Why Inclusive Growth?

At the close of 2009, inclusive growth could be found on the agenda of international fora from the G20 to APEC.

But what exactly is inclusive growth and why is it suddenly so important?

Until mid-2008, economies with huge trade deficits happily continued over-spending and those with trade-surpluses continued over-saving. Many were content to consider the situation a fortunate if unlikely paradox.

Between 2003 and 2005, the Asia-Pacific region experienced an average economic growth rate of 8 percent per annum - more than 3 percent greater than the world economy. During the same period, by contrast, one out of every six people in the region was undernourished.ⁱ

It might be said that the recent financial crisis served as a catalyst, bringing to the collective awareness the fact that figures were often at odds with human experiences.

For many, the state of financial crisis began well before 2008. According to the United Nations Economic and Social Commission for Asia Pacific (UNESCAP), only 20 percent of the population is covered by unemployment benefits and this "risk of suffering income losses during economic downturns induces households to protect themselves by increasing their savings [and] cutting expenditures." This reaction is not only harmful at household level. It also serves to deepen and prolong the effects of economic downturn. Figures and experiences are not mutually exclusive.

Inclusive growth acknowledges that when a segment of society are excluded from or limited in participation, the entire chain of prosperity is broken. Those who do not reap the benefits of globalisation cannot contribute to it and the effect, over time, is that economies do not reach their full potential.

While inclusive growth policies seek to rectify imbalances, they are not acts of charity. Rather, explains the Organisation for Economic Co-operation and Development (OECD), what makes inclusive growth particularly effective is that it focuses on "productive employment rather than on direct income redistribution."ⁱⁱ

Equality of opportunity - in terms of access to markets and resources through an unbiased regulatory environment - expands both inpidual and economy-wide potential. As one example, estimates suggest that if women's paid employment rates were raised to the same level as men's, GDP in even the most developed economies could be up to 16 percent higher.ⁱⁱⁱ

Essentially, says the World Bank, inclusive growth is about "raising the pace of growth and enlarging the size of the economy, while levelling the playing field for investment and increasing productive employment opportunities..."^iv It is a win-win situation.

While inclusive growth is typically fuelled by market-driven sources of growth, governments play a facilitating role. At the end of 2009 - approximately one year from the onset of the global financial crisis - Leaders from across the APEC region discussed the prospect of new growth: What have we learned from the crisis and how can we do things better?

Positioning the Asia Pacific region for sustainable long-term growth, APEC Leaders proposed a new paradigmv that would enable a wider range of social sectors to access markets and equip them to be more productive:

"To achieve inclusive growth," they declared, "we must broaden access to economic opportunities and build the resilience of the most vulnerable against economic shocks. Inclusive growth will strengthen the consensus for free trade and open markets, which are key for continued prosperity."

They determined:

• "We will invest in education as a basis for enhancing inpiduals' ability to secure good jobs."

• "We will help small and medium enterprises and women entrepreneurs gain better access to global markets and finance."

• "We will facilitate worker retraining, skills upgrading, and domestic labour mobility."

In addition, they determined to:

• "Focus on enhancing women's access to education, training, financing, technology and infrastructure to maximise their economic opportunities"; and

• "Design social safety nets that provide short-term support but avoid long-term dependency."
  These principles will serve as a foundation for APEC 2010 and will inform future projects and initiatives.

1. United Nations Economic and Social Commission for Asia and the Pacific, Macroeconomic Policy Brief, No. 3, June 2009
2. OECD, Growing Unequal? Income Distribution and Poverty in OECD Countries, 2008
3. Annual Report of the UN Economic and Social Commission for Asia and the Pacific (ESCAP), 2007.
4. World Bank definition: http://siteresources.worldbank.org/INTDEBTDEPT/Resources/468980-1218567884549/WhatIsInclusiveGrowth20081230.pdf
5. A New Growth Paradigm for a Connected Asia-Pacific in the 21st Century, Statement by APEC Leaders, Singapore, 14 - 15 November 2009