When the benefits of economic growth are distributed very unequally, social bonds fray. Those losing ground, especially the young, may well grow disaffected, then resentful. This was a key factor behind the Arab Spring revolts. As protests in Chile, Brazil, Israel, Turkey and India have shown, social tensions stemming from inequality are mounting around the globe.
To be sure, income inequality has been increasing worldwide for decades. While many developing and emerging economies lifted millions of people out of extreme poverty, the perception that growth meant greater inequality was always bubbling below the surface. However, now persistent unemployment and underemployment are giving new impetus to the rise in inequality, as the Organisation for Economic Co-operation and Development (OECD) reported to the G20 in July.
Indeed, in the wake of the 2008 financial crisis, youth unemployment now averages 16 percent in countries with advanced economies and exceeds 40 percent in some European countries.
As a result, the challenge of inclusive growth has moved to the top of the global economic policy agenda. Indeed, according to the World Economic Forum’s Global Agenda Outlook, widening income disparities will be the second-most important world trend next year, behind only Middle East tensions.
Income gaps are growing for many reasons, ranging from “skill-biased” technological progress to corruption. Whatever its causes, putting people back to work at productive, rewarding jobs can help a great deal, and this demands the best efforts of governments, employers and civil-society groups on many fronts.
For starters, it means providing populations with access to quality schooling and healthcare: a healthy, educated person is an employable person. In many countries, this remains a major challenge. However, the large strides already made in some low-income countries reveal great potential.
Consider Brazil, which enjoyed a long boom in the 2000s, during which income inequality actually declined. One contributing factor was the bolsa familia (family grant), now a decade old. This monthly cash payment goes directly to mothers, provided that they keep their children in school and send them for regular medical checkups.
This innovative program is not only a human-capital investment in millions of children, it also allows mothers to work. Such well-designed subsidies for socially useful behavior can lift millions out of poverty.
However, education and health are just the first step. For practical and political reasons, redistributive programs, while essential, are not enough to ensure inclusive growth by themselves.
It is often said, for good reason, that the widening income gap largely reflects technological change, which has drained many economies of blue — and even white — collar jobs, while channeling the fruits of improved productivity to highly skilled elites. But the digital revolution can also enable inclusive growth. Internet applications and other communication advances are spreading knowledge and information to millions of poor people.
Consider Babajob.com, started by a Microsoft researcher in India to bring better job opportunities to the country’s informal sector by connecting employers and job seekers via the Web, mobile apps, SMS and voice services. Likewise, in Kenya, as cellphones became widespread, network operators introduced M-pesa, by which anyone with a mobile phone can transfer money quickly and cheaply — a boon for the smallest enterprises in particular.