Income inequality is a global political challenge: WEF

 

Rich Poor

Though countries around the world are working toward bridging the income inequality gap, there is huge scope for improvement, says a latest report from the World Economic Forum.

The International Institution for Public-Private Cooperation has published a report that provides a framework for stimulating growth, translating into broad-based improvements in living standards and touching all citizens.

Amid increasing concerns about rising income inequality and its negative economic and social impact, the World Economic Forum says no bigger policy challenge preoccupies political leaders than expanding social participation in the process and benefits of economic growth.

The report, which covers 112 economies, seeks to improve the understanding of how countries can use a diverse spectrum of policy incentives and institutional mechanisms to make economic growth more socially inclusive, without dampening incentives to work, save and invest.

Rick Samans, Member of the Managing Board of the World Economic Forum, says: “By giving policymakers, business leaders and other stakeholders a clearer sense of the extent to which their country is exploiting the available policy space and best practices in relation to its peers, the report aims to make discussions about inequality less about aspiration and more about concrete action.”

Overall, the six main findings that emerge from the analysis are:

1) All countries have room for improvement. There is considerable diversity in performance not only across but also within countries. No country scores above average for its peer group in all 15 sub-pillars and only a few come close.

2) It is possible to be pro-inclusiveness and pro-growth at the same time. This is demonstrated, for example, by the fact that several of the strongest performers in the Forum’s Global Competitiveness Index also have a relatively strong inclusive growth and development profile.

3) Fiscal transfers can be helpful – but so can other policies. Many economies with high levels of tax and redistribution are highly competitive. However, the use of policy space in other areas could reduce the need for these levers.

4) Effective promotion of social inclusion is not solely a luxury of high-income countries. In many sub-pillars – such as business and political ethics, financial system inclusion and educational quality and equity – some developing countries do better than others with much higher incomes.

5) There are significant regional similarities. This suggests a strong role of shared culture, historical traditions or political-economic reflexes, in areas such as tax systems in Eastern Europe and educational equity in Latin America.

6) The current debate on inequality is unduly narrow and polemical. The debate usually focuses on redistribution and up-skilling labor, but these are only a minority of the policy options available to “structurally adjust” an economy for inclusive growth. Several other crucial factors relate to improving the investment and business climate. Therefore, it is possible – even necessary – to be pro-labor and pro-business; pro-growth as well as pro-equity.

“The most appropriate approach to be taken by countries will depend on their specific circumstances. However, our analysis shows that all countries have room for improvement for placing their economies on a more inclusive growth path,” says Jennifer Blanke, Chief Economist at the World Economic Forum.

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