When economic growth benefits only a few

 

The concept of “inclusive growth” is one that, surely, no one could object to. It is the sort of uncontroversial idea, like “sustainable development”, to which even the most well-heeled attendee of a charity auction could happily raise their champagne glass. But what does it actually mean?  


It was Deng Xiaoping, a man who arguably did more than any other to alleviate poverty in the 20th century, who proposed: “Let some people get rich first”. The disastrous communist economy was untethered and some Chinese – whether they were the savviest, the most ruthless or simply the best connected – pulled away from the pack. That sharply increased the economic divide. Today's China is terribly unequal. Yet in the process hundreds of millions of people have escaped poverty.


In India, the merits of “inclusive growth” are a matter of bad-tempered debate, fought most ferociously between two of the country's most famous economists, Amartya Sen and Jagdish Bhagwati. Mr Sen, a Nobel laureate, wonders what 20 years of growth have actually achieved. Even compared to much poorer Bangladesh, India’s social indicators – from infant mortality to malnutrition and girls’ education – lag behind. Mr Sen regards basic levels of health and empowerment not merely as a moral imperative, but as a prerequisite for sustained development. Conversely, Mr Bhagwati, an advocate of free trade and liberalisation, says growth is a prerequisite of poverty alleviation. He co-authored a book, Why Growth Matters, in which he argued that redistribution was no substitute for wealth creation.


The ideal is to generate growth and then use it in such a way as to bring about equality of opportunity, if not of outcome. Japan, Chinese Taipei and Korea all developed economic models that, while far from socialist paradises, emphasised equality. As global competition has intensified, though, even their models have come under strain. Hong Kong, China is far more extreme. With a per capita income of over $30,000, it looks like an advanced economy. But Hong Kong, China's social provision is so meagre and access to wealth so bound up with land that its inequality, measured by the Gini co-efficient, is worse even than India’s.  


In Thailand, inequality has led to social unrest. The long-running standoff between the “Reds” and “Yellows” is largely about access to the spoils of growth. Many of the rural supporters of Thaksin Shinawatra, the self-exiled former prime minister, feel excluded from the privileges enjoyed by their urban counterparts. Attempts to institutionalise inclusive growth, though, such as the bumiputra system of affirmative action towards Malays, can also cause its own problems. In Malaysia, it has bred resentment from the Chinese population. Arguably, it has also created distortions that have sapped the economy of some of its vigour.


For Hans Rosling, professor of global health at Sweden’s Karolinska Institute, these are growing pains on the way to a generally more equitable world. Poorer countries, he contends, are rapidly closing the gap on their richer counterparts as they conquer preventable disease and reduce their birth rates. Even within poorer countries, he says, more people are gaining access to the minimum requirements for economic take-off. He cites statistics showing that 84% of the world’s children receive essential vaccines, 84% of adults can read and write, and that levels of extreme poverty have halved in 30 years. Hundreds of millions are moving into the world that Rosling describes as lying “somewhere between the light bulb and the washing machine”. 


As countries move from extreme poverty towards middle-income status, some growing inequality seems inevitable. Not everyone can move from the countryside to the cities at the same time. Few desperately poor countries can provide universal education or healthcare from the get-go. The trick is to use growth as quickly as possible to the advantage of the greatest number of people. That means a proper tax system. It means building solid social – and physical – infrastructure. It is likely to mean targeted redistribution, not wasteful blanket subsidies. It means a non-crony style of capitalism, such that poor people have a chance to escape poverty even if they have no connections. It could mean more radical measures, such as land reform, if entrenched patterns of privilege are to be overturned. The concept of inclusive growth, it turns out, is far from uncontroversial. 


*David Pilling is the author of Bending Adversity: Japan and the Art of Survival, published by Penguin in 2014.

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Bhagwati, Jagdish (2005), “Development aid: getting it right”, in OECD Observer No 249, May

 

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David Pilling

David Pilling,
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