What Is Shared Prosperity?
Shared prosperity is a broad concept in economic development that emphasizes the idea that the benefits of economic growth should be distributed broadly across society, not concentrated among a select few. It specifically focuses on improving the living standards and opportunities for the less affluent segments of the population. This contrasts with traditional measures of economic growth that might only track aggregate figures like Gross Domestic Product (GDP) without considering how that growth impacts different income distribution groups. Shared prosperity aims for inclusive progress where rising tide lifts all boats, particularly those at the bottom of the socioeconomic ladder, fostering greater social mobility and overall economic well-being.
History and Origin
The concept of shared prosperity gained significant international traction in the early 21st century as global institutions recognized that rapid economic growth in many regions was not always accompanied by commensurate improvements for the poorest citizens, sometimes even leading to widening wealth disparity. In 2013, the World Bank Group formally adopted "shared prosperity" as one of its two primary goals, defining it as fostering income growth among the bottom 40 percent of a country's population. This marked a shift towards explicitly prioritizing inclusive development alongside poverty reduction. The World Bank's Poverty and Shared Prosperity series reports have since become key benchmarks for tracking progress globally7. Concurrently, organizations like the Organisation for Economic Co-operation and Development (OECD) launched initiatives such as its Inclusive Growth Initiative in 2012, advancing similar principles of ensuring economic growth creates opportunities and distributes benefits fairly across society6.
Key Takeaways
- Shared prosperity focuses on the growth of incomes for the bottom segments of the population, typically the bottom 40%.
- It is a key objective for international organizations aiming to ensure economic development benefits all citizens.
- Achieving shared prosperity often involves targeted public policy interventions beyond simply pursuing aggregate economic expansion.
- The concept acknowledges that while economic growth is necessary, it is not sufficient for broad-based improvements in standard of living.
- Shared prosperity emphasizes a more equitable distribution of opportunities and outcomes.
Interpreting Shared Prosperity
Interpreting shared prosperity involves assessing whether economic progress is genuinely inclusive. It moves beyond national average economic indicators like GDP per capita to examine the income growth experienced by specific population quintiles, most notably the bottom 40%. A country is generally considered to be achieving shared prosperity if the real incomes of its poorest citizens are rising, particularly at a rate that is at least comparable to, or ideally faster than, the average income growth for the entire population. This focus ensures that economic gains are not solely captured by the wealthiest segments. The measure highlights the importance of analyzing distribution alongside overall growth to gauge true improvements in human capital and well-being.
Hypothetical Example
Consider two hypothetical nations, "Prosperiland" and "Growthtopia," each experiencing 5% annual GDP growth.
In Growthtopia, the 5% GDP growth primarily stems from significant increases in the profits of large corporations and the incomes of the top 10% of earners. The bottom 40% of the population sees their real incomes rise by only 1% per year due to stagnant wages and rising costs of living. While the nation's overall economy is expanding, the benefits are not widely distributed.
In Prosperiland, the 5% GDP growth is driven by investments in education, small business support, and infrastructure that create jobs across various skill levels. As a result, the bottom 40% of the population experiences a 4% increase in their real incomes annually. This demonstrates a greater commitment to shared prosperity, where a substantial portion of the population participates meaningfully in and benefits from the nation's economic advancements. Policies related to fiscal policy and monetary policy would likely be designed to support such broad participation.
Practical Applications
Shared prosperity is a guiding principle in various aspects of economic planning, investment, and regulation. Governments and international bodies use it to inform development economics strategies, aiming to ensure that policy decisions contribute to more equitable outcomes. For instance, trade agreements and globalization strategies are increasingly evaluated not just on their impact on overall GDP, but also on how they affect income distribution and opportunities for vulnerable groups. Central banks might consider measures related to shared prosperity when formulating policies aimed at fostering stable and inclusive economic conditions. Furthermore, urban planning and regional development initiatives often incorporate shared prosperity objectives to address disparities within a country, as highlighted by a Brookings Institution's analysis on building shared prosperity in U.S. cities5.
Limitations and Criticisms
Despite its importance, shared prosperity faces limitations and criticisms. One challenge is the complexity of measurement, as accurately tracking income growth for the bottom 40% can be data-intensive, especially in developing economies. Critics also point out that focusing solely on income growth for the bottom 40% may not fully capture other dimensions of well-being, such as access to quality healthcare, education, or environmental quality, which are crucial for a holistic welfare economics approach.
Furthermore, achieving shared prosperity requires significant political will and can conflict with short-term economic priorities that favor efficiency over equity. Policies designed to promote shared prosperity might face resistance if they involve redistribution or structural reforms that impact powerful interests. The Center for American Progress report discusses the challenges faced by democracies in delivering widely shared increases in prosperity, noting that political alienation and a loss of social trust can result when market systems fail to provide a decent standard of living for all citizens4. Additionally, external shocks like pandemics or economic crises can disproportionately affect lower-income groups, making consistent progress toward shared prosperity difficult to sustain1, 2, 3.
Shared Prosperity vs. Income Equality
Shared prosperity and income equality are related but distinct concepts. Shared prosperity focuses on the growth of incomes for the less affluent segments of the population. It aims to ensure that the bottom 40% (or similar group) experience rising living standards, regardless of whether the income gap between them and the top earners is simultaneously narrowing. For example, if both the bottom 40% and the top 10% see their incomes grow, shared prosperity might be achieved even if the absolute gap between them widens.
In contrast, income equality is concerned with the distribution of income across the entire population at a given point in time. Its goal is to reduce the disparities in income, striving for a more even spread. While policies aimed at income equality often contribute to shared prosperity by boosting the incomes of the poor, shared prosperity can occur without a significant reduction in overall income inequality, as long as the bottom segment's incomes are rising. Shared prosperity emphasizes upward movement for the less privileged, while income equality emphasizes the compression of the entire income distribution.
FAQs
What is the main goal of shared prosperity?
The main goal of shared prosperity is to ensure that the benefits of economic growth are widely distributed, specifically leading to an improvement in the standard of living and opportunities for the bottom segments of the population, often defined as the poorest 40%.
How is shared prosperity typically measured?
Shared prosperity is typically measured by tracking the average annual real income (or consumption) growth of the bottom 40% of a country's population. This metric allows policymakers to assess whether economic gains are reaching those who need them most, beyond just overall economic growth figures.
Why is shared prosperity important for a country's economy?
Shared prosperity is important because it can lead to more stable and inclusive societies. When a larger portion of the population participates in and benefits from economic progress, it can reduce social tensions, foster greater social mobility, enhance human capital development, and create a broader base for sustainable economic expansion.