Public governance

Towards an empowering state: Turning inclusive growth into a global reality

 

It is hardly surprising that rising inequality has translated into growing political disaffection, anti-market sentiment and disenchantment with globalisation. In such a context, we desperately need to take action to promote inclusive growth and restore public confidence in the power of policymakers to improve people’s lives.


So what can we do to redress this situation and regain trust?


To start with, we need to listen to people.


It is not enough to talk about a “post-truth” environment. Or to say that people haven’t paid attention to facts and evidence. It is we that have not listened. We have to be honest with ourselves and acknowledge that the “truths” in our economic models have failed to capture much of what matters to people.


In short, we need to put people, and their multidimensional well-being, back at the centre. The OECD’s Inclusive Growth and New Approaches to Economic Challenges (NAEC) initiatives are at the forefront of efforts to put people at the centre, to create social and economic models that provide a more accurate representation of the world around us. Today, advances in computing power are also opening up new tools to support our work, with possibilities for integrating complex systems dynamics and behavioural insights into our approaches with agent-based modelling and network analysis.


Yet, we also must recognise that economics does not have a monopoly on truth. In many countries, we have seen the bottom 40% left behind and their potential wasted. Only by recognising that mistakes have been made can we begin to build a new socioeconomic narrative that goes beyond the old tropes of growth first, redistribution later; and beyond aggregate economic measures like GDP.


The false certainty provided by an all too literal interpretation of models needs to be balanced by a humbler, more grounded approach to economics that draws on the lessons of other disciplines like physics, biology, psychology, sociology, philosophy and history, to feed a richer, more nuanced policy discussion.


If we want to save open markets and globalisation, we need to re-write the rules of the economic system to make them work for everyone. We also need to bring back that much neglected concept, fairness, to the heart of the policy debate.


The role of the state is absolutely key to this discussion. We need to redefine and reimagine its role, to ensure that it is prepared for contemporary opportunities and challenges and is set up to empower people.


To begin with, we need a new approach to welfare that goes beyond just mitigating risk. The work of behavioural economists like Amos Tversky and Daniel Kahneman has shown us that people are not “risk averse” so much as “loss averse”. If we are to create entrepreneurial societies that encourage everyone to fulfil their productive potential, we need to deploy this insight via welfare policy to reduce the consequences of failure.


To be sure, providing people with a social safety net is vital, but it is not enough. We need to move beyond this approach, to create an empowering state that serves its citizens as a launch pad by furnishing them with capacity enhancing assets.


Such a state would also seek to prevent disadvantage cascading down generations. It would recognise that its role was not simply to remove barriers to opportunities, but also to furnish people with the capacity to seize them. Crucially, it must see redistribution and social expenditure in vital areas like education and healthcare, not as operating costs, but as investment in our most valuable assets: people.


In practice, this would mean deploying a coherent approach to intervention throughout life by providing high-quality early education, comprehensive training throughout adult life, income and skills support to help people make the transition between jobs, and perhaps even a universal basic income. But it wouldn’t stop there, because, when all is said and done, there is more to life than money. The key role of the state should be to support people, helping them to have meaningful lives.


However, we also need to face up to the big global challenges of dealing with concentration of wealth, international tax and competition issues, the mobility of tax bases, labour rights and regulatory standards. We need to ensure that globalisation is based on international rules that are respected. We have to create trade agreements that are comprehensive and, crucially, also inclusive. We must hold global firms to higher standards of responsible business conduct. OECD work on taxes, responsible business conduct, due diligence and anti-corruption will be key to ensuring better functioning global rules.


To restore the faith and trust of people in the role of governments, a priority for an empowering state must be to focus on the bottom 40%, who risk being trapped in a cycle of deprivation and lack of opportunity. We need to deploy targeted policies to help these groups access quality education, healthcare and the benefits of innovation, finance, and entrepreneurship.


Of course, giving people the chance to make the most of these opportunities is reliant on a thriving business sector. The state has a role to play to “crowd in” financing in young and innovative sectors and in investing in basic R&D that will see positive spillovers into countless other domains. We also need policies which support the diffusion of innovation through the economy, ensuring a level playing field for incumbents and challenger firms, enabling small companies to access finance, technology and high-quality skills.


Adopting such an approach will require some changes to the way we design and implement policies, with particular care taken to avoid the entrenchment of vested interests. One aspect of this will be ensuring that policy recommendations take regional and local effects and circumstances fully into account. Regions and cities have a key role to play by adapting economy-wide policies to the characteristics of local communities, as well as by promoting local policies that enhance access to opportunities.


There is also a dire need to overcome traditional “silo-based” approaches to policymaking. This will require a renewed “whole-of- government” push, where different government departments, agencies and ministries work together to deliver joined-up solutions as part of a coherent systemic approach.


The challenge before us is clear. Succeeding in our endeavours will demand a new approach, where political parties, and leaders from civil society and business come together to recognise that the long-term prosperity of a society depends on the success of its individual parts.


Together we can make inclusive growth a reality.

 

 

References

New Approaches to Economic Challenges, at www.oecd.org/naec/

Future of productivity, at www.oecd.org/eco/the-future-of-productivity.htm

OECD (2015), In It Together: Why Less Inequality Benefits All, OECD Publishing, Paris

Ramos, Gabriela (2016), “The productivity and equality nexus” in OECD Yearbook 2016, OECD Publishing

This extract is the second half of a 2,200-word article under the same title that appeared on OECDInsights.org, 20 February 2017.

For the entire article, see http://oe.cd/1WL

With thanks to Shaun Reidy, Acting Coordinator of the OECD Inclusive Growth Initiative.

This article is part of Inclusive growth: The state of the debate 2017 published by the UK All-Party Parliamentary Group on Inclusive Growth in February.

OECD Forum 2017 issues

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Gabriela Ramos
Special Counsellor to the OECD
Secretary-General and Sherpa to the G20

© OECD Yearbook
2017

 

 

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