Why the inclusive and equitable growth development agenda?
At the time President Kagame, his movement and comdrades identified over twenty-one years ago inclusive and equitable approach to development as a key element of their vision for reconstructing a new Rwanda where insidious discrimination would be banished and where every Rwandan, regardless of their ethnic background, class or location, would be provided with the same opportunities for improving their lives, inclusive and equitable development was not fashionable in most African countries. That period marked in large measure the height of the structural adjustment era when the main preoccupation for economic policy making was fiscal retrenchment, tight monetary policies and reining in state intervention in the mainstream economic activities in order to restore macroeconomic balance and stability as well as put back the economies on more sustainable growth paths. Equity considerations were definitely not high on the development agenda then.
Consequently, the key tenets of Development Economics, which held sway in the 1970s and 1980s, among which was a focus on income distributional issues, were consigned to the back burners by Neo-Classical Economics. In any case, most Governments at the time were not that much interested as a matter of principle in promoting an egalitarian development agenda.
Fast forward to recent years, especially over the past 3 to 4 years, we have witnessed a robust re-emergence of concerns for distributional issues as underscored by increasing reflections and conviction among academicians and policy analysts on the imperative for inclusive and equitable approaches to development. But despite the mounting evidence about widening and unacceptable levels of inequalities in income and opportunities in most parts of the world and their serious implications for social cohesion and stability, important knowledge, appreciation and commitment gaps continue to exist regarding the necessity for more equitable approaches to development, even among well-educated Economists. In this article, I will underscore all this,starting with a recapitulation of myrecent encounter with a well-trained and experienced Economist friend of mine, who is still highly cynical about the necessity for inclusive and equitable development..
At the March 2015 Emergence and Transformation Conference that the Government of Cote D’Ivoire and the UNDP organized in Abidjan, in partnership with AfDB and the World Bank, I met this old friend of mine, who is a Senior Official from the Ministry of Finance in one of the neighbouring countries in East Africa. We have known each other from our University days in England and maintained both personal and professional contacts through the brief stint I had with the Central Bank in my country and then when I joined a series of international development organizations. He stayed in his country and rose through the ranks of his country’s Central Bank and subsequently in the Ministry of Finance.
We were very close at the University as we shared a common passion for the application of macroeconomic analysis and econometrics modelling to understanding how accelerated growth and development could be best promoted while maintaining macroeconomic stability in our continent. As we tend to meet at the major international conferences like the one organized in Abidjan in March this year, we always look out for each other and try to catch up with how we see things evolving in Africa, mainly on the economic development front. We all pretend that politics is not our forte or strong area.
This historical piece of our relationship is worth recollecting because both of us have grown up in Africa’s policy making crucibles in our respective locations and work places: he from the vantage point of national economic policy making institutions and I from the various international organizations I have had the privilege to serve in, including the UN.Each time we meet we engage in animated discussions about what could be wrong with our continent, how its development and transformation could be accelerated and what policy “wonks” like ourselves could do to contribute to that.
In most of our encounters, he invariably points accusing fingers at international organizations for always imposing new, and in many cases inappropriate, development strategies/models on African countries. I always take the robust defensive position that African countries have the liberty to think through the development strategies that are appropriate for their peculiar circumstances and should always assume the due leadership for policy formulation and implementation processes, and that well-trained and experienced economists like himself should help in thoseendeavours. And so our arguments would go on and on.
In our last encounter in Abidjan, as soon as the first day of the meeting ended, he invited me for a chat over cold drinks. I eagerly welcomed the invitation, given the sweltering heat of Abidjan. As usual, as soon as we sat down around the table, hepromptly shot the question at me:why “we” are confusing the African countries again with the strong advocacy for “inclusive economic development and transformation”. He said this because he had attended in the course of 2012, 2013 and 2014 many of the annual meetings of multilateral institutions such as the UNDP, ECA, OECD, IMF and World as well as AfDB’s ones, including the one that took place in Kigali in May 2014. It would be recalled that one dominant theme in many such and other international conferences on Africa’s state of development over the past four years in particular was the imperative for structural economic transformation, if the continent is to secure the remarkable growth performance it has registered over the past decade and a half.
Then came the 2014 World Economic Forum at Davos, which he also attended as part of his country’s high level delegation (I did not have the luck to attend any of the Davos Meetings, but never fail to eagerly follow its deliberations and jamboree on TV). My friend pointed out to me that during that Davos meeting the topic that dominated most of the discussions was the imperative to address the rising inequality in most parts of the world and, therefore, the urgent need to promote more equitable patterns of development. He said that some countries were being confused because before they fully digested the strategies recommended for economic structural transformation, the international development community was now recommending inclusive development and transformation. The theme for inclusive growth and transformation as avenues for achieving emergence in African countries was forcefully taken up at the above-cited Abidjan International Conference in March this year. Hence, my friend’s rather militant questioning of its relevance to African countries, coming on the heels of the vigorous recommendations for accelerated economic transformation in the continent made at the earlier above-cited international conferences he attended.
Although I retorted to him that countries like Rwanda had long adopted clear inclusive approaches to development and transformation without anybody imposing them on the country, his usual persisting accusatory tone set me thinking ….
If the necessity for adopting a more inclusive approach to development was long digested by Rwandan authorities and a few others, why would it be so difficult for a well-trained and experienced Economist to comprehend the necessity for it? This suggests that either important knowledge gaps or ideological resistance still remain about the raison d’etre for Governments in Africa to accelerate the formulation and implementation of inclusive growth development strategies. Related to this point is what should exactly constitute the key elements of an effective inclusive growth and development strategy.
In this article, we will aim at achieving the following two main objectives: first is to contribute to promoting a better appreciation of what inclusive development entails and its importance; and secondly, to contribute to comprehending which strategies could best ensure its attainment, drawing from lessons that experiences of countries like Rwanda offer.
Increasing attention to the need for equitable growth and development.
As we have noted above, the past four years have witnessed a heightened attention in major international conferences and policy discussions toinclusive and equitable development, especially in African countries. All of this was underpinned by a deluge of high-powered books and academic and operational research articles on the issue. Prominent among them were the books by the Nobel Price winning Economist, Prof Joseph Stiglitz (“The Great Divide: Unequal Societies and What We Can Do About Them”, Norton, 2014), by the French Economist Thomas Picketty, who has devoted the greater portion of his brilliant academic career to studying the issues of capital accumulation, income distribution and inequality (“Capital in the 21st Century”, Harvard University Press, 2014). They were joined by various other publications by several UN agencies including the UNDESA’s flagship publication, Report on the World Social Situation entitled: “ Inequality Matters” as well as the international NGO, Oxfarm’s highly publicized report on increasing inequality in the world, that was well received at the 2014 Davos Conference.
The common thread that runs through all these publications is the argument, backed by a battery of statistics, that there has been worsening inequalities within and across countries over the past three decades, which seem to have reached intolerable levels during the on-going global economic and financial crisis that started in 2008.
In a bid to shed some light on some of the key drivers of inequality, the above-cited UNDESA report dramatically puts it as follows: “When the world leaders adopted the Millennium Declaration in 2000, they pledged to create a more equitable world. Yet, in many countries, the ladder of opportunity has become much harder to climb…over the last few decades, the wealthiest individuals have become wealthier while the relative situation of people living in poverty has improved little. Disparities in education, health and other dimensions of human development still remain large, despite marked progress in reducing the gaps. Various social groups, especially indigenous peoples, persons with disabilities and rural populations, suffer disproportionately from income poverty and inadequate access to quality services.”All this calls for urgent attention to be paid to promotion of more equitable patterns of growth and development.
Measures of inequalities
How is inequality measured? And what does the battery of statistics assembled on it over the past years for both in-country situations and across countries and regions precisely tell us about its incidence and other characteristics? The literature on the various measurements of inequalities have grown tremendously over the past few years, with some of the discussions being highly technical (Alun Thomas, IMF, 2012). For this article, we shall simplify them. In this regard, let me start by noting that measures are divided into two main categories: economic inequality, that use household income and/or consumption; and broader measures such as disparities in access to health, education and nutrition. These two measures could then be used to assess disparities between countries or regions or between social groups, regions or gender groups within countries.
The most commonly – used indicator of economic inequality is the Gini Coefficient. As a rule, the Gini-Coefficient ranges from 0 (meaning perfect equality or perfect equitable distribution of income or consumption among all the individuals or social groups) to 1 or 100 (that implies total inequality or one 1 person having total control over all the income or consumption of country or region). Therefore, the closer the Gini Coefficient is to 1 or 100, the more inequitable is income distribution and vice versa. In the early 2000s, the estimated Gini-Coefficient for Africa as a whole was around .60 or 60%, which implied significant unequal income distribution in a significant number of the countries.Rwanda’s Gini Co-efficient has reduced from .522 in 2005/2006 to 0.448 in 2013/14.
The other commonly used measure of economic inequality is a more direct one: it uses the share of income or consumption controlled by say the top 10% or top 20% of the population. This is referred to as the “Palma ratio”. For instance, the highly published Oxfam International’s 2014 report on inequalities indicated that the top 10% of the world’s wealthiest population was controlling about 50% of total global income, and suggested that this was also on the increase. This underpins the serious concerns expressed about the rising and alarming inequalities at the global level.
The non-economic measures of inequality are the following: health inequalities, whose indicators are life expectancy, child mortality and nutrition; education inequalities, whose indicators are average years of schooling completed by the population aged 15 years and above,proportion of children attending or completing primary school by income group and proportion of population attending secondary school by income group; as well as inequalities in access to sanitation and portable water.
The figures yielded from the above computations of inequalities (both economic and non-economic) at the higher level are normally averages that mask greater or lesser inequalities at the spatial level (between urban or rural areas or within urban areas), among gender groups or in respect of certain disadvantaged groups, such as minorities or what is normally referred to as indigenous people.
Going beyond the indisputable evidence on the growing inequalities across and within countries over the past thirty years, many analysts also have increasingly focused on the adverse implications of unchecked inequalities. The above-cited UNDESA report aptly puts it as follows: “While some level of inequality can be incentivizing, there is growing recognition that too much inequality, and sustained periods of it can cause economic exclusion of large pockets of society”.
Several empirical studies clearly demonstrate that high levels of inequality can seriously impede sustainable growth. This occurs through the impact of inequality on the quality of economic growth and its dampening effect on aggregate demand,that prevents the pace of economic growth from reaching the full potentials of an economy.
Un-checkedlevels of inequality also constrain significantly the attainment of poverty reduction objectives. Economic and non-economic inequalities determine to a large extent the responsiveness of poverty reduction efforts to income growth through the exclusion of poor people from participating in, and benefiting from, the fruits of growth.
Persisting inequalities also impact adversely on social mobility i.e. the ability of one generation to leave better lives than their parents. “The degree of mobility within a country is an indicator of the distribution of access to opportunities for building human capabilities, and of the extent to which people can move ahead based on their abilities and efforts”.
Importantly also, inequalities constitute a big enemy for political stability, social cohesion and tolerance within societies. Nelson Mandela succinctly captured this important point as follows: “Poverty and material inequality are enemies of lasting peace and stability”. The rising trend of inequalities in recent years has fueled civil strife and violent conflicts in many parts of the world.
What can be done to effectively tackle income and non-income inequalities?
Fundamentally, a principled stance has to be taken by a Government to vigorously and consistently promote equal access to opportunities and basic services for all its citizens. In other words there has to be a conviction about inclusive development, based on both ethical, human rights considerations (in other words a caring government) as well as pragmatic imperatives, arising from the realization that unacceptable and persisting levels of inequality could constrain sustainable growth and trigger civil strife and instability.Having taken such a principled stance towards inclusive growth and development, the Government will then formulate a vision for putting it into effect. Such visions should normally underpin countries’ medium and long-term poverty reduction, development and transformation programmes.
These are the vision and programme formulation dimensions of inclusive growth and development strategies. The crux of the matter lies in the policy and actual programme content of these strategies. The past four years have seen an increased volume of literature on these critical areas. The following represent the broadly agreed key interventions for tackling inequality and promoting more inclusive patterns of growth and development.
First and foremost, adequate levels of economic growth are required for attaining sustainable poverty reduction and equitable development. In the literature there is a common belief among Economists that a sustained 5% economic growth is required to prevent the number of the poor from increasing while at least 7% economic growth rates are imperative for sustained poverty reduction. That does not say much about how inequalities could be impacted upon by these growth rates. Therefore, the second condition for economic growth to reduce inequalities and help promote inclusive development is ensuring that the majority of the poor actively participate and benefit from the growth processes.
These could be realized from promotion of robust employment creation initiatives that aim at generating productive and decent jobs for the increasing labour forces, dominated by the youth and women.
This will in turn require heavy investments in economic diversification, promotion of SMSEs, technical and vocational education and strengthening of labour market institutions to improve employability of the young and lubricate labour market intermediation.
There is also consensus that universal provision of quality social services, notably for health, education, nutrition and sanitation, are also key ingredients for promoting inclusive development as they could have important equalizing impacts on opportunities for all.
There will also be need to focus on the disadvantaged groups and areas as part of deliberate approaches to inclusive development.
Importantly also, there is by now broad agreement that social protection schemes play a critical role in promoting equitable development. They help protect the most vulnerable groups from extreme poverty or prevent people from slipping back into poverty owing to” loss of employment, ill health and external shocks”.
A range of fiscal and monetary policies could be deftly deployed in support of the above broader policies for realizing the goals an objectives of equitable growth and development. These include progressive taxation regimes, well targeted subsidies and inclusive and innovative financial initiatives, notably microfinance.
In conclusion, the past few years has witnessed increasing consensus among policy analysts, academicians and international development organizations on the imperative for promoting more equitable growth and development, in the face of rising and unacceptable levels of inequality in most regions of the world. This has been prompted by the growing realization of the “powerful and corrosive effects of inequality on poverty reduction, sustainable growth, social and economic stability anfd socially-sustainable development”.(UNDESA, 2014).
In this regard, another encouraging trend that has also been observed side by side with these rising inequalities is that a few countries have successfully bucked that trend: through a combination of committed and caring leadership and a range of policies, such as the ones set out above, they have been able to reverse the rising trend of income and non-income inequalities in their countries. These include countries such as Rwanda and Ethiopia. Much could be learnt from their experiences to help reverse rising inequalities in other African countries, which is a vital element of the 2030 agenda.
Lamin M. Manneh is the UN Resident Coordinator.