An inclusive economy? Yes, but globally!

Inclusive Economy23 May 2013Rolph van der Hoeven

Policies to improve inclusiveness should rethink the model of financial globalization in the same way as industrialization was embedded in national welfare states.

In recent years terms like inclusive economy, inclusive growth and inclusive development have gained in importance. Interestingly, these terms are not only used for developing countries, for which earlier terms like pro-poor growth were reserved, but also for developed countries: inclusive development was part of the title of the final report of the Commission on Growth and Development led by Michael Spence (Strategies for Sustained Growth and Inclusive Development) and, more recently, inclusive growth is the banner under which the OECD is postulating its policy vision for the future.

Aspirations to be more inclusive all around the world are a clear response to the growing income inequality and growing vulnerabilities that many people are facing, not only in the South but also in the North. Growing inequality and vulnerability are themselves outcomes of increasing financial globalization and, especially for countries in the North, also of the ill handling of the financial crisis. It has become clear that, unchecked and unmitigated globalization leads to growing inequality and growing vulnerabilities, just as the earlier stages of the industrial revolution in the West did.

‘Inclusiveness’ seems to have become a – sometimes perhaps too – convenient way to argue for better policies. Conservative politicians argue mainly for inclusiveness as an outcome of better functioning markets while more progressive politicians argue for including people in the process itself, focusing on the often conflicting nature of any development process.

Most proposed policies to increase inclusiveness concentrate on the national level (e.g. OECD). But, as this resurgence of interest in inclusiveness was triggered by the unequal consequences of globalization, national policies cannot be seen in isolation. Monetary or fiscal stimuli have spill-over effects on other countries. For example, increasing minimum wages and improving working conditions in other ways in one country but not in a neighbouring one can scare investors away. Inclusiveness is therefore an international, rather than only a national, challenge. This is reinforced by the fact that a number of poorer countries, such as mineral exporters, are only partly included in the world economy, through a few sectors. This limited inclusion often manifests itself in high degrees of exclusion in the country itself.

Policies to improve inclusiveness should therefore first of all be based on rethinking the current model of financial globalization and embedding it in better economic and social governance at the international level, in the same way as industrialization was embedded in national welfare states. Unfortunately we can see only limited progress on this.

At national level inclusiveness faces four challenges: reducing inequality of outcomes and opportunities, full and productive employment with decent working conditions, security against economic and social risks, and full participation of citizens and workers in the development process. Here we can see progress in some countries, like Brazil), but even where there is progress, it is often not on all fronts simultaneously.

Land redistribution and massive investment in education in South Korea and Taiwan reduced inequality of opportunities and, combined with state led industrialization, led to equitable growth but without full recognition of workers’ rights (Van der Hoeven 2008). Formal employment, especially in industry, lags far behind substantive growth in some emerging countries and incomes are often redistributed through conditional cash transfers, not always leading to good jobs.

The recently published 2013 report of the UN Economic Commission for Asia and the Pacific argues that growth in Asia can be more inclusive. It calls for macroeconomic and industrial policies giving special attention to the poor, and for productivity-based minimum wages. It argues that, by giving more attention to domestic consumption (including expanding social security), China for example can maintain a high rate of growth and at the same time boost growth in other Asian countries as Chinese families import more products. The report also calculates the cost of economic and social security schemes, which are of course not cheap but also not overly expensive. Many fast-growing emerging countries can allocate their own resources while poorer countries, with assistance from abroad, can develop viable economic and social security systems in a more structured way than is achieved with conditional cash transfers, etc. Thus at national and international level, resources are available to make growth more inclusive and to establish a global social floor to embed financial globalization.

At international level a global social floor should therefore become an integral element of all trade, financial and economic agreements and programmes, while strengthening economic, social and cultural and labour rights in international human and labour rights fora will contribute to inclusiveness in national development processes.

Investing in this on the one hand through global governance making the creation of decent and productive jobs the main global objective, and on the other hand by supporting workers, students, farmers and women aspiring to achieve this (Van der Hoeven 2012), might well produce maximum results in containing the negative effects of globalization and fostering inclusive growth.

Perhaps we should therefore see development aid as a catalyst in these international and national processes, rather than blindly focusing on its efficiency for growth?


Van der Hoeven, Rolph (2008), Income Inequality Revisited: Can one bring sense back into economic policy? Inaugural Address. ISS Public Lecture Series 2008, No2 (pdf)

Van der Hoeven, Rolph (2012), Emerging Voices: Rolph van der Hoeven on a Global Social Contract to Follow the Millennium Development Goals. Development Channel. Council on Foreign Relations, October 5, 2012 (pdf)