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Revealed: Why Economies Benefit from Fixing Inequality

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Creating societies where every person has the same opportunity to fulfil their potential in life irrespective of socioeconomic background would not only bring huge societal benefits in the form of reduced inequalities and healthier, more fulfilled lives, it would also boost economic growth by hundreds of billions of dollars a year. This is the key finding from the World Economic Forum’s Social Mobility Report 2020, published today.

The report measures 82 economies against five key dimensions, distributed over 10 pillars, that are necessary for creating social mobility. These are: Health; Education (access, quality and equity); Technology; Work (opportunities, wages, conditions); and Protections and Institutions (social protection and inclusive institutions).

A common theme in the report is that few economies have adequate conditions to foster social mobility. As a consequence, inequality has become entrenched and is likely to worsen amidst an era of technological change and efforts towards a green transition. The report identifies four key areas among the 10 pillars where progress – across both developed and emerging economies – is particularly lagging: low wages; lack of social protection; inadequate working conditions; and poor lifelong learning systems for workers and the unemployed.

“The social and economic consequences of inequality are profound and far-reaching: a growing sense of unfairness, precarity, perceived loss of identity and dignity, weakening social fabric, eroding trust in institutions, disenchantment with political processes, and an erosion of the social contract. The response by business and government must include a concerted effort to create new pathways to socioeconomic mobility, ensuring everyone has fair opportunities for success,” said Klaus Schwab, Founder and Executive Chairman of the World Economic Forum.

The economic return from lifting social mobility across the board is considerable. According to the report, if economies were able to improve their social mobility score by 10 points, GDP would increase by 4.4% by 2030 on top of the societal benefits such investments would bring.

Further, the report warns that while social mobility requires a new set of public investments, it is the mix and quality of investments that will make them effective and they must be paired with shifts in business practices. Improving social mobility is a multistakeholder challenge, in which businesses must also take the leadby promoting a culture of meritocracy in hiring, providing vocational education, reskilling, upskilling, improving working conditions and paying fair wages.

Social mobility in 2020

The most socially mobile societies in the world, according to the report’s Global Social Mobility Index, are all European. In the inaugural year of the report, the Nordic nations hold the top five spots, led by Denmark in first place (scoring 85 points), followed by Norway, Finland and Sweden (all above 83 points) and Iceland (82 points). Rounding out the top 10 are the Netherlands (6th), Switzerland (7th), Austria (8th), Belgium (9th) and Luxembourg (10th).

Among the G7 economies, Germany is the most socially mobile, ranking 11th with 78 points, followed by France in 12th position. Canada comes next (14th), followed by Japan (15th), the United Kingdom (21st), the United States (27th) and Italy (34th).

Among the world’s large emerging economies, the Russian Federation is the most socially mobile of the BRICS grouping, ranking 39th, with a score of 64 points. Next is China (45th), followed by Brazil (60th), India (76th) and South Africa (77th).

The report also examines which economies stand to gain the most from increases in social mobility. The economy with the most to gain is China, whose economy could grow by an extra $103 billion a year, or $1 trillion dollars over the decade. The US is the economy that would make the second-largest gains, at $87 billion a year. Next is India, followed by Japan, Germany, Russia, Indonesia, Brazil, the UK and France. Most importantly though, the returns are intangible in the form of social cohesion, stability and enhanced opportunity for more people to fulfil their potential.

Fears about social mobility weigh heavy on the global public. According to a study conducted exclusively for the World Economic Forum by Ipsos, 44% of global respondents believe prospects for today’s youth in terms of being able to buy their own home will be worse than for their parents compared to only 40% that believe prospects will be better. The survey also found that more people were pessimistic than optimistic for today’s youth compared to their parents when it comes to having a secure job, being able to live comfortably when they retire or being safe from crime or harm.

A call for stakeholder capitalism

The report makes a powerful case for stakeholder capitalism. The most socially mobile economies all share an emphasis on effective social policies that benefit communities as well as provide a platform for healthy, competitive economies. By comparison, economies that are organized more on “shareholder value maximization”, or “state capitalism”, tend to perform less well. In order to optimize social mobility, the report calls for action in the following areas:

A new financing model for social mobility: Improving tax progressivity on personal income, policies that address wealth concentration and broadly rebalancing the sources of taxation can support the social mobility agenda. Most importantly, however, the mix of public spending and policy incentives must change to put greater emphasis on the factors of social spending.

Education and lifelong learning:Targeted at improvements in the availability, quality and distribution of education programmes as well as a new agenda for promoting skills development throughout the working life, including new approaches to jointly financing such efforts between the public and private sector.

A new social protection contract:A contract that offers holistic protection to all workers irrespective of their employment status, particularly in the context of technological change and industry transitions, requiring greater support for job transitions in the coming decade.

Business to take the lead:By promoting a culture of meritocracy in hiring, providing vocational education, reskilling and upskilling, improving working conditions and by paying fair wages. This includes industry- and sector-specific plans to address historic inequalities within and between sectors.

“Improving social mobility must be the fundamental imperative of this new decade: As long as an individual’s chances in life remain disproportionately influenced by their socioeconomic status at birth, inequalities will never be reduced. In a globalized world where there is transparent information on the gulf between the ‘haves and the ‘have-nots’, we will continue to see discontent, with far-reaching consequences for economic growth, the green transition, trade and geopolitics. Social mobility matters for building a fairer and more optimistic world, but it also matters because we won’t succeed in achieving other objectives without it,” said Saadia Zahidi, Managing Director, New Economy and Society, World Economic Forum.

Tracking inequalities with big data

The geography of social mobility is in part determined by an individual’s profession. Metrics from Burning Glass data reveal that different professionals employed in different occupations are more or less “rooted” in particular geographic locales. Higher paid and skilled professions are more likely to retain their value across different locations. Professionals such as chief executives, dentists, computer research scientist and human resources mangers are offered similarly (high) wages across different parts of the US. On the other hand, judges and magistrates, specialized teachers, transport workers, gaming managers and agricultural engineers face more unequal prospects across the US.

Professional networks, an implicit driver of social mobility, are affected by geography and socio-economic background. LinkedIn data reveals that individuals in rural areas of the US face more limited professional networks as do those who grew up in low-income households. The locations where individuals have the most diverse social network in the US are urbanized states such as the District of Columbia, which houses the country’s capital Washington D.C. It is followed by Massachusetts, New York, Connecticut, New Jersey and California. At the opposite end of the scale is a set of less urbanized states –Kansas, West Virginia, Mississippi and Arkansas in ascending order.

A combination of technological change, economic trends and talent demand is changing income inequality outcomes within different industries. Metrics from ADP demonstrates the inequalities workers are likely to face on the basis of the industry in which they’re employed. The Media, Entertainment and Information (MEI) industry is the most unequal in the US. The Financial Services (FS) industry is similarly unequal but has seen a reduction in those inequalities in the period between 2014 and 2018. In contrast, the MEI Industry and the Information and Communication Technologies industry have seen increasing inequalities between 2014 and 2018.

Platform for Shaping the Future of the New Economy and Society

The Social Mobility Report is a new publication of the Forum’s Platform for Shaping the Future of the New Economy and Society. The platform aims to advance prosperous, inclusive and equitable economies and societies. It focuses on three interconnected areas: growth and competitiveness; education, skills and work; and equality and inclusion. Working together, stakeholders deepen their understanding of complex issues, shape new models and standards and drive scalable, collaborative action for systemic change.

Over 100 of the world’s leading companies and 100 international, civil society and academic organizations currently work through the platform to promote new approaches to competitiveness in the Fourth Industrial Revolution economy; deploy education and skills for tomorrow’s workforce; build a new pro-worker and pro-business agenda for jobs; and integrate equality and inclusion into the new economy, aiming to reach 1 billion people with improved education, skills, jobs and economic opportunities by 2030.

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Russia Among Global Top Ten Improvers for Progress Made in Health and Education

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Russia is among the top ten countries globally for improvements to human capital development over the last decade, according to the latest update of the World Bank’s Human Capital Index (HCI).

The 2020 Human Capital Index includes health and education data for 174 countries covering 98 percent of the world’s population up to March 2020.

Russia’s improvements were largely in health, reflected in better child and adult survival rates and reduced stunting. Across the Europe and Central Asia region, Russia, along with Azerbaijan, Albania, Montenegro, and Poland, also made the largest gains in increasing expected years of schooling – mainly due to improvements in secondary school and pre-primary enrollments. The report also shows that over the last 10 years Russia has seen a reduction in adult mortality rates. However, absolute values of this indicator remain high in the country with this progress now at risk due to the global Covid-19 pandemic.

Human capital contributes greatly to improving of economic growth in every country. Investments in knowledge and health that people accumulate during their lives are of paramount concern to governments around the world. Russia is among the top improvers globally in the Index. However, challenges persist and much needs to be done to improve the absolute values of Index indicators,” said Renaud Seligmann, the World Bank Country Director in Russia.

The HCI, first launched in 2018, looks at a child’s trajectory, from birth to age 18, on such critical metrics as child survival (birth to age 5); expected years of primary and secondary education adjusted for quality; child stunting; and adult survival rates. HCI 2020, based on data up to March of this year, provides a crucial pre-pandemic baseline that can help inform health and education policies and investments for the post-pandemic recovery.

Of the 48 countries in Europe and Central Asia included in the 2020 Human Capital Index (HCI), 33 are among the upper-third in the world, and almost all are in the top half. However, there are significant variations within the region.

In Russia, a child born today can expect to achieve 68 percent of the productivity of a fully educated adult in optimal health. It is at the average level for Europe and Central Asia countries and the third result globally among the countries of the same income group. There is a stark contrast between education and health subscales in Russia. While the education outcomes of the country are high and outperform many high-income peers, its health outcomes are below the global average.

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Accelerating Mongolia’s Development Requires a Shift “from Mines to Minds”

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A new report by the World Bank estimates that out of every dollar in mineral revenues Mongolia has generated over the past 20 years, only one cent has been saved for future generations. The report argues that to break this cycle, Mongolia should use its mineral wealth to invest in people and institutions, while gradually reducing its dependence on the sector.

This is particularly true as demand for key minerals is likely to tumble due to climate change concerns, a shift of investors’ preference toward sustainability, China’s ambitious goal to reduce coal consumption, and persistence of the COVID-19 shock, according to Mongolia’s Mines and Minds, the World Bank’s September 2020 Country Economic Memorandum for Mongolia.

Since the advent of large-scale mining in 2004, Mongolia’s economy has grown at an average rate of 7.2 percent per year, making it one of the fastest-growing economies in the world. Growth has translated to rapid decline – although at times partly reversed – in the incidence of poverty and improved quality of life. The report also notes that Mongolia enjoys relatively strong human capital, and its infrastructure capital has improved for the last few decades, though remains scarce given the size of the country and low population density. This performance has been made partly possible through a generous but inefficient social assistance system and a large public investment program supported by mineral revenues and external borrowing.

However, a number of enduring challenges have grown in the shadow of this success. Mongolia’s rapid growth has been obscured by its extreme macroeconomic volatility and frequent boom and bust cycles. Growth has almost entirely come through capital accumulation and the intensive use of natural capital rather than through sustained productivity growth. Meanwhile, the country has not only consumed almost all its mineral outputs, but has also borrowed heavily against them, bequeathing negative wealth to the next generation.

Instead of maximizing the benefits of its mineral wealth for diversified and inclusive growth, Mongolia has increasingly become more addicted to it. At the same time, human capital has been underutilized and institutional capital has eroded.” said Andrei Mikhnev, World Bank Country Manager for Mongolia. “Such inability to capitalize on the country’s endowments has resulted in limited diversification of outputs and exports and has further amplified its vulnerability to the swings of the global commodity markets. Breaking this gridlock calls for a fundamental shift in approach that puts investing in minds on an equal footing with mines.”

The report recommends key policy actions to build the foundation of a diversified and sustainably growing  economy. These include:

  • Implement countercyclical fiscal and monetary policies – supported through transparent fiscal rules, an independent fiscal council, a market-driven exchange rate, and a well-functioning stabilization fund – to smooth consumption over the business cycle rather than maximize current consumption.
  • Undertake bold investment climate reforms to enhance competition, secure investor rights, and create a more level playing field that enables productive firms to invest and grow.
  • Move away from the mindset of diversifying products to expanding endowments, especially in terms of better utilization of Mongolia’s young and educated, especially female, labor force.
  • Accelerate the implementation of fundamental governance reforms (especially on the government effectiveness and control of corruption) to reduce political interference, increase transparency, and improve regulatory quality throughout the economy.

“Fortunately, there are many encouraging signs of improved macroeconomic management in 2017-19, providing the new government an opportunity to advance its reform efforts,” said Jean-Pascal Nganou, World Bank Senior Country Economist and lead author of the report. “Some impressive fiscal outcomes were achieved not by introducing new reforms but by effectively implementing existing ones. They demonstrate that with the right political will and leadership, similar improvements are possible in other areas including monetary and exchange rate policy, the financial sector, the business environment, and the labor market. The new administration has, therefore, an opportunity to institutionalize these reforms and avoid policy regression in the future.”

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Nearly 9 in 10 People Globally Want a More Sustainable and Equitable World Post COVID-19

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In a new World Economic Forum-Ipsos survey of more than 21,000 adults from 28 countries nearly nine in ten say they are ready for their life and the world to change.

72% would like their own lives to change significantly and 86% want the world to become more sustainable and equitable, rather than going back to how it was before the COVID-19 crisis started. In all countries, those who share this view outnumber those who don’t by a very significant margin (more than 50 percentage points in every country except South Korea). Preference for the world to change in a more sustainable and equitable manner is most prevalent across the Latin America and Middle East-Africa regions as well as in Russia and Malaysia.

Next week’s World Economic Forum Sustainable Development Impact Summit will address the achievement of the sustainable development goals and the appetite for transformation which will drive the “decade of delivery”.

Clear majority ready for a more sustainable and equitable world

Globally, 86% of all adults surveyed agree that, “I want the world to change significantly and become more sustainable and equitable rather than returning to how it was before the COVID-19”. Of those, 46% strongly agree and 41% somewhat agree, while 14% disagree (10% somewhat and 4% strongly).

Russia and Colombia top the list of countries that strongly or somewhat agree with that statement at 94%. They are followed by Peru (93%) Mexico (93%) Chile (93%) Malaysia (92%), South Africa (91%) Argentina (90%) and Saudi Arabia (89%). The countries that are most change averse – disagreeing somewhat or strongly disagreeing with the statement – are South Korea (27%), Germany (22%), Netherlands (21%), US (21%) and Japan (18%).

Dominic Waughray, Managing Director, at the World Economic Forum said, “The Great Reset is the task of overhauling our global systems to become more equitable and sustainable, and it is more urgent than ever as COVID-19 has exposed the world’s critical vulnerabilities. But the technology to transform things tends to outpace the human will to change. In six months, the pandemic has systematically broken down this cultural barrier and we are now at a pivot point where we can use the social momentum of this crisis to avert the next one.”

Ready for significant personal change

Across all 28 countries, 72% want their lives to change significantly rather than returning to what it was like before the COVID-19 crisis (30% strongly and 41% somewhat) while the other 29% disagree (21% strongly and 8% somewhat).

Latin America stands out for its optimism, with Mexico, Colombia and Peru in the top five countries strongly or somewhat agreeing. Agreement is also high South Africa (86%), Saudi Arabia (86%, Malaysia (86%) and India (85%). By contrast, at least two out of five adults in the Netherlands, Germany, South Korea, Japan, Sweden, the US, UK and Canada long for their life to just return to how it was before the pandemic.

MethodologyThese are the results of a 28-country survey conducted by Ipsos on its Global Advisor online platform. Ipsos interviewed a total of 21,104 adults aged 18-74 in United States, Canada, Malaysia, South Africa, and Turkey, and 16-74 in 23 other countries between August 21 and September 4, 2020. Where results do not sum to 100 or the ‘difference’ appears to be +/-1 more/less than the actual, this may be due to rounding, multiple responses or the exclusion of don’t knows or not stated responses.

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