GENEVA – There is no bigger policy challenge preoccupying leaders around the world than meeting the need to expand participation in the benefits of economic growth and globalization. Indeed, a geographically and ideologically diverse consensus has emerged that a new – or at least much improved – model of economic development will be required if truly greater inclusiveness is to be achieved.
Unfortunately, this political consensus has so far remained aspirational, rather than prescriptive. Policymakers have yet to develop an internationally recognized policy framework – with a corresponding set of indicators and measurable milestones – to guide countries targeting broad-based improvements in living standards, rather than simply continuing to use GDP growth as the bottom-line measure of national economic performance.
The extent to which growth creates opportunities and improves living standards depends on an array of structural and institutional economic policies, including many in areas outside of education and redistribution (the areas most commonly featured in discussions about inequality). There is a growing recognition of the importance of institutions – particularly legal frameworks and public agencies that administer rules and incentives – in the development process. But this recognition has yet to penetrate fully the approach to economic growth that most economists and policymakers take.
The role that institutions play in shaping economic growth was a key finding of the landmark 1993 World Bank study, The East Asian Miracle, which examined how eight countries in the region achieved “high growth and declining inequality” from 1965 to 1990. The Commission on Growth and Development, chaired by the Nobel laureate economist Michael Spence, reached a similar conclusion in its 2008 report, The Growth Report: Strategies for Sustained Growth and Inclusive Development.