Why we need an inclusive economy not inclusive growth
by David Burch and Neil McInroy
From time to time a new policy concept emerges, which seems to capture the mood and desire for a certain type of change. Today in economic development that phrase is ‘inclusive growth’. Emerging from a growing acknowledgement that economic growth is not delivering in terms of quality jobs and wages, inclusive growth seems to offer an antidote to an economic model with unacceptable levels of exclusion, poverty and inequality.
It’s no surprise that it has captured a desire for change – our current growth model is failing socially. Post the global financial crisis, many are hankering for some redress. Last year OECD data showed that the UK is the only developed economy in which wages fell while the economy was actually growing, albeit meagrely. One in eight workers (3.7 million) live in poverty and 1.3 million people (including children) rely on food banks. Our economic model is socially broken. We need change. However, we don’t feel that inclusive growth will deliver the change we are looking for.
Why inclusive growth is a flawed concept
Inclusive growth accepts the economic status quo
It accepts a market liberal framing of our economy, with growth forged from deregulated/privatised markets, austerity in public services and erosion of employee rights, together with a relaxed approach to wealth extraction through offshoring, distant shareholder dividends and executive pay. It is broadly about ‘after the fact’ economic development centred around the fruits of growth – no matter how unfairly it was created, or the narrowness of those involved in creating it. In practice, inclusive growth is not about effecting change to the prevailing market liberal approach to economic growth or challenging the vested interests that support its retention.
There is no doubt that many advocates for inclusive growth do reject the more aggressive policies of market liberalism and have genuine social concern. As the RSA’s Inclusive Growth Commission report puts it, ‘The key shift we need is from an economic model based on growing now and distributing later to one that sees growth and social reform as two sides of the same coin.’ However, in practice, advocates are constrained by a national economic frame which offers little or no support for local policies that advance genuine progressive action or outcomes.
The reality is that inclusive growth can be used as mere cover for economic stasis, rather than meaningful action on social exclusion and economic injustices. Indeed, it is acknowledged in much of economic development (though broadly unsaid publicly) that many refreshed economic strategies and plans have merely slotted in the words ‘inclusive growth’ as a substitute for ‘growth’ or ‘economic growth’, with no real shift in strategy or policy to deliver inclusion.
Inclusive growth is a vague and confused concept
There are many interpretations of inclusive growth. According to Paloma Duran of the Sustainable Development Goals Fund, ‘when you ask five economists to define [inclusive growth], you will likely end up with six answers’. The term has little provenance, in contrast to social justice or tackling poverty. This weakness of meaning and lack of genuine substance is somewhat masked by the institutional power of the IMF or the World Bank, both big, powerful cheerleaders of inclusive growth. Tellingly, even with this global economic backing, many practitioners remain unsure what inclusive growth actually means for practical UK economic and social policy.
Inclusive growth offers little to places with low or no growth
Inclusive growth has no solutions for places with low or no growth. UK national growth rates are currently running at a miserly 1.2 per cent, the lowest in the G7. Research by EY highlights that ‘no progress has been made in rebalancing the UK economy geographically over the last three years’ and their forecasting model predicts that ‘the weaker parts of the economy – smaller cities and towns – will fall further behind the largest cities’. There is scant evidence to suggest we will see a return to sustainable growth for many areas (if at all). In this probable scenario, inclusion on the back of growth offers little to address longstanding social injustice. By relying on inclusion ‘after the fact’ of growth, inclusive growth is condemning many areas to exclusion and wealth extraction – possibly for a long time to come.
Inclusive growth does not take account of environmental concerns
Growth may not even be desirable. We are already far outreaching our planetary limits, and existing policies of agglomeration are resulting in rising pollution and other environmental and social diseconomies. IPPR’s analysis of Local Enterprise Partnerships’ plans discovered that only a few present a strong appraisal of natural resource constraints and the potential risks and impact that these could have on the economy. Inclusive growth seems to offer little in the way of addressing the fundamental challenge of our time.
Inclusive growth is not new
It is hard to see what is actually new about many of the local policies and practical actions being framed by inclusive growth. Employment programmes, in-work progression, employment charters, skills development and the like are sound enough policy, but they have been a feature of economic development and regeneration for decades. For those with a longer economic development memory, or a desire for genuine progressive change, it is underwhelming, especially given the grip that market liberalism now has on our economy, together with continuing austerity and the depth of social concerns.
What we need is an inclusive economy
Inclusive economy, in stark contrast to inclusive growth, is not focused merely on addressing the negative effects of economic growth. Instead, it is about addressing the fundamental causes. For CLES, inclusive economy means:
‘An economy intrinsically married to social goals which rejects market liberalism. Where there is an intentional desire to reorganise the economy, with wider ownership, and where the economy functions naturally to produce social and economic justice, environmental sustainability and prosperity for all.’
This may seem to be a semantic debate. It is not. We accept that inclusive growth has opened a window in which inclusion can be discussed, but in practice it is not a serious correction to aggressive market liberalism.
By contrast an inclusive economy agenda is conceptually strong and action focused. It’s aligned to new forms of economic democracy and urban development such as new municipalism and Labour’s institutional turn. These seek an end to mere playing at the edges of social change, aiming instead to generate alternative ways for citizens and the state to organise themselves to meet social needs and issues. This includes community action and innovation.
A key part of this is the local wealth building movement. This aims to reorganise and control the local economy so that wealth is not extracted but generative and broadly held. This ensures that income is recirculated locally, communities are put first, and people are provided with opportunity, dignity and well-being. Indeed, across much of CLES’s local wealth building work, and in places such as Salford, Islington, Preston and the Wirral, inclusive economy is fast becoming the local frame for a genuine new type of local economic development. That is where our progressive economic and social future lies.
This is a shorter version of a ‘policy provocation’ published by CLES on 19 December 2019.
Want to keep up-to-date with more articles like this? Sign up to our newsletter.