2016’s Most Defining Moments for Inclusive Growth
The Center’s senior fellows reflect on the events of 2016 that will leave an enduring mark on inclusion and economic growth.
The US Election, Brexit and the populist wave
2016, like no other year in recent memory, brought to the surface the reality that far too many people are being left behind in the global economy. The U.S. presidential election, the Brexit vote, and the shifting winds on trade and globalization, represented a backlash from some in the middle class who feel “increasingly alienated from elites and government institutions,” says Harvard professor of economics, Robert Lawrence. Inclusive growth, they feel, has bypassed them.
The events, he says, challenge the conventional thinking about who benefits from inclusive growth. “When we talked previously of inclusive economic growth, we generally used the term to mean growth that is broad enough to include the poor, women, people of different races and sexual orientation.” But he says what we have learned over the last year reminds us that “inclusive growth means inclusive growth. It must literally include everybody.”
The results of the US election have reverberated around the world, adding to the uncertainty around the course of global trade, which suffered a blow when the UK voted to leave the European Union in June.
China: An economy in transition
This is especially true in China, where the world’s second largest economy is in the midst of navigating major structural changes. Fan Gang, executive director of China Development Institute, notes that while China’s growth has been on the decline over the past six years, employment has not been as hard hit.
“While some heavy manufacturing industries are cutting jobs, ‘light industries’ in the service sector are growing, including some sharing-economy services,” says Fan.
Still, as structural change continues, Fan expects new challenges to emerge with reforms to state-owned enterprises resulting in layoffs and unemployment for those workers who may have difficulty adapting to China’s increasingly digital economy.
Income inequality also remains high, with the nation’s top one percent owning a third of the country’s wealth. “For a country with 1.4 billion population, the job issue is fundamental and paramount for inclusive growth and income equality,” says Fan.
And not only in China. Job growth and investments in retraining workers who lose their jobs are also important for increased economic mobility in Western economies, says Guntram Wolff, director of Bruegel, the Brussels-based think tank. “This is crucial for empowering people and supporting growth” and assuaging the anxiety that a globalizing world unleashes.
India pushes big reforms
In December, India surpassed the UK to become the world’s sixth largest economy after the United States, China, Japan, Germany, and France. The milestone is attributed to India’s rapid economic growth, now at 7.6%, and U.K.’s post-Brexit slump.
Since taking office in 2014, Indian Prime Minister Narendra Modi has pushed an ambitious growth-acceleration agenda with policy initiatives aimed at easing restrictions on foreign direct investment, improving infrastructure, skill training on a massive scale, and developing a more business-friendly regulatory environment.
Whether these policies can spur growth that is inclusive and sustainable will be one of the key developments to watch for in the coming year. “2017 will see if the Modi government’s efforts on economic reform and liberalization can begin to bear fruits, or if public discontent and political in-fighting will stall reform initiatives,” says the Center’s chief economist, Yuwa Hedrick-Wong.
Modi is also attempting to move India’s economy into a digital future – advancing a national financial inclusion strategy and moving to demonetize the economy in an effort to stamp out fraud and money laundering.
Suman Bery, a former director general of the National Council of Applied Economic Research and former member of the Economic Advisory Council to the Prime Minister in New Delhi, reports that the government’s recent move to pull 500 and 1000 rupee notes out of circulation is “apparently inflicting significant immediate distress on the rural poor, but enjoys popular support as it is seen as a symbol of Prime Minister Modi’s willingness to attack corruption, [and] move large parts of the economy from informality to formality with regard to taxation as well as the operation of the labor market.”
Bery says that “for good or ill” the government’s actions could be a “game-changer” for India and inclusive growth globally.
Global migration crisis and crash in oil prices
In the Middle East and Africa, conflict and migration are putting a strain on economies and exacerbating inequality.
Visiting fellow and veteran Middle East analyst Yassar Jarrar notes that “with four regional wars going on, increasing sectarian tensions, uncertainty about US and EU foreign policy, and the crash of the oil price, the inclusive growth agenda has taken a back seat” in the Middle East, despite being the most important policy issue facing the region today, with some 60 percent of population under the age 29 and an unemployment rate above 30 percent.
In Sub-Saharan Africa, migration from failed states and the worst drought in Central and South Africa in over a century, are impacting the most poor and vulnerable in the region, reports Martyn Davies, managing director of emerging markets & Africa at Deloitte Africa.
Across the broader region, Davies cites the lack of formal full-time employment as “the single largest factor that hampers inclusive growth in the economy.”
Low oil prices have frustrated the growth prospects of West African economies, especially Angola and Nigeria, which are struggling to find new growth models that are less reliant on commodities. However, a more positive outlook for inclusive growth is emerging in the East, says Davies. Ethiopia stands out as a bright spot as it takes advantage of the low-end manufacturing hollowing out in China to attract new private sector investment.
In the end, the events of 2016 underscore the urgent need for a robust cross-sector response to the tectonic shifts occurring in the global economy.
Achieving inclusive growth, says Lawrence, “remains the central challenge of our times, and the events in 2016 suggest that inclusion is not only a moral imperative but vital for social and political stability. In 2017, the most important challenges entail adopting policies that resonate with those who are alienated, while at the same time maintaining the progress toward greater inclusion of those who have been left out. It will not be easy.”
Featured image: Pro-Brexit demonstrators wave Union Jack flags as they protest outside the Houses of Parliament on November 23, 2016 in London, England. (Photo by Jack Taylor/Getty Images)