In recent times, there are renewed talks on the notion of inclusive growth. One question that keeps on popping up is what makes growth inclusive.
Everyone agrees that sustained economic growth is central to the ability of countries to advance human development and tackle poverty over a long period of time. But sustained growth alone is not enough to advance human development. For that, growth needs to be inclusive.
Inclusive growth is characterized by three mutually reinforcing elements:
- That it is pro-poor;
- that it is accompanied by a more equitable distribution of resources, services and income;
- that it creates productive jobs.
Sustained growth which is pro-poor ensures poverty reduction as well as reduction in inequalities. Equity in resources, services, and income not only leads to human capabilities and opportunities, but it is also crucial for fair and just societies.
When growth is accompanied by rapid increases in productive employment, the incomes of and opportunities for the poor are likely to increase. Productive employment enhances livelihood, participation, dignity, and voice.
All together, inclusive growth is a driving force for human development and the achievement of the Sustainable Development Goals (SDGs).
To start with sustained growth is a prerequisite for inclusive growth. But sustained growth does not automatically become inclusive. In order to be inclusive, growth has to be pro-poor.
What is pro-poor growth?
The simplest notion of pro-poor growth assumes that so long as growth is associated with a reduction in poverty, it is pro-poor. The problem with this simple definition is that economic growth has largely been found to have some poverty-reducing impacts, at least through its trickledown effects. Thus, in terms of this simple definition, almost all economic growth is pro-poor.
The fundamental point, however, is that the “pro-poorness” of growth is not defined only by its poverty reduction impacts, but by the fact whether the poor actively engage in generating the growth, and also derive disproportionate benefits from it.
In other words, for growth to be pro-poor, the rate of income growth of the poor must exceed the rate of income growth of the non-poor and growth must accompanied by decreasing inequality.
While pro-poor growth is a necessary condition for inclusive growth, it is not a sufficient condition because it may not include non-poor people belonging to ethnic minorities, specific races, and so on. In many cases, these groups of people undertake economic activities which result in good livelihoods, but they have neither a voice in the decision-making process in the mainstream growth, nor are their activities integrated in it.
Equity remains at the heart of inclusive growth as distribution determines the pace, nature, and the pattern of growth. For growth to be inclusive, equity needs to be ensured on three planes:
- Distribution of assets and resources;
- access to basic social services;
- income distribution
If the production and the growth process start with an equitable distribution of assets, resources, and endowments, not only would they result in higher growth, but the benefits of growth are also equitably distributed.
When poor farmers have access to land and agricultural input packages, or small-scale entrepreneurs have access to credit, these not only enhance the growth process, but also ensure their fair share in it.
Infrastructure like roads, energy, transport, and communication has an economic activation effect, which implies new economic opportunities, better access to markets, and information. When poor people have access to such infrastructure, it makes growth pro-poor and inclusive.
Equitable access to basic social services, such as health and education and infrastructure, is another central factor for inclusive growth. The theoretical underpinning of this argument can be traced back to Amartya Sen’s work: Development as Freedom.
Inclusiveness effectively means eliminating the various “unfreedoms” experienced by individuals. According to Sen, people’s freedoms are enhanced through the provision of essential social services. Enhancing these freedoms is itself a precondition for achieving inclusive growth. An inclusive growth strategy, therefore, ensures that growth is promoted along with policies that enhance access to social services such as health and education.
In the realm of equity, redistribution of income is also associated with inclusive growth. This works on two fronts.
First, a redistribution of growth benefits the poor through enhancing their income, building their asset base, and enhancing their opportunities -- all of which ensure more inclusion of them in the growth process.
Second, a redistribution of income in various forms of social assistance to marginalized groups (eg, people with disabilities, older people), who cannot participate in the growth process, would provide social protection to them. These people are not part of the generation of growth but still become included in it as beneficiaries.
With regard to equity, two other observations may be pertinent in the context of inclusive growth.
First, equity is also a determining factor of the extent to which economic growth may impact poverty reduction. Initial inequality and changes in inequality are also important factors which can limit the extent to which poor people can participate in and benefit from growth.
Second, gender inequality impacts inclusive growth as well. Gender inequality in education and employment not only has a negative impact on economic growth, but it also adversely affects the pro-poorness of such growth. Also, significant gender gaps in access to agricultural productive assets and input such as land, fertilizer, and modern technologies seriously limit pro-poor growth.
Productive employment is a major driving force for inclusive growth. If growth is to be inclusive, it must be job-creating. This is because productive employment ensures people’s participation in the growth process, both as active agents as well as significant beneficiaries. And poor people can effectively be employed if economic growth is generated in sectors where they are concentrated and if labour-intensive technologies are used.
These linkages remind us of the importance of the sectoral composition of growth. The expansion of capital-intensive mining industries can result in jobless growth, making little impression on poverty. The incomes of the poor largely depend on the nature and extent of employment that economic growth generates.
It basically implies that not all growth is equally employment-intensive and there is no automatic link between economic growth and employment generation. Economic growth can be jobless, as the history of economic development has often shown.
Dr Selim Jahan is Former Director, Human Development Report Office and Poverty Division, United Nations Development Program, New York, USA.
