Alongside demographics and productivity, investment is an important determinant of economic...
To be sustainable, growth must be inclusive
In the three latest episodes of our podcast Macro Waves, William De Vijlder, Head of Economic Research at BNP Paribas Group, advocates an inclusive economic growth model that will benefit everyone and respects the environment. Explanations.
What do you understand by the expression "inclusive growth", the concept central to your latest podcasts?
Growth is inclusive when it narrows social inequalities in a country or a group of countries. It's a way of comparing the growth of developed and emerging countries. It's the outcome of a model that not only calls for redistribution policies to reduce social inequalities in the near term, but also calls for the long-term development of all types of personal talents and skills: inequality is reduced by participating in growth and creating economic value.
How does that translate into actual economic policies?
Economic policies have to look at growth over a sufficiently long term to factor in demographic ageing and the rise in healthcare costs. Thanks to redistribution mechanisms, society has to help those in financial or educational need, e.g. by offering individual training to anyone who has lost their job. This may also include support for SMEs, young companies, startups, and funding R&D to stimulate innovation. Financial risk-taking has to be rewarded because it will encourage investment in businesses that will create value and keep talent in the country so it can thrive.
Photo : William De Vijlder
Is this approach new?
Inclusive growth is now regarded as a necessity, considering that a model that does not take inclusion into account is doomed to failure.
The OECD (Organization for Economic Co-operation and Development) has been working on this for a decade. But there's heightened awareness of it now. Inclusive growth is now regarded as a necessity, considering that a model that does not take inclusion into account is doomed to failure. We now acknowledge that the concept of wellbeing includes more than just a country's headline GDP.
Does the increase in social inequality make inclusive growth a necessity?
Many macroeconomic statistics show that social inequalities are increasing. The proportion of earnings accruing to labour, i.e., wages and salaries, has been dropping for years. Most people rely on their wages for a living, and have little or no investment income, while financial risk-taking is rewarded better, witness the staggering performance of Wall Street.
This development reflects the globalisation of technological development. Many businesses have enjoyed phenomenal growth creating massive value for their shareholders, sometimes in far-distant countries (the phenomenon of globalisation) and new types of activities (the phenomenon of technological development). We have also seen downward pressure on low and semi-skilled jobs, widening the wage gap between low-skill and high-skill jobs.
Are there other destabilising factors?
Climate change is also a key factor that affects emerging countries first, as agriculture is structurally important for their economy. Their productivity is particularly affected by drought and floods, reducing the country's investment capacity, adversely impacting growth and productivity. It is essential to incorporate such disparities between countries when drafting development assistance policies in order to make emerging countries more resilient.
How do governments perceive the need for inclusive economic growth?
More and more countries are taking the concept of inclusion into account. I can cite Australia, Italy, the Netherlands, Scotland, Sweden... in France, the Law of 13 April 2015 requires the government, in its annual report, to present economic, social and environmental indicators, as well as wellbeing indicators. Legislation is taking the lead to promote awareness and change behaviours.
More and more countries are taking the concept of inclusion into account. I can cite Australia, Italy...
Which countries are the most progressive in this respect?
Norway, Iceland, Luxembourg, Switzerland, Denmark, Sweden, the Netherlands, Ireland, Australia, and Austria lead the pack in the annual report by the Davos World Economic Forum. These results take growth and development indicators into account – including per capita GDP, productivity, jobless rate, life expectancy, as well as inclusion criteria such as median household income, income inequality, poverty rate, and public sector debt, which should not burden future generations.
In your podcasts, you outline eight ways that governments could develop inclusive growth. Presumably, they can't all be driven simultaneously. What would be the first milestone?
To my mind, there are two priorities. First, protecting people from the harmful effects of losing jobs by providing financial, retraining and other support, which are the main factors in being able to find a new job by demonstrating your talent. Then, education: education is crucial to supporting the development of a society. You have to offer to as many people as possible good basic training and continue to grow their skills throughout their professional career so they can seize new opportunities.
Crédit photos : header ©offfstock
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