enabling more inclusive growth requires improving access for the poor to participate in the market either as entrepreneurs or employees, i.e. through economic opportunities. Education, health and sanitation, ICT are all key enablers to more productive market participation. The Hole in the Wall initiative developed in India by NIIT and now replicated in other parts of the world is a really excellent model of inclusive growth enabler.
There is a clear role for government agencies, NGOs and development organizations to help provide access to basic services, such as education, sanitation and infrastructure. Good governance and political commitment is needed to achieve this. However, a major obstacle to the poor moving out of poverty is a feeling of hopelessness that comes from social exclusion and powerlessness.
What is Required for Inclusive Growth?
We define inclusive growth as a process which entails sustainable and responsible creation — as well as just distribution of – both wealth and welfare. The notion entails three main pillars that should be mutually reinforcing:
1. Sustainable & responsible business where opportunities for those excluded from current growth models are created and where self empowerment is generated.
2. Social progress and human well-being have to be a pivotal element of the model and should be demonstrated by the right metrics.
3. Good Governance involves the provision and distribution of adequate public goods. It should sustain and frame robustly the two axes above and provide the necessary secure environment to protect livelihoods.
Inclusive Growth requires us to take responsibility both at an institutional and individual level. Do we adequately understand the political and economic forces at play? We need to find solutions with global impact, but that are very pragmatic at the local level.
There has to be action. Finding the means to inclusive growth will not be easy, but it must be undertaken. There will inevitably be trial and error. In the case of India, where the Prime Minister Manmohan Singh has made “inclusive growth” an explicit policy goal, it would seem appropriate that every government department and every major enterprise should work out an inclusive growth strategic plan with specific measurable targets.
Inclusive growth can contribute considerably to reducing poverty and inequality and thereby also contributing to erasing the vestiges of slavery and of ideological extremism. It also represents an enormous opportunity for business. The business leaders of tomorrow will be those who will have seized the opportunities in the face of the multiple difficulties with which the planet is challenged.