Alessia Forti, OECD Directorate for Employment, Labour and Social Affairs
When the global economic crisis bit deep after 2008, so many men fell out of work in the OECD area that the data pointed to a so-called mancession. Italy was no exception, and indeed there was even some hope expressed there that the recession might finally push more women into work instead. For those policymakers eager to see more women in employment, it was a false dawn.
The global recovery appears to be underway now, and still less than half of all working-age Italian women go to work. This is the worst gender balance among OECD countries, after Korea, Japan, Mexico, Portugal, and Turkey. There are several reasons for this and one of them is the time women spend doing unpaid work. On average, women in Italy spend a little more than five hours a day cleaning, doing laundry, cooking, and taking care of children. Italian men spend an average of just above two hours a day on the same.
This gender gap is something the Italian labour market can ill-afford. Saddled as it is with a rapidly ageing population, the absence of women in the workforce is further depressing Italy’s economic growth. In fact, OECD projections show that if as many women as men join the work force by 2030, GDP per capita will increase by an additional 1% a year.
That Italian women are not joining the workforce is not for lack of education. Not only are their levels of literacy and numeracy skills comparable to those of men, but younger women are more likely to hold a university degree than young men. However, it is possible that gender stereotypes about certain education tracks and jobs have pushed women toward fields of study that are in low demand in the job market. Young women are underrepresented in some vocational education and training tracks (VET) which have good job outcomes. For example, while over 80% of graduates of the newly established Istituti Tecnici Superiori find employment in the year following graduation, only around one in four enrolled students are women.
Even when women do manage to get a job, it is not easy for them to reconcile work and family life. As in other countries, childcare can exacerbate existing inequalities at home. Alas, Italian legislation does not do much to help parents equally share these duties. Paternity leave lasts only two days in Italy, the shortest in OECD countries where it can be two weeks or longer. And while it is true that Italian fathers are entitled to several weeks of parental leave, only 1 in 10 takes it. Few children (aged 0-2) are enrolled in formal early education and care.
It also falls to women to take care of older relatives. Over a fifth of the Italian population is aged 65 or above, the highest in the OECD after Japan, but adequate and accessible long-term care services for the elderly are often lacking.
Holding a full-time job can be difficult if you have to take care of children and older family members with little help. International experience shows that a good way for women to combine work and family life is to have flexible work arrangements, such as part-time. But in Italy, part-time work is seldom used as a means to reconcile work and family life. In around 60% of cases, it is imposed by employers and often involves working on weekends, afternoons, and evenings. Indeed, Italy has among the highest shares of employed women working on Saturdays and Sundays, according to Eurostat.
Italy has recognised these problems and is now working on boosting job opportunities for women.
The previous government stepped up efforts to increase the availability of childcare facilities and help families meet the cost of childcare through bonuses, vouchers, and other types of subsidies.
To stimulate demand and job creation, tax exemptions have been introduced for firms hiring women who have been unemployed for a long time, who live in disadvantaged areas, and who work in economic sectors with large gender occupational gaps.
Another welcome step is the recent effort to tackle a long-standing discriminatory practice in the workplace whereby firms ask women to sign an undated letter of resignation (the so-called dimissioni in bianco), which is used in case of pregnancy to justify their dismissal. The reform replaces these paper-based resignations with online procedures for voluntary job leave, making falsification by employers difficult.
These family-friendly policies are steps in the right direction. Hopefully, in the longer term they will generate a much-needed shift in people’s mentality and reduce stereotypes about the role women play in the labour market and society at large.
References and links
OECD gender data portal: http://www.oecd.org/gender/data/
OECD family database: http://www.oecd.org/els/family/database.htm
ISTAT (2015), “Come cambia la vita delle donne”, Istituto Nazionale di Statistica.
OECD (2016), Skills Matter: Further Results from the Survey of Adult Skills, OECD Publishing, Paris
Thévenon, O. et al. (2012), “Effects of Reducing Gender Gaps in Education and Labour Force Participation on Economic Growth in the OECD”, OECD Social, Employment and Migration Working Papers, No. 138, OECD Publishing, Paris http://dx.doi.org/10.1787/5k8xb722w928-en
Towards an empowering state: turning inclusive growth into a global reality
Gabriela Ramos, Special Counsellor to the OECD Secretary-General and Sherpa to the G20. With thanks to Shaun Reidy, Acting Coordinator of the OECD Inclusive Growth Initiative.
This article is part of Inclusive growth: The state of the debate 2017 being published today by the UK All-Party Parliamentary Group on Inclusive Growth, that brings together reformers across politics, business, trade unions, finance, churches, faith groups and civil society, to forge a new consensus on inclusive growth and identify the practical next steps for reform.
We live in turbulent times. Nine years on from the eruption of the financial crisis, we remain stuck in a low growth trap. To make matters worse, the great upheaval in our economies has now transmuted into a profound political crisis in many countries.
The economic hardship of the last nine years has created many casualties, but chief among them has been trust – the glue that holds our societies together. Trust between different groups of people, and trust in institutions has plunged to record lows, with public belief in governments in the OECD standing at just 42% in 2016.[i] This has now spilled over into the social realm, stoking fear and provoking the rejection of global interconnectedness, trade, migration and technological progress.
Everywhere we look, globalisation is being called into question and the potential consequences of the rise of protectionist measures could scarcely be greater. The origins of this loss of faith in international integration are numerous and vary considerably from country to country, but there is a common thread running throughout: a growing sense that the global economy is delivering only for the lucky few.
International elites have categorically failed to deal with this. The benefits of globalisation and rapid technological change were understood in an overly simplistic economic framework that relied too heavily on averages and representative agent models, blurring the outcomes for different income groups.
Simplistic assumptions of how the economy operates prevented us from advancing better policies. Trade and investment became an end in itself, and the efficiency of markets became the ultimate goal of economic policy. We neglected the differentiated outcomes of policies for different income groups, and by relying on incomplete metrics – like GDP per capita alone – we ignored the distributional outcomes of the policies we undertook.
We have since learned that this was not the right choice – and we have learned it the hard way. . Policies have affected different groups in very different ways. The initiative I lead at the OECD on Inclusive Growth has charted how rising income inequalities have been blighting people’s opportunities, wasting their potential contribution to productive activity and limiting their ability to lead meaningful lives.
The numbers make for stark reading. Here in the UK, the average income of the richest 10% has gone from being eight times that of the poorest 10% in the late-1980s, up to almost ten times greater today. The situation is markedly worse at the very top, with the highest 1% of earners in the UK taking home around 20% of pre-tax national income in the last three decades.[ii]
Our report All on Board: Making Inclusive Growth Happen has set out how this reflects a more general trend seen across the OECD, where those at the top of the income distribution have pulled away from those at the bottom. We see this particularly in the period after the crisis, where across the OECD, the top 10% of income earners have managed to recover their pre-2008 income levels, while those in the middle and at the bottom have seen incomes fall and stagnate. The picture is even more troubling in terms of wealth, where the richest 10% in the OECD own around half of all household assets, whilst the bottom 40% own barely 3%. At the very top of the distribution, the Top 1%, holds a staggering 19% of total wealth.[iii]
All too often, wealth and income inequality stand in a symbiotic relationship with the intangible social trappings of success, such as cultural capital and access to parental networks. Together, they influence the key formative outcomes in children’s lives, helping to turn the unequal outcomes of one generation into the unequal opportunities of the next, affecting everything from employment to health status.
Nowhere is the damage more keenly felt than in education. OECD data shows that the children of poorer parents struggle to keep up with the social and cultural capital of their wealthier class-mates. From that initial disadvantage, many go on to lower educational attainment, with children whose parents did not complete secondary school having only a 15% chance of making it to university against a 60% chance for peers with at least one parent who had attained tertiary education.[iv] More troubling still is the fact that the very same children at a disadvantage in the education system typically go on to receive smaller salaries and, most worryingly of all, to lead shorter lives.
This is profoundly unjust. But it is not only those at the bottom who suffer when inequalities scale new heights – we all do. Of course, inequality has always been with us and it has often been presented as an engine for growth. When it derives purely from differences in efforts and investment, such an argument may have some merit, but with the levels of inequality we see today that is demonstrably not the case.
As OECD’s work on the Productivity-Inclusiveness Nexus spells out, when the poorest are unable to fulfil their potential, we all lose out on the visionary leaders, the innovators, and the economic growth that could have come to pass. Moreover, recent OECD research has highlighted how rising inequality knocked 6 to 10 percentage points of GDP growth between 1990 and 2010 across a range of OECD countries including the UK, Mexico, Finland, Italy, and the United States.[v]
With the ongoing global and technological transformation of our economies these issues are likely to be brought into starker relief. Digitalisation has the potential to unleash untold benefits for all of human kind, but if it is not managed properly, it could exacerbate inequalities by creating greater job insecurity and cementing ‘winner takes all’ dynamics in our most rapidly growing markets.
Already, since the early 90s, around half of the jobs created in the OECD have been in more insecure temporary, part-time or self-employed work. Over roughly the same period, the power of multinational firms at the global frontier to exploit their greater access to knowledge-based capital, digital technology, finance, cheap labour and low-tax jurisdictions have been able to lock-in their productive advantages. In the manufacturing sector for instance, since the early 2000s, labour productivity of OECD firms at the technological frontier has increased at an average annual rate of 3.5%, compared to just 0.5% for non-frontier firms.[vi]
Given the extent of these social and economic costs, it is hardly surprising that rising inequality has translated into growing political disaffection, anti-market sentiment and disenchantment with globalisation. In such a context, we desperately need to take action to promote inclusive growth and restore public confidence in the power of policy makers to improve people’s lives.
So what can we do to redress this situation and regain trust?
To start with, we need to listen to people. It is not enough to talk about a ‘post-truth’ environment. Or to say that people haven’t paid attention to facts and evidence. It is we that have not listened. We have to be honest with ourselves and acknowledge that the “truths” in our economic models have failed to capture much of what matters to people.
In short, we need to put people, and their multidimensional well-being, back at the centre. The OECD’s Inclusive Growth and New Approaches to Economic Challenges (NAEC) Initiatives are at the forefront of efforts to put people at the centre, to create social and economic models that provide a more accurate representation of the world around us. Today, advances in computing power are also opening up new tools to support our work, with possibilities for integrating complex systems dynamics and behavioural insights into our approaches with agent-based modelling and network analysis.
Yet, we also must recognise that economics does not have a monopoly on truth. In many countries, we have seen the bottom 40% left behind and their potential wasted. Only by recognising that mistakes have been made can we begin to build a new socio-economic narrative that goes beyond the old tropes of growth first, redistribution later; and beyond aggregate economic measures like GDP.
The false certainty provided by an all too literal interpretation of models needs to be balanced by a humbler, more grounded approach to economics that draws on the lessons of other disciplines like physics, biology, psychology, sociology, philosophy and history, to feed a richer, more nuanced policy discussion.
If we want to save open markets and globalisation, we need to re-write the rules of the economic system to make them work for everyone. We also need to bring back that much neglected concept, fairness, to the heart of the policy debate.
The role of the State is absolutely key to this discussion. We need to redefine and reimagine its role, to ensure that it is prepared for contemporary opportunities and challenges and is set up to empower people.
To begin with, we need a new approach to welfare that goes beyond just mitigating risk. The work of behavioural economists like Amos Tversky and Daniel Kahneman has shown us that people are not ‘risk averse’ so much as ‘loss averse’. If we are to create entrepreneurial societies that encourage everyone to fulfil their productive potential, we need to deploy this insight via welfare policy to reduce the consequences of failure.
To be sure, providing people with a social safety net is vital, but it is not enough. We need to move beyond this approach, to create an empowering State that serves its citizens as a launch pad by furnishing them with capacity enhancing assets.
Such a State would also seek to prevent disadvantage cascading down generations. It would recognise that its role was not simply to remove barriers to opportunities, but also to furnish people with the capacity to seize them. Crucially, it must see redistribution and social expenditure in vital areas like education and healthcare not as operating costs, but as investment in our most valuable assets – people.
In practice, this would mean deploying a coherent approach to intervention across individual’s life-cycles to provide high-quality early years education, comprehensive training throughout adult life, income and skills support to help people transition between jobs and perhaps even a universal basic income. But it wouldn’t stop there, because, when all is said and done, there is more to life than money. The key role of the State should be to support people helping them to have meaningful lives.
However we also need to face up to the big global challenges of dealing with concentration of wealth, international tax and competition issues, the mobility of tax bases, labour rights and regulatory standards. We need to ensure that globalisation is based on international rules that are respected. We have to create trade agreements that are comprehensive and, crucially, also inclusive. We must hold global firms to higher standards of responsible business conduct. OECD work on taxes, responsible business conduct, due diligence and anti-corruption will be key to ensuring better functioning global rules.
To restore the faith and trust of people in the role of governments, a priority for an empowering State must be to focus on the bottom 40%, who risk being trapped in a cycle of deprivation and lack of opportunity. We need to deploy targeted policies to help these groups access quality education, healthcare and the benefits of innovation, finance, and entrepreneurship.
Of course, giving people the chance to make the most of these opportunities is reliant on a thriving business sector. The State has a role to play to ‘crowd in’ financing in young and innovative sectors and in investing in basic R&D that will see positive spill-overs into countless other domains. We also need policies which support the diffusion of innovation through the economy, ensuring a level playing field for incumbents and challenger firms, enabling small companies to access finance, technology and high-quality skills.
Adopting such an approach will require some changes to the way we design and implement policies, with particular care taken to avoid the entrenchement of vested interests. One aspect of this will be ensuring that policy recommendations take regional and local circumstances into account. Regions and cities have a key role to play by adapting economy-wide policies to the characteristics of local communities, as well as by promoting local policies that reduce or remove the barriers limiting access to opportunities.
There is also a dire need to overcome traditional ‘silo-based’ approaches to policy making. This will require a renewed ‘whole-of-government’ push, where different government departments, agencies and ministries work together to deliver joined-up solutions as part of a coherent systemic approach.
The challenge before us is clear. Succeeding in our endeavours will demand a new approach, where political parties, and leaders from civil society and business come together to recognise that the long-term prosperity of a society depends on the success of its individual parts.
Together we can make inclusive growth a reality.
[i] Gallup World poll 2016
[ii] OECD Income Distribution Database
[iii] OECD Statistical Database
[iv] OECD (2016, forthcoming), calculations from PIAAC
[v] OECD (2015), In it Together
[vi] OECD (2015) The Future of Productivity, OECD Publishing, Paris
As well as Gabriela Ramos’s article, Inclusive growth: The state of the debate 2017 contains the following:
Welcome to the future of the political economy Rt Hon. Liam Byrne MP, Chair of the APPG on Inclusive Growth and Labour Member of Parliament for Birmingham Hodge Hill
Inclusive growth, the challenge of our times Professor Colin Hay, Co-Director of the Sheffield Political Economy Research Institute (SPERI)
Inclusive growth, a new agenda George Freeman MP, Conservative Member of Parliament for Mid Norfolk; Chairman of the Prime Minister’s Policy Board and Chairman of the Conservative Policy Forum
Inclusive growth: Turning aspiration into action Richard Samans, Member of the Managing Board, World Economic Forum
Globalisation and inclusive growth: the challenges for government and business Rt Hon. Dame Caroline Spelman MP, Vice-Chair of the APPG on Inclusive Growth and Conservative Member of Parliament for Meriden
The difference between economic growth, and economic growth for all Alison McGovern MP, Vice-Chair of the APPG on Inclusive Growth, Labour Member of Parliament for Wirral South
Social policy: a vital partner in any inclusive growth strategy Dr Hannah Lambie-Mumford, Research Fellow, Sheffield Political Economy Research Institute (SPERI)
We need to rethink economic policy to bring prosperity to the whole country Michael Jacobs, Director of the IPPR Commission on Economic Justice
Inclusive growth at city region level: a perspective from Greater Manchester Professor Ruth Lupton, Head of the Inclusive Growth Analysis Unit, The University of Manchester
This time last year, the OECD Forum took place on the eve of an unprecedented series of UN and G20 international summits with the potential to shape global governance for decades to come. In hindsight, 2015 proved to be an outstanding year for international collaboration, with governments around the world coming together to agree on ambitious goals to promote sustainable development, address climate change and deliver fairer more transparent international tax rules. On the eve of OECD Forum 2016, the focus shifts to the hard work of implementation , in the midst of slow and uneven recovery from the Crisis, an ongoing international refugee and migration crisis and an upsurge in acts of international terrorism.
We will be looking for answers to three overarching questions:
- How can the positive momentum of international collaboration from 2015 be carried through to the tough task of implementing the noble undertakings embodied in the various agreements?
- How can we kick start global productivity so as to deliver inclusive growth?
- How should we address the need for a new societal contract and relevant policy frameworks for an era of digitalisation?
Implementation of the SDGs, COP21 and G20 Tax Standards will require a holistic approach to inter-related economic, social and environmental issues from governments and non-governmental stakeholders alike. The Forum will address what will need to change given that the SDGs are now a global responsibility and targeted at countries at all levels of development. Civil society leaders such as Save the Children’s Helle Thorning-Schmidt, the former Danish Prime Minister are uniquely positioned to help map out what’s now required.
Successful international collaboration means all stakeholders in society working together. The role of the business community is vital in itself, as is the way it works together with government to ensure a fair deal for all. This year marks the 40th anniversary of the OECD Guidelines for Multinational Enterprises, the most comprehensive set of recommendations by government to business on Responsible Business Conduct (RBC). With the widening and deepening of globalisation, the Guidelines are more relevant than ever, but the role of business in society has evolved from the charitable and voluntary endeavours associated with Corporate Social Responsibly (CSR) to the more stringent expectations of RBC. Nobel Peace Prize Laureate Kailash Satyarthi will be sharing his insights of what can go wrong and why and how it can be corrected.
Tax is one of the clearest examples of how international collaboration is the only avenue to resolve major problems given that nationally-based tax systems are inadequate to deal with international financial flows. The OECD-G20 BEPS project equips governments with the domestic and international instruments needed to tackle the issues. Effective exchange of information between countries, allows governments to better tax capital and capital income, and in turn raises issues about the effectiveness if the redistribution of wealth especially in countries where working-age benefits have not kept pace with real wages and taxes have become less progressive.
These discussions take place against the backdrop of the leak of the Panama Papers, revealing the practices of the rich and powerful in hiding money offshore, a timely reminder of how much is still left to do to implement transparency when the gap between rich and poor is at its highest level for 30 years in most countries.
Productivity and inclusive growth
Clear and troubling evidence has emerged in recent years of the disappearance of productivity growth at a time of rising inequalities. It is natural that we should ask ourselves if these phenomena are interrelated. We can no longer assume that technological and related innovations in processes and business models will automatically lead to better economic performance and stronger productivity growth. There is no guarantee that the benefits of higher levels of growth, or higher levels of productivity in certain sectors, will be shared across the population as a whole. Indeed, there is a risk of a vicious cycle developing, with the “bottom 40%” with fewer skills and poorer access to opportunities often confined to low productivity, precarious jobs, and the informal economy. At firm-level, too, a few big fish and cutting edge winners may leave the rest behind
The Forum will examine the nexus between productivity and inequality, identifying knowledge gaps, and seeking to chart policies that both boost productivity and tackle inequality. The role of corporate finance has also been examined both in entrenching the division between the haves and the have-nots and for its potential to unleash strong productivity gains.
To help us continue questioning assumptions about how the economy works and how we analyse these workings, we will welcome speakers such as Diane Coyle who asks whether traditional measures of productivity are suited to today’s “weightless” economy and César Hidalgo, who argues that understanding the nature of economic growth requires us to transcend the social sciences to include the natural sciences of information, networks, and complexity. Award-winning author Paul Mason will present his vision a future of “Postcapitalism” and the internationally renowned Chilean architect Alejandro Aravena will open our eyes to the contribution to be made to productivity and inclusive growth by architecture.
The social sciences still provide a useful lens through which to address key issues, though, and we will be looking at access to quality jobs when the workforce is ageing but 75 million young people are unemployed worldwide. Similarly, tackling gender inequality is central to increasing productivity and inclusiveness, so we will focus on the role of women in the workplace, girls and women in Science, Technology, Engineering and Maths (STEM), and the social, cultural, legal, and political barriers to gender equality and the consequences of these. How appropriate then that Forum favourite, Michele Bachelet should return in her capacity as President of Chile and Chair of the 2016 OECD Ministerial Meeting.
Migrants are another social group with specific needs and rights. The Forum will also tackle the sensitive issue of the economic, social and political impact of the sudden, large influx of immigrants and refugees into Europe and how best to meet the integration challenge.
Digitalisation of Society
The digitalisation of nearly every facet of the economy and society has become increasingly apparent in recent years. While this revolution holds many promises to spur innovation, increase productivity and improve services, it creates new dilemmas not least the fact that policy frameworks developed in a pre-digital era are not fit for digital purpose and that many people feel marginalised or threatened by accelerated change. It poses fundamental questions regarding the sort of society we want in this digital age and societal contract to deliver it.
Our IdeaFactory on the Digitalisation of Society will provide valuable impetus to a new OECD project on the Digitalisation of the Economy & Society. We will address the changing role of the State as well as the ethical, social and technical dilemmas digitalisation provokes. In the context of “The Digital World & the Future of Work” we will explore strategies to adapt the skills taught in education and training systems to the changing needs of today’s and tomorrow’s employees and employers, providing input to our project on the Future of Work. With the help of humanoid robot Pepper, we will look closely at the future role of robots, artificial intelligence and increasing reliance on algorithms in transforming daily life, work, and social interaction.
Innovation is not just about technologies. It also includes new ways of doing things, and the “circular economy” can play a crucial role in delivering on COP21 by decoupling economic growth and job creation from the exploitation of natural resources. Key actors such as Nick Stern will examine how to reduce pressure on precious finite resources from a global population that will reach 9 billion by 2030, a third of whom will be middle-class consumers.
Better Life Index & Economic Outlook
Wellbeing has been at the heart of the Forum since we first presented the OECD Better Life Index in 2011. The latest edition of the Index that empowers people to compare countries’ performance in wellbeing according to what is most important to them, unveiled on 31 May, will feature 38 countries including 2 newcomers, South Africa and Latvia, our newest member. Now in its 5th year, the Index has well over 8 million visitors from all corners of the globe, who are responding with their wellbeing priorities in ever greater numbers: in 2016 the top 3 priorities are Life Satisfaction, Health and Education. Income is ranked 9th out of our 11 dimensions of wellbeing. Analysis for those countries where citizens have shared their preferences with us most is available here.
Whilst the Index promotes our aspiration to measure our future development in a more holistic way, the OECD will be the focus of attention of the world’s media when we present our latest Economic Outlook, forecasting the prospects for the global economy on 1 June.
Join the debate
The rational, evidence-based discussion and compromise needed to define and implement the best ways to improve our societies and economies is often lacking in political discourse, whether in the context of the elections, the reforms or the referenda that will shape the future for generations to come. Against this backdrop, the Forum will challenge the world’s policymakers and policy-shapers to imagine and help realise a future where far more “Productive Economies” deliver in such a way as to effect far more “Inclusive Societies”. We also extend this challenge to you. Join the debate!
The Sustainable Development Goals: A Duty and an Opportunity
Gabriela Ramos, Special Counsellor to the OECD Secretary-General, Chief of Staff and G20 Sherpa
The Sustainable Development Goals (SDGs) are universal, multi-dimensional, and ambitious. To achieve them we need an integrated framework that promotes a growth path that respects the environment, and whose benefits are shared by all, not only by the privileged few. The concept of sustainable development challenges us to rethink how we relate to the world around us and how we expect governments to make policies that support that world view.
First, there is the realisation that economic growth alone is not enough: the economic, social and environmental aspects of any action are interconnected. Considering only one of these at a time leads to errors in judgment and unsustainable outcomes. The growth accounting that we have relied on has fallen short, by not raising the alarm regarding the accumulated imbalances that brought the worst crisis in our lifetime in 2008, and regarding natural resource depletion and high inequalities of income and outcomes for people.
Next, the interconnected nature of sustainable development calls for going beyond geographical or institutional borders, in order to co-ordinate strategies and make good decisions. Problems are rarely easy to contain within predefined jurisdictions such as one government agency or a single neighbourhood, and intelligent solutions require co-operation as part of the decision-making process. Our policy decisions should keep in mind that our decisions and actions will have impacts elsewhere, will influence the future, and be bound by national circumstances, institutional settings, and the historical and cultural traits that define our societies.
Most of all, we need a growth path that puts people’s well-being at the core of policy efforts, and where GDP per capita and income are key elements of course, but not the only ones. In a highly interconnected global economy, the linkages between our economies, societies and environment should be central, and our policy choices should be informed by this high level of complexity.
The SDG’s therefore are a healthy reminder that, to deliver, we should change the way we operate and update the tools that we use to understand the world. Indeed, realize that GDP is a means to an end, and not an end in itself.
At the OECD we have been preparing for this in the last decade. We launched the New Approaches to Economic Challenges Initiative that makes a call to develop an agenda for sustainable and inclusive growth. We have also developed a hands-on agenda for green growth, and we have been working to address the slowdown of productivity growth with policy measures that will also have a positive impact on reducing inequalities of income and opportunities. That means changing the way we work, getting away from the “silo” approach, and trying to anticipate and shed light on the unintended consequences of the choices we make.
Our work on inclusive growth is a good illustration of this. Rising income inequality is often accompanied by greater polarisation in educational and health outcomes, perpetuating a vicious circle of exclusion and inequality. Moreover, inequalities impose costs on economic growth, particularly where inequality of opportunity locks in privilege and exclusion, undermining intergenerational social mobility. Accounting for the multidimensional nature of inequalities means evaluating the effects of policies on both income and non-income outcomes, as well as for different social groups.
Our analysis shows that “multidimensional living standards” – a measure that combines changes in household income, health and labour market outcomes – rose faster for more affluent social groups than for middle class or low-income households on average among OECD countries, and suggests that improvements in life expectancy and strong job creation during 1995-2007 did not compensate for widening income inequality.
A better understanding of the effects of policies on specific social groups allows policy makers to identify trade-offs and complementarities between growth and distributional objectives. For instance reducing regulatory barriers to domestic competition, trade and inward foreign direct investment can lift the incomes of the lower-middle class by more than it does 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 incomes.
These findings are reinforced by our work on the quality of jobs, defined as good pay, labour market security, and a decent working environment. There appear to be no major trade-offs between job quality and quantity but rather, potential synergies: countries that do relatively poorly with respect to job quality tend to have relatively low employment rates and vice versa.
In talking about jobs and equality, it is important to remember that the environment is not something you can think about later, once you have enough growth. Economic progress rests on ecological foundations. Natural capital – air, water, and other resources – is finite and has to be managed just as carefully as other forms of capital. More stringent environment policies, when well-designed, need not undermine productivity growth. Similarly, policies that make environmental sense can support economic growth and promote social inclusion too.
Designing a strategy to implement the SDGs comes down to answering three questions. What should economies be doing? How should they be doing it? And for whom? These questions are not new. Gro Brundtland’s answer in her 1987 report Our Common Future was economies promoting “growth that is forceful and at the same time socially and environmentally sustainable”. But after 20 years after Brundtland, we have still not managed to develop an integrated framework that combines the main objectives of well-being in a synergistic way. To do so we need to develop the best tools, but more importantly, to change habits –which is not easy- or to go against vested interests that benefit from the status quo. The political economy of reform is not going to be easy.
On the side of change, the SDGs give us not just the duty but the opportunity to advance our thinking. Let’s not waste it!
Fostering Inclusive Growth: A Golden Opportunity to Put Future Growth on a Socially Sustainable Footing
Lamia Kamal-Chaoui, Senior Advisor to the OECD Secretary-General and Coordinator of the Inclusive Growth Initiative and Shaun Reidy, Policy Analyst, Inclusive Growth Unit
The crisis left many a nation teetering on the edge of financial and economic catastrophe. Thankfully, governments managed to pull us back from the brink. Yet, as we have stabilised our economies, the gaping chasm between our societies’ ‘’haves’’ and ‘’have-nots’’ has come into sharp relief.
In the last seven years, in a context of prolonged fiscal retrenchment, we have watched as OECD unemployment levels hit a peak unseen in a generation and as precarious work has boomed. We have also seen inequalities of income and wealth rise to their highest levels in some 30 years. In 2012 the average income of the top 10% of earners in the OECD grew to just under ten times that of the bottom 10%, up from around 7 times in the mid-1980s. In terms of assets, the top 10% controlled half of total household wealth in 2012, with the bottom 40% owning only 3%, in the 18 OECD countries with comparable data.
To be sure, these problems did not originate with the crisis. The economic seeds of the inequality we are reaping today were sown over many years. Structural changes in the labour market, the forward march of technology, integration into global value chains, and the decline of unionisation all contributed to growing wage dispersion between high and low-skilled workers.
But it was not just bad luck that this occurred at the very moment that the traditional redistributive mechanisms of the state began to weaken, in a climate of growing fiscal pressures and increased tax competition. Specific policy choices meant some people losing out. Prior to the crisis we relied on growth to paper over the cracks. We can no longer. Yet for want of a better alternative many individuals, companies, and countries have simply returned to business as usual.
With our economies going nowhere fast, we need to take this opportunity to fundamentally re-think how we grow and who benefits from that growth. Taking its lead from the New Approaches to Economic Challenges (NAEC) project, this is precisely what the OECD’s All on Board for Inclusive Growth initiative sets out to do.
The OECD’s work on Inclusive Growth understands that GDP growth is important to improving everyone’s living standards, but it also recognises that it is not the be all and end all. We cannot continue to blindly pursue growth at all costs without a thought to who benefits from it, or to how socially sustainable it is. That is why our approach to Inclusive Growth moves beyond money alone to look at how people are faring in other areas of life that matter to their well-being like their health, jobs and disposable household income. That is also why we look past the statistically constructed ‘average person’ to get a real and clear picture of how each part of the income distribution is doing.
Our work on Inclusive Growth has made it clear that over the long-run growth will neither reach its potential, nor be sustainable if it is not inclusive. In many ways this is self-evident. Growth built on an ever smaller base, like a building built on shrinking foundations, will be gradually undermined and ultimately collapse. Whilst from a political perspective, a public growing weary of the worst excesses of inequalities will likely not tolerate them indefinitely.
These dawning realisations have led to the issue of inequality gaining increasing political traction. Many citizens are concerned about the implications of increasingly unequal societies and many governments have started to talk about the issue. Much of that talk has been about promoting equality of opportunity. Such talk is to be welcomed, but talking about opportunity is not enough. We also need to focus on outcomes.
Inequalities of opportunity and of outcome are two sides of the same coin. The unequal outcomes of one generation tend to become the inequality of opportunity of the next. Simply giving a child from a poor background access to the same opportunities as a wealthy counterpart will not suffice. The balance of life chances is stacked against children from lower-income backgrounds. Children born into poorer families suffer from any number of disadvantages in relation to their richer peers: they are likely to have poorer diets, more likely to be bullied in school, have parents with shorter formal education and to live in workless households. Overcoming these obstacles can be nigh on impossible.
Dealing with this calls for a much more comprehensive approach to Inclusive Growth that does not only give people equal opportunities, but also bestows them with the ability to make the most of those opportunities. The OECD’s Framework for Inclusive Growth aims to help policy makers do just that, setting out to assess the effects of policies on income and non-income outcomes simultaneously. The Framework seeks to enhance policy makers’ understanding of the trade-offs and synergies that exist between pro-inclusiveness and growth-friendly policies.
In practice, pursuing Inclusive Growth calls for an approach that promotes the creation of high-quality jobs. An approach that understands the benefits of flexibility for employers and employees, but also grasps the importance of ensuring that a workforce is properly protected and supported by a strong social safety net, and activation policies to help people back into work. It calls for an approach that recognises the importance of increasing skills and improving education, but also sees that such efforts will be of little value if investment is not forthcoming to create skilled jobs in sufficient numbers. It also calls for an approach that underlines the value of progressive taxation to make sure no one is left behind.
Of course, each country has different goals and priorities, and distinct preferences as far as inequality is concerned. But we also need to have critical awareness about where country preferences come from. In many instances there is a clear danger of elites, who have an important role in setting national preferences, determining the political direction of travel for their own ends. Transparent and accountable government and well-structured institutions are key to avoiding that risk.
By pursuing Inclusive Growth we can empower individuals, ensuring that everyone benefits from growth, and that everyone has the chance to contribute to growth in the future. Businesses stand to gain just as much from this. Companies rely on healthy, well-educated, productive workforces to succeed, and they rely on effective labour market policies to help supply them. Inclusive Growth means more and better resources for businesses to draw on.
Now governments need to move this agenda forwards. With the Crisis fresh in the memory and inequality grabbing the world’s attention we have a golden-opportunity to put growth on a socially sustainable footing, and turn greater inclusiveness into a strong driver of economic growth. We cannot afford to let this chance go to waste.