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Understanding inclusive growth

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Inclusive Growth

As the idea of inclusive growth has become increasingly common in local growth debates, an array of policy solutions has been suggested, from establishing cooperatives, to improving high streets and public spaces, to ‘local procurement’ policies.

At the What Works Centre for Local Economic Growth, we think inclusive growth approaches – like all policies – should be judged by their impact. But the idea raises another fundamental issue for us, one which becomes apparent when inclusive growth is characterised as ‘beyond GDP’ or ‘more than just economic growth’. Our remit is to identify effective interventions for local economic growth. If economic outcomes no longer fully capture what local partners mean by growth, does our approach need to change?

Here are three things we’re thinking about to help us answer that question.

When is economic growth ‘inclusive’?

If inclusive growth is growth accompanied by a more even distribution of income, then one way to achieve it is to combine economic growth with a more redistributive tax and public spending regime.

However, there seems to be agreement that inclusive growth requires wider participation in the creation of growth, with, at the very least, wider involvement in productive employment. This is reflected in definitions from the World Economic Forum and the European Commission.

A focus on employment introduces a geographical aspect. People can access redistributive cash transfers from anywhere. But to access jobs they need to be near to them. So, either people need to move or we need more and better jobs, in particular places. So, employment matters for inclusive growth, and employment is already a key indicator of economic growth in the ‘what works’ evidence base.

How do we deliver inclusive economic growth?

Although many evidence gaps remain, we do have some reliable evidence about polices that can create more jobs and higher wages. Our ‘toolkits’ summarise this knowledge for people designing and delivering policy. These policies, implemented in the right places, and targeted in the right way, can help to deliver a more geographically-even distribution of employment and income.

The challenge for us is to ensure that new policies draw on existing evidence – so that public funds aren’t wasted on ineffective approaches – and to strengthen the evidence base and fill the gaps, particularly those on the distributional effects of growth interventions across different groups of people.

How does inclusive growth ‘go beyond’ the economic?

For many, however, inclusive growth also involves changes such as improved wellbeing, a more even distribution of access to public services and public goods, and strong, inclusive communities.

These are crucial goals for public policy. That’s why What Works Growth is just one of nine ‘what works’ centres, with others focusing on precisely these types of outcomes, including the centres for health, wellbeing, crime reduction and education. These outcomes are intimately connected with economic factors. Local and national governments need to develop policies which address these multiple issues, and as what works centres we should challenge ourselves to support them by presenting the evidence in the context of these wider aims.

But this doesn’t undermine the need to identify the most effective approaches to fairer health outcomes, better education opportunities, or improved wellbeing. And the same is true for local economic growth.

What this means for a ‘what works’ approach to local growth

Local economic growth – in terms of increased employment or higher wages – is necessary for inclusive growth. That means local partners still want to know which interventions are most likely to result in new jobs, higher wages, and the increases in business activity and productivity which can deliver them.

This is not to say that economic growth and inclusive growth are the same thing. In our evidence reviews we recognise that interventions which may not result in economic growth may be implemented on the grounds that they deliver ‘inclusive’ outcomes, such as improved health, or greater cultural capital. The desire of local partners to see outcomes like this alongside economic growth is not new, and in this sense our role is not fundamentally changed by the inclusive growth debate. We still need to show which policies are most likely to deliver which outcomes, and to be honest that some interventions which do have wider value will not create economic growth.

The goal of public policy is to improve people’s lives. That’s why, when an intervention increases GDP without actually delivering better outcomes for individuals, we aim to highlight that. Do we acknowledge that GDP is not always the best measure of overall progress? Absolutely.

In the same way, polices designed to achieve more inclusive growth, from new cooperatives to ‘local procurement’ policies, must be assessed not as ends in themselves, but by their ability to improve people’s lives.