Executive summary - OECD

1 UNDER EMBARGOP erspectives on Global Development 2012 Social Cohesion in a Shifting World OECD 201117 Executive summaryThe world has changed markedly since the beginning of the new millennium. ShiftingWealth describes a phenomenon in which the centre of economic gravity of the world hasprogressively shifted from West to East and from North to South, resulting in a new geographyof growth. The new scenario presents some major opportunities and challenges for thecreation of socially cohesive societies. This report examines social cohesion in fast-growingdeveloping countries and provides policy makers with recommendations for ways tostrengthen it. A cohesive society works towards the well-being of all its members, fightsexclusion and marginalisation, creates a sense of belonging, promotes trust, and offers itsmembers the opportunity of upward mobility.

2 This report looks at social cohesion throughthree different, but equally important lenses: social inclusion, social capital and social report argues that social cohesion is a valuable goal in itself and contributes tomaintaining long-term economic growth. Growth paths in which social inequalities arewide, exclusion widespread, and the scope for voicing dissent small are unlikely to besustainable. The report stresses the need for co-ordinated policy making in fiscal and taxdesign, employment, social protection, civic participation, education, gender andmigration. Because policies in these areas all interact with each other in their effect onsocial outcomes, each policy area needs to be designed with regard to the wealth brings opportunities for social the last decade, developing countries as a whole have enjoyed a revival in theireconomic fortunes after some 20 years of missed opportunities and disappointingFigure components of social cohesionSocial capitalSocialcohesionSocial inclusionSocial mobilityUNDER EMBARGOEXECUTIVE SUMMARYPERSPECTIVES ON GLOBAL DEVELOPMENT 2012 SOCIAL COHESION IN A SHIFTING WORLD OECD 201118performance.

3 The 2000s were the first time in many decades that poorer developingcountries grew faster than high-income economies. In the 2000s (as Figure 2 shows), asmany as 83 developing countries managed to double OECD per capita growth rates (ameasure used in Perspectives on Global Development 2010 to define converging countries ),compared to only 12 countries in the 1990s. The 2010s have begun under bleaker globalgrowth prospects than the 2000s however, as growth has stalled in advanced economies inthe midst of recovery from the crisis. With a less propitious international environment forgrowth, the new decade is bound to test the strength of new engines of growth and thesustainability of shifting 50 of those developing and emerging economies have grown at an averageannual rate of over per capita over the 2000s.

4 Today, nearly 1 billion out of the 2 billionpeople living on USD 10 to USD 100 a day in the world the global middle class live inconverging countries. This number is projected to exceed more than 3 billion in 2030. Highrates of growth have brought with them new resources that could be used to promote andfinance a more inclusive growth process, particularly taking into account the emergingmiddle classes expectations and contributions to social but it also brings new challengesEconomic and social transformations during a period of fast growth bring new stressesand strains with which governments have to cope. The challenges include rising incomeinequalities, structural transformation, and the need to meet citizens rising expectationsof standards of living and access to opportunity.

5 Citizens living in a fast-growing economyhave rising expectations of their current and future standards of living as they seek toshare in the benefits of growth. As an emerging middle class increasingly compares itselfFigure growth in the developing world in the 2000sNotes:See Chapter 1 for a detailed description of the country classification used. This map is for illustrative purposes and is withoutprejudice to the status of or sovereignty over any territory covered by this :Authors elaboration based on World Bank (2011), World Development Indicators, World Bank, Washington, EMBARGOEXECUTIVE SUMMARYPERSPECTIVES ON GLOBAL DEVELOPMENT 2012 SOCIAL COHESION IN A SHIFTING WORLD OECD 201119with peers in advanced economies, its patterns of consumption and demands for qualityservices can be expected to change.

6 Higher incomes, better health and improved educationdo not automatically translate into higher life satisfaction as the decline of life satisfactionin fast growing countries such as Thailand and Tunisia reveals (Figure 3). Governmentsshould not ignore the toils of these emerging middle classes nor underestimate theircapacity to mobilise people and exert pressure for more open and transparentgovernments or for an increase in standards of service this context, strengthening social cohesion becomes a critical policy which ignore questions of social cohesion risk having to face socialinstability and undertake ineffective policy interventions. Recent events ranging frompro-democracy unrest in Thailand in 2010 to the Arab Spring revolutions lend support tothe thesis that it is clearly not sufficient to apply technocratically good policy frameworkswhile disregarding people s desire for inclusive political can make a differenceWhile a strong growth process throws up new challenges for converging countries,there is ample evidence that public policies can make a difference.

7 Redistributive policiesare a powerful example. OECD countries with initially high income inequalitiesredistribute income through taxes and transfers, while in many developing countries( Latin America) tax and transfer systems have a much more limited impact onincome distribution (Figure 4).Figure in life satisfaction, education and growth performance in the 2000sAnnualised percentage growth ratesNote: Life satisfaction is measured by the average value of the answers to the Cantril ladder question: On which stepof the ladder would you say you personally feel you stand at this time, assuming that the higher the step the betteryou feel about your life, and the lower the step the worse you feel about it? Which step comes closest to the way youfeel with steps numbered from zero at the bottom to ten at the top?

8 Source:United Nations Development Programme (2010), Human Development Report, UNDP, New York; Gallup (2010),Gallup World Poll, Waves 1-5, New York; and World Bank (2010), World Development Indicators, Washington, DC. GDPper capita growth rates: 2000-09; life satisfaction: 2005-10 (earliest and latest waves); mean years of schooling: 2 RicaThailandGDP per capitaMean years of schoolingLife satisfactionUNDER EMBARGOEXECUTIVE SUMMARYPERSPECTIVES ON GLOBAL DEVELOPMENT 2012 SOCIAL COHESION IN A SHIFTING WORLD OECD 201120 Strengthening social cohesion requires a long-term vision and commitment. While somepolicy interventions or reforms can generate results relatively quickly, others do not bear fruitfor some time. Building a more inclusive education system, for example, which increases theeducation levels of the disadvantaged and the average level of education, takes a number ofyears to translate into increased inter-generational social mobility.

9 That kind of long-termvision and commitment to policies also requires a stable macroeconomic task of co-ordinating policy across a number of domains can pose a significantchallenge. Tools to facilitate co-ordination include inter-ministerial groups or commissions,ex ante impact assessments of laws, and theme-based horizontal budgeting. For example,gender-responsive budgeting advances gender equality by identifying the interventionsrequired to address gender gaps in sector and local government policies, plans, and areas that are key to social cohesionFiscal policyGreater fiscal space opens a window of opportunity for development and strongersocial cohesion in developing countries. For opportunities to materialise, however, fiscalpolicy reforms are needed.

10 Available windfall gains and resources produced by shiftingwealth are a boon to finance social programmes. They are not in themselves sufficient,however: programmes should be affordable and sustainable. A critical issue in this regardis to ensure the long-term financial sustainability of social programmes, an elusiveobjective in the widespread context of volatile revenues dependent on fluctuatingcommodity prices and the prospective depletion of non-renewable natural resources. Astax revenues are still comparatively low in converging economies (Figure 5), there is roomfor tax reforms that broaden the tax base or increase tax , low levels of trust regarding how taxes are raised and how revenue isspent often undermine reform that considers taxes in isolation from complementaryexpenditure and institutional reforms.