Confronting inequality is key to sustainable and inclusive growth

19 Sep

Written by Mark Furness, Mikaela Gavas and Mario Negre

Both ‘sustainable’ and ‘inclusive’ are adjectives that have for quite some time now been used in conjunction with growth. Current approaches to inclusive and sustainable growth focus heavily on the sustainability aspect, both in terms of economic sustainability through consistent GDP growth, and environmental sustainability through greening the economy. Inclusive growth is now commonly used to refer to a development strategy that goes beyond GDP growth, and that also considers its process and outcomes.

Evidence suggests that growth is unlikely to be either sustainable or inclusive unless the tendency to rising inequality can be arrested and reversed. The distribution of global income is extremely unequal. In 2007, the richest 20% of the world’s population controlled 70% of the world’s income, compared to just 2% for the poorest 20%. Studies by the IMF, the World Bank and UNICEF have all found that longer growth spells are robustly associated with more equality in income distribution. The 2011 UNDP Human Development Report found that achieving sustainable development globally will require bolder action on internal inequalities and environmental risks. As shown both historically (by the East Asian ‘miracle’) and empirically (by the Director of the World Bank’s Development Research Group), growth and equitability are positively linked: economic growth is greater and growth cycles last longer when accompanied by a simultaneous reduction in inequality.

Development policy has come to embrace approaches that are called ‘pro-poor’ or ‘inclusive’. At the policy level, this has meant adopting programmes that aim to foster broad-based growth, especially through the private sector. This avoids the trickle-down assumptions underpinning policies focusing on growth alone — many of which have failed to alleviate poverty or improve general wellbeing.

Within this general consensus there remain, however, deep disagreements, over what the scope of public policies and private investment should be to target distributional issues.

When it comes to internal EU affairs, the European Commission is committed to social cohesion — which means, among other things, reducing economic inequality. However, that same commitment fails to materialise beyond Europe, in EU international development proposals. The Agenda for Change stresses inclusiveness and sustainability and emphasises the importance of the private sector. However it mentions ‘inequality’ only once, and this is in reference to more equality of opportunity, not of income. That social cohesion is central to European domestic strategies but largely ignored by development cooperation could suggest that the EU is shying away from the social model that worked for Europe, and those that are beginning to take hold in parts of Latin America.

If EU development policy is to take inclusive and sustainable growth seriously, then the politically sensitive issue of rising inequality will need to be tackled. Several highly politically charged questions need to be debated openly.

First, should the EU devote more political and financial resources to support efforts to confront rising inequality in developing countries? If so, should this be primarily focused on middle-income countries, or is there a role for confronting inequality in least developed countries as well? Second, what is the role of the state vis-à-vis the private sector in promoting inclusive growth? Would facilitating more private investment help reduce inequality? Third, what are the lessons from the EU’s own experience in promoting inclusiveness that could be translated into its international development policies? How can these lessons be offered to partners without creating an impression that the EU is lecturing developing countries?

The European Think Tanks Group (ODI, DIE, ECDPM and FRIDE) will attempt to kick off these debates on 17 October in the panel ‘confronting inequality’ at the European Development Days.

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One Response to “Confronting inequality is key to sustainable and inclusive growth”

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  1. Confronting inequality is key to sustainable and inclusive growth « European development cooperation - November 2, 2012

    […] this blog post, Mark Furness, Mikaela Gavas and Mario Negre argue that if EU development policy is to take […]

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