Growth is a major objective for countries around the world. An expanding GDP signals that people have more income, are buying more products and services, and overall are living better lives. Economic growth should also lead to increased employment and more taxable income for states.
Economic growth by itself, however, will not necessarily improve the lives of the world’s poor. Growth in a few sectors, like resource extraction, can increase gross domestic product but most of the benefits flow to a few people at the top. Income inequality eventually breeds resentment, and at extreme levels can be dangerous for countries’ security, perhaps even leading to civil unrest.
So how do countries make economic growth work for everyone? Some point to improving access to quality education and other programs that level the playing field for those born with fewer opportunities in life. More than specific social policies, however, are necessary to sustain inclusive economic growth over extended periods of time. Democratic governance in economic decision-making is essential.
Too often economic policies exclude those with few resources at their disposal and cannot make their voices heard. For example, complicated and costly business registration procedures prevent many from participating in the formal economy and reaping the full benefits of economic growth. Small businesses facing extortion often do not have the ear of policymakers, making it difficult to reform corrupt local agencies at great detriment to their livelihoods.
New challenges to economic participation continually emerge, and policymakers cannot always detect them without stakeholder input. Therefore, to ensure inclusive and sustainable economic growth, all actors should have a say in the process of regulatory rule-making and other economic policies. As CIPE Executive Director John D. Sullivan writes in this latest Economic Reform Feature Service article:
“It is the process of democratization that is the key because it is based on the active participation of entrepreneurs, civil society, labor, and others. But what really is democracy? Democratic governance is more than free and fair elections. Selecting leaders is only one component. How decisions are made is equally important and gets at the governance component of democratic governance.”
Article at a glance:
- Democracy plays a key role in a country’s socio-economic development and economic reform is inseparable from the surrounding political climate.
- For economic growth to be sustainable over long periods of time, it has to be inclusive, based on the rule of law, relatively free of corruption and grounded in prudent macroeconomic policy.
- For democracy to be sustained it has to deliver tangible benefits and economic growth and opportunity to all members of society.