"Market fundamentalism has failed"
Tharman Shanmugaratnam, Singapore's Deputy Prime Minister and Coordinating Minister for Economic and Social Policies, proved to be a powerful advocate for strengthening inclusive growth. Leaving everything to the market had failed, he told an audience of researchers, lecturers, students and other guests at a lecture held at the invitation of the Bundesbank at the Goethe University in Frankfurt. A new world view (Weltanschauung) – new strategies, new forms of government and a new orientation – was needed in order to allow everyone in society to have a share in economic prosperity.
"Leaving things to the market is not a viable strategy," he emphasised.
Expectations increasingly pessimistic
In the past, people in the advanced world had been quite confident that their children would do better that their parents in economic terms. Such expectations had increasingly given way to more pessimistic ones. For example, 71% of people in France believed that their children would one day be doing less well than themselves. Admittedly, expectations in other countries were not as poor as they were in France. In the advanced world as a whole, 60% thought that their children would probably be worse off, and only 30% expected to be better off, said Mr Shanmugaratnam. At best, people were expecting their economic circumstance to stagnate, in line with the stagnation of their incomes which many people had experienced.
"Depressed areas stay depressed, and those who are disadvantaged stay disadvantaged," he said.
The perception that people were being ignored or not included was leading to a division into "them" and "us" and to a loss of a sense of togetherness. The results of recent elections, say, in the United States, the United Kingdom, but also in Germany had confirmed this trend. Voting behaviour had also highlighted major regional differences. Social media were increasing division of societies because people were living in bubbles consuming mostly information that reflected their own views, said Mr Shanmugaratnam.
Strengthening inclusive growth
In his lecture, Mr Shanmugaratnam described three trends which were reinforcing the division of societies. He outlined three strategies to counter these trends. First, governments should encourage faster productivity growth, so that median incomes also go up more quickly. Furthermore, it should not be just the leading firms in a given sector that benefit from innovations; instead the benefits should accrue to the industry as a whole. Partnerships between educational institutions, the leading firms in an industry and smaller firms were needed to do this.
"Invest in people for the jobs of the future," he said. This was not a matter of more and more people being given an academic training, stressed Mr Shanmugaratnam. Rather, it was important to teach skills that were relevant on the job market.
The second trend was towards "assortative mating" – people were tending to marry others with a similar economic status and educational background. People were also spending more time with their children. Those who were able ensure that their children had a good education were able to give them advantages over other children at an early age. According to Mr Shanmugaratnam, that is why parents who did not have such opportunities to the same degree, in particular, should be given help. Improving education for children in early childhood was especially important. The first two years were critical for the rest of their lives, he said. Furthermore, Mr Shanmugaratnam advocated social urban planning. People of quite disparate financial backgrounds should in the same neighbourhood, he said. Mixed neighbourhoods and schools could help everyone to "level up".
Good models for such strategies already existed, said Mr Shanmugaratnam. The dual education system in Germany, for instance, was an example from which other countries could learn. He himself was constantly visiting places, enterprises and institutions in order to learn from them.
You can watch and listen to the entire lecture, along with introductory statements by Otmar Issing, President of the Center for Financial Studies (CFS), and Bundesbank President Jens Weidmann, as well as the Q&A session, in this video.