The aim of this benchmarking exercise is to spark in-depth analysis in individual countries about their existing strengths and weaknesses, and where opportunities exist for improvement. This section starts the conversation by briefly surveying some interesting findings in selected countries in each peer group.
Countries in the advanced economy category are in the best position to ensure inclusive growth, given that they have the greatest financial means and generally sophisticated markets and economic frameworks. Yet, the extent to which they achieve this result varies widely. Countries such as the Nordics, Switzerland, New Zealand, and Canada do comparatively well across most areas, while others such as the United States, France, and several southern and eastern European countries fall short in many areas.
Australia performs particularly well in asset building, entrepreneurship, and new business creation, ranking third among all countries. This reflects a lack of red tape, reinforced by strong financial inclusion, which is critical for business development. Australia ensures excellent access to its educational system, although improvements could be made to its quality as well as the equity of outcome of students from different income levels. The pay gap between men and women is narrow, ranking it second among advanced economies, but the country could foster more inclusive growth by increasing the participation of women in the workforce, for example through more affordable childcare which could help to lower the high rates of temporary and involuntary part-time employment.
Canada ranks first for financial intermediation of real economy investment driving inclusive growth. Its financial system is highly inclusive and quite active, driven by strong equity market access, especially for smaller non-financial corporations. The country’s educational system fosters equitable outcomes for students regardless of income, and it further uses its tax code effectively to ensure inclusive economic outcomes through vehicles such as property and capital taxes. Canada could, however, do more in terms of social protection especially in terms of unemployment benefits and by making it easier for parents to participate in the workforce through more generous family-leave policies and affordable childcare options, as well as fostering greater entrepreneurship and new business creation.
Denmark is ranked first out of all economies for the ability of its social protection system to foster inclusive outcomes – relying more on fiscal transfers than neighboring countries to reduce high levels of market income and wealth inequality. The country benefits from low levels of corruption, although banking sector and other rents are somewhat concentrated compared with its peers. It has a strong culture of entrepreneurship and relatively low levels of bureaucracy facing business creation and operations. Wage compensation is equitable, with a high labor share of income and a particularly low gender pay gap. However, it would benefit from higher quality and equity in its educational system, as well as greater financial inclusion to encourage business investment.
Finland performs exceptionally well across most areas measured by the framework by making effective use of market levers to deliver greater social inclusion. It is ranked first for its education and training, which is characterized by both high quality and inclusiveness, resulting in small differences in educational performance among students from different income groups. It is also ranked first for asset building and entrepreneurship, with little red tape for starting and doing business in the country. Finland benefits from exceptionally low levels of corruption and rent seeking, and a high level of inclusiveness in worker compensation. Interestingly, the area where Finland ranks lowest is in its use of fiscal transfers: although the government is seen as highly successful in reducing poverty and inequality, and taxation of income is quite progressive, the taxation and transfer scheme is assessed as somewhat distortionary to incentives to work and invest.
France has placed great emphasis on social inclusion and equity over recent decades but demonstrates more weaknesses than strengths in the inclusive growth framework. It benefits from strong infrastructure and basic services, particularly an excellent transport and healthcare infrastructure, as well as strong social protection (which results in low levels of poverty and moderate inequality). Yet there are questions about the sustainability of the overall tax system, which is assessed as highly distortionary on decisions to work and invest, putting the brakes on growth. Employment outcomes are not inclusive, with unemployment – particularly youth unemployment – among the highest in advanced economies.
Germany benefits from excellent employment outcomes, with youth unemployment particularly low by current European standards, making for high median living standards. This is supported by excellent vocational training programs that ensure the workforce acquires and maintains requisite skills and that a high share of income accrues to workers. Greater participation of women in the workforce would enhance this picture. Workers also benefit from strong social protection and the financial system provides financing needed for business development, although new business creation remains somewhat restrained. The tax system could be more fully used to ensure inclusive outcomes, particularly in terms of the progressivity of the tax mix.
Greece, a country that has been through great difficulties in recent years, must make progress across many areas. The education system, while serving a large proportion of young people, suffers from a lack of quality and equity of outcomes, with very different performance outcomes based on socioeconomic background. Corruption is rife and new business creation is hindered by excessive red tape. Unemployment is the highest in Europe, disproportionately afflicting young workers. Many are forced into vulnerable employment or the informal sector, which constrains the financial resources available to deal with the country’s economic ills through taxation. Greece will not only need to deal with the fallout of its financial crisis, but must also put in place the drivers of growth and inclusiveness to place itself on a sustainable footing for the present and future generations.
Italy faces a significant concern, which has implications for many other areas, in its high level of corruption and poor business and political ethics – among the worst of all advanced economies. Unemployment is high and accompanied by large numbers of involuntary part-time workers and people in informal and vulnerable employment situations. Women’s participation in the workforce is extremely low, reinforced by a gender pay gap that is one of the largest among advanced economies. There is limited business creation to foster new employment opportunities, nor is the financing for doing so readily available. A social protection system which is neither particularly generous nor especially efficient adds to the sense of precariousness and exclusion in the country.
Japan gets a lot of the basics right in the inclusive growth framework. It provides citizens with high-quality education and equity of opportunity regardless of socioeconomic background. Its strong talent base translates into relatively strong labor market outcomes, with low levels of informality and unemployment. This results in a relatively low level of market-induced inequality relative to its peers, although the country has one of the highest poverty rates among advanced economies, at 16%. Intergenerational equity is also a concern due to the high level of public debt. Further, given the country’s aging population, Japan must continue to address the gender gap in terms of employment and wages, including through more affordable childcare to incentivize greater participation of women in the workforce. In terms of entrepreneurship and investment, Japan has a high level of patenting activity, technological readiness, and private R&D spending, yet negative attitudes toward entrepreneurial failure remain prevalent, which can perhaps explain the relatively low number of new businesses registered. Lowering administrative barriers to starting a business could also help encourage entrepreneurial activity.
The Netherlands benefits from top-notch basic infrastructure and health services and an excellent education system, which provides unrivalled access to high-quality education and training while ensuring that student performance is relatively unhindered by socioeconomic background. It has strong levels of entrepreneurship, asset building, and financial access (in terms of bank lending to non-financial corporations) that are critical to turning ideas into working businesses. Although it has strong social protection, the country could further enhance inclusive growth by exploring greater use of taxation for redistribution – property and capital taxes in particular remain lower than many peers. This could further help to boost median household incomes, which are already an impressive fourth-highest among advanced economies.
New Zealand tops all countries for its strong business and political ethics, with little diversion of public funds. It ranks third for financial intermediation and real economy investment, thanks to a highly inclusive and active financial system. Business creation is further fostered by low levels of red tape. New Zealand makes moderate use of the tax code and social protection schemes to foster more equitable outcomes in the economy through targeted programs, and is ranked second for fiscal transfers for doing more with less and avoiding market distortions. The educational system could be made more equitable and vocational training improved to allow for more productive employment opportunities for the vulnerable and the underemployed.
Norway clearly articulates a desire for inclusiveness in its growth process and has similar overall results to Finland, benefiting from a strong emphasis on market levers although with a different set of particular strengths. It tops the employment and labor compensation pillar, with low unemployment (including youth unemployment), an exceptionally high female participation in the labor force (encouraged by affordable childcare and generous parental leave), and a high degree of social mobility in general. Access to health and education is strong, although quality leaves some room for improvement compared to its peers. Social protection is also seen as an effective deterrent to poverty and inequality, as demonstrated by high and rising median living standards and a Gini coefficient lowest among advanced economies (after taxes and transfers). Norway would further improve the inclusiveness of its growth process by fostering greater entrepreneurship and dynamism in the private sector.
The Republic of Korea has a particularly strong and inclusive education system, with excellent quality and highly equitable outcomes – it has the lowest gaps in reading and math scores between students from different income levels. Yet employment outcomes remain mixed. Unemployment is impressively low, but labor force participation is mediocre and women’s participation is among the lowest in advanced economies. The pay gap between men and women is also exceptionally high, which is possibly a disincentive for women to join the workforce. Corruption is another area of concern, allowing those with power in various domains to extract rents. In addition, rents are highly concentrated in a limited number of large family-run companies, which are protected through the regulatory system. Home and financial asset ownership are particularly low while social protection, including healthcare, remains quite limited. By under-exploiting this lever, Korea goes from having one of the most equal income distributions before transfers (its “pre-transfer Gini” places it second) to a much less equal one after taxes compared with other advanced economies (its post-transfer Gini ranks it 18th).
Singapore has many strengths including strong business ethics and low corruption, ranking second for business and political ethics, in addition to having an educational system particularly good at delivering equitable student performance outcomes regardless of income. The country also benefits from high levels of entrepreneurship and excellent access to capital, scoring at the top in terms of financial intermediation for real economy investment. Unemployment is extremely low, including youth unemployment (ranked first for both), despite a low rate of female participation in the labor force. The economy would benefit from encouraging greater participation of women in the workforce and by lowering the somewhat wide gender pay gap. The share of national income going to labor is also low relative to its peers and has been declining in recent years. Productivity gains no longer translate into broad rises in pay. Instead, an ever-larger share of the benefits of growth accrues to owners of capital. The social safety net is also quite limited. Despite high growth per capita in recent years, Singapore suffers from high levels of poverty and income inequality, and makes little use of taxes and transfers (ranking last among all advanced economies).
Spain faces a number of challenges in making its growth process more inclusive. On the positive side, the country benefits from relatively strong infrastructure and basic services, which have improved markedly over the years – particularly transport and healthcare. On the other hand, its education system suffers from a lack of quality and equity for students from different socioeconomic backgrounds. Related to these concerns are extremely high levels of unemployment, particularly youth unemployment, perhaps unsurprisingly accompanied by a large informal sector. Fostering entrepreneurship and making it easier and more financially viable to start a business will be critical for unlocking much-needed employment opportunities. To these ends, the country could make better use of the latest technologies by improving access to and affordability of IT.
Switzerland is unsurpassed in the provision of basic services and infrastructure – it ranks first among all countries, particularly for its excellent ground transport infrastructure and health services. It has little corruption and also makes strong use of its tax code to ensure reallocation of income through vehicles such as capital and property taxes, although its concentration of wealth is among the highest in advanced economies. Despite a high labor share of income and a high employment rate, making the labor market more inclusive would yield benefits, for example by making childcare more affordable for working parents and narrowing the pay gap between men and women, which is large compared with its peers. The country could also improve stock market access and financial intermediation for small non-financial corporations in order to foster business creation and development.
The United Kingdom demonstrates a mixed picture in terms of its ability to deliver inclusive growth. The country benefits from relatively high levels of business creation supported by access to finance, which are important drivers of new employment and growth. It also exploits the tax code strongly toward more equitable economic outcomes, notably through property, inheritance, and progressive income taxes. On the other hand, efforts are required to improve access to education as well as its quality, which would be important for tackling the youth unemployment problem and the low levels of social mobility in the country. Equality of health outcomes could be improved, given the significant gaps in adjusted life expectancy. Greater equity in the labor market through stronger participation of women and reduction in the gender pay gap would also foster more inclusive growth. This would be helped by ensuring greater labor protection and access to affordable childcare for working parents.
The United States, a global economic and innovation powerhouse, benefits from a few clear strengths in fostering inclusive growth, which are balanced by several areas that need improvement. The country is a top performer in asset building and entrepreneurship, with excellent conditions fostering new business creation as well as the underlying financial assets and access to capital to do so. Some income redistribution is facilitated through taxes on inheritance, property, and capital, although the overall tax intake remains comparatively quite low. Perhaps not surprisingly, the resulting social safety net is significantly less comprehensive than in many other advanced economies, resulting in high and rising levels of both poverty and income inequality (it ranks 28th out of 30). Greater participation of women in the workforce would be encouraged by more affordable childcare solutions and paid parental leave, as well as by narrowing the gender pay gap further. Median household incomes have declined in recent years, which is a cause for concern. Efforts by the private and public sectors to increase wages could boost consumption, on which the economy depends heavily and which has been constrained since the financial crisis.