Decades of prioritizing economic growth over social equity has led to historically high levels of wealth and income inequality and caused governments to miss out on a virtuous circle in which growth is strengthened by being shared more widely and generated without unduly straining the environment or burdening future generations. These are the findings from the World Economic Forum’s Inclusive Development Index 2018, which is released today.
Excessive reliance by economists and policy-makers on gross domestic product as the primary metric of national economic performance is part of the problem, since GDP measures current production of goods and services rather than the extent to which it contributes to broad socio-economic progress as manifested in median household income, employment opportunity, economic security and quality of life.
The Inclusive Development Index is an annual assessment that measures how 103 countries perform on 11 dimensions of economic progress in addition to GDP. It has three pillars: growth and development; inclusion; and intergenerational equity – sustainable stewardship of natural and financial resources.
According to this year’s index, over the past five years, the 29 advanced economies included in the study have on average flatlined in terms of inclusion, which is measured by median household income, poverty, and wealth and income inequality, despite boosting their Growth and Development score by over 3%. The four indicators that make up the index’s Growth and Development pillar are: GDP per capita; labour productivity; employment; and healthy life expectancy.
Over the same period, only 12 of the 29 advanced economies were successful in reducing poverty and only eight saw a decrease in income inequality.
More worrying still: rich and poor countries alike are struggling to protect future generations. The index’s Intergenerational Equity and Sustainability pillar – which takes into account public debt; carbon intensity of GDP; dependency ratio and adjusted net savings (which measures savings in an economy after investments in human capital, depletion of natural resources and the cost of pollution) – actually deteriorated in upper-, middle- and low-income economies since 2012 and improved only marginally (0.6%) in advanced economies.
Top performing countries
According to the index, the most inclusive advanced economy in the world in 2018 is Norway. The Nordic nation ranks second overall for intergenerational equity and third for the two other pillars of the index: Growth and Development, and Inclusion. Small European economies dominate the top of the index, with Australia (9) the only non-European economy in the top 10.
Of the G7 economies, Germany (12) ranks the highest. It is followed by Canada (17), France (18), the United Kingdom (21), the United States (23), Japan (24) and Italy (27). In many countries, there is a stark difference between individual pillars. For example, the US ranks 10 out of 29 for Growth and Development; however, it ranks 28 on Inclusion and 26 on Intergenerational Equity. France, on the other hand, fares less well on Growth and Development (21 out of 29); however, it ranks 12 for Inclusion. Its low ranking on Intergenerational Equity (24) suggests it may be storing up problems for the future.
Six emerging European economies are located in the top 10 spots in the emerging economies’ ranking: Lithuania (1), Hungary (2), Latvia (4), Poland (5), Croatia (7) and Romania (10). These countries perform well on Growth and Development, benefiting from EU membership, as well as on inclusion indicators, as median living standards rose and wealth inequality declined significantly. Latin America also performs well, with three countries featured in the top 10: Panama (6), Uruguay (8) and Chile (9).
Performance is mixed among BRICS economies, with the Russian Federation ranking 19th, followed by China (26), Brazil (37), India (62) and South Africa (69). Although China ranks first among emerging economies in GDP per capita growth (6.8%) and labour productivity growth (6.7%) since 2012, its overall score is brought down by lacklustre performance on Inclusion. Other emerging countries such as Mexico (24), Indonesia (36), Turkey (16) and the Philippines (38) show more potential on Intergenerational Equity and Sustainability but lack progress on Inclusion indicators such as income and wealth inequality.
Key findings and policy implications
IDI data suggest that relatively strong GDP growth cannot be relied upon by itself to generate inclusive socio-economic progress and rising median living standards. All but three advanced countries have experienced GDP growth over the last five years, but only 10 of 29 have registered clear progress in the IDI’s Inclusion pillar. A majority, 16 of 29, have seen Inclusion deteriorate, and the remaining three have remained stable. A majority of those countries with the best GDP growth performance failed to improve on Inclusion. This pattern is repeated in the relationship between GDP growth and performance on Intergenerational Equity and Sustainability with 11 of 29 showing clear progress and 18 of 29 deteriorating.
Emerging -country data show a similar disconnect between GDP growth and Inclusion. Of the 30 emerging economies with the highest GDP per capita growth over the past five years, only six have scored similarly well on a majority of the Inclusion indicators, while 13 have been no better than mediocre and 11 have registered outright poor performance. With respect to Intergenerational Equity, only eight have scored similarly well on a majority of the Intergenerational Equity and Sustainability indicators, while 12 have been no better than mediocre and 10 have registered outright poor performance.
This evidence suggests that GDP growth is a necessary but not sufficient condition for achievement of the broad-based progress in living standards by which most people judge countries’ economic success. This message is particularly relevant at a time when global economic growth is returning to a more robust level and policy-makers could do more to future-proof their economies and make them more equitable. Political and business leaders should not expect higher growth to be a panacea for the social frustrations, including those of younger generations who have shaken the politics of many countries in recent years.
“Economic growth as measured by GDP is best understood as a top-line measure of national economic performance. Broad, sustainable progress in living standards is the bottom-line result societies expect. Policy-makers need a new dashboard focused more specifically on this purpose. It could help them to pay greater attention to structural and institutional aspects of economic policy that are important for diffusing prosperity and opportunity and making sure these are preserved for younger and future generations,” said Richard Samans, Managing Director and Head of Global Agenda at the World Economic Forum.
About the Inclusive Development Index
The IDI is a project of the World Economic Forum’s System Initiative on Shaping the Future of Economic Progress, which aims to inform and enable sustained and inclusive economic progress through deepened public-private cooperation, thought leadership and analysis, strategic dialogue and concrete cooperation, including by accelerating social impact through corporate action.
ADB Approves $400 Million Loan to Support Philippines’ Capital Market Development
The Asian Development Bank (ADB) has approved a $400 million policy-based loan to support the Philippine government’s efforts to strengthen domestic capital markets and reach its development goals of high, sustained economic growth and poverty reduction.
The Support to Capital Market-Generated Infrastructure Financing Program, subprogram 1, aims to address key constraints that have limited the growth of domestic capital markets, especially government and corporate bond markets. It also focuses on building a vibrant domestic institutional investor base that will become a sustainable source of long-tenor infrastructure finance. By boosting infrastructure finance, the capital market development program will support higher public infrastructure spending for years to come.
The government’s flagship “Build Build Build” (BBB) infrastructure development program targets an increase in public spending on infrastructure towards 7.0% of gross domestic product by 2022, up from 5.5% in 2018 and an average of 2.8% in the last three decades.
“Resilient and vibrant capital markets are key to achieving economic development, growth, and poverty reduction as set out in the government’s long term strategy AmBisyon Natin 2040,” said ADB Vice-President Ahmed M. Saeed. “By developing domestic capital markets, funds are generated to support higher levels of long-term investments and sustainable quality job creation. The program approved today will support the Philippine government’s development goals, including its response to the COVID-19 pandemic.”
The capital markets development program has supported various reforms in recent years, including the launch and implementation of the first government-led, comprehensive domestic bond market development plan. The Philippines also has modernized its government debt trading infrastructure and provided a reliable yield curve to support the pricing of private sector debt instruments.
Other reforms have helped build an enabling environment for private sector debt instruments. These reforms will boost outstanding corporate bonds to an estimated 12% of gross domestic product by 2021, up from 7.5% in 2017. The government also has upgraded the Personal Equity and Retirement Account system, which makes it easier for Filipinos to tap into the capital markets to save for the future.
This latest assistance builds on decades of ADB support to financial sector reforms in the Philippines, including strengthening governance and investor protection measures in the wake of the 1997 Asian financial crisis. Since 2013, ADB has been supporting reforms in the domestic capital market, which aimed to build a more diversified institutional investor base to encourage the development of long-term finance for infrastructure.
This new loan brings ADB’s total lending to the Philippines to $2.1 billion so far this year. ADB approved a $1.5 billion loan for the COVID-19 Active Response and Expenditure Support Program on 23 April and $200 million in additional financing for the Social Protection Support Project on 27 April.
Europe’s moment: Repair and prepare for the next generation
European Commission has put forward its proposal for a major recovery plan. To ensure the recovery is sustainable, even, inclusive and fair for all Member States, the European Commission is proposing to create a new recovery instrument, Next Generation EU, embedded within a powerful, modern and revamped long-term EU budget. The Commission has also unveiled its adjusted Work Programme for 2020, which will prioritise the actions needed to propel Europe’s recovery and resilience.
The coronavirus has shaken Europe and the world to its core, testing healthcare and welfare systems, our societies and economies and our way of living and working together. To protect lives and livelihoods, repair the Single Market, as well as to build a lasting and prosperous recovery, the European Commission is proposing to harness the full potential of the EU budget. Next Generation EU of €750 billion as well as targeted reinforcements to the long-term EU budget for 2021-2027 will bring the total financial firepower of the EU budget to €1.85 trillion.
European Commission President Ursula von der Leyen said: “The recovery plan turns the immense challenge we face into an opportunity, not only by supporting the recovery but also by investing in our future: the European Green Deal and digitalization will boost jobs and growth, the resilience of our societies and the health of our environment. This is Europe’s moment. Our willingness to act must live up to the challenges we are all facing. With Next Generation EU we are providing an ambitious answer.”
Commissioner Johannes Hahn, in charge of the EU budget, said: “Our common budget is at the heart of Europe’s recovery plan. The additional firepower of Next Generation EU and the reinforced multiannual financial framework will give us the power of solidarity to support Member States and the economy. Together, Europe will arise more competitive, resilient and sovereign.”
Vice-President Maroš Šefčovič, in charge of interinstitutional relations and foresight, said: “The recovery will need strong policy direction. The adapted Work Programme, reflecting the new reality, shows that we will focus all our actions on overcoming the crisis, jumpstarting our economy and putting the European Union firmly on a resilient, sustainable and fair recovery path. It will help us rebound stronger.”
INVESTING FOR THE NEXT GENERATION
Complementing national efforts, the EU budget is uniquely placed to power a fair socio-economic recovery, repair and revitalise the Single Market, to guarantee a level playing field, and support the urgent investments, in particular in the green and digital transitions, which hold the key to Europe’s future prosperity and resilience.
Next Generation EU will raise money by temporarily lifting the own resources ceiling to 2.00% of EU Gross National Income, allowing the Commission to use its strong credit rating to borrow €750 billion on the financial markets. This additional funding will be channelled through EU programmes and repaid over a long period of time throughout future EU budgets – not before 2028 and not after 2058. To help do this in a fair and shared way, the Commission proposes a number of new own resources. In addition, in order to make funds available as soon as possible to respond to the most pressing needs, the Commission proposes to amend the current multiannual financial framework 2014-2020 to make an additional €11.5 billion in funding available already in 2020.
The money raised for Next Generation EU will be invested across three pillars:
1. Support to Member States with investments and reforms:
- A new Recovery and Resilience Facility of €560 billion will offer financial support for investments and reforms, including in relation to the green and digital transitions and the resilience of national economies, linking these to the EU priorities. This facility will be embedded in the European Semester. It will be equipped with a grant facility of up to €310 billion and will be able to make up to €250 billion available in loans. Support will be available to all Member States but concentrated on the most affected and where resilience needs are the greatest.
- A €55 billion top-up of the current cohesion policy programmes between now and 2022 under the new REACT-EU initiative to be allocated based on the severity of the socio-economic impacts of the crisis, including the level of youth unemployment and the relative prosperity of Member States.
- A proposal to strenghten the Just Transition Fund up to €40 billion, toassist Member States in accelerating the transition towards climate neutrality.
- A €15 billion reinforcement for theEuropean Agricultural Fund for Rural Development to support rural areas in making the structural changes necessary in line with the European Green Deal and achieving the ambitious targets in line with the new biodiversity and Farm to Fork strategies.
2. Kick-starting the EU economy by incentivising private investments:
- A new Solvency Support Instrument will mobilise private resources to urgently support viable European companies in the sectors, regions and countries most affected. It can be operational from 2020 and will have a budget of €31 billion, aiming to unlock €300 billion in solvency support for companies from all economic sectors and prepare them for a cleaner, digital and resilient future.
- Upgrade InvestEU, Europe’s flagship investment programme, to a level of €15.3 billion to mobilise private investment in projects across the Union.
- A new Strategic Investment Facility built into InvestEU– to generate investments of up to €150 billion in boosting the resilience of strategic sectors, notably those linked to the green and digital transition, and key value chains in the internal market, thanks to a contribution of €15 billion from Next Generation EU.
3. Addressing the lessons of the crisis:
- A new Health Programme, EU4Health, to strengthen health security and prepare for future health crises with a budget of €9.4 billion.
- A €2 billion reinforcement of rescEU, the Union’s Civil Protection Mechanism, which will be expanded and strenghetend to equip the Union to prepare for and respond to future crises.
- An amount of EUR€94.4 billion forHorizon Europe, which will be reinforced to fund vital research in health, resilience and the green and digital transitions.
- Supporting Europe’s global partners through an additional €16.5 billion for external action, including humanitarian aid.
- Other EU programmes will be strengthened to align the future financial framework fully with recovery needs and strategic priorities. Other instruments will be reinforced to make the EU budget more flexible and responsive.
Reaching a rapid political agreement on Next Generation EUand the overall EU budget for 2021-2027 at the level of the European Council by July is necessary to give new dynamism to the recovery and equip the EU with a powerful tool to get the economy back on its feet and build for the future.
THE POLICY FUNDAMENTALS OF THE RECOVERY
Relaunching the economy does not mean going back to the status quo before the crisis, but bouncing forward. We must repair the short-term damage from the crisis in a way that also invests in our long-term future. All of the money raised through Next Generation EU will be channelled through EU programmes in the revamped long-term EU budget:
The European Green Deal as the EU’s recovery strategy:
- A massive renovation wave of our buildings and infrastructure and a more circular economy, bringing local jobs;
- Rolling out renewable energy projects, especially wind, solar and kick-starting a clean hydrogen economy in Europe;
- Cleaner transport and logistics, including the installation of one million charging points for electric vehicles and a boost for rail travel and clean mobility in our cities and regions;
- Strengthening the Just Transition Fund to support re-skilling, helping businesses create new economic opportunities.
Strengthening the Single Market and adapting it to the digital age:
- Investing in more and better connectivity, especially in the rapid deployment of 5G networks;
- A stronger industrial and technological presence in strategic sectors, including artificial intelligence, cybersecurity, supercomputing and cloud;
- Building a real data economy as a motor for innovation and job creation;
- Increased cyber resilience.
A fair and inclusive recovery for all:
- The short-term European Unemployment Reinsurance Scheme (SURE) will provide €100 billion to support workers and businesses;
- A Skills Agenda for Europe and a Digital Education Action Plan will ensure digital skills for all EU citizens;
- Fair minimum wages and binding pay transparency measures will help vulnerable workers, particularly women;
- The European Commission is stepping up the fight against tax evasion and this will help Member States generate revenue.
BUILDING A MORE RESILIENT EU
Europe must enhance its strategic autonomy in a number of specific areas, including in strategic value chains and reinforced screening of foreign direct investment. To increase crisis preparedness and crisis management, the Commission will reinforce the European Medicines Agency and give a stronger role to the European Centre for Disease Control (ECDC) in coordinating medical responses in crises.
The recovery must unequivocally be based on fundamental rights and full respect of the rule of law. Any emergency measures must be limited in time and be strictly proportionate. The Commission’s assessment will be included in the first report under the rule of law mechanism.
We can and must learn the lessons from this crisis, but this can only be done by involving our citizens, communities and cities. The Conference on the Future of Europe will play an important role in further strengthening Europe’s democratic foundations in the post-coronavirus crisis world.
RESPONSIBLE GLOBAL LEADERSHIP
The EU is committed in leading international efforts towards a truly global recovery, notably though joint coordination with the United Nations, the G20 and G7, the International Monetary Fund, the World Bank or the International Labour Organisation. The EU will continue working particularly closely with its immediate neighbourhood in the East and South and its partners in Africa.
The Joint Statement of the Members of the European Council adopted on 26 March 2020 called on the European Commission to develop a coordinated exit strategy, a comprehensive recovery plan and unprecedented investment to allow a normal functioning of our societies and economies and get to sustainable growth, integrating inter alia the green transition and the digital transformation. On the basis of this mandate, on 15 April the Presidents of the Commission and the Council presented, as a first step, a Joint European Roadmap towards lifting Covid-19 containment measures. The package presented today, based on a revamped proposal for the next long-term EU budget and the updated Commission Work Programme for 2020, addresses the second part of the mandate, namely the need for a comprehensive recovery plan.
The EU has already delivered a coordinated and powerful collective response to cushion the economic blow of the coronavirus crisis. We have relaxed our fiscal and state aid frameworks to give Member States room to act. We are using every available euro in the EU budget to support the healthcare sector, workers and businesses, and mobilising finance from the markets to help save jobs.
Strengthen Inclusion and Empower the World’s Invisible Billion
The World Bank announced today the launch of the second Mission Billion Challenge for innovative solutions to increase inclusion and access to digital platforms such as identification systems. This challenge will crowdsource innovations at a time when countries seek to deliver cash relief to vulnerable persons, such as informal workers affected by the COVID-19 pandemic. The Challenge offers cash prizes totaling US$150,000 for the most promising solutions.
“The challenges countries are facing to mitigate the economic impact of COVID-19 underscore the urgency for action. Innovation that takes into consideration gender equality and different levels of access to technology among vulnerable groups is critical,” said World Bank Vice President for Infrastructure Makhtar Diop, “The Mission Billion Challenge is a platform for sourcing solutions that address disparities by helping to ensure identification systems are inclusive of all people.”
The Mission Billion Challenge comes at a time of an unprecedented global crisis. The pandemic highlights the importance of platforms (such as foundational IDs, government to person (G2P) payments, and social registries) to quickly scale up or to introduce new social protection programs. In particular, countries with such assets have been able to efficiently make cash transfers to informal workers, migrant workers, and other vulnerable populations who are difficult to identify and not commonly included in social safety nets. The Challenge seeks more solutions to how countries can increase their efforts to reach women and girls, and vulnerable populations—who often lack smartphones, computers and broadband internet access—to prove who they are, remotely with no or minimal in-person interaction, so they can access services and benefits with minimal risks to health.
“Inclusion must be at the heart of all digital solutions. Vulnerable groups—such as the poor, people living in remote areas, women and girls, migrants and refugees—are more likely to face barriers to accessing and using their IDs. They must have equal access to services, support, and new economic opportunities which having an ID helps create,” said World Bank Vice President of Equitable Growth, Finance, and Institutions Ceyla Pazarbasioglu.
The 2020 Mission Billion Challenge offers a Global Prize for solutions with world-wide application to ensure the inclusivity of ID systems for vulnerable groups, particularly during physical distancing requirements. This year, a new Regional West Africa Prize, will seek innovative solutions that facilitate contributions to social insurance programs, such as pensions and savings accounts, by informal sector workers.
Individuals and organizations with a strong passion for developing innovative solutions are encouraged to apply. Submitted solutions to the Challenge will be reviewed by a group of experts in digital identification, inclusion, and international development. Finalists will be invited to a high-level event to present their solutions in front of distinguished judges around the World Bank Group’s Annual Meetings in October 2020.
The Mission Billion Challenge is open. The submission deadline is August 14, 2020. To learn more about the Challenge, visit: http://id4d.worldbank.org/missionbillion.
About the Identification for Development (ID4D) Initiative
The World Bank Group’s Identification for Development (ID4D) Initiative helps countries realize the transformational potential of digital identification. ID4D is a cross sectoral initiative that works closely with countries and partners to enable all people to exercise their rights and to access services, including to provide official identification to the estimated 1 billion people currently without one. ID4D has three pillars of activity: country and regional engagement; thought leadership; and global convening and platforms. The ID4D agenda supports the achievement of the World Bank Group’s two overarching goals: ending extreme poverty by 2030 and promoting shared prosperity. ID4D is supported by the Bill & Melinda Gates Foundation, the UK Government, the French Government, the Australian Government, and Omidyar Network.
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