What is Meant by Inclusive Growth and Why it is Important ?

We often hear the term inclusive growth in the papers and in various media where experts pronounce that while growth is good, there must be what is known as inclusive growth as well. So, what does the term inclusive growth mean and why is it so important? To start with, inclusive growth refers to the phenomenon where the benefits of a country’s growth are shared equally by all sections or at least in a fair and just manner.

Nature of Capitalism

Indeed, while economic growth always leads to some sections and people prospering more since capitalism by its very nature tends to concentrate profits in the owners of capital rather than the workers, it would be fair to say that as long as those in the middle and especially the bottom benefit, then inclusive growth is said to have been actualized.

As mentioned when a country grows, the benefits are likely to be more for those who own the means of production like industrialists, owners of companies that are doing well, and entrepreneurs who have succeeded in their venture. Indeed, one cannot expect the employees or the rank and file workers to earn as much as the owners make profits since the latter own the companies and hence, hold a major stake whereas the former even with stock options and bonuses would always make lesser money.

What is Inclusive Growth ?

Having said that, it must also be noted that if those at the top make hundred or more times what those at the bottom make, then essentially we have a situation where there is mismatch between the incomes of the top 1% and the bottom 50%. Similarly, when countries grow and a tiny elite benefits more than those at the lower income levels, then a similar situation manifests where there is gross disparity and inequality between the classes that can lead to resentment and bitterness from the lower income levels which can also result in social unrest and chaos.

Why is Inclusive Growth Important ?

Indeed, this is the reason why many experts talk about inclusive growth wherein they mean that unless all sections of society benefit from faster and more economic growth, the social conditions in such countries can deteriorate and lead to violence and chaos. This was what happened in the years following the 2008 global economic crisis wherein the people at the bottom realized that before the crisis and especially after the crisis, they were the ones who were the worst affected while those at the top continued to be comfortable and secure.

Perils of Inequality

This led to mass uprisings like the Arab Spring and the Occupy Movements where the inequalities and the inequities of the capitalist system were out in full glare and hence, the bottom half decided to take matters into their own hands and express their resentment at the injustice of the top 1%. Slogans such as we are the 99% were in display which were meant to symbolize the non-inclusive nature of growth across the world.

Inclusive Growth is the Answer

So, if there is growth that is exclusive in the sense that it benefits only a few, then inclusive growth is the answer as ultimately, the purpose of growth must be for the overall benefit of society. Indeed, while this might sound radical and veering too much to the Left, the fact remains that unless there is inclusive growth, the voters tend to punish those parties that they perceive as being exclusive growth oriented.

This happened in places as diverse as Greece and Iceland and in India as well where the recent elections in the states were supposed to have been a vote against the prevailing economic model where only a few benefit at the expense of the many. Indeed, this is a reminder about the power of democracy wherein the voters have a chance to elect those parties whom they believe would deliver the goods for them and not only for tiny elite.

Resist Populism as well as Inequality

Having said that, the temptation to be populist must also is avoided wherein parties with a view to include more sections distribute largesse in the form of subsidies and free power as well as goodies that the people do not have to pay for. Indeed, this is the reason why many countries including India adopted market reforms as the perception was that socialism with its emphasis on distributing goods and services for free resulted in inefficiencies and wastage of public money leading to bankruptcy.

Challenges for Inclusive Growth

Therefore, the challenge is to find the middle ground between growth that benefits only a few and the temptation to throw money after subsidies and giveaways. This is the realization that many erstwhile socialist as well as current capitalist countries are having in the present context where the competing interests of the owners of production and those who work for a wage have to be balanced so that everyone is better off in the end.

To conclude the discussion, it is important to note that a middle ground must be found wherein the owners of the means of production do not walk away with the benefits and at the same time, the workers are also not pampered. Similarly, countries must also ensure that investors and industrialists have incentives to invest and at the same time, growth benefits those at the bottom as well. This can be done through carefully designed social security and social safety nets as well as encouraging industrialists and owners of capital to do more for society.

❮❮   Previous Next   ❯❯

Authorship/Referencing - About the Author(s)

The article is Written and Reviewed by Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. We are a ISO 2001:2015 Certified Education Provider. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.

Managerial Economics