Every year, the Great and the Good of the global economics community gather in Washington, D.C. for April’s “Spring Meetings”, led by the International Monetary Fund (IMF).

Speaking at a fringe conference organised by the IMF and the Peterson Institute for International Economics (Rethinking economic policy: Steering structural change), Gordon Brown argued that the whole world faces an unholy trinity of productivity stagnation, social fragmentation, and climate collapse. Our challenge is move towards a reinforcing cycle of growth, inclusion, and sustainability.

Even in an age of fracture and fragmentation, inclusive growth may depend on global partnership to succeed. “Inclusive growth in one country” is – at best – a difficult path. It may even be impossible, as the unravelling of Scandinavian social democracy suggests.

What can we learn from the Spring Meetings? Is rising talk of inclusion just a load of hot air? Or will international elites use their leadership and finance to make a real difference across the globe?

In this blog I set out the emerging thinking of global financial and administrative elites around inclusive growth.

I argue that we have good reason for taking their repentance of old creeds in good faith; that we have a shared project in defining an alternative; that the IMF, World Economic Forum and others need to be held to account to deliver; and that doing so may require changing their governance if it’s going to stick.

Georgieva was typical of leaders at the Spring Meetings in rejecting an old approach, based on one-size-fits-all models or a narrow focus on GDP growth. But older abstract schemes have not been replaced with a new grand unifying theory. Instead, we seem to be seeing a turn to humility and an embrace of complexity among global economists.

The best example of this is the influential essay published in January by Nobel Memorial Prize winner Angus Deaton, Rethinking my Economics. He sets out what he – and the economic establishment – got wrong (a “discomforting process for someone who has been a practicing economist for more than half a century”).

Deaton sets out three areas where economic theorists and practitioners need to do better:

1. Bringing “power” back in: we should assume that power relations are pervasive in markets and the state. They are not being driven away by competition; and assuming power relations away is making it harder, not easier, to understand our economic predicaments. New research points the way: setting out the impact of market power on setting prices and wages; of the role of power in directing technological change, to displace rather than augment labour; and of the political role of power, reshaping and co-opting the state to reinforce inequalities.
2. Economics is not separate from ethics: we need to challenge the traditional separation between a value-free “economics as plumbing” approach, which is difficult or impossible to uphold in practice. That may mean embracing the move away from methodological individualism in economic theory, with a greater focus on communities and institutions, as well as altruism and cooperative behaviour. None of this is outside of the economics mainstream (Elinor Ostrom won her Nobel Memorial Prize for it in 2009), but it is still frequently missed from Econ 101 and right-wing narratives about the discipline.
3. We should embrace diverse methods and the humility that comes with practical work: we need to be modest and humble about the limits of statistical methods and theorising. Economists can help clarify specific causal pathways in specific circumstances, but in the real world multiple causal pathways and feedback loops get in the way. Economics should therefore marry itself to other disciplines – ecology-inspired systems theory, history, or anthropology – to develop more rounded recommendations.

In his own telling, this framework has led Deaton to rethink the role of trade unions (as possible efficiency-boosters); and made him more sceptical of trade and immigration as drivers of inclusive growth.

Deaton’s insights resonate with the approach that CPP has developed. Our research agenda starts with an analysis of power and the objective of equity and inclusion. And we develop it hand-in-hand with practitioners through the Inclusive Growth Network. But, like Deaton, we are finding that inclusive growth requires hard work and dozens of little interventions, rather than one Big Idea.

More than one eyebrow was raised last month, when the World Economic Forum chose Riyadh – one of the most regressive societies in the world by some metrics - as the site for a special session on a compact for inclusive growth.

That session in Saudi Arabia was about fleshing out the new “Future of Growth” initiative, launched at Davos this January. Although the World Economic Forum (WEF) insist this builds on the Global Competitiveness Index they used to publish – leading to decades of jostling among national governments to be “most competitive” – its emphasis is very different.

The new Future of Growth framework starts from the premise that “a conventional GDP growth picture is incomplete without a deeper understanding of the underlying nature and quality of growth.” The quantity of growth must be balanced by its quality, defined in terms of innovation, inclusion, sustainability and resilience. By the WEF’s own measure, the world is only “halfway there” to “fully innovative, inclusive, sustainable and resilient growth”.

In a tortured paragraph on the “trade-offs” across quality and quantity of growth, the WEF report’s authors are equivocal on whether inequality is bad in the short-term for growth.

The OECD’s research suggests that rising inequality between 1990 and 2010 reduced growth by nearly 5%; but the IMF suggests that becoming “too equal” can dampen incentives and growth.

(That level is a Gini coefficient of 0.27, roughly equivalent to Britain in the 1970s and around thelevel of Belgium and the Netherlands today. The Scandinavian countries are less equal, sitting just above 0.27, while the UK’s Gini is 0.39 after housing costs.)

But after this “on the one hand, on the other” nuance, comes the kicker: intergenerational effects of inequality on human capital development mean that, in the long-run, countries grow stronger if they grow together. Greater equality means a more resilient, innovative, educated and prosperous economy.

The challenge, then, is for policy to balance the interests of the generations to come – who don’t vote – with the interests of those grinding up against taxation today.

We are especially interested in the WEF’s definition of inclusive growth. We are now in a world where the men and women of Davos rank their economies more highly where:

• wealth and income inequality is low;

• there is gender parity in leadership positions and in knowledge-intensive industries;

• citizens enjoy an extensive welfare state, healthcare, and access to an affordable healthy diet; and

• communities enjoy political agency, with inclusion in public space, high political engagement, and equal opportunities in public employment.

The WEF’s new index is far more complex than indexes that have gone before (hence why Figure One isn’t comprehensive), but is correlated with our own earlier work (Figure Two) based more narrowly on consumption, equality, employment rates and leisure time.

The advantage of the WEF’s index is that it allows for a more nuanced analysis of both global inclusion and inclusion in countries over time. That makes its conclusion all the more sobering: even as global inclusion rises, driven by the rise of the Global South – inclusion within countries is falling.

The sceptically minded may be reading this thinking that nothing I’ve said is new.

The rhetoric around the rejection of the Washington Consensus has been with us since the Asian Financial Crisis. Dani Rodrik was able to write in a 2006 paper that the question wasn’t whether the Washington Consensus was dead, but what should replace it?

The long standing rejection in some quarters of the Consensus didn’t stop the IMF, WEF and others championing austerity programmes through the late 2000s and early 2010s; hasn’t prevented the stagnation of the global reduction in poverty since the mid-2010s; or resolved the reemergence of an emerging economy debt crisis in the aftermath of the (deeply unequal) COVID-19 pandemic.

Nor even now is the IMF wholeheartedly embraced the emerging fashions of economic policy – with scepticism of industrial strategy being especially marked. While the IMF’s general drift is towards accepting that industrial policy is part of the economic toolkit and can’t be ignored, their editorial line is that we need to be careful of the risks of state capture; gather more evidence on “what works”; and prevent industrial policies spurring a costly trade war.

Most importantly, the proof of the pudding is in the eating. Human Rights Watch reported last year that the IMF’s 38 loan programmes between 2020-23 had a negative impact on 1 in 8 people in recipient countries, and amplified inequalities.

The IMF’s defence would be that they have reformed their programmes significantly since the 1990s, and even since the Global Financial Crisis. The IMF and the World Bank have moved from their old “advanced/emerging economies” division of labour, and now work side-by-side to support both development and reform. The IMF’s Structural Adjustment Programming now balances poverty reduction as well as macroeconomic stability for low-income countries. They even accept Human Rights Watch’s criticism on the importance of timing and designing interventions to support a wider social compact.

It's clear that, even if we were being generous, we are at the beginning rather than the end of the international elite’s embrace of inclusive growth. The ideologues, administrators and politicians recognise that the old solutions won’t work anymore, but through a blend of inertia, disinterest or lack of inspiration the practice of governments (at home and abroad) has yet to catch-up.

Ultimately, the barriers to inclusive programming by the IMF, World Bank and others is not about economic theory. In fact, our understanding of “what works” in inclusive growth may be better than ever. The real challenge is political.

Human Rights Watch is right that the IMF needs to do more to build pro-poor advocates and countervailing institutions within countries. The World Economic Forum is right to stress political participation as integral to inclusion.

But the international organisations are hamstrung by two problems: their legitimacy to act when they are seen as a “rich country club” by the BRICS; and the fact that they are invited in by national governments with a vested interest in an unequal status quo.

One obvious path forward is to make the global institutions themselves more inclusive. It is an indictment that Kristalina Georgieva is the first leader of the IMF from an emerging economy, but also a predictable consequence of the IMF/World Bank’s governance structures. The UN is now calling for reform, following their handling of the pandemic.

The rise of the Global South means that growth and opportunity are now more widely shared across the globe than ever. If we want to support inclusion within countries, North and South, our global institutions need to change. That won’t happen without a fight, as the Biden Administration made clear late last year. But the status quo – especially in the event of a second Trump Presidency – might not be viable for much longer.

The advocates of change in the inclusive growth community should, then, champion and inform global efforts to foster inclusion. But that doesn’t mean we can’t call them out and advocate for reform where they fall short. Global change will mean getting over massive hurdles. Critical friends need to be bold and loud in calling for reform. Nothing less will cut it.