How to lift 600 million people out of poverty

The paradox of growth: it has brought both, prosperity and inequality to the world. A recent study suggests that while the current form of growth has contributed to emissions and inequality, it may also solve the problems it caused.

Growth has brought prosperity to the world, but it has also brought inequality and environmental degradation. Economic growth has been discredited for its lack of fairness and sustainability stemming from the over-consumption and men-made pollution of scarce planetary resources. It’s no secret that growth has caused a lot of trouble.

While growth brought us into social inequity, can growth get us out of it?

To manage your expectation, the recent study of 麦肯锡 will not offer you a heureka-moment. However, for the first time, puts more concrete facts and orders of magnitude to the intriguing question whether growth can create a virtuous cycle between social inclusion and fighting climate change: Growth + Innovation = Economic Inclusion + Net Zero.

The problem we face today is that we need to close an economic gap of residual $13 trillion to help millions of people into empowerment and social inclusion until 2030. Concretely, we need 1.2% additional GDP growth per year. Last year, we were at 3.08% GDP growth overall; so it is a long shot and the numbers are big (and rather abstract). However, the remarkable aspect of this study is that, despite immense magnitude, it provides practical pathways to address the gap.

Market forces alone cannot bridge this gap. A lot of money is needed to achieve social inclusion for everyone, globally, which means to improve capacity and productivity in housing, healthcare, education, and nutrition.

While growth cannot solve all structural challenges, it provides a fertile ground for innovative solutions to thrive. There is a path forward to deal which such large economic gap. It involves businesses, institutions, and governments to address investment flows and externalities more directly.

We need $13 trillion for a more inclusive world

The study suggests that the residual $13 trillion economic gap can be bridged by making essential goods and services more affordable and effective, improving work arrangements and pay, and providing more direct support.

McKinsey's approach is to raise the "what if"-questions; it is an invitation to think big. To give you the four of the most striking facts:

1. Making housing, healthcare, education, and nutrition more affordable —and raising the bar for quality — can yield not only financial savings but greater well-being and human potential. In fact, by optimizing efficiencies and improving productivity we can generate around $3 trillion in benefits for those below the empowerment line by 2030.
2. Higher growth and innovation is its potential to lift 600 million people out of poverty, globally.
3. Take healthcare as an example: If each country only kept current levels of healthcare spending constant and simply matched its best-performing peer in the sector over the next decade, health outcomes could improve by an impressive 36 percent globally.
4. Take housing as an example: For many people below the empowerment line, especially in the world’s major cities, the high cost of housing eats into other priorities. Improved productivity in construction could lower housing expenditures by 11 percent globally if all countries emulated their best-performing peers and these gains reached consumers.

The compelling upside of these efforts is the potential to bring about real, tangible change in the lives of millions. Even without additional commitments and international support, growth and the actions of businesses and governments can help moving people toward economic empowerment.

How to incentivize societies to cake higher public and private commitments?

The key question is how to incentivize societies that have the capacity to take higher public and private commitments? Governments have a key role to play.

• If governments choose to address some or all of the residual gaps, they could explore making their spending more efficient, reallocating existing spending, issuing new debt, or raising taxes.
• Local governments can change regulations related to land use, density, and permitting to lower costs for private developers. They can drive business innovation in affordable segments of housing, healthcare, food, and education markets.

Recognizing the political realities and complex interests around capital flows, the study is an optimistic outlook. It let's you quantify the challenge - and seize the opportunity. Growth + Innovation = Economic Inclusion + Net Zero.

Enjoy the reading:

From poverty to economic empowerment | McKinsey

Mirjam Bamberger is member of the Management Committee of AXA's European Markets & Latin America. Until January 2022, she has been?CEO of AXA Luxembourg and CEO of AXA Wealth Europe. Prior to this she served in various roles as a board member of AXA Switzerland, having completed an international trajectory in High Tech and Financial Services across US, Asia and Europe.

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