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Call for Socially Inclusive Growth

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By Richard Johnson
IDN-InDepth NewsReport

PARIS (IDN) - "The challenge facing governments in the age of Occupy Wall Street is to do more to ensure that economic growth leads to positive change in living standards and well-being across all social groups," says OECD Chief Economist Pier Carlo Padoan.

Padoan was presenting together with Otaviano Canuto from the World Bank, a joint report titled Promoting Inclusive Growth: Challenges and Policies. The OECD (Organisation for Economic Co-operation and Development) and World Bank report, tabled on May 24, highlights that "increased material wealth does not necessarily imply better life satisfaction, even in fast-growing economies".

Padoan and Canuto pointed to rising inequality in OECD in general and also among many of the dynamic emerging-market economies. For OECD countries, income of top 10% has risen to 9 times that of the bottom 10% in 30 years.

Unemployment remains stubbornly high in many advanced economies. Long-term and youth unemployment have also risen in the recession. For most developing countries, Padoan and Canuto said, under-employment in the informal sector is also an important issue.

The 34-member OECD spans the globe, from North and South America to Europe and the Asia-Pacific region. Its origins date back to 1960, when 18 European countries as well as the United States and Canada joined forces – and was in fact known as the 'rich man's club'.

Meanwhile OECD members not only include many of the world’s most advanced countries but also emerging countries like Mexico, Chile and Turkey. It also works closely with emerging giants like China, India and Brazil and developing economies in Africa, Asia, Latin America and the Caribbean.

At the close of the OECD's annual Ministerial Council Meeting (MCM) on May 23-24, governments from 40 countries called upon the organisation to study 'New Approaches to Economic Challenges', which could help them recover from the economic crisis, promote inclusive growth and create jobs.

Ministers welcomed the OECD's efforts in forging the Global Partnership for Effective Development Co-operation, which was endorsed in Busan (South Korea) at the end of 2011 by a broad range of countries, including Brazil, China, India, Indonesia, Russia and South Africa, and international organisations.

"They called for the continued contribution of the OECD Development Assistance Committee (DAC) to support the effective functioning of the Partnership, which embraces diversity and recognises the distinct role that different actors can play in supporting the achievement of inclusive growth and sustainable development, and to strengthen the Organisation's dialogue with various stakeholders, including emerging economies," an official document said.

The OECD-World Bank report urges that "economic policy should be better designed to bring about more inclusive growth, ensuring that the benefits of increased prosperity are shared more evenly across society." Standard measures of economic expansion do not fully take into account how the benefits of growth are shared across society and affect poverty and income distribution. "Strong growth is not necessarily inclusive, in that all members of society usually don’t benefit to the same degree," said OECD Chief Economist Padoan.

The report presents a framework for making growth more inclusive. It highlights the wide scope governments have for using innovation policy to foster inclusive growth. Thus they could halt State support for research and development being biased toward certain sectors, such as high-tech, and rather focus on a wide range of activities capable of creating jobs for high-skilled and low-skilled workers alike.

The report further emphasises that government action to promote greener growth can also make economic expansion more inclusive. Policies aimed at bringing about the technological change and innovation necessary for green growth would also enhance investment in skills, education, poverty reduction and employment opportunities, according to the report.

"Regional development policy should be used to ensure that the benefits of growth are distributed evenly across national territories. Better infrastructure and more social spending can help poorer regions catch up with richer ones, improving inclusiveness. Central to this debate is the fair distribution of budgetary revenues, notably from the exploitation of natural resources, across sub-national jurisdictions," adds the report.

"A key challenge for policymakers is to create an environment with fewer obstacles to the provision of financial services and greater access to those services for all sectors of the population," said Otaviano Canuto, World Bank vice president and head of the Poverty Reduction and Economic Management Network. "G-20 countries (comprising world major industrial and emerging economies have made this an objective of their Financial Inclusion Action Plan, and it is a key element of achieving inclusive growth," Canuto said.

The points were also stressed by OECD's annual Ministerial Council Meeting, which "recognised that structural policies, green growth, and science, technology and innovation policies can be mutually reinforcing."

The Ministers called upon the OECD "to implement the Innovation and Green Growth Strategies endorsed at the 2010 and 50th Anniversary 2011 MCMs, by mainstreaming their related policy recommendations into its regular policy analysis and dialogue, by monitoring progress through peer reviews and further development of Green Growth indicators and the compilation of relevant data."

More broadly, they committed to supporting policies for greener growth and development and to contributing to the upcoming UN Conference on Sustainable Development (Rio+20) June 20-22 and to future G20 discussions. They also noted the importance of the Green Growth Strategy at both urban and regional levels, as well as developing appropriate risk management. [IDN-InDepthNews – May 26, 2012]

2012 IDN-InDepthNews | Analysis That Matters

Image Credit: OECD

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