Inclusive growth is not an abstract issue, but one with a real human price

“The No.1 question I’m getting as I travel the around the world or talk to world leaders right now,” President Obama admitted, “is ‘What is happening in America about our politics?

Longstanding polarisation of US politics has deepened over recent decades, as the two sides of the electorate – themselves locked in stalemate, evenly spilt between (and within) the two main parties – have dug deeper under the protective bunker of ideology. The structures and incentives of Federal and State-level government, as well as the Supreme Court, have facilitated a grinding stalemate with little appetite for compromise. This has paved the way for a political discourse increasingly disconnected from the complex realities citizens think, feel and experience in their cities and towns. The current Presidential nomination campaign has seen such lack of political connectivity descend a stage further, with worrisome consequences. President Obama warns, “when it doesn’t matter what’s true and what’s not, that makes it all but impossible for us to make good decisions on behalf of future generations”.

At the same time as politics has become more polarised, so too have traditional social cleavages been widening, notably along income, wealth and race lines. Young people born in the richest parts of Baltimore, for example, are expected to live 20 years longer than those brought up in the poorest parts of the city. Last year’s shootings in that city have since been understood as the result of profound structural racism, entrenched and inflamed by lack of economic opportunities for young black men, in particular. It is a pattern of inequality and inequity that ravages across the United States, and in countries across the world.

Ahead of the launch of the RSA’s own Commission on Inclusive Growth last week I attended the inaugural event of the OECD’s Inclusive Growth in Cities Campaign in New York. There, the Ford Foundation hosted a commendably diverse range of ‘Champion Mayors’ from across the developed and developing world, all committed to the principles of the New York Proposal for Inclusive Growth in cities. Home to 60% of the world’s population and rising, cities are hubs of economic activity and drivers of growth. But, cities are also home to some of the starkest and widening inequalities. The OECD explains: “In just about every area, whether it be educational attainment, life expectancy, or employment prospects, success is disproportionately determined by socioeconomic status, wealth and assets, sex, age or the places where people live.”

To this, many might argue that it has always been the case. Some might also argue that there little that can be done to change the situation. The OECD also explains: “The traditional discussion of growth and equality presented decision makers with a binary choice: either we should promote growth or we should prioritise redistribution; either we should make labour markets more flexible or we should make them fairer; either we should promote welfare spending or we should keep taxes low to promote economic activity.”

However, the financial crisis has made these choices more and more difficult as the fiscal capacity of nation states has diminished while inequalities have continued to widen:

• Across all OECD counties in 2011 the average net income of the top 10% of earners was around ten times of the bottom 10%, up from seven times 30 years ago. Even in traditionally egalitarian countries, such as Germany, Sweden and Norway, the average income of the top 10% increased from less than five times that of the bottom 10% in the 1980s to more than six times today.

• In the UK:

  • Between 2012 and 2014, the wealthiest 20 per cent of households had 117 times more assets than the poorest 20 per cent of households. Two years previously, the same comparison of wealth inequality by the Office of National Statistics showed the gap at 97 times more wealth in the top 20% of households compared with the bottom 20%.

  • In 2012 difference between people reporting good or very good health in bottom 20% of earners and the top 20% was over 20 percentage points (similarly in Belgium, Germany and the US).

Not only are such inequalities morally indefensible, they pose serious risks to the stability, prosperity and security of societies. In response to those who argue inequalities are too entrenched or too much part of human nature to resolve, we might therefore ask: what are the costs to economic output, productivity and growth when not all citizens have ready access to start up finance, skills training or employment? How can we design models of growth based on economic and social inclusion? How might this new models of growth support more inclusive political institutions, more closely connected to the citizens they serve?

In considering these questions at the OECD campaign launch event, some key themes recurred in almost all conversations – whether in reference to small, medium or large cities in developed and developing countries – notably, skills, affordable housing, and clean and efficient public transport. However, a deeper and sometimes darker issue was always in the background – social cohesion. Whether through unintentional consequences and resentment against ‘inclusion zoning’ in Santa Fe, New Mexico or the ‘double-edged sword of gentrification’ in New York and other cities, the complexity of the challenge and paucity of current policy levers was achingly apparent. 

The issue of social cohesion was made all the more visible by the absence of the Mayors of Brussels and Paris, unable to attend due to recent events in the Belgian capital. Indeed, it was relayed to the group that the Mayor of Brussels was speaking to the French Parliament that every same day, and in solidarity with the new international OECD campaign, would argue that economic and social inclusivity were the only way to tackle extremism and terror.

The OECD’s Champion Mayors meet again in Paris in November. Between now and then they are tasked with working towards creating more inclusive and prosperous places – no easy feat. This week’s initial discussions cut quickly to the heart of many of the key issues they will have to tackle if they are to make inroads. But I came away reflecting that there are three things that the OECD and other organisations, including the RSA, will have to think about:

1. What is the theory of change that will allow for a new approach for inclusive growth? Three main drivers of inequalities were quickly identified amongst participants: first, a lack of access public services and government decision making; second, economic and social infrastructure that fails to allow people and places to thrive; and third, economic rules that act against opportunities for all. However, while first and second of these seem solvable at city level, the impact of metro mayors or national governments on the third is more indirect. Even working as part of a collective, such as the C40 or fledgling Global Parliament of Mayors, reform of economic rules mean reform of a bigger, more complex global economic and financial game. While innovations such as living wage or shared parental leave regulations can have an impact, a more ambitious question is how we mainstream inclusive growth in the nuts and bolts of global capitalism. Who else needs to be influenced and involved (e.g. World Bank, IMF, ILO, G20) if we’re to upturn entrenched assumptions and create real change?

2. How can we make this a cross-party issue? The need for inclusivity should not be an ideological issue, but a moral, economic and security imperative. As the OECD Secretary General argued, “When the poor are unable to fulfil their potential, we all lose out.” Whether on the right or the left of the political spectrum we can identify a need to allow for a resilient, innovative economy in which everyone has the opportunity to prosper. As one participant argue, “entrepreneurial approaches to economic growth are inherently human-centred”, but the challenge is to ensure that opportunities to be enterprising are not a function of where a person is born, their wealth, race or gender. Without inclusion underpinning deeper social cohesion the risks are not only economic, but also political and security-oriented.

3. How do we future proof new models for inclusive growth? How do we create a legacy for future governments and generations so that inclusive growth becomes embedded and sustainable over the long term? Just as specific policy choices and development models have set a path of widening inequalities and more precarious growth, new policy approaches need to be introduced to allow for growth, equity and inclusion to be mutually reinforcing objectives.

Bill de Brasio, Mayor of New York said in his keynote speech that inclusive growth is “not an abstract issue, but one with a real human price”. President Obama has also described inclusive, equitable growth as the “defining challenge” of current times. Over the course of the next 12 months the RSA will build on its work on cities and explore these and other questions within a UK context. Join us as we launch our new Inclusive Growth Commission at the end of the month.

#incgrowth

Charlotte Alldritt is Director of Public Services and Communities at the RSA and Secretary of the Inclusive Growth Commission, the successor of the highly influential RSA City Growth Commission, chaired by Jim O’Neil. Prior to joining the RSA, Charlotte was Senior Policy Advisor to the Deputy Prime Minister.