The Economics of Inclusion

Both inequality and slow economic growth result from a particular from of exclusion, argues Ricardo Hausmann, director of the Center for International Development at Harvard University, in an essay for Project Syndicate. Growth varies around the world and also within countries, and Hausmann points to fixed costs, especially those linked to infrastructure for water, transportation and electricity: “If income is expected to be low (perhaps because of other missing networks), it does not pay to connect a firm or a household to the network, because the fixed costs will not be recouped. Growth is not inclusive because fixed costs deter markets from extending the networks that underpin it.” Technology has helped reduce fixed costs related to many services, but many communities are left behind and struggle to catch up. Developing countries and struggling communities in the advanced economies should spend less on subsidies and invest to expand infrastructure networks including education. – YaleGlobal