How can a development strategy based on inclusive growth help developing Asia eradicate extreme poverty and tackle inequality? This paper from the Asian Development Bank (ADB) argues that inclusive growth emphasises creation of, and equal access to opportunities; and that unequal opportunities arise from social exclusion associated with market, institutional, and policy failures. Thus, the ADB should modify its vision, mission and operational priorities to make inclusive growth its overarching goal.
Developing Asia’s impressive growth in gross domestic product (GDP) has masked rapidly rising relative and absolute inequalities in growth. Reconciling Asia as an economic success story with the fact that much of the region’s population is poor and vulnerable is the development challenge of the next generation. Country and donor policies demonstrate a growing recognition of the role of inclusive growth in addressing this challenge. Inclusive growth allows all members of a society to participate in and contribute to the growth process regardless of individual circumstances (but not of individual efforts). It is not based on a redistributive approach.
Asia’s rapid economic growth has led to a reduction in the level of extreme poverty, but poverty incidence on a two-dollar-a-day measure is still very high. Rising inequalities pose a major risk to social and economic progress and threaten the sustainability of growth in developing Asia.
- Income inequality increased between 1990 and 2005 across the region. Increases in the absolute gaps between rich and poor and visible changes in consumption patterns and lifestyles undermine social cohesion.
- Growing inequalities in access to social services such as education and health, exacerbated by income inequalities, are another significant concern.
- The persistence of inequality could stall reforms, resulting in lower growth and higher inequalities. Rising absolute gaps between rich and poor could trigger social and political tensions. Ultimately, this could lead to armed conflict, as in parts of South Asia.
Policy recommendations for ADB are as follows:
- ADB should adopt an inclusive growth strategy as its overarching goal. This would have two pillars: creating opportunities (investing in the economy) and broadening access (investing in people).
- An inclusive growth strategy would support high and sustainable growth, promote good government and strong institutions and facilitate domestic and regional integration. It would allow ADB to move away from direct poverty targeting and focus on identifying market and government failures that constrain inclusive growth.
- In encouraging sustainable growth, the role of government is to develop and maintain an enabling environment for business investment and private entrepreneurships. This means investing in infrastructure and human capital, building institutional capacity, adopting market friendly policies and maintaining the rule of law.
- Promoting social inclusion requires public intervention in three areas: investing in public services to enhance human capacity, ensuring policy and institutions advance economic and social justice, and providing safety nets to prevent extreme deprivation.
- ADB should change its vision to ‘Asia and the Pacific – a region of prosperity, equal opportunity and free of poverty’. Its mission should be ‘to promote inclusive growth in its developing member countries’.
- The proposed inclusive growth strategy would also embrace environmental protection and regional cooperation.
