Inclusive growth: The answer to our equality prayers?

South Africa has a key objective of reducing inequality and poverty for its citizens. Recently a new strategy has been adopted to achieve this. This strategy rests on the idea of “inclusive growth” with growth being the primary mechanism for achieving the ambitious goals of the NDP

The ‘inclusive growth’ as a strategy of economic development received attention owing to a rising concern that the benefits of economic growth have not been equitably shared. Growth is inclusive when it creates economic opportunities along with ensuring equal access to them. Apart from addressing the issue of inequality, the inclusive growth may also make the poverty reduction efforts more effective by explicitly creating productive economic opportunities for the poor and vulnerable sections of the society. The inclusive growth by encompassing the hitherto excluded population can bring in several other benefits as well to the economy. The concept “Inclusion” should be seen as a process of including the excluded as agents whose participation is essential in the very design of the development process, and not simply as welfare targets of development programmes (Planning Commission, 2007). (1)

What is Inclusive growth?

A rapid pace of growth is necessary for significant poverty reduction, but for this growth to be sustainable in the long run, it should be increasingly broad-based across sectors, and inclusive of the large part of the country’s labour force. This definition of inclusive growth implies a direct link between the macro and micro determinants of growth and captures the importance of structural transformation for economic diversification and competition.

Inclusive growth refers both to the pace and pattern of growth. They are considered to be interlinked, and therefore need to be addressed together to achieve a high, sustainable growth record as well as poverty reduction. (Commission on Growth and Development, 2008). (2)

Taking an approach involving inclusive growth means there is a longer term perspective as the growth strategy focuses on productive employment rather than on direct income redistribution, as a means of increasing incomes for excluded groups. With this longer term perspective in mind, it is important to recognize the time lag between reforms and outcomes. Inclusive growth is then about policies that should be implemented in the short run, but which seek to achieve sustainable inclusive growth in the long term.

South African View

South Africa is more focused on increasing economic growth and reducing inequality rather than cutting spending to appease investors, Finance Minister Pravin Gordhan has said. Gordhan told a Bank of America Merrill Lynch conference that South Africa would maintain social spending at levels that improved living conditions for millions of people still mired in poverty nearly two decades after the end of apartheid. "Our focus needs to be in the growth area and both government and the private sector need to focus our minds on that. That (GDP) number 2.7 needs to grow beyond 3.0 % as quickly as we can." (3)

Why is Inclusive growth Important

Exclusive growth focused only on a few sectors and certain parts of a country is unsustainable. This is because once those sectors have reached their plateau; growth can no longer take place. Inclusive growth, however, is sustainable and not dependant on finite sectors which focus on commodities, but is driven by ensuring that more people benefit from the growth of cities within the country. The NDP seeks to achieve equality through growing the economy as a whole.

South African growth

In the MasterCard Cities Growth Index Johannesburg, Durban and Cape Town took positions eight, ten and eleven respectively. One of the reasons that the three South African cities missed out on being the best was because they were already considered mature in other areas such as (Johannesburg’s) strong financial institutions and their growing middle class populations.

The index considered 19 cities in Sub-Saharan Africa according to their growth potential between 2012 and 2017 using lagging and leading indices. Lagging indicators focussed on historical data such as GDP per capita, household consumption, and population numbers as well as a focus on government and its institutions i.e. political stability, regulatory quality and corruption control. (5). Leading indicators focussed on the projected growth of the cities, including infrastructure development, human development index (health and education), and mobile telephone subscriptions. In terms of growth South Africa can do better but is growing none the less.

Problems with current growth

What characterises our current growth trajectory is how skewed our growth patterns are. For example, Johannesburg’s growth undermines inclusive growth because its growth comes at the expense of other potential growth nodules in the country. Whilst Johannesburg may experience significant growth and contribute to the growth of South Africa overall, it is undesirable to have growth so centred in one locality. The UK’s struggling growth in the north due to an over-concentration of growth in the south (and London especially) further elaborates this point.

Inclusive growth would mean ensuring that all cities in South Africa were growing, and, importantly, had access to important growth enablers such as internet, water and electricity. All of these are considered to be leading indicators for a city’s growth potential.”  (6).

South Africa, the UK and other countries desire national growth as it better allows the national fiscus to redistribute resources across the country. Problematic is the over concentration of growth in some cities like Johannesburg and London which decreases growth in the other areas. This ultimately further harms our national growth potential. It adds further strains on our resources as people undergo internal migration in order to access greater opportunity and become more equal in society. The alternative is that they do not move at all and are unequal despite the tangible benefits of growth that may be enjoyed by their fellow countrymen.

Growth does not mean Equality

In countries where poverty has been considerably reduced, such as Brazil, China and Vietnam, there is a continued existence of significant regional and ethnic differences and inequities between geographical and income groups. Despite rapid economic growth Brazil, for example, remains one of the most unequal countries in the world, where the income of the richest 10% of the population is over 40 times that of the poorest 10%. Similarly, India’s GDP growth rate has been exceptionally high, but 42% of the population continue to live in poverty, mostly in rural areas away from the high growth cities. Empirical evidence suggests that economic growth has not always lead to better jobs for the poor. (4). South Africa may experience the same difficulties.

Conclusion

As South Africa is looking to reduce inequality and poverty with inclusive growth there are some substantial stumbling blocks that may prevent this. Those mentioned are, firstly, exclusive growth due to absent infrastructure, inadequate health and education; and, secondly, regional and ethnic differences across income groups.

In order for this growth to lead to the NDP-identified goals being achieved it has to be well thought out and then implemented to avoid these stumbling blocks. Implementation will be looked at in a future brief.

References:
(1) http://www.npconline.co.za/
(2) https://openknowledge.worldbank.org/handle/10986/6507
(3) http://www.polity.org.za/article/sa-focused-on-growth-over-spending-cuts-gordhan-2013-03-11.
(4) http://data.worldbank.org/country
(5) http://newsroom.mastercard.com/press-releases/mastercard-study-reveals-african-cities-economic-growth-potential/
(6) http://www.frontier-advisory.com/index.php/news-article-library/73-south-african-cities-lag-behind


Eythan Morris – eythan@hsf.org.za
Intern
Helen Suzman Foundation