Our broad policy framework is as follows: Five sets of public policies are necessary to support and promote a more inclusive kind of economic growth and human development. The first includes economic policies, aimed not to replace the market but to supplement it where it fails, or where its outcomes would otherwise contradict the attainment of the goal of inclusive growth and human development. The immediate aim of these policies is, however, to promote employment and hence income opportunities for people during the early phases of economic and social structural transformation. A more equal income distribution can be achieved by raising the share of labor in total incomes at the primary distribution stage (that is, as returns to factors rather than as transfers), and the first step to do so is to widen employment opportunities for people. We shall consider three specific sets of such policies: agricultural development policies, intended to raise rural employment and incomes (Section 4.3); industrial and trade policies, aimed to promote more labor-intensive kinds of industries (Section 4.4);
and policies designed to promote the development of small and medium sized enterprises (or SME development policies) (Section 4.5). Some specific kinds of these policies have been
21 The term 'inclusive growth' is borrowed from the Asian Development Bank, which it now takes as its new mission. The rise in income inequality compared with its historical levels in the Asia-Pacific Region caused the Asian Development Bank to reorient its lending objectives in 2007 not only to reducing poverty but also to promoting inclusive growth. See ADB (2007a, b).
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tried across the ESA economies at various stages of their development with diverse force. We shall review major cases of these policies.
A second set of public policies concerns human capital accumulation. Indeed, human capital accumulation, either as educational advancements or health enhancements, has intrinsic as well as instrumental values to human development. Health and knowledge are themselves ends that people pursue, and they also constitute two basic capabilities of the people. At the same time, as our discussion of the Kuznets curve in Section 3 stresses, increased and broad-based human capital accumulation can over time improve income distribution in an economy by both raising the labor‘s share in such distribution and reducing wage differences between skilled and unskilled labor. Indeed, increased and improved education of the work force, by raising the skills of the workers, can also facilitate the development of more knowledge-intensive kinds of industries, thereby promoting the income growth for labor vis-à-vis other factors of production (and economic growth in general). The latter in turn is likely to contribute to further human capital accumulation, resulting in a beneficial cycle of actions and reactions.
Public policy relating to education is addressed in Section 4.6, and health in Section 4.7.
Although our emphasis is on more equal primary income distribution, secondary income and in-kind transfers (including free or subsidized public services) are nevertheless also important for alleviating existing absolute poverty, reducing future possible incidence of such poverty, and ensuring that none, even though not absolutely poor, is too far left out of the enjoyment of economic, educational, health and other benefits that the economy and society produces and
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provides. Our third set of policies, therefore, concerns absolute poverty alleviation and prevention, through providing safety nets for those in need, and, over time, relative poverty reduction through income, employment, education, health and other supportive programs (Section 4.8). The universalization and integration of various welfare programs have recently received much policy attention in some economies (e.g. China), and we will consider the case for reducing the dualistic nature of welfare programs both between the rural and urban areas, and within the urban areas (Section 4.9). In the process of rapid industrialization and urbanization in many developing economies, the old dualism that has characterized the rural-urban divide has somehow found new inroads into the cities themselves, dividing those who are local residents and those who are migrant workers in respect of employment, education, health, housing and other welfare entitlements and opportunities. It is important to find appropriate policies to combat these trends.
The fourth set of public policies relates to environmental sustainability (Section 4.10). Across the world, various local and global environmental problems are seriously threatening our wellbeing, our way of life and, indeed, our very civilization. For this reason, they have become among the most important policy concerns of our time, both nationally and internationally.
Different policy regimes exist, ranging from a completely laissez faire approach, to government exercising a strong hand using command-and-control methods, or market-based methods. However, besides issues over choice of tools to achieve given policy targets, the very concept of sustainability itself has, in fact, been surrounded by considerable controversy, and different ―paradigms‖ of development can also be shown to have sharply different implications
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in terms of environmental consequences. As well as looking at specific environmental policies it will also be important to address these larger issues.
The final set of policies relates to empowerment, agency, and civic and political participation, in short governance (Section 4.10). All public policy programs will need institutions, rules and procedures to support them. However, empowerment and civic and political participation can also help ensure that policies are responsive to the needs of the people, that policy making is transparent, that policy makers are made accountable for their decisions, and that policy implementations are efficient and the outcomes are equitable. Moreover, empowerment and participation (in short, agency) are themselves an end of development. As noted before, if the purpose of development is to enable people to better lead the lives they value, then it matters critically that they are involved in public policy making, supervision and evaluation.
These five sets of public policies are diagrammatically related together in Figures 4.2.1 and 4.2.2. We distinguish between the intrinsic and instrumental values of a policy objective. Since inclusive economic growth poses a major challenge to the ESA region in view of the recent deteriorations in income distribution in many economies, and since inclusive economic growth matters, though, critically to the progress of human development in the region, we highlight this as a key public policy goal. Figure 4.2.1 provides a framework for coordinating various public policies just mentioned in working towards achieving this policy goal. Note that, instrumentally, the final set of governance-related public policies is needed to underlie and support all the other four sets of policies to ensure that they achieve their intended policy aim.
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As well as their instrumental values in contributing to achieving inclusive economic growth, however, many public policies themselves contribute intrinsically to human development.
Figure 4.2.2 sketches out their intrinsic contributions.
Figure 4.2.1 a Framework for Public Policy and Inclusive Growth22
22 In drawing this chart, we have drawn upon the related work of Ali (2007), which presents a very close framework for public policies aimed at achieving inclusive growth and poverty reduction in Asia.
Economic Development
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Figure 4.2.2 Public Policy and Sustainable Human Development