Inequality has become a global challenge that requires a wide range of policy actions – at the national, regional and global levels. But to address this problem effectively will require time, international coordination and patience.

At the 44th World Economic Forum Annual Meeting, how to achieve inclusive growth was front and centre from the start. In the opening session, Peter Kodwo Appiah Cardinal Turkson of Ghana, President, Pontifical Council for Justice and Peace, Vatican City State, read a special message by Pope Francis to participants. “I ask you to ensure that humanity is served by wealth, not ruled by it,” the leader of the Roman Catholic Church said. 

Yet even before business, government and civil society leaders arrived at Davos-Klosters, the problem of inequality was at the top of their concerns. A survey of more than 1,500 experts from the World Economic Forum’s Network of Global Agenda Councils and Young Global Leaders and Global Shapers communities, which was published in the Outlook on the Global Agenda 2014 report, identified the widening income gap and structural unemployment as among the three main worries for world leaders this year.

 

Inequality has become a pervasive global problem – evident in developing and developed economies. On the eve of the Annual Meeting, Oxfam International released a briefing paper, which reported that nearly half of global wealth is owned by just 1% of the population and that the richest 85 people own the same as the bottom 3.5 billion, half the individuals in the world. 

In considering strategies for inclusive growth, participants acknowledged that there were no quick fixes – even for such pressing problems of exclusion as youth unemployment. But there was general acceptance that with the US recovering, Europe starting to rebound and Japan apparently pulling itself out of deflation and stagnation, the sense of crisis is receding, giving economies more breathing space to tackle some thorny long-term concerns that hamper inclusion. 

The question is whether the right reforms are put in place and there is sufficient collaboration among countries to address such challenges as the environment, the threat of another financial crisis, and the need for food, energy and water security. “This is a policy-sensitive year,” said Min Zhu, Deputy Managing Director, International Monetary Fund (IMF), Washington DC; World Economic Forum Foundation Board Member, in the Getting Back to Natural Growth session. “Restructuring and adjustment are essential.”

It is not sufficient for economies just to grow; the growth has to be inclusive, addressing disparities in income, age, gender, skills, access to technology, and opportunity. Africa’s economic growth may be accelerating, but “the concentration of wealth and power is excluding and locking out millions of people, which is driving insecurity and instability,” Winnie Byanyima, Executive Director, Oxfam International, United Kingdom, said during the session on Africa’s Next Billion. So far, economic growth has been a race to the bottom, she reckoned. “We need a race to the top so we have policies and regulation to protect human rights, the environment and reduce poverty.”

 

In the discussions on how to achieve inclusive growth, three long-term goals emerged as priorities: creating jobs, particularly for young people, promoting sustainability, and boosting economic resilience and controlling the risks that may lead to another major financial crisis. Participants agreed on a range of action points, all of which would require time to reap results.

Consider the need to address the global deficit in infrastructure. The consulting company McKinsey & Company estimates that US$ 57 trillion will be required for infrastructure projects around the world from 2013 to 2030 – 36% more than the US$ 18 trillion actually spent globally on infrastructure over the past 18 years. 

With interest rates low, company cash stockpiles high, economies rebounding and unemployment rates in many parts of the world still in double digits, now is the time to move on building, rebuilding and repairing facilities such as ports, airports, bridges and transport systems, said Lawrence H. Summers, Charles W. Eliot University Professor, Harvard University, USA, in The Future of Monetary Policy session. This will create jobs and drive inclusive growth. “It is tragic that we are bequeathing to our children a deficit in the form of massive deferred maintenance,” Summers observed.

Promoting small and medium-sized enterprises, particularly through easing their access to financing, is another strategy for inclusive growth. SMEs are prime job creators, especially for young people and women. Investing in education, especially for girls and women, and in innovation are also important steps to take. In a session on Entrepreneurship, Education and Employment, Park Guen-hye, President of the Republic of Korea, said: “Creativity does not degrade the environment; it unlocks opportunities for sustainable growth. It is inherent to all people and therefore holds promise for inclusive growth.”

 

The inclusive dividends of creativity and innovation will be limited without increased investment in education and R&D, especially in economies where post-crisis austerity measures cut budgets. But in several sessions, participants warned that private-sector companies continue to sit on stockpiles of cash, concerned about uncertainties in regulations in areas ranging from financial sector reforms to climate change. 

“What investors really need is greater confidence that governments won’t change the rules after the investment has been made,” Tony Abbott, Prime Minister of Australia, said in the Australia’s Vision for the G20 session. Unlocking private-sector investment will be crucial to fuelling inclusive growth. “It is ultimately the extent to which the private sector is catalysed and engaged that determines whether growth trajectories are efficient and sustainable,” wrote the authors of New Growth Models, a report released by the World Economic Forum at the Annual Meeting. Structural changes due to innovation and productivity gains take time to have an impact, several participants warned.

In his address to participants setting out Australia’s priorities for its G20 presidency this year, Abbott outlined additional pillars of a global strategy for inclusive growth – boosting global trade and tackling protectionism, strengthening tax systems to ensure fairness, and finalizing international post-crisis efforts to strengthen and sharpen financial regulation. 

Ten Global Risks of Highest Concern in 2014

No.	Global Risk
1	Fiscal crises in key economies
2	Structurally high unemployment/underemployment
3	Water crises
4	Severe income disparity
5	Failure of climate change mitigation and adaptation
6	Greater incidence of extreme weather events (e.g. floods, storms, fires)
7	Global governance failure
8	Food crises
9	Failure of a major financial mechanism/institution
10	Profound political and social instability

Source: Global Risks Perception Survey 2013-2014.

Making markets safer for consumers and bank customers is essential. But a lot of work remains to be done, including setting out a process winding down banks and ending the “too-big-to-fail” problem. “I worry about macroprudential complacency,” Summers remarked. “A much greater emphasis needs to be placed on making a system that is safe from ignorance and error. That means emphasis on capital requirements, liquidity and strengthening the robustness of the system.”

 

Deeper international collaboration is necessary for the success of any coordinated efforts to drive inclusive growth. But with the global economic recovery strengthening, cooperation will be harder to achieve, especially as each country pursues its own strategy. There are other challenges. National politics could provide some turbulence, what with general elections this year in several major economies including Turkey, South Africa, India, Indonesia and Brazil. Social instability is a concern, especially in countries where youth unemployment is high and there is little patience to wait for long-term restructuring policies to play out.

There are worries, especially in emerging economies, about the impact of the unwinding of quantitative easing and other exceptionally supportive monetary policy actions in the US and elsewhere. Alexandre Tombini, Governor of the Central Bank of Brazil, expressed concerns about volatility in capital markets and currencies due to the lack of coordination in the tapering. “New risks include how tapering takes place, at which speed, how it is communicated and what spillover effects it has,” explained Christine Lagarde, Managing Director, International Monetary Fund (IMF), Washington DC; World Economic Forum Foundation Board Member, in the Global Economic Outlook 2014 session.

Finally, how technology gets used will be a challenge. Innovations can lead to job losses through productivity gains. But the savings can also be used to fuel inclusion through investments that generate jobs and communications systems that link people together and bridge digital divides.