To pursue inclusive growth, we need to measure it

Inclusive growth is generating growing interest. But to pursue it, we need to measure it. Traditional economic measures such as GVA aren’t enough if we are to really put inclusion at the heart of our economic decision-making.

Inclusive growth is a complex, elusive idea. The problem it seeks to solve is relatively easy to describe, and we describe it in the interim report of the Inclusive Growth Commission.

But the issue of why economic success has failed to spread, and what we can do about it, is much more complex and potentially controversial – or it would be if the failings of economic regeneration over the past few decades were not so obvious.

The detailed prescription for inclusive growth will have to wait until our final report, early next year, though you can see the general direction we have been thinking by reading the interim report.

But there is one key element of the diagnosis that is quite clear and unambiguous. If you fail to measure how economic success spreads – and fail to take account of the way it includes people and places in investment decisions – then it is hardly surprising that it doesn’t.

The conventional measure of choice is GVA, or Gross Value Added, which is mandated by European regulations, but it isn’t able to measure the inclusivity of growth, nor its geographical and social spread.

Nor is it able to take account of variations in the wider effects of growth, regionally or locally. Without other measures, GVA renders us partially blind to the real economy.

This implies some other measure, or basket of measures, which would be able to track what we might call ‘quality GVA’ regionally and locally, and the wider effects of investment, might be a more effective underpinning for inclusive growth.

Inadequate measures means that projects and investments tend to be appraised according to whether they are likely to produce an uptick in GVA, rather than the kind and pattern of growth that seems likely to be inclusive.

It is too simple to suggest, as some do, that policy-makers only care about GVA at national level, or that the Treasury’s Green Book only values national success. But equally, there appears to have been too little attention to the quality of GVA that results from policy interventions.

Of course, we are not saying that every new job needs to be inclusive. That would be crazy. We are saying that we need a way of seeing more clearly whether the broad sweep of the economy is spreading the benefits and working more effectively.

There was some concern about the metrics available to assess the success of devolution in the National Audit Office report. Other organisations have attempted to think through how inclusive growth could be measured effectively.

There is also a tension here between broader measures of success and the need to show that inclusive growth is also a critical factor in narrow economic success too.

Part of the problem is that there is no standard definition of inclusive growth, except the one we have coined – that it refers to broad-based growth that enables the widest range of people to contribute to, and benefit from, economic growth.

There may be no central diktat that can solve this measurement problem, but local experimentation can begin to.

What needs to happen now is that the government must help cities and other places develop new frameworks for deciding on investments in inclusive growth.

Small scale pilots could be used to test these, building on work by the Joseph Rowntree Foundation, for example, in the Leeds city region.  

The Office for National Statistics should also develop a basket of accurate and effective measures which can be used much more widely to assess, not just GVA, but quality GVA, that can pick up changes in wealth inequality and in the spread of economic prosperity.

Both the new frameworks and quality GVA measures could support Green Book analysis, which is typically not applied fully, and – through international forums, such as the OECD Inclusive Growth in Cities initiative or World Economic Forum – support more standardised international data collection and comparison.

Working with New Economy, the Inclusive Growth Commission will be looking at new measures for inclusive growth and quality GVA in an international setting for our final report. So watch this space.

Atif Shafique is Lead Researcher for the Inclusive Growth Commission. You can find him on Twitter @atif_shafique.