Inclusive growth versus pro-poor growth: Implications for tourism development

Introduction

Despite the economic progress made over the last 15 years, poverty remains one of the world’s largest and most vexing issues. In 2012, 12.7% of people in the world lived at or below $1.90 a day, a total of an estimated one billion people (World Bank Group (WBG), 2015). Income inequality, a disparity in relative incomes across the whole population, has increased over the last 20 years in most Organisation for Economic Co-operation and Development (OECD) countries, South Africa, Indonesia and many other countries (OECD, 2015). Globalization, skill-biased technical changes and decreases in the bargaining power of workers are some of the contributors to this situation (Balakrishnan et al., 2013; Saad-Filho, 2010). Economic growth alone has proven to be insufficient in reducing poverty since not all people are included in the growth process nor do they benefit equally from it (Bourguignon, 2004). When growth bypasses the poor or other marginalized groups, it may even increase inequality. Growth that is not inclusive can be both a danger to social and political stability and a threat to the sustainability of the growth (Ali and Son, 2007; Jones, 2013). The realization that growth itself is not sufficient to reduce poverty has led policy makers to look for alternative strategies. The inclusive growth concept is the latest approach used by international institutions to improve living standards in the developing world. This paper reviews the concept of inclusive growth in the context of tourism development that aims to contribute to poverty alleviation.

Many developing countries see tourism as integral to their path out of economic hardship or as an opportunity for further growth and diversification. Yet, very little is known about the specific role and impact of the tourism sector within a country’s inclusive growth strategy. Inclusive growth and inclusive development are relatively new concepts and often used loosely in policy documents and tourism development discussions (Suryanarayana, 2008). There is currently very limited academic literature on tourism and inclusive growth. However, the WBG, the Asian Development Bank (ADB), the African Development Bank (AfDB) and other institutions have started to link tourism to inclusive growth strategies in Asia, the Caribbean, South America, the Middle East and Africa. While these development banks and organizations have embraced inclusive growth concepts, academic researchers have been skeptical, calling inclusive growth a way to reintroduce the neo-liberal thinking of the Washington Consensus (Saad-Filho, 2010). Hampton and Jeyacheye (2012), commissioned by the World Bank and Commonwealth Secretariat, published “Tourism and Inclusive Growth in Small Island Developing States.” While the publication does address inclusive growth briefly in the first chapters, the remainder of the book discusses how tourism can contribute to the economy without specifically addressing its role in job generation and entrepreneurship at a micro level. There is simply a very limited number of nonacademic papers by development organizations that address the role of tourism in inclusive growth. However, there are a number of publications on inclusive growth that can assist in understanding how tourism could fit into an inclusive growth paradigm. This paper provides an analysis of the concept of inclusive growth, the difference from pro-poor growth and the current status of its application to tourism. It also clarifies the implications of the inclusive growth development approach for tourism particularly in emerging countries. Through this discussion, the practical usefulness of the concept in tourism development is highlighted.

From the trickledown theory to inclusive growth

During the 1950s and 1960s, it was widely believed that the advantages of economic growth in a country would benefit all layers of society. Growth alone was considered enough to lift developing countries out of poverty. The “trickledown effect” would follow a time lag, but in the long term the growth process would have a positive effect on overall development based on the presumption that “the rising tide would raise all boats” (Aghion and Bolton, 1997). Kuznets (1955) found that in the early stages of development, growth produces inequality, but as per capita income rises, a turning point causes inequality to decline. In this context, tourism offered a particularly important role as it enabled diversification away from agriculture, supported infrastructure improvements and encouraged social development (Harrison, 2001; Scheyvens, 2002; Sharpley and Telfer, 2002). In the 1970s, the World Bank invested in infrastructure projects to support large-scale tourism development in countries such as Indonesia, Mexico and the Dominican Republic (Hawkins and Mann, 2007). In the 1980s, the so-called Washington Consensus, labeled as a neo-liberal approach, was considered the way forward for developing countries (Schilcher, 2007). The Consensus advocated policy recommendations such as trade liberalization, competitive interest rates, tax reform and liberalization of foreign investment for countries suffering from underdevelopment and economic crisis. This was supported by US-based institutions including the International Monetary Fund (IMF) and World Bank. The Washington Consensus considered the free market as the driver of growth and development (Williamson, 1993). For developing countries, tourism was seen as an excellent way of trading their way out of poverty.

Despite implementing many reforms in the 1990s, growth was slow and often accompanied by an increase in inequality, especially in Latin America and the Caribbean. It became clear that the one-size-fits-all approaches under the Washington Consensus did not always work (Sharpley and Telfer, 2002). The rise in inequality brought forth the need to study the distributional consequences of growth and methods for active intervention to manage distributional issues (Ranieri and Ramos, 2013b). The main report that initiated this kind of development thinking was the 1974 study entitled “Redistribution with Growth” written by the Vice President for Development Policy at the World Bank (Chenery et al., 1974). The study addressed the faults of the Bank’s then current strategy of focusing on large projects while expecting the market to resolve the problems of poverty and inequality (Saad-Filho, 2010). Consequently, the new development thinking began to focus on how to promote not just growth but growth with equality.

Development organizations started to use the term pro-poor growth towards the end of the 1990s. Since then, there have been different definitions of the term, which have emerged in a broad and a narrow definition of pro-poor growth. The broad definition of pro-poor growth or the absolute pro-poor growth is any growth that benefits the poor and, thus decreases absolute poverty (Ravallion, 2004). Under the broad definition, inequality could rise as the absolute income of the nonpoor might be increasing at a rate faster than the poor’s income. Under the narrow definition of pro-poor growth, also called relative pro-poor growth, the poor should benefit proportionally more from growth than the nonpoor so that inequality is reduced (Kakwani and Pernia, 2000). Beginning in the 1990s, numerous institutions and nongovernmental organizations started projects under the heading of pro-poor growth with the intention to improve the livelihoods of people in developing countries. At this time, most of the focus was on measuring the effects of growth on poverty.

In the mid 2000s, institutions, donors and governments started to explore inclusive growth as they realized that growth alone or growth that was simply in the form of redistribution would not solve the growth-poverty nexus. This realization shifted the focus from measuring progress in poverty reduction to including more people in the economic process through mechanisms such as job generation and entrepreneurship (Ianchovichina and Lundstrom-Gable, 2012). Inequality was thus seen as a challenge for emerging economies as well as high-income economies. The Occupy Wall Street movement in New York City in 2011 illustrated the rising frustration with increased inequality in a developed country. In 2014, the World Economic Forum (WEF) identified income inequality as the top global societal risk for the next decade. The recent publication by Piketty (2014), “Capital in the Twenty-First Century,” has caused controversy among economists in the western world as he argues that wealth inequality has risen over the last 30 years because the returns on capital have been higher than the pace of economic growth. From his perspective, a progressive wealth tax would be the preferred remedy to prevent a further rise of inequality.

As researchers and economists have focused on inclusive growth, a number of definitions have evolved. Across these, the underlying concept is the “growth coupled with equal opportunities” (Rauniyar and Kanbur, 2010b: 457). The World Bank defines inclusive growth as the growth that allows people to contribute to and benefit from economic growth. Specifically, growth should be broad-based across sectors and inclusive of a large part of the country’s labor force (Ianchovichina and Lundstrom-Gable, 2012). The World Bank also states that inclusive growth refers to both the pace and the pattern of growth; growth should be both extensive and intensive (Ianchovichina and Lundstrom, 2009; Ianchovichina and Lundstrom-Gable, 2012). Klasen (2010) sees inclusive growth as a subset of the concept of economic growth. He recognizes two aspects: (i) the process and (ii) the outcomes. The process approach examines the number of people who participated in the growth process. The outcome approach looks at whether inclusive growth benefits many people. Many believe that inclusive growth is not about growth through income redistribution and taxes but about creating productive employment opportunities (Ianchovichina and Lundstrom, 2009; Ianchovichina and Lundstrom-Gable, 2012; Klasen, 2010).

This shift in thinking about the role of growth in poverty reduction can also be seen in the United Nations’ post-2015 approach. The Millennium Development Goals (MDGs) were developed in 2000 as a reaction to the growth-first policies of the Washington Consensus and did not include growth as one of the goals to be achieved by 2015. In the last decade, there has been a growing consensus among governments and donor organizations that inclusive growth should be more prominent as a development goal (Bergh and Melamed, 2012). Today, the lack of jobs is considered as one of the main causes of poverty, and creating more productive employment opportunities is a requirement for inclusive growth (McKinsey Global Institute, 2012). Therefore, the Sustainable Development Goals, which set development targets for 2030, include two goals that specifically refer to inclusive growth: Goal 8 promotes sustained, inclusive and sustainable economic growth, and full and productive employment and Goal 10 reduces inequality within and among countries (United Nations, 2015). This change signals the shift from a strong focus on social outcomes to one that also recognizes the need for economic growth.

Inclusive growth versus pro-poor approaches

One of the main criticisms of the inclusive growth approach is that it represents no substantial difference from the pro-poor growth approach. There are, however, a few significant differences. Rauniyar and Kanbur (2010a) identify one difference by defining growth as an increase in real per capita income and pro-poor growth as the growth that also reduces poverty. The latter means that the increment of income accrues disproportionately to those with lower incomes. According to this definition, growth can be pro-poor but with rising inequality. Ianchovichina and Lundstrom (2009) argue that while pro-poor growth solely focuses on people below the poverty line, inclusive growth aims to benefit people from a large proportion of a country’s labor force through productive employment and entrepreneurship. Inclusive growth is the growth that reduces the disadvantages of the poorest while benefitting everyone, whereas “pro-poor growth may be obtained either in the absence of benefits to one or more groups or at the expense of one or more groups” through redistribution (Ranieri and Ramos, 2013a: 1). Inclusive growth is about widening the size of the economy and not about redistributing existing resources as pro-poor growth sometimes is. The 2008 World Bank Growth Report “Strategies for Sustained Growth and Inclusive Development” suggests that the inclusive growth approach takes a longer term perspective since it focuses on generating productive employment rather than on direct redistribution of income as a means of improving the financial well-being of the excluded groups (Commission on Growth and Development, 2008). Inclusive growth analysis focuses on integrating poverty, business environment and other types of micro-level indicators with growth analysis at the macro level (Ianchovichina et al., 2009). Pro-poor growth programs, on the other hand, have mostly focused on creating opportunities at the micro level. They are about poverty alleviation and have not always focused on economic growth strategies at a macro level.

International development banks and inclusive growth programs

Presented below is an overview of the utilization of the inclusive growth development approach by some major development institutions and where notable, their application in the area of tourism. Besides the three development banks mentioned here, the European Union, the UN Development Programme’s International Policy Centre for Inclusive Growth, the OECD, the WEF, the Caribbean Growth Forum and the International Trade Centre are also exploring inclusive growth as a development strategy.

Shifting from pro-poor tourism to tourism-driven inclusive growth

Pro-poor growth has been a widely accepted approach for using tourism to eradicate poverty since the late 1990s and pro-poor tourism is often defined as tourism that generates net benefits for the poor (Roe et al., 2004). Pro-poor tourism has been considered a viable development option for the poor in developing countries as these countries possess assets such as wildlife, landscape and cultural heritage experiences in which tourists are interested. The poor can potentially use these assets through developing tourism even if they lack financial resources (Ashley et al., 2001). The United Nations World Tourism Organization (UNWTO) used the pro-poor tourism approach to develop the Sustainable Tourism-Eliminating Poverty initiative in 2003 (Nawijn et al., 2008). Other organizations that have embraced pro-poor tourism and initiated relevant projects are ADB, Netherlands Development Organization and the Overseas Development Institute (ODI).

Ashley and Goodwin (2007), in an opinion paper for ODI, discuss what has “gone right and what has gone wrong” with pro-poor tourism. One of their main concerns is that pro-poor tourism has had a limited focus noting that it has been very much restricted to the micro level. It has often focused on community-based tourism projects, and has, therefore, not been able to reach the scale required for achieving significant impact. Harrison (2008) agrees with this notion and he argues that in order to use tourism as a tool for creating productive employment, rather than just a few local projects, a country’s entire tourism strategy should be part of the country’s inclusive growth strategy for poverty alleviation. Ashley and Goodwin’s second concern is the lack of focus on the market. From their perspective, much effort has been exerted to infrastructure development and provision of training but not to find consumers for the tourism products. This deficiency has caused many projects to be unsuccessful in achieving their goals to be sustainable and provide community benefits. The review of 218 community-based tourism enterprises operating in 12 southern African countries identified severe business capacity constraints in such projects (Spenceley, 2008). Their third concern is the lack of a mechanism to document and monitor changes. The deficiency in monitoring procedures for pro-poor tourism projects has also been pointed out by other tourism scholars (Chok et al., 2007; Hall, 2007; Hummel and van der Duim, 2012; Scheyvens, 2012). Chok et al. (2007) critique the pro-poor tourism approach for ignoring structural and power issues as well as inequality. In the end, if structural inequalities are not addressed, pro-poor or other tourism, might not always provide long-term benefits for the poor (Hall, 2007).

Another challenge for pro-poor tourism is caused by the nature of the term itself. Poor and pro-poor can be value-laden labels and contribute to stigmatization (Moncrieffe and Eyben, 2013). These terms are also difficult to define as poverty has become more than an economic concept and is now rather multi-dimensional and multi-disciplinary in nature (Bourguignon and Chakravarty, 2003; Levitas et al., 2007).

Theoretical frameworks for inclusive growth and tourism

There is limited literature on tourism and inclusive growth as mentioned before. Furthermore, there are very few theoretical frameworks on inclusive growth in general. The ADB proposes a framework for inclusive growth along the following three policy pillars: (i) promoting high, sustained economic growth; (ii) broadening inclusiveness through greater access to opportunities and (iii) strengthening social protection (ADB, 2011). These three pillars need to be supported by good governance and strong institutions. This framework has been used by the ADB to operationalize a development strategy geared towards inclusive growth. ADB has also developed a set of 35 indicators to measure inclusive growth that can be divided into the following eight groups: (i) poverty and inequality (income and nonincome), (ii) economic growth and employment, (iii) key infrastructure endowments, (iv) access to education and health, (v) access to basic infrastructure utilities and services, (vi) gender equality and opportunity, (vii) social safety nets and (viii) good governance and institutions (ADB, 2011). This framework and the indicators are used to measure inclusive growth on a macro level and not on a sector level.

The ADB evaluated its inclusive growth agenda between 2000 and 2012 and found that 60% of its total financing, or more than US$81 billion, was classified under pillar one (growth), 30% under pillar two (access to opportunities) and 10% under pillar three (social protection) (ADB, 2014a). None of the evaluated projects focused on a specific sector except for agriculture. The ADB’s “Greater Mekong Subregion Tourism Infrastructure for Inclusive Growth Project” has not yet been completed. The majority of the program is focused on removing physical and capacity constraints impeding tourism in areas that are currently excluded from tourism development to decrease geographic inequality. Much of the project involves large infrastructure improvements opening up new regions.

Inclusive growth development requires moving from a project-level approach, that most of the pro-poor tourism initiatives have, towards the macro level. A growth diagnostic model similar to the Hausmann–Rodrik–Velasco (HRV) framework developed by Hausmann et al. (2005) combined with the inclusive growth model as developed by Ianchovichina and Lundstrom (2009) could be used to identify the specific binding constraints to tourism driven inclusive growth. The HRV approach is based on the idea that there can be many reasons why an economy does not grow, but each reason generates a distinctive set of symptoms, such as government failures, information asymmetries and distortions in finance opportunities for diversification and poor project selection or poor policies. Through a systematic approach using the growth diagnostic tree, the binding constraints to growth can be identified (Hausmann et al., 2008). However, many of the current binding constraints that contribute to the exclusion of certain groups to benefit from tourism are not sector specific. Improved health, infrastructure and employability through better education will lead to inclusive growth among all sectors including tourism (Hausmann et al., 2008). While special programs to help the poor and provide safety nets will still be needed, the inclusive growth diagnostic’s focus is on removing constraints and increasing access to the labor markets as well as providing equal opportunities to entrepreneurs (Ianchovichina and Lundstrom-Gable, 2012).

Implications and next steps

There is currently a shift in the development thinking paradigm to further embrace inclusive growth. It is still too early to determine how this change will impact the role of tourism in development or how tourism can best contribute to poverty alleviation. Particularly in today’s dynamic global environment where terrorism and political shifts can be unpredictable, rapid and of high impact, inclusive growth efforts in tourism will need to be agile in order to benefit the full spectrum of participants at various stages of economic development. While the principles of inclusive growth and pro-poor growth are similar, the desired scaling up for broad impact in the specific instance of pro-poor tourism has not happened yet (Harrison, 2008). Most pro-poor tourism projects have been small scale and excluding the mainstream tourism sector while they could potentially impact a much larger group of beneficiaries (Mitchell and Ashley, 2010). The question to be addressed is how tourism can have a larger impact on reducing inequality and fostering development. While pro-poor tourism projects have mostly been short to medium term, tourism-driven inclusive growth requires a longer term approach (two to three decades). This perspective means that results from the majority of the interventions will take much longer to be evident and could be a risk to the further application of inclusive growth to tourism. When following the inclusive growth approach, the tourism sector should be prepared to be part of a country’s overall inclusive growth strategy in order to benefit from synergies. This means the tourism sector should be developed by the private sector while the government plays a facilitating role offering complementary investments that could also benefit other sectors. Governments could for example (i) make cultural investments in heritage areas that can attract tourists; (ii) invest in roads, water and sanitation, and health facilities, which will benefit tourism and other sectors as well as the overall livelihood of the country; (iii) invest in education, especially language training and other hospitality areas enabling jobs in tourism and other service activities and (iv) address information asymmetries through tourism.

Both policy makers and governments are currently trying to understand just exactly how tourism can contribute to inclusive growth. It is clear that tourism is a labor-intensive sector and can provide employment opportunities to youth, women and those living in rural areas. Tourism can also be an effective intervention point for achieving reforms, which can later be generalized over the total economy (e.g. land reforms or business policies). Additionally, tourism investment in infrastructure can be designed to benefit not only tourists but also local populations and provide access to communities that previously have been excluded from the economic process (Christie et al., 2014; Christie and Crompton, 2001; Mitchell and Ashley, 2010; Scheyvens, 2002). However, the steps and best approaches for poverty alleviation and shared prosperity continue to grapple with inclusive growth. Beyond presenting the definitions and discussing the terminology, this paper takes the first step in understanding the concept of inclusive growth, its difference from pro-poor growth and its current application across the tourism sector. In order to move forward the academic discussion about the concept of inclusive growth, tourism researchers and development stakeholders are encouraged to further explore the role of tourism as a driver of inclusive growth and to engage with policy makers for utilizing tourism’s potential to contribute to a more equal world.