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When thebenefits of economic growth are distributed very unequally, social bonds fray.Those losing ground, especially the young, may well grow disaffected, thenresentful. This was a key factor behind the Arab Spring revolts; and, asprotests in Chile, Brazil, Israel, Turkey, and India have shown, socialtensions stemming from inequality are mounting around the globe.
To be sure,income inequality has been increasing worldwide for decades. Even while manydeveloping and emerging economies lifted millions of people out of extremepoverty, the perception that growth meant greater inequality was always bubblingbelow the surface. But now increasingly persistent unemployment andunder-employment are giving new impetus to the rise in inequality, as theOECD reported to the G-20 in July.
Indeed, in thewake of the 2008 financial crisis, youth unemployment now averages 16% inadvanced countries, and exceeds 40% in some European countries.
As a result,the challenge of inclusive growth has moved to the top of the global economic-policyagenda. Indeed, according to the World Economic Forum’s GlobalAgenda Outlook, widening income disparities will be the second mostimportant world trend in 2014, behind only Middle East tensions.
Income gapsare growing for many reasons, ranging from “skill-biased” technologicalprogress to corruption. But, whatever its causes, putting people back to workat productive, rewarding jobs can help a great deal, and this demands the bestefforts of governments, employers, and civil-society groups on many fronts.
For starters,it means providing populations with access to quality schooling and healthcare: a healthy, educated person is an employable person. In many countries, thisremains a major challenge. But the large strides already made in somelow-income countries reveal great potential.
ConsiderBrazil, which enjoyed a long boom in the 2000’s, during which income inequalityactually declined. One contributing factor was the bolsa familia (family grant), now adecade old. This monthly cash payment goes directly to mothers, provided thatthey keep their children in school and send them for regular medical checkups.
Thisinnovative program is not only a human-capital investment in millions ofchildren; it also allows mothers to work. Such well-designed subsidies forsocially useful behavior can lift millions out of poverty.
But educationand health are just the first step. For practical and political reasons,redistributive programs, while essential, are not enough to ensure inclusivegrowth by themselves.
It is oftensaid, for good reason, that the widening income gap largely reflectstechnological change, which has drained many economies of blue- and evenwhite-collar jobs, while channeling the fruits of improved productivity tohigh-skilled elites. But the digital revolution can also enable inclusivegrowth. Internet applications and other communications advances are spreadingknowledge and information to millions of poor people.
Consider Babajob.com, started by a Microsoftresearcher in India to bring better job opportunities to the country’s informalsector by connecting employers and job seekers via the Web, mobile apps, SMS,and voice services. Likewise, in Kenya, as cellphones became widespread,network operators introduced M-pesa, by which anyone with a mobile phone cantransfer money quickly and cheaply – a boon for the smallest enterprises inparticular.
Both of theseexamples – and there are many others – originated not from government but fromthe private sector. And that points to another piece of the solution: improvedlabor-market efficiency. In many countries with high jobless rates, employerscannot find people with the right qualifications. The solution is twofold:better market information and better connections between the world of educationand the world of work.
Specializedonline job-search sites are facilitating employment. But a successfulschool-to-work transition should start when tomorrow’s workers are young. Earlychildhood education is critical but must lead to high-quality schools thatprovide ample career-related guidance and counseling. The evidence is clear;countries that invest in these areas have better results than countries thatmove more slowly.
While mostcountries aspire to move toward a “knowledge society,” this should not meandownplaying technical and vocational education. On the contrary, advancedeconomies need many skills, and high-quality technical education, especially iffollowed by effective apprenticeship programs, can create smooth transitionsfrom school to work. Germany, Austria, Switzerland, and other developedcountries are rightly praised for this. Germany’s youth unemployment rate isunder 8%, and a steady supply of skilled labor helps to sustain the country’ssuccess as an exporter.
To be sure,this model cannot be adopted in every country – for one thing, it requires ahigh degree of trust between labor and management. But some practices can bemodified for use elsewhere. The G-20 countries have recently adopted comprehensiveguidelines for quality apprenticeships; each member country should adoptthe most appropriate strategy within this broad framework.
Virtualtraining programs, for example, allow students to practice using expensivemachinery without interfering with actual production – and with no risk ofdamaging the equipment. Similarly, massive open online courses (MOOCs), whichare another fast-growing approach to training, enable delivery of top-notchteaching to a broad public at a low unit cost.
There are manyinnovative approaches to sharing growth more equally, and more are emerging allthe time. But they all point to a fundamental truth: If young people and thedisadvantaged are to find satisfying and rewarding jobs, governments,employers, educational institutions, and civil-society groups all have animportant role to play. Our economies’ long‑term sustainability depends on it.
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