Innovation and Inequality

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[ – When the benefits of economic growth are distributed very unequally, social
bonds fray. Those losing ground, especially the young, may well grow disaffected,
then resentful. This was a key factor behind the Arab Spring revolts; and, as
protests in Chile, Brazil, Israel, Turkey, and India have shown, social tensions
stemming from inequality are mounting around the globe.

To be sure, income inequality has been increasing worldwide for decades. Even while
many developing and emerging economies lifted millions of people out of extreme
poverty, the perception that growth meant greater inequality was always bubbling
below the surface. But now increasingly persistent unemployment and under-employment
are giving new impetus to the rise in inequality, as the OECD reported to the G-20
in July.Stefano_Scarpetta

Indeed, in the wake of the 2008 financial crisis, youth unemployment now averages
16% in advanced countries, and exceeds 40% in some European countries.

As a result, the challenge of inclusive growth has moved to the top of the global
economic-policy agenda. Indeed, according to the World Economic Forum’s Global
Agenda Outlook, widening income disparities will be the second most important world
trend in 2014, behind only Middle East tensions.

Income gaps are growing for many reasons, ranging from “skill-biased” technological
progress to corruption. But, whatever its causes, putting people back to work at
productive, rewarding jobs can help a great deal, and this demands the best efforts
of governments, employers, and civil-society groups on many fronts.

For starters, it means providing populations with access to quality schooling and
health care: a healthy, educated person is an employable person. In many countries,
this remains a major challenge. But the large strides already made in some
low-income countries reveal great potential.

Consider Brazil, which enjoyed a long boom in the 2000’s, during which income
inequality actually declined. One contributing factor was the bolsa familia (family
grant), now a decade old. This monthly cash payment goes directly to mothers,
provided that they keep their children in school and send them for regular medical

This innovative program is not only a human-capital investment in millions of
children; it also allows mothers to work. Such well-designed subsidies for socially
useful behavior can lift millions out of poverty.

But education and health are just the first step. For practical and political
reasons, redistributive programs, while essential, are not enough to ensure
inclusive growth by themselves.

It is often said, for good reason, that the widening income gap largely reflects
technological change, which has drained many economies of blue- and even
white-collar jobs, while channeling the fruits of improved productivity to
high-skilled elites. But the digital revolution can also enable inclusive growth.
Internet applications and other communications advances are spreading knowledge and
information to millions of poor people.

Consider, started by a Microsoft researcher in India to bring better job
opportunities to the country’s informal sector by connecting employers and job
seekers via the Web, mobile apps, SMS, and voice services. Likewise, in Kenya, as
cellphones became widespread, network operators introduced M-pesa, by which anyone
with a mobile phone can transfer money quickly and cheaply – a boon for the smallest
enterprises in particular.

Both of these examples – and there are many others – originated not from government
but from the private sector. And that points to another piece of the solution:
improved labor-market efficiency. In many countries with high jobless rates,
employers cannot find people with the right qualifications. The solution is twofold:
better market information and better connections between the world of education and
the world of work.

Specialized online job-search sites are facilitating employment. But a successful
school-to-work transition should start when tomorrow’s workers are young. Early
childhood education is critical but must lead to high-quality schools that provide
ample career-related guidance and counseling. The evidence is clear; countries that
invest in these areas have better results than countries that move more slowly.

While most countries aspire to move toward a “knowledge society,” this should not
mean downplaying technical and vocational education. On the contrary, advanced
economies need many skills, and high-quality technical education, especially if
followed by effective apprenticeship programs, can create smooth transitions from
school to work. Germany, Austria, Switzerland, and other developed countries are
rightly praised for this. Germany’s youth unemployment rate is under 8%, and a
steady supply of skilled labor helps to sustain the country’s success as an

To be sure, this model cannot be adopted in every country – for one thing, it
requires a high degree of trust between labor and management. But some practices can
be modified for use elsewhere. The G-20 countries have recently adopted
comprehensive guidelines for quality apprenticeships; each member country should
adopt the most appropriate strategy within this broad framework.

Virtual training programs, for example, allow students to practice using expensive
machinery without interfering with actual production – and with no risk of damaging
the equipment. Similarly, massive open online courses (MOOCs), which are another
fast-growing approach to training, enable delivery of top-notch teaching to a broad
public at a low unit cost.

There are many innovative approaches to sharing growth more equally, and more are
emerging all the time. But they all point to a fundamental truth: If young people
and the disadvantaged are to find satisfying and rewarding jobs, governments,
employers, educational institutions, and civil-society groups all have an important
role to play. Our economies’ long‑term sustainability depends on it.

Stefano Scarpetta is Director for Employment, Labor, and Social Affairs at the
Organization for Economic Cooperation and Development.

source :Project Syndicate, 2013.

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