Is Inclusive Growth a Valid Approach to Promoting More Equitable Urban Economies
Inclusive growth is an economic approach to the development of an economy, which focuses on improving the living standards of all citizens, and ensure that people in diverse social groups benefit from the country’s economic prosperity. Lee & Sissons (2016) note that the approach is inclusive in the sense that it leaves no citizen behind as a nation or economy grows positively, ensuring that there is equitable distribution of benefits as a country develops. This economic approach is relevant in the high-income countries, and emerging economies, which are experiencing high levels of income inequalities between the wealthy and poor populations (Van Niekerk, 2020). The income inequality has affected the other non-income outcomes such as access to quality education, heath, and employment opportunities, which have negatively affected people in the lower social demographics ability to growth, and experience a positive overall well-being. In addition to that, the existing inequality in income, and growth opportunities will eventually undermine the overall economic growth prospects of a country in the long-term. This means that there is the need to address the multi-dimensional negative impacts of income inequality, and its non-income outcomes to promote a sense of sustainable economic growth. One of the best approach is for a country to utilize the inclusive growth approach. To assess, if this approach is effective in promoting a sense of equitable urban economies, the researcher will conduct a study on the imbalance in the Chinese North and South regions proving that, indeed, inclusive growth is a valid approach to the promotion of more equitable urban economies.
The concept of inclusive growth is growing in popularity as ore countries adopt it as a core principle in their development agendas. According to Bakker & Messerli (2017), the concept provides a win-win allure where a more prosperous society and economy is promised to all participants. The concept is primarily based on a more equitable society model. The proactive strategy was employed to ensure growth as an inclusive element that brought forth reductions in overall inequalities and an increase in the living standards of people. Stemming from the developing nations, Ngepah (2017) notes that the concept was quickly adopted in the developed nations too. By definition, the OECD (2014) defines inclusive growth as any form of economic growth that generates opportunities to every segment of the population while distributing the dividends of an increased prosperity. The definition of prosperity is in both monetary as well as no-monetary terms that should be distributed fairly across different societies in a nation. Therefore, inclusive growth must encompass an emphasis on opportunities and outcomes setting is apart from traditional narrow inclusion approaches.
In poverty reduction attempts, growth remains to be one of the most important components. However, Lee (2019) introduces a fact that redistributive growth has better chances of being effective as compared to a distribution neutral growth approach. It is important to understand that poor people also need access to the benefits of positive growth. Inclusive growth represents a pro-poor growth strategy of developing an economy where the benefits of any positive change in the economy are shared within every income group, ensuring that all participating agents see and understand societal and economic change. For example, the growth of a rural setup to an urban area must include elements that would make the residents realize that there is positive change, including an upgrade of local roads, better housing, and other social benefits. In China, inclusive growth and the general approach of sharing benefits has been more effective than elsewhere in the world. This effectiveness has been attained through creation of an entrepreneurial environment that attracts new organizations and favors local communities, ensuring that people have access to jobs and that they are able to earn wages through relaxed policies on job creation, and the protection of local companies against the global giants.
Economic Growth of China
Over the past three decades, China has experienced a rapid expansion in its economy, which has contributed to the improvement of the living standards of the people in the country. The average annual GDP growth during this period has been 10% (OECD, 2014). The improved economic growth has not only contributed to an improvement in the living standards of people, but has overall contributed to China being considered as an upper middle-income country.
As the country’s economy matured, its overall GDP growth has slowed down significantly. For instance, in 2007, the country’s GDP growth was reported as 14.2%. In 2018, the country’s economic growth was reported at 6.6%, and in 2019, it was 6.1%. According to the International Monetary Fund, by 2024, the country’s GDP is expected to fall to 5.5%. In the future, China’s growth prospects will be affected by the global economic landscape, which will be characterized by increased trade, and foreign investment integration (You, 2020). An important point to consider is that, China is currently facing increased competition from other emerging-market economies such as Brazil to attract investors, the country will have to consider alternative economic policies that will promote a sense of sustainable development in the country.
China’s rapid GDP growth, did not contribute to an increase in the overall house-hold disposable income. In particular, there was a significant drop in the disposable income in the country, by approximately 9% between 1997 to 2008. The contributing factors to this drop were reforms in the State-Owned Enterprises (SOEs), which focused on raising the labor productivity of these organizations by reducing the surplus labor in these institutions (You, 2020). There was also the relaxation of the requirement that migrants from rural areas need to carry their documentation, and this contributed to a decrease in the overall risk of deportation. The workers from the rural areas were willing to be paid wages, which were considered to be considerably low by the urban standards, as they were significantly higher to what they would have earned in their respective rural areas. The result of this was a drop in the income of employees, especially in the low-skilled jobs, and overall household disposable income in a majority of families. This has contributed to the income inequality challenge that is currently experienced in China.
The opening up of the Chinese economy also contributed to a disparity in income between members of different social classes. The opening-up of the economy contributed to a significant change in the prices of goods, and compensation for labor, which increased inequality in income, especially in the urban areas (Heshmati et al., 2019). The wages increased significantly for the people in the well-paying, while it was only marginal for the low-income earners. It contributed to an increase in the income gap between the rich and the power in the society.
Inclusive Growth Trends in China
Inclusive growth is an economic policy, where there is a combination of increased prosperity, and better sharing of the economic benefits among all the social groups in a country. There are different approaches that are used to foster inclusive growth. One of the approaches that is utilized is emphasize productive employment (Heshmati et al., 2019). In this case, economic growth leads to an increase in the employment opportunities for citizens of different social classes, and ensures that people are employed to jobs that meet their skills, knowledge and expected pay (OECD, 2014). The second approach that is utilized to achieve inclusive growth is the pro-poor re-distribution. It focuses on improving the income gains for the low-income people, and improving the quality and accessibility of education, health, and jobs.
China’s approach towards achieving inclusive growth has contributed towards the need to ensure that there is a spread of benefits of economic growth across people of different social classes, and in different regions of the country (urban and rural areas). According to the Chinese government, they intend to ensure that all people have equal access to the available development opportunities (You, 2020). The government is also implementing a system, which guarantees social equity with an increase in the focus to promote fairness in the rights, opportunities, and distribution of wealth (Lin et al., 2008). There is also the need to remove the obstacles threat have in the past prevented the citizens from participating in economic development initiatives (Wang, 2015). To achieve the aspect that is promoted by inclusive growth, there is the need to provide full employment, and the development of a social security system that is able to cover the rural and urban residents.
Comparisons of the Northern and Southern China
The terms, “North,” and “South” in China from an economic perspective do not only refer to geographical regions, but refer to the development differences in economic prosperity. The terms are borrowed from international politics where the wealthy and developed countries are collectively referred as the North, while the poorer and developing countries are referred to as the South. However, in China, Southern China is the one that is experiencing economic prosperity in comparison to the Northern China. Graph 1 shows the widening North-South economic gap in this country.
The illustration of graph 1, clearly shows that over the past 26 years, North China has performed poorly than the South China from an economic perspective (Zhang & Woo, 2021). Another observation that was made was that, in the first twenty years, the economic gap between the two regions was constant, but from 2018 to 2020 it increased significantly. In fact, according to the National Bureau of Statistics, in 2020, Beijing was the only Northern city that was ranked among the country’s top 10 largest cities from an economic perspective (Yang, 2020). This is an indication of the widening economic gap between the north and the southern regions of the country.
The reason that has contributed to the widening economic gap between the north and the south is brought about by a difference in the economic structures.
The north’s economy is mainly comprised of state-owned enterprises (SE)) in the heavy industries. On the other hand, the bulk of the economy in the southern region comprises of the export-oriented private sector (Harrada, 2020). In the northern region, there is a strong emphasis on manufacturing, and the industries have mainly remained the same in terms of what they produce as they were in the 20th century. This means that in some of the manufacturing plants, the demand of their products has lowered. There has also been an increase in the production costs as is the case of products such as steel (Yang, 2020). In addition to that, the central government of China has imposed strict environmental protection policies and measures, which limit greenhouse gas emissions, and this has ultimately increased the operation costs of the heavy industries in the northern region of the country.
A majority of the northern cities are experiencing a decline in the economy because in the past, they relied on various natural resources such as coal, ore and oil resources. These natural resources are increasingly becoming depleted, and this has also affected the SOEs. They are unable to acquire the resources that they rely on to produce various products at a cheap cost (Yang, 2020). The depletion of these resources also means that there has been a reduction in overall production, reducing its revenues, and overall employment opportunities for the people in the region (Wang, 2020). The industries cannot offer many employment opportunities as they did in the past, reducing the number of people that are currently employed in the region.
A majority of companies in the south have mainly focused on innovation efforts. The demand, and market for their products has significantly increases, as they are producing goods and services that meet and satisfy the fast-changing needs for their consumers (Zeping et al., 2020). It means that, for most of these companies, they have a ready market for their products. The innovation capability of these companies has contributed to an improvement in their overall competitiveness, and contributed to some of these companies such as Huawei able to access a bigger share of the market i.e. they sell their products in other countries, other than China.
The business environment in the Southern region is considered to be more favorable than is the case in the Northern region. The Northern region is characterized as a planned economy. The reason for this is that, a majority of the people in this region prefer to work in a secure and guaranteed job with an SOE (Zeping et al., 2020). They are highly unlikely to engage in entrepreneurship because they will not have a guaranteed income (LI & GUAN, 2018). In the Southern region, a majority of people work in the entrepreneurship sector. With a flexible income, they are able to engage in diverse income generating ventures, and this is likely to increase their overall income, and disposable household income.
Impact of Inclusive Growth on Improving the Economy of Northern Region
The implementation of the right policies may provide, or lead to the creation of the enabling conditions, which will contribute to inclusive growth in both the North, and Southern regions. There is the need for policy action to address the existing market challenges and failures in the Northern cities. For instance, the Chinese government should introduce policies that support innovation capabilities in the Northern cities as has been the case in the Southern cities (Zhang & Wu, 2019). The Chinese government needs to promote policies that will encourage the investment of high, mid and low technological activities in the Northern region. In particular, there is the need to invest in the low-and mid-technological activities as this will contribute to high employment activities, than is the case from the high-technological sectors. The emergence of technological companies in the Northern region of China will contribute to economic development, and the aspect of inclusive growth being realized in the country.
The finance structure matters in the issue of inclusive growth. As has been stated before, in the Northern regions, the economy is dependent on the performance of SEOs, while in the Southern region, entrepreneurship performance is what affects overall performance of the economy. The financial structure, determines the economic opportunities. In the northern region, it is quite restricted to the wealthy people. The investment opportunities are low, and restricted to the people who have high capital. A majority of the existing industries are capital-intensive and their markets are limited. On the other hand, in the South, a majority of the industries are knowledge-based, and have a potential of reaching international space in terms of the available market regions. The finance structure in the Northern region has to be designed to be similar to that of the Southern region. This will contribute to more economic opportunities, increased investment in the region, and the development of diverse employment opportunities.
Improving access to quality education will promote the aspect of inclusive growth. The reason for this is that, this will be an investment in human capital, and will contribute to the establishment of opportunities for people. The need for improvement of education in the Northern region should focus on entrepreneurship, and technological courses. It will make the region attractive to investors whereby they will see that they have available labor for the companies that they will establish in this region. This will overall promote an overall equitable economy in the North as is the case in the Southern cities.
The rapid economic growth has had a positive impact on China. China’s achievements in terms of economic expansion and urbanization are undeniable. However, while recognizing the country’s success in terms of fighting poverty, and improving the living standards of its citizens, there is also the need to assess the aspect of inequality that is not only considered a threat to the long-term economic development and growth of the country, but it is affecting the overall well-being of a majority of its citizens in the country. There is a high disparity between the country’s Northern and Southern cities. The Northern cities economy is mainly run, and affected by the performance of the SEOs. A majority of companies rely on natural resources to produce their products, and as they are becoming depleted, this is affecting the overall performance of these companies. An important point to note is that, a majority of the industries in the Northern region are capital intensive such as manufacturing companies. On the other hand, the Southern cities have diverse industries, and a majority of the companies are in the technological industry. This has contributed to the overall Southern cities performing better than is the case of the Northern cities. For the Northern cities to perform better, there is need to implement policies that promote the aspect of inclusive growth. This will be in relation to improvement of the business environment, financial structure, and access of quality education in the Northern cities. Inclusive growth is a viable approach towards achieving equitable economies because it ensures that different regions of a country have favorable dynamics that promote economic growth.
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