oecd

« ALL ON BOARD – MAKING INCLUSIVE GROWTH HAPPEN » – THE OECD SECRETARIAT REPORT WITH SUPPORT FROM THE FORD FOUNDATION AS THE CONTRIBUTION TO THE OECD INCLUSIVE GROWTH INITIATIVE.

 

EXECUTIVE SUMMARY

 

Inclusive Growth, which is a new approach to economic growth that aims to improve living standards and share the benefits of increased prosperity more evenly across social groups, has become a major challenge for many countries around the world.

This objective is particularly relevant in highincome  countries  and  emerging  market  economies,  where  income  inequality  has  reached  levels unprecedented  in  the  post-war  period. 

Inequalities  in  other  non-income  outcomes,  including educational  attainment,  health conditions  and  employment  opportunities,  have  become  important determinants of growth and well-being. Inequality of income and opportunity undermines growth prospects in the long term.

Addressing the multidimensional nature of inequality and its impacts on different segments of the population matters for sustainable economic growth. Therefore, fostering Inclusive Growth is an important part of a pro-growth agenda.

Economic  growth  is  not  an  end  in  itself;  addressing  the  multidimensional  nature  of inequalities and their impacts on different population groups matters for Inclusive Growth Conventionally,  pro-growth  policy  analysis  and  advice  have  focused  on  options  for improving the population’s income and consumption possibilities.

Economic growth – rising per capita output of  material goods and services  – has the potential to make all citizens better off materially, and to generate resources that can be used to achieve social goals and ensure that growth is maintained over the long term.

Policymakers seek to improve the performance and long-term growth potential of economies, taking into account country-specific needs and circumstances, including their level of development and institutional capacities. Because progress is measured essentially at the level of an “average” individual, emphasis is placed on supply-side instruments, or policy actions that lead to increases in per capita output of goods and services over the longer term.

There is much to gain from going beyond income to include non-monetary dimensions that matter for well-being, and from assessing the impact of policies on different social groups.Employment prospects, job satisfaction, health outcomes and educational opportunities matter for people’s  well-being  and  are  heavily  conditioned  by  their  socio-economic  status. 

The  most disadvantaged often live shorter lives and find it difficult to break away from a vicious circle of educational underachievement, low skills and poor employment prospects. Vulnerable social groups are also affected disproportionally by pollution and are often ill-equipped to cope with environmental degradation. Within countries, some regions, and even neighbourhoods within cities, prosper while others lag behind.

As highlighted in OECD work, it is important to inform the policy debate about pro-growth  policies  with  a  better  understanding  of  the  drivers  of  both  monetary  and  non-monetary outcomes,  and  actions  that  create  opportunity  for  all  segments  of  the  population. 

The  OECD Framework for Inclusive Growth contributes to this objective. It offers policymakers an analytical tool which provides a measurement of the different types of outcomes for different social groups and helps identify the synergies, trade-offs and unintended consequences of policy actions, on the basis of a richer and broader panoply of policy indicators, and considers their impacts on different social groups, such as households with average, median or low incomes.

Recognition of the importance of Inclusive Growth comes against a background of widening inequalities. The distribution of disposable incomes (after taxes and social benefits) has been rising inmost OECD countries over the past 30 years, including in countries where incomes were previously comparatively evenly distributed.

The average income of the richest 10% is now about 9.5 times that  of the poorest  10% on average in OECD countries, up from  7 times  25 years ago. In Germany, Norway and Sweden, the gap between rich and poor has expanded from less than 5 to 1 in the 1980s, to more than 6 to 1 today. The gap between rich and poor has risen even faster since the global financial crisis than it did in the previous decade.

This contrasts with the post-war period of fast economic growth until the 1970s, when income distribution tended to become more equal in those OECD countries for which reliable estimates can be made.

In many countries, rising incomes have disproportionally benefited the rich. In 1980, in no OECD country did the richest 1% of the population enjoy more than 8% of total pre-tax incomes; by 2010, they enjoyed 10% or more in 9 of the 18 countries for which data exist, and as much as 20% in the US.

The global financial crisis and its aftermath put a halt to this trend, but preliminary evidence for some countries shows that this was only temporary and that the top income earners seem to have again reaped most of the recovery’s benefits. The proximate cause of rising inequality is income from work: the ratio of the earnings of the highest paid to those of the median-income employee has risen substantially since the 1980s.

Income from capital – dividends, interest and capital gains – is also unequally distributed, with those with the highest overall incomes receiving the most.

In developing countries and emerging market economies, income gaps between rich and poor are much wider than in OECD countries. Income inequality is narrowing in some countries, albeit from very high levels. This is the case in Mexico and Chile; but the ratio between the richest 10%  and poorest  10% still stands at approximately  27:1 in these countries. Brazil considerably reduced the rich-poor income gap but it is still 50:1, and in South Africa, inequality has continued to rise and now it is over 100:1.

As in OECD countries, it is inequality of market incomes that drives the distribution, exacerbated by large informal labour markets where earnings are typically low, and taxbenefit systems that are much less redistributive than in most OECD countries.

Absolute  poverty  has  fallen  worldwide,  but  relative  poverty  is  on  the  rise  in  OECD countries and in many emerging market economies. Along with rising income inequality, relative poverty, measured by the share of individuals with incomes less than half of the national median level, has also been on the rise since the mid-1990s in several OECD countries.

At present, 11% of the OECD  population lives  in relative poverty, with rates significantly  higher in the  poorer  OECD countries and also in the United States. Elderly widows, children and youth are the most affected. By contrast, the numbers of people outside the OECD area living in absolute poverty, on less than USD 1.25 per day, has fallen dramatically, by more than half since 1990 to an estimated 700 million. But this still represents an absolute poverty rate of 14%,  which is far higher in several  developing countries.

Inequality goes beyond income and affects opportunities, like access to jobs. Seven years after the beginning of the crisis, about 8% of the OECD labour force is still unemployed, some 2.2 percentage points higher than at its onset.

Youth unemployment is double the average of the OECD, and as high as 50% in Greece and Spain. Stable, well-paid, full-time jobs were the norm in the post-war decades of sustained growth in OECD countries, but this is no longer the case.

The burden of labour market adjustment increasingly falls on non-standard jobs with low protection and low pay.Non-standard work arrangements make up 33% of total employment in the OECD. In addition, not alljobs provide a sure exit route from poverty: 8% of the workforce in OECD countries lives below the poverty line.

Typically, unemployment or low quality jobs affect certain socio-demographic groups, such as women, immigrants and youth. Youth are particularly likely to hold temporary jobs, which offer limited job security, and no or little on-the-job training, with the risk of being trapped in a sequence of temporary jobs interspersed with spells of unemployment.

Rising income inequality is also accompanied by greater polarisation in educational and health outcomes, perpetuating a vicious circle of exclusion and inequality. There is indeed a strong link between an individual’s educational attainment, employability and health status. In general, the low-skilled are far more likely to be unemployed than workers with higher education, especially if they are older.

In all OECD countries except Mexico and Chile, adults aged  25-64 with tertiary education have lower unemployment rates than those with at most upper-secondary education, who in turn have lower unemployment rates than those with less than secondary education.

Tertiary-educated adults are more likely than others to be in the labour force in the first place, and to earn higher salaries, enjoy good health and live longer. Poorer students struggle to compete with their wealthier class-mates and go on to lower levels of educational attainment, lower salaries and shorter lives.

Data from 14 OECD countries show for instance that on average people with better education live 6 years longer than their poorly educated peers.

The demographics of developing countries and emerging market economies lead to very large numbers of youth entering the labour market each year, and many do not find jobs in the formal sector. The youth then swell the numbers of those in the informal sector, who have limited or no access to unemployment insurance, health care or other social benefits.

They also have essentially no access to further education and training, diminishing their chances of ever having a job in the formal sector. Meanwhile, in many countries, the skills advantage is less clear: young adults with tertiary education there are more likely to be unemployed than those with only secondary education, perhaps because too few have studied in-demand disciplines like ICT and engineering.

Inequality of opportunity is detrimental to growth and well-being and requires paying attention to distributional effects of policies on different social groups. As long as all citizens have equal access to high-quality education, other public goods and services, finance and entrepreneurship, some level of inequality of outcomes is both economically inevitable and politically acceptable.


However, inequality of opportunity can be particularly damaging when it locks in privilege and exclusion, which undermines intergenerational social mobility. Inequality is particularly likely to undermine growth if the income of the lower and middle-classes fall behind the rest – as it has in several OECD countries.

Policies that aim to address inequality of outcomes will fail unless they ensure more equal access to opportunity in the form of high-quality education, health care and infrastructure, which remain unevenly spread both socially and geographically.

 This requires assessing the impact of policies on heterogeneous population groups, and calls for measures that go beyond the “average” individual or household when gauging the success of pro-growth policies.

Taking account of income and non-income dimensions in the design of policies for Inclusive Growth calls for new policy tools The notion of multidimensional living standards is particularly useful. It is an analytical tool based on the OECD Framework for Inclusive Growth that allows policymakers to gauge developments in income and non-income outcomes for different social groups and over specific time periods.

   The approach provides a measure of multidimensional living standards which accounts for selected non- income dimensions of well-being and their distributional aspects. It proposes risk of unemployment and health status as the non-income dimensions to be considered along with household income for the computation of multidimensional living standards.

Thus, inclusiveness is captured by relating to three (income, jobs, health), rather than just one, dimensions of well-being. The proposed approach could be generalised to include additional dimensions (e.g. education, environment) or to focus on broader set of social groups to better capture the notion of Inclusive Growth in a larger group of low and middle- income countries.

An illustrative exercise carried out for OECD countries during the pre- and post-crisis periods shows that growth in multidimensional living standards varies among social groups. On the basis of the three selected dimensions (income, jobs and health), it appears that multidimensional living  standards  rose  faster  than  GDP  per  capita  before  the  crisis (1995-2007)  for  the  average household than for those with incomes close to the median or at the lowest decile of the distribution (3.9% per year in average vs. 2.3%).

Also, over the decade running up to the crisis, multidimensional living standards rose faster than GDP per capita, essentially due to rising household incomes and falling unemployment as a result of robust GDP growth, but also owing to improvements in healthconditions, which have been associated with rising longevity.

 Moreover, comparison of patterns in multidimensional  living  standards  shows  that  those  countries  that  had  the  sharpest  increases  in joblessness during the crisis have also had the largest drops in multidimensional living standards.

Broadly defined economic and social policy choices should be made in the context of what they can do to foster both equity and growth objectives. Sound macro-economic policies are a pre-condition for sustained growth, employment and poverty alleviation, but they can also generate some trade-offs between equity and efficiency.

A stable and predictable macroeconomic framework helps households and firms to make better decisions about investing in human and industrial capital over the longer term. Prudent fiscal policies give governments more leeway in combating downturns, while low debt-servicing payments release more resources for social policies.

Monetary policies aimed at keeping inflation low and stable also make planning for the future easier. Especially in developing countries and emerging market economies, high and/or erratic inflation hits poorer households which have low or no access to financial markets, and whose financial assets are mainly held in the form of cash.

Fiscal policy can contribute to economic stability while mitigating income inequality. Tax and social benefit systems redistribute a significant proportion of market incomes, but less than formerly. Until the mid-1990s, tax-benefit systems in most OECD countries offset a little more than half of the rise in inequality in pre-tax incomes.

Since then, cuts in benefits relative to earnings, and tighter eligibility have reduced the redistributive impact of the systems, which now on average reduce the Gini measure of inequality by about one quarter. At the same time, inheritance and estate taxes have trended down in recent decades, and personal income tax codes have become less progressive, reducing the redistributive potential of tax-benefit systems. In some countries, the combination of sharply rising incomes at the top end and benefits directed to the poorest has resulted in falling shares of  income  for  the  middle  classes. 

 Tax-benefit  systems  are  considerably  less  redistributive  in developing and emerging market economies due to weaker social safety nets and less progressive tax systems than in the OECD.

Where desirable, measures can be taken to finance additional redistributive spending. Raising marginal tax rates on high incomes faces public resistance, and transferring more resources to those on low incomes poses budgetary challenges. Nevertheless, there is still a lot of room for raising more tax revenue by combating tax avoidance and evasion, reducing those tax expenditures that chiefly benefit the better-off, and raising tax rates on immovable property, as well as taxes and duties on intergenerational wealth transfers.

As incomes rise in developing countries and emerging market economies, and the relative size of the informal sector falls, putting in place more ambitious education and comprehensive social protection systems should be a priority, as should switching emphasis to taxing incomes rather than extensive reliance on indirect taxes and customs duties

Structural policies are at the heart of Inclusive Growth Policies can tackle unemployment and in-work poverty without hampering labour market efficiency. Unemployment insurance softens the blow to labour earnings, enabling the unemployed and their dependents to stay out of poverty, up to a limited amount and for a limited time.

The priority is to help the unemployed back into productive employment, but there is a trade-off. Replacement ratios which are too generous combined with long periods (more than one year) of eligibility and limited assistance with job search reduce both the incentive and the chance to return to employment. A combination  of  high  replacement  ratios  made  conditional  on  strictly-enforced  work-availability
requirements, as part of a well-designed “activation” package (which might include temporary hiring subsidies, especially for youth) compound both efficiency and strong social protection.

 Accompanied by sufficient flexibility in hiring and firing, this results in lower unemployment rates and higher material living standards. At the same time, in-work benefits targeted towards poor households are a tested way of encouraging those of a working age to seek, or remain in, employment (although they might weaken incentives for human capital investments through education or training).

In developing countries and emerging market economies, where in-work poverty is strongly associated with holding an informal-sector job, conditional cash transfers help mitigate the effects on the poorest households.

A  broad  range  of  actions  can  make  education  policy  more  growth-friendly  and  pro- inclusiveness.  Education  is  more  effective  the  earlier  it  starts.  The  OECD’s  Programme  for International  Student  Assessment (PISA)  shows  that  children  who  have  enrolled  in  pre-school education perform better throughout their education life and tend to be better integrated socially. More investment to increase pre-school enrolment among economically and socially deprived households should therefore be a priority.

 Also, early tracking (at the lower-secondary level) should be avoided, as it discourages students assigned to lower tracks and encourages early drop-out. Grade repetition is expensive and has little impact on results. Moreover, school choice should be managed to avoid socioeconomic segregation, and upper-secondary pathways need to be carefully designed to encourage completion by allowing two-way passage between different streams, and ensuring that completed secondary schooling leads to a qualification, either academic or VET.

In developing countries and emerging market economies, the priority is to ensure that all children enter education and remain there to at least lower-secondary level. Another challenge is to ensure that those students that exit education after secondary level (the great majority) have learned skills that are relevant to their local job market.

This  is  particularly  relevant  for  girls  in  some countries,  who  also face traditional  gender-based prejudices related to some types of employment.

Pro-competition reform in product markets can do much for growth and inclusiveness, but there are trade-offs. When firms compete with each other and new markets entrants, they have strong incentives to innovate and keep prices low, which is good for growth and benefits consumers.

Poorer households suffer most from the existence of cartels and monopolies in markets for goods and services that account for a high share of their budgets. Lack of competition in network industries, such as utilities  and  telecommunications,  also  tends to  hit  poor  households  and  entrepreneurs  the  most, depriving them of affordable services.

Moving to stronger competition is therefore supportive of Inclusive Growth, although in the short term stronger competition can create losers as well as winners.
Compensatory policies, ranging from labour market interventions to social safety nets, can help cushion workers who may lose their jobs as a result of heightened competition. Lifting subsidies on basic foodstuffs and fuels, especially those which are environmentally harmful, leads to better resource allocation and less damage to the environment, but the effects of such changes can be regressive, meaning that the poorest households might need targeted compensation. Another important channel for increasing the distributional effects of competition policies is greater firm turnover, as poorly performing firms exit the market and more productive ones prosper, which fosters job creation and
entrepreneurship.

Innovation policies tend to focus on productivity and growth objectives, rather than on how the fruits of growth are distributed. Economic growth depends on the creation of new or improved products, and better ways of producing and distributing them. But moving to new technological paradigms and an innovation-intensive economy will benefit some groups in society (namely those holding assets and skills required) more than others.

This was the case with the “digital revolution”, which has introduced rapid and fundamental technological change. Trade-offs between growth and inclusiveness can arise where policies focus strongly on supporting innovation in leading businesses, research institutions and activities.

Such strategies provide few opportunities for those outside “islands of excellence”. By contrast, innovation policies aimed at enabling “bottom-up” initiatives can do much to create synergies that support Inclusive Growth.

 Indeed, increasing internet access and encouraging local initiatives that provide platforms for entrepreneurs – like the widespread use of mobile telephony in some developing countries and emerging market economies for facilitating small-scale money transfers between individuals, and transmitting market information between small-scale enterprises – show that new technologies can facilitate grassroots innovations tapping into the creative capacity of excluded populations.

Entrepreneurship which creates new ideas and products, and exploits niches that others have missed, should be open to all. In practice, entrepreneurs tend to be prime-age males from well- off households, in large part because it is a risky full-time activity, many start-ups fail, banks are reluctant to lend to those with inadequate collateral, and women in particular may face problems in reconciling family commitments with extra work demands.

 In developing countries and emerging market economies, would-be entrepreneurs from the poorer strata of society, often in the informal sector,  face  even  greater  barriers,  especially  in  access  to  finance. 

As  for  immigrant  would-be entrepreneurs in OECD countries, they may have to rely on finance from family and friends. Policies
to make entrepreneurship more inclusive include financial assistance in the form of competitively- based awards, soft loans or monthly payments to the unemployed who wish to start a business, better provision  of  child-care  facilities,  and  establishing  networks  of  education  involving  experienced entrepreneurs. Above all, more progress needs to be made in reducing bureaucratic hurdles.

Financial sector developments raise challenges to small businesses and savers and often exclude  the  disadvantaged.  The  raison  d’être  of  the  financial  sector,  to  channel  savings  from households to firms, has been increasingly overshadowed in recent decades by rising trading in ever- more sophisticated variants of financial assets within the sector itself, a profitable but riskier business.


The global crisis showed how risky financial transactions can result in mass unemployment in the real economy, indicating that the incentives facing market participants need to be much more closely aligned with the economic and social goals of societies at large. Because it is not the business of governments  to  tell  firms  how  they  should  finance  themselves,  it  is  desirable  that  the  fiscal implications  of  different  forms  of  finance  should  be  as  neutral  as  possible. 

Fostering  financial education  and  consumer  protection  is  also  essential  to  improve  financial  inclusion  of  the  most vulnerable groups.

More should be done to assess the impact of structural policies on different population groups.

The OECD Framework for Inclusive Growth allows for gauging the effects of structural policies on different social groups, such as the middle class and the poor. GDP per capita and average household disposable incomes tend to move in parallel, at least over sufficiently long periods.
But specific pro-growth structural policies affect GDP per capita and household disposable incomes differently, with different effects for different social groups along the distribution of income.

For example, reforms to reduce regulatory barriers to domestic competition, trade and inward foreign direct investment can lift the incomes of the lower-middle class by more than they do GDP per capita.
Conversely, a tightening of unemployment benefits for the long-term unemployed, if implemented without a strengthening of job-search support and other activation programmes, may lead to a decline in the income of the lower-middle class, even if it boosts average income.

A full analysis of Inclusive Growth requires assessing the effects of structural policies on non-income dimensions. While income effects for the middle class are a vital element in policy assessment, analysing the effects of structural policy on health and jobs is equally important for
gauging policy determinants of living standards. Certain structural policies may not be immediately beneficial for GDP growth or median household income (for instance increased tax-financed health care expenditure) but may yield health benefits that ultimately contribute to productivity and economic growth. 

Other  structural  policies  that  help  both  the  income  and  employment  prospects  of  the representative household will show up as particularly desirable as they positively affect two drivers of living standards, income and jobs. These multidimensional effects need to be worked out more systematically, as assessment is crucial for valuing trade-offs and synergies from structural policies.

Well-functioning infrastructure and public services help growth and contribute to both healthier lives and improved job opportunities

Well-designed  and  well-regulated  open  access  infrastructure  boosts  both  growth  and inclusiveness. In all countries, the poor derive the greatest relative benefit from access to public infrastructure in the form of transport, drinking water, sanitation, electricity supply, education and healthcare. 

Increasingly,  access  to  mobile  telephony  and  broad-band  internet  has  also  become fundamental as a means for the disadvantaged to better integrate into society and the economy.
Creating  and  maintaining  infrastructure  is  a  powerful  investment  for  Inclusive  Growth,  and  an expensive  one.  The  experience  of  many  countries  shows  that  restrictive  regulation  and/or  state monopolies are not necessarily—and not usually — the best solution. Ultimately, the priority is to deliver services to the vast majority of the population at least cost. Private investment, competition
between providers, regulations that do not discourage change, and innovative financing, can all help.

Better transport and energy infrastructure can spur growth and improve inclusiveness in cities. However, there are efficiency and equity trade-offs when implementing new urban transport systems. New mass-transit systems and motorways save time for those who use them, but the value of the time saved and the impact on congestion elsewhere in the transport network needs to be taken into account. If they are insensitively designed, they can also divide communities and engender social exclusion and isolation.

To ensure inclusive outcomes, the planning and implementation of new systems or extensions should focus on citizens’ ability to access urban amenities. Better energy infrastructure can help combat “energy poverty”, which is often present in developing countries, but large-scale investment is needed to expand access. In mature economies, virtually all households have access to electricity and clean cooking facilities, but some cannot afford to pay for adequate heating, and action is needed to combat this “fuel poverty”.

Inequalities and the problems to which they give rise have a spatial dimension that policy makers cannot afford to ignore. Local governments have an important role to play, alongside national governments, in the design and implementation of Inclusive Growth strategies. Cities are
places of innovation and economic dynamism but they also face high levels of inequality and social segregation. Low-income groups tend to live in more distressed areas with limited access to public transport, quality education and job opportunities.

 In addition, large cities tend to have higher costs of living,  particularly  with  respect  to  housing,  which  reduces the  purchasing  power  of low-skilled workers.

While arrangements differ across countries, local governments are key actors in the delivery of basic urban services, education and often health care, and in many places they are taking on increasing responsibilities for social protection, workforce training and active labour market policies.

Local governments are also often at the forefront of pro-growth policy making in such essential areas as the provision of infrastructure and the regulation of business operations.

 Inclusive  Growth  at  the  urban  level  requires  improved  co-ordination  across  sectoral policies to better manage trade-offs and realise potential synergies among competing objectives.

Neighbourhood regeneration initiatives may improve opportunities for business and homeowners, but they may also push up rents and displace the disadvantaged. The quality of life and the productivity of disadvantaged populations may be better enhanced by investments in human capital, essential services and  quality  housing  than  in  highly  visible  investments  in  physical  infrastructure  and  discrete
development projects.

There is a need for more integrated strategies for cities that link different sectoral policies, such as housing, transport, skills, employment and the environment.

Comprehensive investment in public transit can open up new employment and training opportunities for the most disadvantaged, thus promoting both growth and equity objectives, but it may need to be accompanied by improved training and activation policies. Similarly, locally-driven strategies that address the skills of the regional workforce, targeting the low-skilled, regenerating distressed neighbourhoods, and ensuring affordable housing, help to foster both competitiveness and inclusiveness.

Strategies for structural transformation in developing countries need to focus on job creation and poverty alleviation; and aid policies can play a key catalyst role , Job  creation,  including  quality  jobs,  is  a  necessary  step  towards  Inclusive  Growth  in developing countries.

 Fast growth of GDP in several developing countries has helped to lift hundreds of millions of people out of acute poverty. However, in many countries fast growth has also widened income gaps between the better-off and those who have been left behind with no jobs, or bad jobs.
Countries can facilitate a structural transformation that fosters both employment and growth through policies that keep demand high while boosting productivity in low productivity sectors, and facilitating movement of labour to high-productivity sectors.

Many developing countries still have significant potential to increase agricultural productivity, for instance through mechanisation and improving investment practices or by providing credit support and land tenure security to smallholders.

In manufacturing-based  economies,  productivity  improvements  and  upgrading  can  be  fostered  by supporting small and medium-sized enterprises to facilitate access to finance. Generally, governments should make sure that the education system (including vocational and on-the-job training) provides in-demand skills to the labour force to support the transition towards higher productivity industrial
activities and services.

Development assistance can be effective in promoting Inclusive Growth, particularly in the least developed countries. Official development assistance (ODA) can catalyse Inclusive Growth, ameliorating  social  conditions  through  support  for  health,  education  and  poverty  alleviation programmes while also accelerating structural transformation by financing infrastructure investment, building  government  capacities  and  improving  the  business  environment. 

Aid  is  an  especially important factor for fragile states and the least developed countries where it remains the dominant source of external development finance. To enhance its effectiveness and given the limited resources available, aid should focus  on well-defined programmes that  bring  proven  technologies  to poor communities, improve framework conditions for small businesses and also democratic governance, and importantly support conditional cash transfer programmes that encourage poor households to keep their children in good health and in education.

For Inclusive Growth to work well, the appropriate institutions have to exist, and citizens must feel that they can trust them Political and economic disparities tend to reinforce each other. Across the OECD, electoral turnouts are falling, and socio-economic disparities exist: adults with a tertiary education degree have a general election turnout 12% higher than those with secondary education or less, and older adults are more likely to vote than younger citizens.

The risk is that the views of some socio-economic groups are better reflected in the design and implementation of policies and that policymaking itself is captured by the interests of the most privileged groups, who may also contribute to the financing of increasingly expensive political campaigns.

 Well-designed institutions can help improve transparency and contestability, notably by establishing freedom of information legislation and the right to petition governments, opening lobbying to scrutiny, and setting up commissions of enquiry.

 

The way policies are designed and implemented matters for Inclusive Growth. An inclusive policy process must be well informed and reflect the public interest. As such, it should be inclusive across the policy cycle, which requires effective and representative citizen participation as well as mechanisms  to  curb  the  undue  influence  of  money  and  power.  Increasingly,  governments  are partnering with the civil society in the design, implementation and evaluation of public policies.

For example, participatory budgeting, like that undertaken by Seville authority in Spain or the Toronto Community Housing Corporation in Canada, provides taxpayers with a say in how public funds are spent  on the  services that  affect  them.  A  number  of  countries  are  introducing  practices  of  co-production of public services, such as the São Francisco water supply project in Brazil that engages
key stakeholders in service planning and delivery.

The involvement of the community is seen not only as a way to increase inclusiveness, but also as one of the solutions to address service failures and improve policy outcomes.

New  technologies  can  play  an  important  role  in  strengthening  inclusiveness  in  policy making  and  implementation,  by  enabling  new  forms  of  collaborative  and  participatory governance.  New  technologies  with  open  data  can  help  governments  actively  engage  with stakeholders and help deliver services which better respond to specific needs.

Yet the use of ICTs also raises important challenges for governments. These challenges are related not only to citizens’ privacy but  also to the  new  and yet unknown consequences  of a  new governance  model in  which the responsibilities for some public policies are shared with or transferred to citizens.

Inclusive  policy  making  and  service  delivery  requires  an  effective  decentralisation  of policies which allows better targeted place-based policies. Subnational governments are often much better positioned to plan and manage investment and service delivery “at street level”. Yet, effective decentralisation for Inclusive Growth requires a solid whole-of-government coordination and a clear division of responsibilities for the actions taken at the different levels of government.