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Previous chapters made a good case for policies to make growth more inclusive. Empirical analysis and good practice support a rich set of Inclusive Growth policies. What stands in the way of their adoption? The answer relates, in part, to institutions. Policies to promote Inclusive Growth with the depth, consistency and persistence necessary to counteract the forces that reproduce inequality come from strong, inclusive institutions. The latter, however, do not exist in a void. They are shaped by history and by the political, social, and economic environment in which they currently operate. They may be inclusive, support dialogue, creativity and change or they may be rigid and foster exclusion.

A variety of obstacles hinder the emergence of inclusive institutions: inadequate representation of stakeholders, the “capture” of the policy dialogue and policy benefits by narrow interests, inaccessibility of information and obstacles to civic participation, a dominance of informal institutions (e.g. corruption) over formal ones, etc. Fortunately, mechanisms exist to overcome these obstacles and to encourage inclusive institutions, inclusive policy making, and ultimately more inclusive outcomes. This chapter elaborates on these mechanisms as well as institutions and policy processes that support the development and implementation of policies for Inclusive Growth.

4.1. Integrating inclusiveness across the policy cycle Inclusive politics: giving voice to all Opportunities for citizens to participate in and influence policy decisions improve trust in government and increase the likelihood of inclusive policy outcomes. Citizen engagement, access to information, and open government can help render policy making more inclusive and informed, facilitating the design and implementation of policies that are closer to citizen’s needs (Kim, 2010; Kweit and Kweit, 2007). Personal involvement in the policy process strengthens perceptions of legitimacy of the process, which can be as important for citizens as the policy itself (Esaiasson et al., 2012; Hibbing and TheissMorse, 2001). The ability of civil society to hold governments to account contributes to increased trust in government (Knack and Zak, 2003). In short, citizen and stakeholder engagement can help legitimise resulting policies, in turn increasing citizen ownership and overall trust in government.

Voter participation and adequate representation

Achieving inclusive policy outcomes depends greatly on whether policies reflect and integrate perspectives of diverse stakeholders. Indeed, there is evidence that when public decision-makers closely represent the societies they serve (i.e. parity between men and women, as well as other groups) they enjoy greater public trust and bring attention to important socio-economic issues. Diversity increases the attention to issues like human development, gender-based violence, family-friendly policies, equal pay, pensions, electoral reform and public service delivery. These matter for the well-being of citizens and may be particularly effective at empowering vulnerable groups.58 There are broad disparities in civic engagement across countries and among communities.

Political and socio-economic inequalities have a strong tendency to reinforce one another, given that governance and political institutions, which determine the distribution of power in society, strongly affect the economic positions of individuals.59 While citizens in OECD countries enjoy fundamental civic rights, they may not necessarily exercise them effectively, for instance, through voting. Among OECD countries, voting rates are highest in Australia, where voting is compulsory, and lowest in Switzerland. Many OECD countries experienced declining voter turnout over the last three decades. The decline in civic participation is less visible in some emerging countries where the voter turnout has increased sharply since the mids (OECD, 2011a; 2013b).

Disparities in voter turnout may reduce the policy influence of the poor, less educated and youth.60 In OECD countries, the differences in voter turnout between rich and poor are particularly large in Korea, Poland, Switzerland, the UK and the United States. By contrast, discrepancies are small in Chile, Ireland and Japan. (Figure 4.1) There are also differences in voter turnout by age and educational attainment. Across OECD countries, voter turnout is 12 percentage points higher for people with tertiary education than for those with less than secondary education. Young people typically report lower participation rates in elections than people aged 65 and over (OECD, 2011a). This can lead to unequal representation among various parts of the population and a weakened electoral process, which is (or should be) an effective mechanism for mobilising and giving voice to “outsiders” who lack organisational and financial resources.

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Note: Data refer to 2011 for Estonia, Finland and Turkey; 2010 for Brazil, the Czech Republic, the Netherlands, the Slovak Republic; 2008 for Austria, Canada, Korea, New Zealand, Slovenia, Spain and the United States; 2007 for Australia, France, Ireland, Japan, Poland, Switzerland; 2006 for Israel, Italy, Sweden; 2005 for the United Kingdom;

2004 for the Russian federation; 2003 for Belgium; 2002 for Hungary and 2001 for Denmark.

Source: OECD (2013), How is Life?, OECD Publishing, Paris.

Women’s civic and political participation helps to promote their own rights as well as those of their families and communities. Women’s civic activism pushes governments to be more responsive to women’s claims and adopt gender-responsive policies. These policies must take into account the existence of discriminatory social institutions that can restrict women’s ability to actively participate in public life. In some countries this includes limits on women’s freedom of movement and negative attitudes towards female involvement in public life. Indeed, there appears to be a negative relationship between representation of women in parliaments and income inequality in OECD countries (Figure 4.2).

Figure 4.2.

Number of women in parliament is linked with country income inequality

Notes: Gini coefficient: Data for Chile, Ireland, Japan, New Zealand and Switzerland are for 2009. Share of parliamentarians that are women: data refer to share of women parliamentarians recorded as of 31 October 2012. Percentages represent the number of women parliamentarians as a share of total filled seats in the lower or single house of Parliament.

Source: OECD Income Distribution Database and Inter-Parliamentary Union (IPU), PARLINE (database) Worldwide, women tend to be underrepresented in legislative and executive positions. This underrepresentation can adversely impact the fairness and inclusiveness of public policies. On average, in OECD countries women hold only 27% of seats in lower or single houses of parliament (a few percentage points higher than the world average of 21.8%). This represents an increase of 6 percentage points on average compared to 2002 (OECD, 2013b). Similarly, women remain underrepresented in leadership positions in the public sector. Although there is notable variation among countries, on average women hold only 29% of top management positions in central government in the 19 OECD countries for which data are available. Developing countries and emerging market economies have made notable headway in increasing the participation of women in politics. In fact, developing countries include ten of the twenty countries with the highest representation of women in national legislatures (IPU, n.d.). Yet much progress remains to be made. For example, in Sub-Saharan Africa, women represent 22.9% in single or lower house, in Asia – 18.9%, and in Arab states – 17.8%. The OECD countries included in these top twenty countries are the Scandinavian countries, Belgium, Germany, Iceland, Netherlands and Spain.

Access to information and civic engagement

Inclusive governance and inclusive outcomes go beyond voting and elected representation.

Public officials should also be held accountable between elections. Such accountability requires citizens to have access to information as well as to engage in discussion and action. To this end, a number of mechanisms are available in many countries to facilitate fair and equitable access to information and provide opportunities for citizens’ engagement in the policy-making process. These mechanisms include the right to petition government for information (Figure 4.3), freedom of information laws, policy enquiry commissions, high-level social partnerships, referenda and more recently, two-way citizen engagement mechanisms driven by information and communication technologies.

Figure 4.3.

Countries vary in levels of public participation and right to petition the government

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Source: 2012 Rule of law Index of the World Justice Project.

Access to information extends to public budgets as well. Traditionally, budgeting processes have been complex and opaque, with key decisions made internally within the public administration. Although budgetary institutions vary considerably across countries, a more transparent and inclusive approach should allow budgetary choices to be made manifest to citizens and other stakeholders. It can also activate the role of parliament in engaging with government on the trade-offs involved. The OECD’s forthcoming Principles on Budgetary Governance put the issues of transparency and inclusiveness within the context of a sound overall budgeting framework, as an essential element of good public governance more broadly.

Embedding the policy-making process with mechanisms that safeguard the public interest and curb the undue influence of money and power is essential to fairness in policy making. The relationship between inequality and undue influence in politics through political financing is often overlooked. Socio-economic inequality is only the tip of an iceberg of inequalities of different dimensions, including differences in influence, power and voice. Consequently, governments are expected to proactively address high-risk areas at the intersection of the public and private sectors, including lobbying, conflict of interest in public decision making, and the influence of vested interests exercised through political financing. In-depth analysis of facts and comparative evidence on political finance and its associated risks to the fairness of policy making is still needed to understand risks and opportunities in different institutional settings and move away from an ideological discussion.

Decentralisation is crucial to strengthen local voice

Decentralisation has long been seen as one way to empower people, by making the decisions that affect their lives closer to them. There are a number of well-known arguments about why some degree of decentralisation of decision-making would be efficient, including variations in voter preferences across the territory, the potential benefits of inter-jurisdictional competition and information asymmetries between policymakers and citizens (Oates, 1972; Tiebout, 1956; Hayek, 1945). The key argument for decentralisation is that it is unlikely to be efficient for national governments to plan and manage investment and service delivery “at street level” across the whole country. Higher levels of administration often lack technical and “soft” information about local needs and conditions, which is not readily communicated in quantitative or other standardised forms (Hooghe and Marks, 2009). Such information can be expensive to gather, communicate and verify, and the costs of doing so tend to increase with distance. In contrast to spatially blind or sectoral approaches, place-based policies seek not only to mobilise local information about individual decisions or investments, but they also aim to identify synergies or trade-offs that must be managed effectively (OECD, 2011c). This is particularly important because Inclusive Growth policies require a deliberately multidimensional approach, capable of managing trade-offs and exploiting potential complementarities among different lines of policy.

Research suggests important benefits of decentralisation with respect to the allocation of public resources and delivery of services (OECD 2013e). Benefits accrue particularly in areas where public services are directly related to where people live (transport, land use, garbage collection); where communities may have distinct preferences over public goods and services (recreation, community services), or where economies of scale in the delivery of public services may be very limited (education, primary health care). For decentralisation to contribute to such outcomes, however, governance structures need to be particularly aligned. Inclusive institutions, including consultation and accountability to the community, are especially important for efficiency purposes when communities have different preferences and subnational governments have the flexibility to reallocate resources across local services. Still, as the dynamics of political competition, public accountability, and the presence of incentive-compatible constraints on government power are not sufficiently understood, care must be taken to ensure that decentralisation does not entrench, rather than mitigate, inequalities.61 Successful decentralisation implies responsibilities for all levels of government. Decentralisation is not a zero-sum allocation of competencies across levels of government; rather, empowering regional and local governments may require new competencies and capacities at all levels of administration.

Interdependencies are inevitable and co-ordination among levels of government (discussed later) plays an important role in making decentralisation work. When it comes to Inclusive Growth, this points to the need for national governments to pay attention to the potential impact of decentralisation on horizontal equity (e.g. via fiscal equalisation mechanisms or targeted support for specific places) and, where necessary, to support the capacity-building needed to ensure that decentralised decision-making and service provision do not aggravate spatial disparities (OECD, 2013d). Financial, administrative and other capacities vary across space and tend to reflect the distribution of population, wealth and human capital (Box 4.1).

Decentralisation should be approached thoughtfully in countries where institutions are comparatively weak and where the disparity in institutional capacities between higher and lower levels of government is particularly marked.

There is no single model of decentralisation that is most conducive to Inclusive Growth. OECD work has recently focused on the need to adapt institutions to places (OECD, 2014a). This may imply a need for “asymmetric decentralisation”. Asymmetric structures can arouse controversy –uniformity is often easier to defend on equity grounds– but when power and other resources are unevenly distributed, asymmetric approaches may result in more inclusive politics and give voice to those who previously felt marginalised. The current French agenda of territorial and decentralisation reforms aims precisely at developing a more “adaptive strategy” for institutional frameworks which consists in allowing the creation of specific models of governance in particularly complex functional areas, like Marseille and Lyon. The UK’s asymmetric decentralisation of authority to devolved bodies in Scotland, Wales and Northern Ireland is now almost two decades old and continues to evolve. In Spain, too, some of the Autonomous Communities (Catalonia, the Basque Country, Valencia, Andalusia, Navarre and Galicia) have been granted greater autonomy than others, out of respect for nationalist feelings and the rights these regions have enjoyed historically. In Italy, five regions enjoy a special status conferring broader powers over legislation and financial affairs. In recent years, Italy has also been pursuing a metropolitan governance reform that will allow for a range of governance models adapted to the needs and circumstances of different metropolitan areas.

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Cities present unique challenges and opportunities when it comes to pursuing Inclusive Growth policies.

With respect to institutions, two challenges linked to spatial inequality stand out:

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