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Symposium 2015

Solution for Promoting Innovation to Achieve Inclusive Growth

The Challenge

“Inclusive Growth” refers to sustained economic growth while at the same time improving equal access to opportunities among (groups of) individuals and reducing income disparities (ADB 2011). It ...

“Inclusive Growth” refers to sustained economic growth while at the same time improving equal access to opportunities among (groups of) individuals and reducing income disparities (ADB 2011). It aims to provide different groups of a society with equal opportunities to participate in economic development processes, thus enhancing the living standards and promoting mobility across different social groups. A key driver of future development in the world is “innovation”.

Toward Inclusive Growth: Opportunities and Outcome Distributions

Innovation in technology has been a key driving force behind modern day economic growth. Even though growth has raised the long-term economic well-being, the mid-to-short-term results of growth reveal unsettling issues. They include problems of income inequalities, relative deprivation, and justice between generations, etc. A recent study on income inequality, for instance, shows that income inequality in OECD countries has increased over the past decade, while the development of ICT technology has also grown. In the United States, 47% of all income generated between 1976 and 2007 benefitted the top 10%. It is clear that while innovations in technology may stimulate the economy, they are not necessarily equality-enhancing. Different kinds of innovation activities are needed to gear the economy toward inclusive growth. This may be achieved by enhancing participation opportunities and by a more redistributive tax system.

Enhancing participating opportunities
Inclusive growth cannot be achieved without providing opportunities and means to engage everyone in the process of economic development, particularly those who are underprivileged (i.e., the “pro-poor” policy).

With regard to the education system, the poorer and the underprivileged population has higher drop-out rates and lower education attainments. The one-size-fits-all curriculum design should be rethought. For instance, a recent report in Taiwan shows that by including indigenous language and cultural materials in the curriculum for the aboriginal children, they become more self-confident, less likely to skip classes, and have better overall academic performances. Flexibility and customization are key in this regard.

While education is vital for social mobility, the access to and the cost of quality education has increasingly favored the rich in many developing as well as developed countries. We need to find innovative ways to provide low-cost and high-quality education and implement reforms on the funding of education. Utilizing ICT in education, such as the cases of Coursera and Khan Academy in English-speaking countries, is useful in this regard, and similar programs should be encouraged in other parts of the world. While Coursera and Khan Academy were able to attract several venture capital firms and wealthy donors to get them going, similar conditions may not be easy to obtain in other parts of the world. Instead, governments in those places may consider the build-operate-transfer (BOT) scheme with a private sector partner. In this partnership, the government works with top public schools/universities to provide content, and the private sector partner builds the web-based infrastructure and operates the business to its self-sufficiency.

Economic policies are seldom Pareto improving and those with disadvantaged socioeconomic backgrounds are often the most vulnerable. The vulnerability manifests itself not only in their limited capacity in absorbing the policy’s adverse effect but also in being alienated in the decision-making process. To a greater extent, the disconnect between citizens and government is a disconcerting issue shared by many countries. As an example, Taiwan’s Legislative Yuan attempted to ratify the “Cross-Strait Agreement on Trade in Services” with Mainland China in March 2014, and it invoked huge public protest on the ground that the process is undemocratic and the voices of small and local businesses were not heard. The protest became what is called the “sunflower movement.” As a result of the movement, the ratification process is put on hold for an indefinite time in the future.

“Let their voices be heard”
Public deliberation is suggested as a way to engage people in public decisions, and various methods, such as the town hall meetings and the deliberative polling, has been adopted at the community level in some countries with some success. To make public deliberation a part of formal policy decision process, it needs to be institutionalized and increase in scale. The institutionalization may be achieved by providing proper incentives to the agency and the leadership. For instance, political and policy-leaders who resort to public engagement should be reorganized, applauded, voted for, and funded. To increase the scale, the goal is not to engage all citizens in every public issue—this will only strain the people’s energy and ground governance to a halt. Instead, we should encourage people to spend some of their time on some of the issues that are core to their own interests. By engaging the stakeholders in the decision-making process, we may not only increase the likelihood of having successful policies, but also help to build social trust in the community. The latter is important in addressing the issue of relative deprivation.

Capital is critical for running business, but the access to it is a problem for many start-ups and small firms. Crowdfunding is making a big scene, and various models (donation-based, reward-based, social lending, equity lending, etc.) and platforms have been made available. They have proved to be successful in building up small businesses in some cases. A note of caution is necessary, though: While crowdfunding lowers the bar for start-ups and, hence, facilitates entry it cannot replace the role of local creditors who provide capital to keep firms afloat. If there are problems in the local financial system, as is the case for many developing countries, crowdfunding is not the cure. Crowdfunding is useful, but it is not a substitute for a functional financial system.

Redistribution through tax
As a result of economic growth, the rich accumulate a disproportionally large share of the wealth while they pay a low effective tax rate. A progressive global wealth tax (the “Piketty tax”) is advocated by some to deal with the problem. The now-much-discussed Piketty tax would start at 0.1% and top out at 10% on wealth. The problem is that the wealthy might transfer title of their assets abroad, and that’s why the tax has to be global. However, getting every country to tax equally and to share data is difficult, and it surely requires innovative approaches to cross-country cooperation and tax law design.

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