Inclusive growth: it all starts with measuring it

13 June 2019

By Romina Boarini

Romina Boarini, Senior Advisor and Coordinator of the Inclusive Growth Initiative at OECD, writes about the challenges and importance of measuring inclusive growth and how the CPP Inclusive Growth Index adds value to the growing body of analysis in this area.

Economies are central hubs of prosperity. When we look at OECD economies in the past three decades, however, much of that prosperity has not benefited people evenly[1], challenging the vision that growth is always a synonym for higher well-being. While inequality patterns differ across OECD countries, the middle class has been losing ground almost everywhere[2]. Additionally, factors beyond consumption or income influence both individual and societal well-being, and the environmental costs of growth are unsustainable. These are the shortcomings of a growth model that focuses on maximising aggregate economic performance as opposed to a growth model that improves the lives of the majority of people.

These challenges demonstrate why we need to understand the quality of growth and the ways to measure its benefits, including the extent to which these aspects of growth are tangible for people and meet their expectations of a better life for them and their children. At the OECD, this question has occupied a central place since 2011, when we launched the Better Life Initiative in order to develop a wide range of new data and indicators beyond GDP to better inform policy decisions. One year later, we created the Inclusive Growth Initiative in order to rethink the concept of growth entirely, with a focus on understanding how the process of growth can lead to higher well-being for all.

At the OECD we defined Inclusive Growth as growth where everybody has a stake. This concept relates to understandings of wide-based economic participation and gains, but it also pertains to the notions that growth should allow people and places to fully develop their potential and that growth should enable individual and collective choices. In defining the concept of Inclusive Growth, we had a clear objective in mind: making it actionable from a policy perspective. This led us to develop a suite of measurement tools that include a multidimensional living standard index and a dashboard of inclusive growth indicators that can be used to evaluate policies. Some of the tools are being used by countries or multilateral fora such as the G7.

Together with the OECD, many international organisations and actors have contributed to the inclusive growth measurement agenda, demonstrating both the importance of the issue and that the topic is still evolving. To build on the innovation in measurement techniques, different methodologies should be developed to address the challenges that are specific to the needs of various communities. At the end of the day, the assumptions underpinning these indices need to reflect people’s preferences on a number of criteria (e.g. the dimensions of the index) but also values around fairness and equity (e.g. how to factor in distributional considerations). While those assumptions can be grounded in economic theory or empirical evidence, they remain bound to societal choices.

The new CPP Inclusive Growth Index adds to this growing body of analysis, bringing a unique perspective on countries’ performance on consumption, life expectancy, leisure, inequality and unemployment. Three aspects are particularly noteworthy. First, the index is estimated for a very large set of countries, providing a vivid illustration of the diversity of inclusive growth pathways. Second, looking at leisure in combination with economic consumption points to a contradiction in some growth models, as increases in consumption came at the cost of reduced leisure time. This is not inevitable, however, as in other countries both leisure and consumption increased thanks to enhanced productivity. Third, this Index will be followed by two companion indices at the community and business levels that will provide insights on the place-based and company-driven aspects of inclusive growth, possibly broadening our understanding of the interaction of the different forces and enabling factors behind inclusive growth.

Romina Boarini is Senior Advisor and Coordinator of the Inclusive Growth Initiative at OECD. Romina was previously Deputy Head of the Well-Being Division of the Statistics Directorate and the Head of the Well-Being and Progress Section, where she was responsible for OECD Better Life Initiative, the statistical pillar of the OECD Inclusive Growth Initiative and the OECD Pilot Study on SDGs.

Notes


[1]
OECD 2018, Opportunities for All.

[2] OECD 2019, The Squeezed Middle Class.