Inclusive growth: a new societal paradigm?

As illustrated by the Brexit vote in the UK, the election of Donald Trump in the US or the yellow vest movement in France, populism and popular discontent have been on the rise in advanced economies over recent years. Amongst the various factors regularly put forward to explain these developments is the worsening of income and wealth distribution. While inequality at global level has tended to decline over the last few decades, inequality within countries has actually widened overall. Higher inequality has fuelled renewed debate about the pattern and distribution of economic growth. In this context, the concept of “inclusive growth” emerged in the late 2000ss, broadly referring to the ideal that everyone should be given the opportunity to contribute to and benefit from greater prosperity.

Widening disparities in advanced economies

Polarisation has tended to increase in advanced economies over the last few years. The decline in the labour income share, together with rising labour income disparities, have translated into a concentration of income at the top of the distribution. At the same time, the share of workers at risk of poverty has risen, especially amongst youth, who paid the highest price for the recent economic and financial crises. On the contrary, the poverty risk among the elderly has declined substantially in most countries. Large gaps persist across populations when it comes to non-monetary dimensions of wellbeing, including employment, education and health. At EU level, regional and, to a lesser extent, cross-country income disparities have also widened over the last two decades.

The main factors behind those developments include globalisation and technological progress, which have fostered competition between workers at global level and shifted labour demand in favour of highly-skilled people in advanced economies. A decline in the redistributive power of the State has also been cited as a driver of the increase in inequality.

Belgium ranks amongst the countries with the lowest level of inequality and the narrowest gender gap in labour income. Poverty risk amongst working people is also low, but employment rate is comparatively weak. By contrast, Belgium stands out as a country where immigrants and their children tend to lack opportunities, where the level of education is a significant determinant of life-expectancy and where air pollution is pretty high.

The multiple dimensions of inequality are closely intertwined and tend to feed off each other. Addressing inequality of opportunity matters particularly, as it does not just have adverse and potentially long-lasting consequences for people today, but it is also likely to weigh on tomorrow’s economic prospects. Accessibility and quality of education is key in this regard. 

Inclusive growth faces key challenges

Looking forward, promoting a more inclusive growth in advanced economies faces major challenges, among which (1) innovation and technological change that are key to improving living standards but can also leave people behind. (2) Population ageing which is expected to weigh on future income growth per capita and may possibly reinforce distributive tensions. (3) Further global economic integration will offer new opportunities but may also continue to generate costs for various segments of the population. (4) Climate change and other environmental concerns will inevitably generate costs and opportunities which should be fairly shared across the population.

These various challenges are very significant and tackling them requires both the approval and the cooperation of the whole population. Today’s social frustrations about the distribution of the benefits of economic growth should be taken seriously to restore public confidence in the capacity of democratic institutions, technological progress and international economic integration to support further social progress and wellbeing for all.