Towards inclusive growth — an easy goal to set, a complex path to plot

Despite the economic growth in Europe it has not worked for everyone the same way, hence a level of anxi- ety that is felt across many countries. How do we achieve inclusive growth and ensure broader prosperity?

Dr. Christian Ketels
Chief Economist, The BCG Bruce Henderson Institute

  • This article was originally published as part of the 2018 edition of Bled Strategic Times, the official gazzette of the Bled Strategic Forum (BSF) international conference. You can access the full version of this and other BSF publications by visiting our official website.

European economies have climbed their way back out of the deep dislocations from first the global and then the European financial crisis.[1]While these crises have left deep marks, the recent data shows robust growth across European economies. Things have clearly improved, even if there are a range of clouds on the horizon from both the global policy context and the unresolved issues within Europe.

But even now, with the headline figures still looking good, a tangible sense of anxiety remains present across many societies. And it is not so much about what might be ahead — it is already about how the growth of the recent past has played out. The rising tide has lifted many boats — unemployment is down, and getting into the labor force remains the key path towards prosperity — but it has not worked for everyone the same way. Wage growth has remained sluggish, and tilted towards the top end of the income distribution. Many of the new jobs created since the crisis even in economic powerhouses like Germany provide meager incomes. The pockets of unemployment remaining, often predominantly filled by migrants and the low skilled, are hard to tackle. Entire regions seem left behind; [2] the OECD has reported increasing economic divergence within countries even as convergence across countries has continued [3]. And the pressure on public spending following the crisis have raised a sense of exposure among those reliant on public support.

Overall, then, we are increasingly facing a challenge to achieve inclusive growth, not only growth on average. But how can we ensure that prosperity gains are broadly shared?

What economic policy can do

Macroeconomic demand-side approaches to achieving inclusion have little credibility left — while headline growth is up temporarily, it is often not sustainable and doesn’t ‘trickle down’. Traditional supply-side policies focused on innovation and productivity offer more sustained growth benefits. But their returns seem to be equally unbalanced across society, benefiting disproportionally those with high skills and entrepreneurial drive. And traditional social policies also offer no sustainable answer — they have often driven a culture of dependency in regions and individuals, that even new ideas like basic universal income struggle to overcome. Already now the financial viability of many welfare systems is challenged by demographic and other factors.

A new economic policy approach towards inclusive growth is needed: It needs to measure progress differently, and it needs to think differently about who it engages with, and how.

Let’s start with performance measurement.Traditionally we have looked at economic growth through the lens of GDP and GDP per capita. While the limitations of GDP have been known to economists for some time, its easy availability across countries and over time has retained its widespread use.

The Boston Consulting Group’s Sustainable Economic Development Assessment (SEDA) [4] is one of the new tools available to provide an alternative view. It captures ten dimensions of well-being from economic outcomes to investments to measures of economic, social, and environmental sustainability. Applied to a wide range of countries, SEDA allows an in-depth diagnostic of where a country stands in terms of its broader development, whether it is able to improve its sustainable economic development, how it translates GDP into this broader measure of progress, and how growth in GDP is related to growth in sustainable development.

You can’t manage what you can’t measure. Changing how you measure economic development is the first step towards achieving a different kind of economic development.

The second step is to translate broad ambitions for economic development into specific actions. This has two dimensions — who you work with, and what you actually do.

Current practices aim to achieve growth along two main axes, often managed by different parts of the public sector:

One set of activities focuses on the ‘top of the pyramid’ — the firms, regions, and individuals that have the highest potential to succeed. This makes a lot of sense in terms of having an impact and getting a return on public policy. The challenge is that there is no automatic mechanism to translate any success at the top to success across the board.

Another set of activities focuses on ‘those that need support’ — i.e. those reporting lower levels of performance. Again, reasonable when thinking about where public action is truly adding something that is not happening automatically. The challenge is that the success in getting low performers to improve is much lower than in making high performers even better; too much ends up being a sort of social policy-intervention, not a trigger for sustained growth.

An inclusive growth approach sets development goals engaging all firms, regions, and individuals. Broad-based success requires shifting the entire distribution, not only extending its right-hand tail. It means working also with the ‘average’ firm, not just the top performers that self-select to participate in advanced innovation and export support programs. It means also focusing on the re-skilling of the ‘average’ employee, not just the top researcher, coder, or entrepreneur. And it means development strategies for all regions, not only those that either face an immediate crisis or have a shot at becoming a global hotspot.

Such an approach then needs to overcome a false trade-off between supporting excellence and subsidizing those that need help. Shared prosperity growth and inclusion require all parts of the economy to improve their performance, recognizing that what it takes to get there will differ significantly across groups. Supporting the use of new technologies, not only creating them or giving them away. Supporting scale up, not just start up or staying where you are. Supporting middle skills, not just academic excellence. Supporting quality, not just innovation and research. It does not mean a departure from setting high expectations on improvements to be made, even if from a low level.

You can’t improve the performance of all if you don’t work with all. But you will not succeed if you fail to address the unique needs each of them has. And you can’t improve performance if you compromise on the principle of pushing for all to change, even of those that start at a lower level.

What companies can do

Companies are concerned about the more volatile political context that they are facing in many parts of the world, driven at least in part by the sense of eroding inclusion. One approach is to focus on ‘defensive’ actions, i.e. raising resilience against policy shocks and lobbying to deflect decisions that might hurt them. Another option is to engage more pro-actively, i.e., engaging in public dialogue, embedding a focus on inclusion in the own business model, and leveraging shared value opportunities [5]. BCG’s work on firms’ Total Societal Impact shows that this pro-active approach can drive a mutually reinforcing dynamic of societal benefits and firm success [6].

Inclusiveness is, as some of our colleagues put it, in ‘everyone’s best interest’ [7]. Firms have no political mandate and need to be careful about lobbying for specific political objectives. They are, however, an integral part of society that sees and is affected by the implications of the rules and regulations that politics set. They are also a critical part of the solution in how they respond to such incentives and ultimately create the shared prosperity that drives inclusion. Translating these external signals and demands into corporate strategy isn’t easy but there is clear pathway for doing so as my colleague Martin Reeves outlined recently [8].

Firms need to be part of the journey towards more inclusive growth, and contribute the unique insights and capabilities they have as for-profit entities constantly exposed to the existing market dynamics.

Knowing your limits. If the anxiety we experience in our societies would be only an economic problem, it could be solved by an appropriate set of economic policy interventions and company actions. But it is not. The fragmentation we perceive in many places is based on a much more complex mix of factors. Globalization, including migration, and a host of other trends have challenged old patterns of identity and cultural norms. The cohesive power of a range of traditional institutions is waning, and the media landscape is increasingly perceived as exacerbating tensions between different points of view rather than enabling fact-based dialogue.

Economic policies designed to achieve shared prosperity can ease this pressure, but they are on their own not sufficient to address the full set of societal challenges that fuel the existing tensions. It is thus important to embed economic policy actions in a broader strategy to strengthen dialogue within society, and raise individuals’ sense of belonging and being-heard in this process.

Achieving inclusive growth when more difficult times are ahead

Policy makers aiming to launch new inclusive growth efforts need to be aware of the changing context in which they will have to operate. The business cycle in many advanced economies is reaching its peak, and the monetary tightening in the US is starting to affect also European economies. The escalating trade policy disputes create real costs for specific industries and locations, and raise the level of uncertainty throughout businesses. In Europe, key choices about the future shape of European integration still have to be made, from the macroeconomic governance of the Euro-zone to achieving political alignment on how to deal with migration and disagreements with some EU member states about fundamental legal principles. There also important decisions to be made about the post-Brexit relationship with the UK, and the multi-year budget for the European Union.

Embedding inclusive growth in the responses to these economic and political challenges is critical. Inclusive growth has the potential to ease the pain of downturns, and ideally even to raise the stability of economies. The more progress is made on these economic dimensions, the easier it will be to find solutions also to the political demands ahead. Inclusive growth is not a luxury to afford oneself in good times, it is of principal importance all the time.


[1] European Political Strategy Centre (2018), Europe is Back, European Commission: Brussels.

[2] Rodríguez-Pose, A (2018), “The revenge of the places that don’t matter (and what to do about it)”, Cambridge Journal of Regions, Economy and Society 11(1).

[3] OECD Regional Outlook 2016, OECD: Paris.

[4] Douglas Beal, Enrique Rueda-Sabater, Su En Yong, and Shu Ling Heng (2016), The Private Sector Opportunity to Improve Well-Being: The 2016 Sustainable Economic Development Assessment, The Boston Consulting Group.

[5] Michael Porter, Mark Kramer (2011), Creating Shared Value, Harvard Business Review.

[6] Douglas Beal, Robert Eccles, Gerry Hansell, Rich Lesser, Shalini Unnikrishnan, Wendy Woods, and David Young (2017), Total Societal Impact: A New Lens for Strategy, Boston Consulting Group.

[7] Frans Blom, Thomas Steffens, Ruben Brekelmans, and Marianne Boschloo (2016), Inclusiveness: In Everyone’s Best Interest, Boston Consulting Group: Amsterdam.

[8] Martin Reeves (2017), What has sustainable inclusive growth got to do with corporate strategy?, https://www.druckerforum.org/blog/?p=1659, accessed May 17, 2018


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A platform for high-level strategic dialogue among leaders from private & public sector. Organised by Slovenian MFA & Centre for European Perspective (CEP).

Bled Strategic Forum

The official Medium publication of Bled Strategic Forum (BSF) — a platform for high-level strategic dialogue among leaders from private & public sector. Organised by the Slovenian Ministry of Foreign Affairs & Centre for European Perspective (CEP).

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