Over the past several years, global inequality has increased dramatically. For example, the collective wealth of the top 5 billionaires in the United States grew by 70% in 2021 while close to 150 million (9.1% to 9.4% of the world’s population per 2020) still live in extreme poverty across the world.
In order to curb global inequality, the authors of a Boston Consulting Group (BCG)—a global consulting firm that partners with business and society to tackle challenges and opportunities—article recommend that governments focus on three things: improving inputs, putting system-level enablers in place, and elevating outcomes.
According to BCG, governments can improve inputs by creating jobs, supporting entrepreneurial endeavors, and increasing access to education and healthcare.
System-level enablers could include fiscal and social system protections and physical infrastructure, which could go a long way in helping people manage economic shocks.
Finally, governments can elevate outcomes by facilitating upward mobility across generations or fostering active participation of disadvantaged groups in education, the labor force, and public life.
Speeding up the process
As history has shown, real, lasting change often takes time—time many citizens can’t afford.
However, our research shows that if governments incentivize market-creating innovations (MCIs), which produce simple and affordable products for people who historically don’t have access, momentum to curb inequality can increase dramatically through efficiency. .
Market-creating innovations have two powerful effects on combating inequality. Firstly, by pulling consumers into the economy who previously resided on its outskirts, MCIs enable more people to get the products and services they need to live better lives.
Secondly, serving these new markets necessitates hiring a new network of local workers to make, distribute, market, and sell products to new consumers, which directs profits into less wealthy communities where nonconsumption tends to flourish.
Taiwan’s MCI success story
For example, the Taiwanese government played a key role in developing a dominant technology sector. It established the Hsinchu Science Park in the coastal city of Hsinchu to promote and support research and innovation. This investment has resulted in the creation of significant wealth for those in the once-struggling city of Hsinchu, with monthly salaries surpassing the national average by more than 170%: NT$65,000 (2,139 USD) compared to NT$38,000 (1,250 USD). This made the average disposable income of Hsinchu households (about NT$1.28 million [42,112 USD]) second only to Taipei City—Taiwan’s wealthiest city.
By creating the Hsinchu Science Park, the government not only spurred growth within Hsinchu’s local economy, it directly benefited from the park’s success in two critical ways: 1) the park houses Taiwan Semiconductor Manufacturing Company, Limited (TSMC), the world’s largest chipmaker accounting for roughly 50% of the global market, crowning Taiwan the global leader in the semiconductor industry of the future; and 2) in its first year, TSMC alone paid NT$66.19 billion (2.25 billion USD) to the Taiwanese government in taxes.
The Hsinchu Science park is just one example of how governments around the world can change the trajectory of the global inequality crisis by building ecosystems which can spur new markets and bring shared prosperity to the nation. When entrepreneurs transform previously expensive, complicated, and inaccessible products into ones that are simple and affordable, they create a new market and set off a ripple effect of development. This often leads to prosperity among populations of people that didn’t enjoy it before, thus reducing inequality.
In summation, the road to shared prosperity runs through market-creating innovations. As governments, especially those in growth markets, look to recover from the pandemic which has exacerbated inequality, developing policies that incentivize market-creating innovations will go a long way in helping create inclusive growth for all.