Inclusive growth: what does it look like?

Part 1: Inclusive growth: what does it mean, and what does it look like?

Introduction

Inclusive growth has gained increasing prominence in Scotland over recent years, following the Scottish Government’s refreshed economic strategy published in 2015 (Scottish Government 2015). The concept originated in the work of economists debating the importance of not just growth itself – but of the shape and distribution of growth across a population. While inclusive growth means many different things to different people, it can be broadly defined as ‘a concern with both the pace and pattern of growth’ (Lee 2018). Where previous approaches to economic development had prioritised any growth, inclusive growth asks new questions about which people and places stand to benefit from growth – as well as which people or places are excluded from the benefits of growth.

The Scottish Government defines inclusive growth as ‘growth that combines increased prosperity with greater equity; that creates opportunities for all; and distributes the dividends of increased prosperity fairly’ (Scottish Government 2015).

On the ground, however, defining what inclusive growth means and translating these high-level policy approaches into tangible and measurable action have been persistent challenges (Statham and Gunson 2019). As we look towards Scotland’s recovery from Covid-19, there is a clear and urgent need to learn the lessons from Scotland’s inclusive growth agenda and find new ways to deliver change in line with concepts of inclusive growth across Scotland’s economy.

Earlier research from IPPR Scotland has found that inclusive growth is blurrily defined and inconsistently understood across government and delivery partners in Scotland, with work to deliver inclusive growth on the ground characterised by a lack of clarity (Ibid). That research found having few clear examples of what inclusive growth looks like in practice presented a barrier to policymakers on the ground, trying to grapple with how to get started.

This project seeks to illuminate tangible examples of inclusive growth in Scotland, with a view to translating successes even if small in scale and sharing learning to inform future improvements in delivery.

Inclusive growth over time

While the term inclusive growth has come to prominence in recent years, there has been a great deal of activity in Scotland that has worked towards related priorities of regeneration and economic development for some time. A number of the interventions delivered over the past two decades of devolution in Scotland could fall within the definition of inclusive growth used more recently. In this sense, while inclusive growth may signal a new focus for economic policy in Scotland, and a new way of thinking about how we deliver a fairer economy, there have been many years of work in this area prior to the Scottish Government’s refreshed economic strategy in 2015.

As an overarching economic strategy, however, inclusive growth offers key differences in its approach. Most significantly, inclusive growth marks a departure from previous theories around economic growth that dominated economic thinking while some of these interventions were designed. The ‘trickle down’ neo-liberal economic policy in the 1980s and early 1990s, or ‘third-way’ approaches seen in the late 1990s and early 2000s, for example, were much less concerned about the shape or pattern of economic growth. These approaches treated economic inequality between people and places as by-products of economic growth that would be addressed through later-stage interventions, such as taxation and public spending on social security or public service investment. The distinction with inclusive growth is that ‘social’ interventions and ‘economic’ interventions are seen as one and the same. Rather than relying on ‘post-growth’ redistributive measures to correct for inequalities produced by a particular economic model, inclusive growth looks to make those economic systems stronger and more inclusive by design: delivering an economy that more people have a meaningful stake in, and prosperity that is more broadly shared. Rather than treating the economy as separate to society, inclusive growth recognises that they are indivisible: the economy shapes society and society shapes the economy. As Angel Gurría, then General Secretary of the OECD, put it to a Wellbeing Economy Governments network symposium in Iceland in 2019:

“The economy of wellbeing specifically highlights the need for putting people at the centre of policy and moving away from an attitude of ‘grow first, redistribute and clean up later’ towards a growth model that is equitable and sustainable from the outset” (OECD 2019)

In doing so, an inclusive growth model positions the wellbeing of people and planet as a core concern of economic development, rather than an afterthought.

Defining inclusive growth

Overall definition

There are multiple definitions of inclusive growth in use across Scotland, and these definitions are often contested (Statham and Gunson 2019). IPPR Scotland has argued that a working definition of inclusive growth should be based on four key components:

1. Recognising that a fairer economy is a stronger economy

Inclusive growth approaches recognise that high levels of inequality weaken economic performance – and that by addressing inequality through the process of growth itself, we can deliver stronger economies that more people have a stake in. To realise inclusive growth, you need not just growth, or greater inclusion, but growth that is designed to generate greater economic and social inclusion – not one or the other, and not sequentially.

2. It must narrow inequalities through economic growth

Inclusive growth is about narrowing inequalities through the process of economic growth. While there are lots of policy interventions that narrow inequalities through other means, they do not all constitute inclusive growth. Inclusive growth interventions must be focused on narrowing inequalities through economic means.

3. Inclusive growth must benefit people on lower incomes, and with less of a share in wealth

Inclusive growth must be designed to redress economic inequalities. In doing so, it must aim to benefit people on lower incomes, and people and places with less of a share in wealth. Place-based approaches are likely to be an important means to this end but not ends in themselves. Achieving growth for a rural area, or for a deprived area is not necessarily inclusive growth, in that it depends on who benefits from this growth within given areas. Likewise, inclusive growth will not be realised without an embedded understanding of the structural inequalities faced by particular groups of people. Inclusive growth’s success therefore relies on reducing inequalities of income and wealth across Scotland. Given the realities of inequality in Scotland, and the forces that drive them, this will also rely on an approach that understands different groups of people’s distinct experiences and the particular systems that perpetuate the inequality faced by different groups. This includes, for example, the gender pay gap, the ethnicity pay gap and the disability employment gap, and distinct forms of inequality produced where inequalities intersect.

4. Inclusive growth must be sustainable, embedded and within planetary boundaries

Inclusive growth must be sustainable to support transformational change. It must protect the environment and nature, and lead to entrenched change over the long term.

Measurement challenges

Without a clear definition that is shared across the many varied contexts inclusive growth activity is embedded in across Scotland, it becomes hard to measure and evaluate what is working and what is not, and what is delivering and what is not. Previous IPPR Scotland research found that translating high-level inclusive growth ambitions into local action was a significant challenge – and that what inclusive growth looks like in practice was not always clear (Ibid).

In order to bring the Scottish Government’s definition of inclusive growth to life, this report focusses on real-world examples of inclusive growth in practice.

Scale

Alongside challenges around measurement, there are challenges around what inclusive growth interventions look like, and how effective they can be at different levels of scale. While inclusive growth can be defined and measured at the national level, what are the likely effective interventions that can deliver inclusive growth at a sector or regional level, at the local level or even at the level of individual businesses and workers. This report considers case studies and potential measures at various levels of scale to help to understand this aspect of delivering inclusive growth.

Inclusive growth in application: where are we now?

Since inclusive growth was positioned as a central objective for economic policymaking in Scotland in 2015, we have seen change in the stated priorities of government, agencies and wider stakeholders, alongside efforts to encourage and support new ways of working to this aim. This had included the development of an inclusive growth diagnostic tool to support local policymakers, the development of city and regional growth deals across Scotland, the advent of Regional Economic Partnerships and work with enterprise agencies, including harnessing community wealth building as a strategy for delivery. The creation of Scotland’s Centre for Regional Inclusive Growth (SCRIG) as a hub to support the sharing of learning, practice and resources for practitioners across Scotland is itself an example of a new intervention with the aim of embedding inclusive growth approaches across Scotland’s economy. This chapter will assess progress made so far in embedding inclusive growth across policymaking in Scotland.

Progress on inclusive growth

Since 2015, there has been significant progress on integrating inclusive growth objectives into the workplans of government agencies and major expenditure projects. This has been paired with work focused on supporting various government actors and practitioners across Scotland to understand and embed inclusive growth approaches through their work. Next, we assess specific areas of activity and how far they have supported the delivery of inclusive growth in practice.

The business pledge

The refreshed Scottish business pledge was introduced in 2018 as a voluntary tool that encourages employers in Scotland to take on a range of business practices, some of which are designed to align with fair work principles. The business pledge includes ten areas of activity:

1. Paying the real living wage

2. No inappropriate use of zero hours contracts

3. Action to address the gender pay gap

4. Environmental impact

5. Investing in a skilled and diverse workforce

6. Workforce engagement (engaging employees in decision making)

7. Innovation

8. Internationalization

9. Support your community (through employing locally and using local supply chains)

10. Prompt payment

The refreshed pledge clearly indicates the desired direction of travel for business in Scotland: towards fair work (by promoting decent pay, contractual security, worker voice and action to tackle workplace inequality), environmentally sustainable practice, and community wealth building (discussed in more detail below). These areas all have clear potential to contribute towards inclusive growth, and there is obvious room for improvement. In its current form, however, the pledge is limited in its ability to deliver transformative change on the scale required to realise a new economic model in which these business practices are the norm.

Fair work first

The Scottish Government has adopted a Fair Work First approach as its flagship fair pay policy shaping procurement across the public sector. This sees the Scottish Government ask employers in receipt of public money to adopt fair working practices, specifically:

• appropriate channels for effective voice, such as trade union recognition;
• investment in workforce development;
• no inappropriate use of zero hours contracts;
• action to tackle the gender pay gap and create a more diverse and inclusive workplace; and
• payment of the Real Living Wage.

This followed the adoption of a fair work agreement covering the civil service and local government employment practice in 2018, which attempted to embed fair work practice across each of the dimensions of fair work identified by the Fair Work Convention: respect, opportunity, fulfilment, security and effective voice. This constitutes a clear example of inclusive growth practice being effectively embedded in the public sector.

Enterprise agencies

Scotland’s regional enterprise agencies have embraced a place-based approach to inclusive growth through their activity in recent years – but there is conflicting evidence of how far these commitments have been embedded in practice. Highlands and Islands Enterprise activity has included ‘inclusive growth weighting’ applied to investment decisions, area profiling to identify relevant and appropriate indicators, and efforts to mainstream work towards inclusive growth across operations. In 2018, the South of Scotland enterprise agency committed that any organisation they work with should commit to becoming a Fair Work employer; that grants offered to business and community organisations will be conditional on being a Fair Work employer and on commitment to Fair Work First principles; and that specialist guidance on fair work shall be offered to businesses and organisations working with the agency.

Activity within Scottish Enterprise has included a focus on improving job quality across Scotland, and on tackling inequality through inclusive and sustainable growth. This has been supported by efforts to mainstream equal opportunities through the agency and its practice.

City and regional growth deals

Across Scotland, city region and regional growth deals have become key sites of inclusive growth activity, representing £5bn of investment. Guidance to city deals from Scottish Government stresses inclusive growth priorities, and deals have already generated a wide range of activity focused on driving greater economic inclusion through deal investment. All deals have identified priority groups to benefit from investment, and the inequalities they aim to reduce – the Tay deal, for example, is prioritising women and young people as priority beneficiary groups. These ambitions have been translated into action across deals through community benefit clauses in procurement, aimed at action on employability and skills, and ensuring under-represented groups such as women, disabled people and minority ethnic groups benefit from opportunities. Other examples of deal activity aimed at realising inclusive growth include new premises being designed to ensure disabled access, and Fair Work principles are being embedded across deal contracting.

As of yet, there is insufficient evidence to assess how far a commitment to inclusive growth language through growth deals will translate into a different approach in practice, and improved outcomes on the ground.

Action plans

Scottish Government strategy has attempted to translate high-level commitments into action through a series of ‘action plans’. These outline planned government activity to improve outcomes for particular groups of people, or in particular policy areas – several of which relate closely to inclusive growth objectives. The fair work action plan was first launched in 2019, aimed at action to support employers to assess their current working practices and adopt fairer practice. Planned activity spans delivering the refreshed business pledge, the Real Living Wage, action to support unpaid carers, and promoting collective bargaining. The plan aims to make Scotland a ‘fair work nation’ by 2025.

The Fairer Scotland for disabled people: employment action plan, published in 2018, followed on from a fairer Scotland for disabled people, and includes activity to support employers (including Scottish Government and its agencies) to recruit and retain disabled people, and through Fair Start Scotland as a fully devolved employability service for people who are long-term unemployed, are disabled, have health conditions, or face other barriers to moving into work.

The race equality action plan was published in 2017, and followed the race equality framework that aims to shape government action from 2016 to 2030. It has included a focus on employment, through action such as the Workplace Equality Fund to fund projects to improve race equality and the tackle the ethnicity pay gap, and through research exploring the barriers facing minority ethnic entrepreneurs, and minority ethnic women in Scotland’s labour market.

Scottish Government published A fairer Scotland for women: gender pay gap action plan in 2019, outlining activity spanning employment, early years and childcare, skills and training, social security and employability services that aims to close Scotland’s gender pay gap.

This activity represents opportunities to begin to embed inclusive growth across policymaking in Scotland – but its success is contingent on ensuring that lowering barriers to disabled people, ethnic minority groups and women is a shared priority.

Inclusive growth diagnostic tool

Efforts to embed inclusive growth have been driven through the development and deployment of an inclusive growth diagnostic tool, piloted by North Ayrshire local authority, which seeks to support local policy-makers to benchmark performance against inclusive growth indicators, understand ‘root causes’ of exclusion from growth, consult and engage local actors, prioritise, act, and measure progress. We later compare this process to real-world case studies of inclusive growth in action across Scotland.

Community wealth building: a strategy for realising inclusive growth?

Community wealth building has emerged in recent years as an important practical and outcomes focussed tool to shape economic development and deliver inclusive economic growth. The Centre for Local Economic Strategies (CLES), who have led the development of community wealth building approaches across the UK, define community wealth building as follows:

‘Community wealth building is a people-centred approach to local economic development, which looks to increase the flow of wealth back into local economies and places, by giving more control to local people and businesses.’ CLES 2020

A community wealth building approach puts an emphasis on local people and on ownership – with a view to growing the number of people that have a genuine ownership stake in the economy. It also focusses on the local, looking at how local economies can be hardwired to lock wealth into places, supporting the development of a resilient economy that works better for people, place and planet.

The Scottish Government’s approach to community wealth building is established across five priority areas: inclusive ownership; workforce; finance; land and property; and spending (see Figure 1).

Figure 1: Scottish Government’s approach to Community Wealth Building

Community Wealth Building is a practical approach to local economic development that supports the delivery of a wellbeing economy for Scotland. It delivers actions that give the people of Scotland a greater stake in our economy and wealth making it work for us and our planet.

Inclusive ownership:

Developing more local and social enterprises which generate community wealth, including social enterprises employee owned firms and co-ops.

Workforce:

Increasing fair work and developing local labour markets that support the wellbeing of communities.

Finance:

Ensuring that flows of investment and financial institutions work for local people, communities and businesses.

Land and property:

Growing the social, ecological, financial and economic value that local communities gain from land and property assets.

Spending:

Maximising community benefits through procurement and commissioning, developing food enterprises, fair work and shorter supply chains.

Source: SCRIG 2021

These dimensions are helpful in their specificity, in that they provide direction and support collaboration across areas of policy and practice that might not otherwise be made. This includes, for example, considering land ownership through economic development, or seeking to improve job quality by embedding fair work practices through local procurement.

The explicitly place-based practical economic development model that underpins the community wealth building approach, reflected in Figure 1 above, shows where inclusive growth and community wealth building (CWB) could overlap and reinforce each other. To contribute to inclusive growth, however, the design of CWB interventions and how their outcomes are measured, and evaluation will need to keep track of which people as well as which places benefit from CWB activity. Place-based approaches may be necessary in delivering inclusive growth, but they will not always be sufficient. An understanding of the distributional effects of interventions will be necessary to ensure a focus on CWB can work to deliver inclusive growth outcomes.

Towards a wellbeing economy

More recently, the Scottish Government has articulated ambitions to build ‘a wellbeing economy’. Scotland is a founding member of the WEGo (Wellbeing Economy Governments) group, which includes the governments of Scotland, Wales, Iceland, New Zealand and Finland. The Scottish Government defines a wellbeing economy as follows:

‘This means building an economy that is inclusive and that promotes sustainability, prosperity and resilience, where businesses can thrive and innovate, and that supports all of our communities across Scotland to access opportunities that deliver local growth and wellbeing.’ (Scottish Government 2021)

Central to wellbeing economy ambitions is the conviction that wellbeing is as important as economic growth (Scottish Government 2020). Activity to support a wellbeing economy has been linked to the development of Scotland’s National Performance Framework, which outlines a core set of national outcomes against which the Scottish Government aims to deliver, and indicators against which to measure progress. This includes a direct focus on wellbeing, alongside a range of measures from employment or unemployment, access to green space, or experiences of the care system, that affect people’s wellbeing.

Where does inclusive growth fit with wellbeing?

Within this vision, inclusive growth offers an approach to day-to-day economic development that could serve as the foundations of a wellbeing economy.

The Scottish Government’s Economic Recovery Implementation Plan, written in response to the 2020 report of the Advisory Group on Economic Recovery, begins to knit inclusive growth into a wider vision for Scotland’s economy. It argues explicitly that by tackling inequality, such as women’s economic inequality, and working to secure fair work across Scotland’s labour market, Scotland can unlock greater wellbeing while creating a stronger and fairer economy (Scottish Government 2020). The report presents tackling inequalities and wellbeing as parallel aims for Scotland’s economic recovery. It also explicitly links efforts to tackle the climate crisis – through decarbonising and greening Scotland’s economy – to wellbeing, and quality of life in Scotland.

A wellbeing economy is described as a vision for ‘a society that is thriving across economic, social and environmental dimensions and that delivers sustainable and inclusive growth for the people of Scotland’. The Scottish Government identify four principles of a wellbeing economy:

Economic progress and prosperity – described as a thriving private sector, driven by innovation and internationalisation, that provides quality employment for the people of Scotland

Inclusion – ensuring that all people and communities across Scotland are able to contribute to and feel the benefits of our economy and society

Sustainability – ensuring current and future wellbeing through environmental, social and economic sustainability through an economic model that protects and restores nature and helps us live within the planet’s sustainable limits

Resilience – an economy that is ‘future proof’, diverse, and capable of withstanding shocks, due to the strength of its human, natural, social and economic capital

These definitions suggest substantial common ground exists between wellbeing economy and inclusive growth agendas. The Scottish Government’s vision for a wellbeing economy presents economic inclusion as a central component – suggesting a wellbeing economy offers an expanded vision for Scotland’s future, with a re-emphasis on environmental sustainability, and a de-emphasis on economic growth as a key objective for economic policy. In this way, a wellbeing economy offers a more developed vision for Scotland’s economic strategy – within which the central objectives shift away from traditional indicators, such as GDP growth, and towards a more holistic set of ambitions for Scotland’s people and places. Delivery against this vision relies on a wholesale shift in the ambitions of economic policy, and a reorientation in thinking about which areas of government, and which levers, can be drawn on to deliver better outcomes for people and planet, by narrowing inequalities and prioritising environmental and natural sustainability. Where previous approaches might have understood these ambitions to be the preserve of social policy alone, ambitions to deliver an inclusive economy or a wellbeing economy place them at the heart of economic policy. This was evidenced in previous IPPR Scotland research on inclusive growth, that found a shift in decision making, whereby economic policy officials understood social outcomes to be as much within their remit as, for example, health or housing policy (Statham and Gunson 2019).

Delivering an inclusive economy

Ambitions to embed inclusive growth across Scotland’s economy have often been pinned to flagship policy programmes, including growth deals and plans for Scotland’s National Investment Bank. So far, however, much of this work is still in planning, or early stages of development. While the ambitions that underpin inclusive growth as a policy agenda are understood at the high level in government, inclusive growth has yet to be translated effectively from a theoretical concept into tangible outcomes that practitioners can embed into their work. Research from IPPR Scotland has found that the further you move from central government to local areas, or from the senior level to the practitioner level, the more confusion there is surrounding what inclusive growth is, and what it is trying to achieve (Statham and Gunson 2019).

While visible examples of inclusive growth in action across Scotland still remain far from the mainstream approach, policy practitioners have expressed the potential benefits of learning from successes. Previous research has recommended that inclusive growth be ‘brought to life’ by developing a bank of examples of inclusive growth in practice (Statham and Gunson 2019). This project offers a starting point for that resource.