As part of a policy focus on promoting inclusiveness in Sub-Saharan Africa, donor countries and development organizations widely promote redistributive income and cash transfers to ensure that the poor become integrated in the market economy. Although such measures may help to lift people out of poverty temporarily, the systemic drivers of inequality and disempowerment should not be overlooked.
Against the background of the potential risks associated with rising inequality, the Dutch Ministry of Foreign Affairs launched an online consultation to assess the opportunities for promoting inclusiveness within its policy agenda for trade and international cooperation (see box below). For the ministry, inclusive development above all implies measures that ensure that ‘the most marginalized and disadvantaged groups are reached’ so that they benefit from economic growth. How exactly this can be done was the key question asked of the contributors to the consultation. This article provides a wrap up of this rich debate.
Tackling inequality by redistributing the benefits of growth
High levels of inequality are increasingly a global concern. Socioeconomic inequalities are seen as a potential threat, especially when they are linked to ethnic and religious divisions. Recognizing that economic growth does not simply trickle down to all segments of society is still relatively new (see the article ‘Stalling Growth and Development’ for an overview of this debate), While it has been long assumed – by global financial institutions like the World Bank, the OECD and the IMF – that inequality in itself is not a bad thing as it encourages people to work hard, leading progressive economists within these institutions now largely agree that policy should and can address inequality as the resulting redistribution will increase demand and boost growth further. Consequently, taking Latin America as an example, social protection schemes are now being promoted in Sub-Saharan Africa (SSA) to make sure that the benefits of growth are redistributed to those left behind. The idea is that, in the end, society as a whole will benefit if everyone is on board economically.
What about politics?
Do such measures indeed benefit us all, or do they merely obscure the systemic inequalities associated with our current growth model, which can only be tackled by uncovering the political dimensions of exclusion, both nationally and globally? The notion that inclusion is good for growth has led to a belief that it pays – also for the private sector – to invest in the poor. And the private sector is not only increasingly expected (see, for example, the contribution by Kasper Vrolijk), but also willing (see the contribution by Jan-Willem Scheijgrond), to invest in social protection and public sector development. According to Nicky Pouw and Joyeeta Gupta, however, such measures are simply market corrections, which do not make the governments of developing countries, or their citizens, agents of their own development. To be included in development processes not only implies that people benefit from growth through work and social protection, but above all, as Crelis Rammelt and Maggi Leung argued, that they exercise control over their own income and wellbeing.
The consultation ‘Promoting inclusiveness in the Dutch policy agenda for trade and international cooperation’ was conducted by The Broker and the INCLUDE knowledge platform in cooperation with the Dutch Ministry of Foreign Affairs. A wide range of researchers, development practitioners and policy-makers, who were pooled from the networks of the five knowledge platforms, were asked to write short contributions, which were published on the INCLUDE website. The overall question that guided the consultation was: What opportunities do you see for promoting inclusiveness within the framework of our policy agenda for trade and international cooperation? In preparation for the consultation, the ministry prepared a discussion note outlining the contextual background and key questions.
Statistics on the consultation:
|Total number of contributions: 106|
|Countries represented by participants: 18|
United Kingdom: 5
United States of America: 2
Democratic Republic of the Congo: 1
|Participants represented the following sectors/fields:|
International development organizations: 7
|Private sector: 8
A shift in focus
The policy focus on inclusion marks a shift in from the ‘bottom billion’ – the poorest of the poor – to the ‘bottom of the pyramid’ – which also includes those who earn slightly above the extreme poverty line of 1.25 dollars a day, but who can hardly make a living. The reason for this shift is recognition that the 1.25 threshold provides a biased picture of actual poverty and, above all, inequality. Especially in the context of jobs and income vulnerability, rising just above the 1.25 line does equate to a secure standard of living. Consequently, redistributive social security nets are now one of the key focus areas of the World Bank (see the contribution by World Bank advisor Jos Verbeek) and the OECD (see the contribution by Erik Solheim, chair of the OECD Development Assistance Committee), and are seen as critical preconditions for inclusive growth.
The case for social protection
The underlying idea is that if the poor, through work and social protection, become integrated in the market economy, effective demand will be stabilized, leaving the economy and society as a whole better off. This led many participants in the consultation to make a case for social protection. Without going into the wide range of positions in detail (these are outlined in a separate consultation summary, which can be found here), the measures they advocated can be roughly categorized into those targeted at the poor (i.e., cash transfers) and those that apply to everyone (i.e., social assistance and insurance) and are paid for by society as a whole though progressive tax systems (for a detailed overview of social protection measures, see The Broker’s social protection dossier).
Targeting the poor
Many participants in the consultation called for specific attention to be given to those who need it most. They argued that cash transfer programmes can reduce poverty and vulnerability, while being a catalyst for economic and social development. Targeting the poorest of the poor in this way is popular, also among donor governments and increasingly with the private sector. It is argued that, in the long run, such policies yield high returns, not only from a moral perspective, but also from an economic one. Including the bottom of the pyramid through social protection schemes will allow people to enter the lower middle class and, in this way, become interesting for companies. Natalia Winder Rossi and her fellow authors from UNICEF, therefore, emphasized that donor countries like the Netherlands can play an important role in developing the institutional setup for such social protection schemes and in co-financing their implementation.
A universal social contract
Others, like Nicholas Freeland, argued that targeted cash transfers to the poorest do not work and that society is better off when social protection programmes are universal. In the end, such universal schemes are also the most sustainable because they are based on broad societal support. In Freeland’s words, ‘it is only natural that those who are losing most as a result of subsidy reform will be more supportive of new programmes from which they will also benefit, than they would be of programmes that exclude them in favour of only the poorest’. Thus, as David Sogge argued, economic and political inclusion starts with the building of a new social contract – not just between the state and some segments of society, but between the state and all of its citizens.
Curing the symptoms or the disease?
A new social contract, however, requires more far-reaching measures than redistribution alone. According to Nicky Pouw and Joyeeta Gupta, who discussed the political economy behind the concept of inclusiveness, it calls for an economy in which everyone truly participates and is enabled to contribute. Pouw and Gupta argued that policies exclusively focused on including the poorest are ‘ex-post corrections to repair the failures of the neoliberal system’. Thus, as Willem van de Put argued, a system should be built in which everyone is both socially and financially included and has access to ‘rights, services and livelihoods’. This notion was shared by Crelis Rammelt and Maggie Leung, who warned that redistributive measures should not be propagated only for commercial reasons, and by Keetie Roelen and Stephen Devereux, who emphasized that such measures should be integrated into long-term development strategies. When people are no longer extremely poor and are economically included in the strict sense of the word (for example, because they are beneficiaries of cash transfers or have jobs), but lack control over their own wealth and resources, they are still in a dependent and vulnerable position. Thus, the key is not promoting inclusiveness in development policies but, as put forward by Stineke Oenema, promoting an inclusive economic system, both nationally and globally, in which public goods and basic needs are universally accessible and democratically controlled.
Local economy perspective: boosting agricultural productivity
To an important extent, this lack of control is rooted in the tendency to focus on increasing macroeconomic growth at the expense of local development and, in particular, at the expense of productive jobs. As Nicholas Awortwi clearly stated, ‘Africa’s economic growth has not been inclusive because sectors that are driving growth are not employing many people, while those that are employing millions of people (for example, agriculture and informal service sectors) are not structurally growing’. David Woodward argued that what is essential, rather than income transfers and ad hoc donor investment in social sectors, is long-term productive employment creation.
Currently, SSA countries are encouraged, through foreign investment and global trade patterns, to give primacy to agribusiness development for macroeconomic growth. According to Danny Wijnhoud, this has led to mono-cropping and land degradation, while Humphrey Moshi argued that it has also resulted in unemployment and left other more labour-intensive economic sectors weak. For this reason, around a quarter of the contributors to the consultation argued in favour of strengthening local agricultural development. However, primacy is currently given to integrating local farmers in the global value chains, which is perceived as boosting trade and foreign investment, thereby providing, what Han de Groot called, a ‘market pull’ for agricultural businesses to scale up. Yet, in this process, as Edith van Walsum emphasized, the development of local food chains and regional trade is neglected (for an overview of this debate see the article ‘Building resilient and inclusive food markets’). Erwin Bulte argued that investment in local farming has large multiplier effects and raises the incomes of the poor much more than growth originating elsewhere in the economy. To realize this potential, however, it is necessary for small-scale farmers to have access to finance, gain economic ownership, and become included in development processes, for example, through, what Sheu-usman Akanbi referred to as community-driven projects.
Other participants, like Humphrey Moshi, argued that increasing local agricultural productivity is not enough. The key to productive employment creation is economic diversification to make SSA countries less dependent on the export of commodities and exploitation of natural resources. As David Woodward put it, ‘This is not “either/or”, but a question of harnessing the considerable synergies between agriculture and non-agricultural development’. The development of agricultural processing and packaging and production of non-agricultural goods creates what Woodward called a ‘virtuous circle’ in which rural-urban inequalities are reduced, rural-urban migration pressures are eased, and rural and urban poverty alleviated.
A number of participants argued that donor countries can play a crucial role in this process of economic transformation by supporting non-agricultural rural enterprises and investing both money and know-how in infrastructure, for example, in the area of water management, and labour-intensive construction methods, as well as digital infrastructure. To boost employment, Micheline Goedhuys and Eleonora Nillesen argued that specific attention should be given to improving the environment for small and medium enterprises (SMEs) (see also The Broker debate on SMEs) and investment in education and practical training for jobs outside the agricultural sector.
Boosting domestic resources
Regardless of such economic transformations, there will always be people (for example, the physically impaired, the sick, the elderly or single parents, etc.) who cannot – temporarily or permanently – participate in society. Those people will be entitled to social protection schemes, both contributory and non-contributory. As some participants in the consultation argued, in the short term, donor assistance for social protection can serve as a catalyst, but in the end it undermines the legitimacy of African states, which need to build their own social contracts with their citizens. William Mshabaa Lyakurwa argued that this should take place in particular through processes of domestic resource mobilization.
However, the capacity of many developing countries to do this is weak, either because the systems for effective taxation are lacking or, as Frederick Golooba-Mutebi argued, because the functioning of such systems is undermined by poor governance, corruption or tax evasion. In addition, many people in SSA work in the informal sector and are thus excluded from any social contract with the state. William Mshabaa Lyakurwa emphasized that efforts should be made, as part of the agenda on innovative development financing, to increase private savings through banking sector reforms and building the infrastructure to enable inflows from remittances.
The private sector perspective: responsibility versus profit
Although such inclusive strategies are generally framed as technical choices, David Booth claimed that exclusion is political. Indeed, we largely know what strategies and policies are needed; what is lacking are the political incentives to implement them. Here we touch upon the classic debate about the role of the state versus that of the market. Does the state, based on the social contract with its citizens, have an obligation to protect its citizens against violations of their rights and provide public goods and services? Or, can the role of the state be narrowed down to creating an enabling environment for companies to flourish and to pick up the stitches that the market has dropped? In the development sector, the latter has become the widely accepted view and private sector involvement in developing countries is often portrayed as win-win (for an example, see the contribution by Angelica Senders).
The role of public-private partnerships (PPPs) is particularly emphasized in this respect. Blended money – a combination of private capital and donor grants – is considered to encourage companies to invest in marginalized social sectors like health and water, ICT development, and local agriculture. In addition, donor countries can play a role in these PPPs by sharing their knowledge on inclusive business plans – for example, by making sure they are gender sensitive and the incorporate corporate social responsibility policies.
The market versus the state…
However, while the question of what the private sector ‘can do’ is very important, equally pertinent is what it ‘cannot do’. Can the private sector replace the state as a provider of public goods? The logic of the market holds that the private sector will invest only in those sectors or people from which it can make a profit and will not act responsibly beyond its own interests. When investments are needed in areas or sectors that do not automatically yield high returns, who takes the responsibility to fill the gap?
Ideally, the outcome of such a debate is determined through a democratic process. According to Ivan Briscoe, however, this process is increasingly undermined by economic and financial globalization. In the absence of democratic governance structures, conglomerations of foreign capital, local businesses and political elites flourish. In Europe and beyond, social contracts are increasingly being broken down. In many developing countries, such social contracts were never built in the first place, as the capacity of the state to do so has been undermined by foreign involvement. Directing official development assistance (ODA) and foreign investment towards cash transfers and direct investment in public services will, therefore, only further undermine the legitimacy of the state.
…versus the people
And strong state institutions alone will certainly not do the trick. Over the years, most African countries have established judiciaries, anti-corruption agencies and multiparty systems, mainly driven by the notion that party competition and electoral pressures can create accountable leaders. However, experience tells us that strengthening democratic institutions is not enough. In many SSA countries, resources are controlled by governance structures that are by definition not controlled by those who are excluded, because the latter do not pose a significant political threat to the ruling elites. As Frederick Golooba-Mutebi put it, ‘competitive clientelism’ prevails over informed and fair elections, and people cast their votes based on either corruption or religion and/or ethnicity, both generating few post-election incentives for elites to deliver.
Creating accountability starts with empowerment. Economic inclusion is certainly not the same as being economically and politically empowered. Being empowered means being the change agent of one’s own resources, safety, welfare and rights. The first step to empowerment, argued Nurit Hashimshony-Yaffe, is at local and national level, with civil society playing a crucial role. Civil society organizations have the ability to change local power relations, promote gender justice and pilot new innovative ways to address inequalities, like community foundations. According to Tom van der Lee, donor countries can, through political dialogue, increase the capacity of civil society to hold political and economic elites accountable.
Global trade perspective: tackling international inequality
Ivan Briscoe, however, argued that increasing local empowerment remains an empty shell if the systemic global drivers of inequality are not recognized. Corruption and clientelism do not occur in isolation, but are reinforced by cartels of local leaders, local business elites and international companies. Some participants in the consultation were, therefore, rather sceptical about the role of trade. They pointed to the persisting incoherence in donors’ development and trade policies, and the disadvantaged position of developing countries in global value chains. In the absence of a system based on land and food sovereignty, integrating local farmers into these chains could make them even worse off. David Sogge argued that trade programmes should be subject to an ‘inequality impact assessment’. In addition, some participants stressed the importance of strengthening developing countries’ position within international trade and financial institutions like the WTO and IMF and of revising EU bilateral trade agreements that inhibit local development processes.
Linked to this is the need to regulate international capital flows. Currently, domestic tax collection on the profits made by multinational companies in developing countries is impeded as revenue is funnelled away through transit zones like the Netherlands to tax havens elsewhere. This ‘corporate tax race to the bottom’, as Tom van der Lee called it, should be recognized as a serious threat to the global community’s ability to finance the sustainable development goals. As Sjef de Wit argued, just and sustainable taxation can only be achieved globally. Governments need to work together to set long-term goals for taxation instead of using it for short-term gains. This implies reducing perverse tax-deduction methods and a shift from taxing consumption and labour towards taxing use, capital, fossil fuels and wealth.
One-size does not fit all
As Claire Melamed emphasized, this year marks an important crossroads for addressing these issues, with the International Conference on Financing for Development to be held in July and the post-2015 development agenda due to be adopted in September. An important aspect of these international discussions will be the adoption of a common framework for a measurable criteria for inclusiveness. At the same time, it is important not to get lost in technical trivialities. Tackling inequalities starts with the recognition that there is no one-size-fits-all solution. Country-specific analyses are needed to determine which policies and activities work best in what contexts.
Patterns of exclusion do not occur in isolation, but are embedded in national and global power relations. Therefore, the multiple dimensions of exclusion need to be taken into account in analyses of development processes and policies. If we want to, in the words of Ivan Briscoe, ‘stop the Serrata’, reflection on the political dimensions of inclusive development is crucial.