Income inequality has become so extreme that it could inflict major economic damage if we don't take action. The gap between rich and poor in many countries, most notably the U.S., has been widening for decades. This has excluded billions from the benefits of the economic wealth that they have helped create; an outcome that, aside from being morally questionable, also happens to make little economic sense. It simply boils down to untapped human and economic potential. It's about time the world has finally realized that we need to do something about rising inequality.
The realization among business and political leaders that economic growth is only sustainable if it is inclusive, and not restricted to a small elite, may have taken too long, but at last the message is being received loud and clear: you can be pro-growth and pro-equity -- and you must be pro-equity to be pro-growth.
Why did this take so long? Decades have been lost, for one thing through a stubborn adherence to the belief that focusing on market efficiencies alone would allow wealth to trickle down. Flawed thinking has led to a polemicization of the political debate. But the age-old orthodoxies of the left or right are not going to get us anywhere; they will just deprive the world of collaborative spirit when it is so badly needed to find a creative and more durable solution.
This lack of a clear, practical strategy for inclusive growth has meant numerous opportunities to tackle inequality have been missed. The impact of the global financial crisis and the damage it did to government finances was to deter and delay reforms that have been deemed too expensive for our austere times.
But inclusive growth buttresses economies, it doesn't beat them down. Tax -- or fiscal transfers, as we economists say -- is almost certainly part of the solution, as are good-quality education and skills training. But there are other solutions too, which are less expensive (in terms of financial and political capital) and can reap rewards sooner.
Since 2013, when we decided to look into the challenge of inclusive growth in earnest, we have identified 15 ways governments and businesses can deliver growth that is good for economies and good for people. This is important for two reasons: firstly because by providing more options, we feel that at last the debate can move forward, and secondly to encourage action on and draw attention to other important and deserving areas.
Sensible and relatively straightforward reforms, such as better regulation of businesses and financial markets, are critical to unleashing entrepreneurial spirit and driving innovation. This in turn helps create better-paid, higher-value jobs, injecting resilience into an economy.
So much economic potential can be realized just by connecting the dots. In lower- and middle-income countries, for example, expanding home ownership acts as a catalyst for would-be wealth creators by providing collateral for business loans. Tinkering with corporate governance in advanced economies can ensure that investments are channeled towards productive uses, such as infrastructure, research and development, and the creation of new businesses.
There are other considerations, too. Corruption and the concentration of rents in too few hands plague countries at all levels of development. Inadequate infrastructure and basic services often create unnecessary roadblocks, preventing many from participating fully in economic life. Adequate legislation to protect the low-paid, along with stronger safety nets, allows workers to be more productive and resilient in the face of economic shocks.
For most of these measures, it is less about money and more about mindset. From classrooms to boardrooms to cabinets, there needs to be a new understanding of what sound (and inclusive) financial management means. Our analysis shows that not one country is getting it right; none is a top performer in every area. In fact, no country scores above average in all 15. There is plenty of work to do: billions of people may have been lifted out of poverty over the past century, but what they need now is a fair and equitable society.
Gemma Corrigan is an economist at the World Economic Forum. She is participating in the World Economic Forum's Annual Meeting of the New Champions in Dalian, China.