Economies benefit from fixing inequality WEF’s study finds

Creating societies where every person has the same opportunity to fulfil their potential in life would not only bring huge societal benefits like reduced inequalities, healthier, more fulfilled lives as well as boost economic growth by hundreds of billions of dollars a year.

This is the key finding from the World Economic Forum’s Social Mobility Report 2020, published today.

The report measures 82 economies against five key dimensions, distributed over 10 pillars, that are necessary for creating social mobility. These are: Health; Education (access, quality and equity); Technology; Work (opportunities, wages, conditions); and Protections and Institutions (social protection and inclusive institutions).

A common theme in the report is that few economies have adequate conditions to foster social mobility. As a consequence, inequality has become entrenched and is likely to worsen amidst an era of technological change and efforts towards a green transition.

See also: Inequality in Nigeria, why elite can’t afford to sit on the fence.

The report identifies four key areas among the 10 pillars where progress – across both developed and emerging economies – is particularly lagging: low wages; lack of social protection; inadequate working conditions; and poor lifelong learning systems for workers and the unemployed.

“The social and economic consequences of inequality are profound and far-reaching: a growing sense of unfairness, precarity, perceived loss of identity and dignity, weakening social fabric, eroding trust in institutions, disenchantment with political processes, and an erosion of the social contract.

The response by business and government must include a concerted effort to create new pathways to socioeconomic mobility, ensuring everyone has fair opportunities for success,” said Klaus Schwab, Founder and Executive Chairman of the World Economic Forum.

The economic return from lifting social mobility across the board is considerable. According to the report, if economies were able to improve their social mobility score by 10 points, GDP would increase by 4.4% by 2030 on top of the societal benefits such investments would bring.

Further, the report warns that while social mobility requires a new set of public investments, it is the mix and quality of investments that will make them effective and they must be paired with shifts in business practices.

Improving social mobility is a multistakeholder challenge, in which businesses must also take the lead by promoting a culture of meritocracy in hiring, providing vocational education, reskilling, upskilling, improving working conditions and paying fair wages.

The most socially mobile societies in the world, according to the report’s Global Social Mobility Index, are all European. In the inaugural year of the report, the Nordic nations hold the top five spots, led by Denmark in first place (scoring 85 points), followed by Norway, Finland and Sweden (all above 83 points) and Iceland (82 points). Rounding out the top 10 are the Netherlands (6th), Switzerland (7th), Austria (8th), Belgium (9th) and Luxembourg (10th).

Among the G7 economies, Germany is the most socially mobile, ranking 11th with 78 points, followed by France in 12th position. Canada comes next (14th), followed by Japan (15th), the United Kingdom (21st), the United States (27th) and Italy (34th).

Among the world’s large emerging economies, the Russian Federation is the most socially mobile of the BRICS grouping, ranking 39th, with a score of 64 points. Next is China (45th), followed by Brazil (60th), India (76th) and South Africa (77th).

The report also examines which economies stand to gain the most from increases in social mobility. The economy with the most to gain is China, whose economy could grow by an extra $103 billion a year, or $1 trillion dollars over the decade. The US is the economy that would make the second-largest gains, at $87 billion a year. Next is India, followed by Japan, Germany, Russia, Indonesia, Brazil, the UK and France. Most importantly though, the returns are intangible in the form of social cohesion, stability and enhanced opportunity for more people to fulfil their potential.

The report makes a powerful case for stakeholder capitalism. The most socially mobile economies all share an emphasis on effective social policies that benefit communities as well as provide a platform for healthy, competitive economies.

By comparison, economies that are organized more on “shareholder value maximization”, or “state capitalism”, tend to perform less well. In order to optimize social mobility, the report calls for action in the following areas:

• A new financing model for social mobility: Improving tax progressivity on personal income, policies that address wealth concentration and broadly rebalancing the sources of taxation can support the social mobility agenda. Most importantly, however, the mix of public spending and policy incentives must change to put greater emphasis on the factors of social spending.

• Education and lifelong learning: Targeted at improvements in the availability, quality and distribution of education programmes as well as a new agenda for promoting skills development throughout the working life, including new approaches to jointly financing such efforts between the public and private sector.

• A new social protection contract: A contract that offers holistic protection to all workers irrespective of their employment status, particularly in the context of technological change and industry transitions, requiring greater support for job transitions in the coming decade.

• Business to take the lead: By promoting a culture of meritocracy in hiring, providing vocational education, reskilling and upskilling, improving working conditions and by paying fair wages. This includes industry- and sector-specific plans to address historic inequalities within and between sectors.

“Improving social mobility must be the fundamental imperative of this new decade: As long as an individual’s chances in life remain disproportionately influenced by their socioeconomic status at birth, inequalities will never be reduced.

In a globalized world where there is transparent information on the gulf between the ‘haves and the ‘have-nots’, we will continue to see discontent, with far-reaching consequences for economic growth, the green transition, trade and geopolitics.

Social mobility matters for building a fairer and more optimistic world, but it also matters because we won’t succeed in achieving other objectives without it,” said Saadia Zahidi, Managing Director, New Economy and Society, World Economic Forum.