Is Inclusive Growth an Oxymoron?

Cooking by candle light. Credit: Tomislav Georgiev / World
Bank

By Pinelopi Goldberg
WASHINGTON DC, Jun 25 2019 (IPS)

After participating in two events on inequality at the Spring
Meetings – Making
Growth Work for the Poor and Income Inequality Matters: How to
Ensure Economic Growth Benefits the Many and Not the Few
, I
received a surprising number of emails asking whether my remarks on
the importance of addressing rising inequality meant I had
abandoned growth as the main priority for developing
countries.

One thing I certainly took away from this correspondence:
Inequality is too complex a phenomenon to address in a brief
session at the Spring Meetings.

This is why the Institute of Fiscal Studies in London (IFS) has
put together an ambitious, multi-disciplinary project, headed by
Nobel Prize winner Angus Deaton, the so-called Deaton Review, to
understand the multiple aspects of inequality and propose
appropriate policies. Pointedly, the project is called
“Inequalities in the twenty-first century” – note the
plural.

Pinelopi Goldberg

The multi-disciplinary project brings together experts from
Economics, Political Science, Sociology, and Public Health aiming
at a comprehensive yet nuanced, and most importantly balanced
discussion of “inequality.”

Recognizing the complexity of the issues, the project has a
four-year timeline. I hope by its completion, we will have a better
grasp of why “inequality” (I am going back to the singular
following convention) is such an important concern today, both
among policy makers and the public, and what we can do to address
it. But, for those of you who may not want to wait that long, here
are my two cents.

Both theoretically and empirically, we expect growth and changes
in the income distribution to go hand in hand. But this positive
relationship neither means an increase in income inequality is
inevitable nor implies that it is desirable.

Growth is simply the size of the pie increasing. In principle, a
bigger pie makes it feasible to give everyone a piece of at least
the same size as before, and possibly more.

This is the essence of the so-called Pareto criterion invoked by
economists. But markets do not guarantee that as the pie grows, all
its slices will increase – some can get smaller. Policy is needed
to encourage inclusive growth.

Why should we care about equal distribution of the pie? I have
three responses.

First, people care about “fairness”. Large inequalities in
income or wealth are often viewed as unfair. To be clear, I am not
advocating complete equality where everyone receives exactly the
same piece of the pie independent of competence, effort and the
demands of the market.

This would create the classic moral hazard problem economists
worry about. But the vast inequalities observed today are hard to
justify based on these factors alone.

Conversely, there is little evidence that a more equal
distribution of income or wealth by itself reduces incentives to
work and contribute to society.

Second, even if one does not care about inequality at all, in
practice large inequalities create social unrest. We do not need to
go as far as invoking the French or October revolutions.

In recent years, sound economic policies that produced large
aggregate gains have also generated considerable backlash where
they generated winners and uncompensated losers. And this backlash
can impede further growth when those left behind block further
change.

Trade reforms and the hyper-globalization of the past three
decades are prime examples. The backlash against globalization we
currently experience in many advanced economies shows not only that
inequality matters to people, but also that the perception of being
left behind interferes with policies that would promote growth.

Lastly, big inequalities in income and wealth often translate in
inequalities in opportunity. There is evidence that rising income
and wealth inequality in many advanced economies is driving
disparities in health and education (which is why the Deaton Review
is devoting particular attention to these aspects of
inequality).

People who emailed have asked me why focus on inequality in a
developing country where 70% of the population live on less than
$1.90 per day? But a country will not grow rapidly unless it
utilizes its productive potential.

Stunting, poor health, and inadequate education among the
poorest segments of a society mean that people will be unable to
realize their potential and contribute to the economy.

Countries where women have limited rights and cannot contribute
to the economy on equal terms not only miss the opportunity to draw
on the labor and talent of half of their population, but also tend
to face demographic challenges due to high birth rates.

This points to the importance of a different dimension of
inequality, gender inequality, and may serve a reminder that
inequality goes beyond disparities in income and wealth.

So, “inclusive growth” is not an oxymoron. Rather,
inclusiveness may be the only way to achieve growth today, in
developed and developing economies alike.

The post Is
Inclusive Growth an Oxymoron?
appeared first on Inter Press Service.

Excerpt:

Pinelopi Goldberg is Chief Economist, World
Bank Group

The post Is
Inclusive Growth an Oxymoron?
appeared first on Inter Press Service.

Source: FS – All – Ecology – News
Is Inclusive Growth an Oxymoron?