Inclusive and Green Growth: Why is it So Elusive?

Economic growth is vital but it must be inclusive. Photo: ADB
Economic growth is vital but it must be inclusive. Photo: ADB

By Bindu N. Lohani

“Inclusive growth” and “green growth” are two buzzwords that we often hear in the development sphere nowadays. This is not surprising since these two form key part of many development strategies. While Asia has done extremely well in expanding its economies in the last two to three decades, rapid growth has brought with it rising inequality—within and across countries. It has also badly damaged the environment along the way.

Asian Development Bank President Kuroda rightly said “tomorrow’s successful economies will focus not on growth alone, but on transforming themselves through growth that is inclusive, green, and knowledge-led."1

Definitely, we need to bring development in many Asian countries to a level that is inclusive and green (and of course, knowledge-led), but we need to have clarity on what these really mean before we can effectively do this task. In short, we need to understand, go beyond the buzzwords, and know how to operationalize and take them forward.

On inclusive growth

In recent years, inclusive growth has been widely used in ADB – from speeches to recommendation reports (RRP) and country partnership strategies (CPSs). We have defined inclusive growth as “growth coupled with equality of opportunity”, and to opertionalize it, Strategy 2020 highlights three mutually reinforcing policy priorities: high and sustained economic growth to create sufficient levels of employment opportunities; enhancing human capacities and eliminating social exclusion to equalize access to opportunities; and effective social protection to mitigate risks from transitory livelihood shocks and prevent extreme poverty. Yet, how do we translate the concept into our investment programs in each country? Obviously there is no simple answer. We need to understand developing member countries (DMCs) and their development needs better.

Measuring progress in inclusive growth is equally challenging. This year’s theme chapter of the Asian Development Outlook, which is very good and well received by many, covers rising inequality in developing Asia. One of the indicators extensively used is the Gini Coefficient, which was first used a century ago. However, the Gini coefficient measures inequality of income, which is influenced by both an individual’s access to opportunity and his or her efforts—for instance, how entrepreneurial the person is. Obviously efforts are important for growth and innovation, so measuring inclusive growth should focus on inequality of opportunity, which is not that straightforward. There too is the $1.25 per day threshold to measure poverty headcount. Is $1.25 really a norm appropriate for our DMCs? Does earning $1.25 per day sufficient and not make you poor? In Manila, having $1.25 per day is not enough to cover your basic needs. Should we look at developing measures of relative poverty across nations rather than clubbing all of them under single global norms?

Beyond measurement issues, even if we have good understanding of the inclusive growth concept and what a DMC needs to promote it, how do we incorporate it in our project design, design and monitoring frameworks and project activities? Definitely, there are projects incorporating elements of inclusiveness in their design. Recently, Independent Evaluation Department (IED) circulated a draft evaluation approach for a Special Evaluation Study (SES) on Promoting Inclusive Growth. Hopefully, the SES will identify areas for improvement and where we can do better. We need to carry these forward and work on how to do things better.

On green growth

Turning to green growth, we have similar questions. There are many definitions. Organisation for Economic Co-Operation and Development (OECD) looks at green growth as a way to pursue economic growth and development while preventing environmental degradation, biodiversity loss, and unsustainable natural resource use. ADB together with UNEP and UNESCAP recently produce a publication which defines green growth as, in general terms, economic progress that fosters environmentally sustainable, low-carbon and socially inclusive development.2 There is also the concept of the green economy, which UNEP defines as the process of reconfiguring businesses and infrastructure to deliver better returns on natural, human and economic capital investments, while at the same time reducing greenhouse gas emissions, extracting and using less natural resources, creating less waste, and reducing social disparities.

The conventional approach of “grow first, clean up later” is a costly strategy, and should not be pursued. This makes green growth the better strategy. There are also issues on accounting for natural capital particularly in making GDP green. But, even with there being much talk, not much progress has been made.

Like inclusive growth, the key concern is to have clarity on what it means, and how do we operationalize, how do we make our investments? Today we emphasize clean energy, renewable energy and energy efficiency as our contribution to promoting low carbon growth. We are investing more than $2 billion annually in clean energy, reaching our targets ahead to time. But this is only one part of low carbon, green growth. If our ultimate goal is to meet the climate change agenda, we should not only focus on clean and renewable energy but also work towards transformational change in sectors like transport, water and urban. We need to build more low carbon infrastructure in these sectors.

We may also need to look at how our private sector operations can finance green growth. Yes, we do have investments in these areas – solar, wind and others. We have private equity funds and public-private partnership (PPP) mechanisms for clean energy. But there is a need to invest more in greenfield projects. How to achieve this?

As we struggle to achieve inclusive and green growth, a new concept has emerged. Recently, the Development Committee of the IMF and World Bank discussed “inclusive green growth”. To them, this is a paradigm that aims to operationalize sustainable development by reconciling developing countries’ urgent need for rapid growth and poverty alleviation with the need to avoid irreversible and costly environmental damage.3 It seems – setting aside issue on buzzwords – ADB aspires for the same thing.

Discussion for feedback

We have said that by 2050 we would have Asian Century where Asia will account for 52% of global GDP. But Asia’s continuous growth is not preordained. Inequality, global warming and climate change are among its mega-challenges. By not making the right choices, Asian economies can fall in the middle income trap where Asia will only account for 32% of global output.

Given this immense challenge, there are three questions that you will want to discuss further in this blog:

  • How do we put more clarity to the concepts of inclusive growth and green growth?
  • How do we operationalize these concepts in our investments, programs and projects, and how to do them better?
  • How do we further enhance our knowledge and what type of knowledge products we should/could produce so that this area can be one of our globally/regionally-respected signature topics?

1 Ali and Zhuang. 1997. Inclusive Growth toward a Prosperous Asia: Policy Implications. ERD Working Paper No. 97.
2 ADB, UNESCAP and UNEP. 2012. Green Growth, Resources and Resilience: Environmental Sustainability in Asia and the Pacific.
3 World Bank. 2012. Inclusive Green Growth: The Pathway to Sustainable Development.