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Script for an intervention at an ADB workshop on: Social Inclusiveness in Asias Emerging Middle Income Countries Title: Beyond inclusive growth Thriving for Social Cohesion in Asia Dear Ministers, dear distinguished experts, ladies and gentlemen, I would like to thank the organizers of this workshop for providing the OECD Development Centre the opportunity to share some thoughts about social cohesion and inclusive growth. The subject is of high relevance and topicality not only in Asia, but globally as exemplified by current protest about educational reforms in Chile, the on-going Arab spring revolution or conflicts about rising food prices in African countries. Unfortunately I cant be with you in person, but my colleague Kensuke Tanataka who is participating will brief me afterwards about the results of your work. At the OECD Development Centre we have been working for the last 1.5 years on a publication entitled Perspectives on Global Development Social Cohesion in a Shifting World which will be launched on November 21 st in Paris. Shifting World alludes to the shift of the centre of economic gravity of the world from West to East and from North to South, resulting in a new geography of growth. Emerging Asia is the major driver of this shifting wealth and global rebalancing. In my intervention I will focus on the opportunities and challenges for the creation of inclusive growth through a social cohesion lens. I would like to address three points?

First, what is the link between inclusive growth and social cohesion and why is this particular relevant for middle income Asian countries? Secondly, what are critical elements of a social cohesion agenda? Third, a few comments on further plans Making Growth Inclusive Let me start with showing you a somewhat puzzling slide, depicting changes in growth and life satisfaction for a couple of countries in the late 2000s. Pls. put the slide! Figure 1 Changes in life satisfaction, education and growth performance in 2000s (annualised percentage growth rates)
5 -5 0

Tu nisia

T aila h nd

Ind ia

V ietna m

S uth A o frica

C hile

Z bia am

L sa ife tisfactio n M n ye of scho g ea ars olin

G P pe ca D r pita g th ra row te

Source: UNDP (2010), Gallup World Poll (2010), World Bank (2010). GDP per

capita growth rates: 2000-2009; life satisfaction: 2005-2010 (earliest and latest waves) The slide shows that for some countries growth even coming along with improvements in health and education does not necessarily translate into increased life satisfaction. Both Tunisia and Thailand are examples of countries which did a good job in conventional indicators of development (Tunisa gender, Thailand health insurance), but an important number of people seem not to have valued this development as progress or something that increased their quality of life. Recent examples of social un-rest, riots and the voicing of dissent in fast growing countries seem to question a development that only promote technocraticaly good policy frameworks while not responding to peoples desire for a cohesive development path. Inclusive growth is a conceptual framework more commonly used in the Asian context than social cohesion. How do they differ? In both concepts, you will find the idea that growth alone is not good enough and that governments should make sure growth comes along with adequate social policies to ensure a fair redistribution of wealth, reduction in inequality, poverty reduction. But social cohesion brings an additional dimension: the idea of legitimacy and trust which is not only a desirable outcome in itself but also a critical means for policy effectiveness and efficiency. Social cohesion is necessary for inclusive growth This brings me to my second question: What does social cohesion actually mean and how can it be fostered?

Economic and social transformations during a period of fast growth bring new stresses and strains with which governments have to cope. The challenges include rising income inequalities, moving of people, jobs and income opportunities from lower productive sector to more productive once, and the need to meet citizens rising expectations of standards of living and access to opportunity. Put simply: people might no longer ask: do I have enough to eat today than rather how do I do compared to my neighbour whom I have just seen with an I-Phone. We define social cohesion in the following way: A cohesive society works towards the well-being of all its members, fights exclusion and marginalization, creates a sense of belonging, promotes trust, and offers its members the opportunity of upward mobility. Our report looks at social cohesion through three equally important lenses: social inclusion, social capital and social mobility. While many elements of an inclusive or pro-poor-growth agenda are similar for social cohesion, social cohesion also focuses on the acceptance of basic rules that ensure a peaceful addressing of collective action problems that arise and are accelerated by fast and often unbalance growth. Let me in the following highlight five areas that in our view needs to be in particular looked at: - Making social protection and labour market policies more inclusive Social protection and labour market outcomes especially for the youth - receive these days special attention and rightly so. Thinking about these policies as part of a social cohesion agenda is slightly different than addressing it only from inclusive

growth perspective. The issue at stake is not only ensuring minimum incomes, but underpinning the sense of belonging of citizens through their interaction with social security institutions. Two points stand out: 1. First, governance systems that address poverty reduction often do not pay

sufficient attention to providing social protection coverage for the middle class working mainly in the informal sector. Such coverage should not be provided through transfers as many in the lower and upper middle class have both the willingness and the capacity to contribute to the system. They are feeling excluded through the existing system, which mainly addresses the security of the poor alone by providing transfers et. 2. Secondly, social protection and labour market institutions need to be

examined not only on the basis of how efficiently they allocate labour (that is without distorting wages, prices or incentives), but also on the basis of whether they improve or worsen segmentations in the labour market. In particular between formal and informal workers, men and women, young and old, across regions. A more cohesive social protection agenda is needed. Social cohesion requires a better tax base for creating fiscal space for reforms Good intentions can lead to bad outcomes as we know from a famous book by Santiago Levy on that matter focussing on the Mexican example. We need to be sure that the policies and instruments are coherent, and in this context fiscal policies will be of increasing importance. This is because greater fiscal space is necessary

for tackling the problems of the much broader middle class. For opportunities to materialise fiscal policy reforms are needed. What needs to be done? First, economic and fiscal institutions that de-link expenditures from current revenues are key in ensuring sustainable finance of social cohesion policies. Fiscal rules that compel governments to save during good times so they can maintain public investment during economic downturns can play an important role in this respect. Similarly, sovereign wealth funds can help non-renewable commodity exporters extend resource-linked revenues over time and across generations. Secondly, tax administration reform is a powerful way of increasing fairness, transparency and tax morale in developing countries. In order to be most effective, however, it must be part of a co-ordinated effort to strengthen the social contract. Reforms, such as setting up semi-autonomous tax collection agencies, will have a greater impact if combined with expenditure policy reform. Better and more transparent tax collection must be linked to better public services. This fiscal exchange, i.e. the link between services received in return for taxes paid, is essential to creating a virtuous cycle for tax compliance and service delivery.

Social cohesion also means improving gender equality Despite high growth in the last 20 years, many Asian countries especially in South Asia - have not made any real headway in improving gender equality. Cultural dynamics and the fact that social institutions e.g. long established rules, traditions and laws like son preference, lie at the root of existing power relations. Providing incentive for change is therefore crucial. Increasing womens access to credit and

technology and providing conditional cash transfers specifically targeted at transforming discriminatory is a promising way. Finally, social cohesion means evident based policies and civil society participation Economic and social policies to foster social cohesion in practice require a framework for ex ante and ex post assessments of their impact: Do they lead to more or less social exclusion? Do they foster trust and civic participation? Do they help to improve social mobility? Participatory monitoring and evaluating social cohesion policies which can answer these questions requires new data. As advocated in the Sen-Stiglitz-Fitoussi commissions report in 2009, progress measurement should include relative and subjective measures as well. This is an exciting area for future research. Summing up, We believe that the inclusive growth agenda especially for emerging Asian middle income countries - needs to be enlarged through discussions on social cohesion in three major areas: - the policy making process itself to foster civic participation in political processes - inclusiveness beyond the growth process per se - sustainability, which is not only a macro-economic issue but which links to the sustainable financing of social protection Where do we go from here?

The OECD Development Centre is interested in working with you to bring a social cohesion agenda to the country level. We are in discussion with the ADB and other partners and would like to invite you to join us. In concrete terms we are thinking about undertaking with the help of interested governments a Social Cohesion Policy Review comparable to reviews that the OECD is doing on sectoral policies. We had initial discussions with Thailand and could imagine other countries to join. In fact, we would be very interested to establish a policy network as well that would share country experience in order to learn from each other. If you are interested pls. do not hesitate to contact my colleague or to send me an email. Ladies and gentlemen, Id like to conclude that globalization and structural transformation of economies in Asia has brought with it offers various unprecedented possibilities for fostering social cohesion in the region. The transition process that many Asian countries are now undergoing is likely to be turbulent and prone to conflict. If managed carefully, however, it offers the opportunity of addressing long-standing inequalities, building trust and enabling upward social mobility and thereby, of strengthening the potential for a sustainable, long term growth path. Learning from other regions and countries how to make growth not only inclusive but also cohesive and harmonious seems to be a promising area of policy dialogue.