How inequality fosters instability: top civil servants on tackling the ‘populist backlash’

By on 03/05/2020
Leo Yip

When people feel that the game of life is fixed, they lose trust in leaders and institutions – resorting to protests and populists. At the 2020 Global Government Summit, top civil servants from 17 countries explored the roots of public discontent and debated how to promote ‘inclusive growth’. Matt Ross reports

“Everywhere you look in the world, you see vast challenges – and it’s easy to get dispirited,” said Leo Yip. “But I’d argue that at times like this, leaders need to step up – finding new solutions, and inspiring the people we work with and the people we work for.”

As he welcomed civil servants from 17 countries to the Global Government Summit, Yip – Head of the Civil Service of Singapore, which hosted the 2020 Summit on 30-31 January – identified three fields in which, he said, civil service leaders must find a way forward.

There is, first, a need for “transformational leadership”, he said – reshaping civil services to meet the demands of today’s world. “Although we work in very different settings, and we serve very different systems and countries, we share many of the same challenges,” he noted: governments must become more “nimble, agile, multi-faceted, multi-disciplinary and digital,” combining deep sectoral and technical expertise with a “horizontal, whole-of-government perspective.”

Second, civil service leaders must show “moral leadership”, addressing emerging issues such as the “use and abuse of technology”. How, for example, should governments gather and use data on their citizens? And how can they encourage businesses and individuals to use digital technologies and social media responsibly?

And third, there’s the challenge of “policy leadership”. Civil service leaders are “confronted by new problems that demand new solutions; new ways of thinking and acting,” said Yip. The growing trade tensions between the USA and China provide one example, he explained. Environmental sustainability is another – and one that is “becoming an existential problem, certainly for a low-lying island state like ours. We need new policy solutions, more decisive action and stronger collective action.”

Defanging the populist backlash

All three of these leadership agendas come together around the issue of inclusive growth: the need to ensure that all sections of society benefit from economic development. “There’s a sense in many of our societies that people’s lives are not improving,” said Yip. “And that’s fuelling a populist backlash in many societies. It’s leading to a loss of trust in institutions, governments and markets; it’s eroding people’s faith in meritocracy.”

So the first session of the 2020 Global Government Summit, Yip explained, would focus on this ever-growing challenge. An informal, round table event for central civil service leaders, each year the Summit comprises five sessions focusing on aspects of public sector transformation, policymaking and service delivery. “It’s a very special gathering: one of very few where senior civil servants can come together to share, to enquire, to deliberate, and to learn from each other’s perspectives,” said Yip. “We’re all fellow practitioners in the profession of governance; and the Summit’s small size and its informality lend themselves to a very candid and rich discourse.”

While the event is held under the Chatham House Rule, many Summit debates are valuable to our readers around the world – so we at Global Government Forum produce reports using the information that delegates are content for us to publish, checking each quote before publication. This first report covers the discussion on inclusive growth; over the coming weeks, we’ll publish reports on the sessions covering strategic policymaking and service delivery; strengthening capabilities; deploying artificial intelligence; and driving civil service reform.

Introducing the first topic, Yip explained why inclusive growth demands action on all three of his leadership agendas. As a “multi-faceted challenge”, he argued, it requires transformational leadership to reshape civil service operations: “You’ve got to integrate the whole of government to deal with this challenge.” But it’s also an issue of moral leadership: citizens must feel they have “a fair crack at success; that they’ll share in the fruits of economic growth,” he said. And inclusive growth demands policy leadership, too: officials must devise new ways to strengthen both equality of opportunity for citizens, and people’s ability to adapt to fast-changing jobs markets.

Then Yip handed over to Suma Chakrabarti, President of the European Bank of Reconstruction and Development (EBRD) and a former UK permanent secretary, for a deeper dive into the topic.

Spread the proceeds of growth

Suma Chakrabarti says there is growing recognition that inequality is causing unrest in many countries. “There’s now a political permission to do something about it.”

Over recent decades, said Chakrabarti, many low- and middle-income countries have made a “remarkable transition to high income status in, more or less, a single generation.” Yet 2019 was “a year of social unrest around the world, across countries with very different income levels and economic systems.” Clearly, he added, “growth alone can’t be relied on to deliver a sense of fairness and life satisfaction.”

EBRD research, he explained, has found that in the former members of the USSR, a small slice of the population has taken the lion’s share of the proceeds of growth. Almost three quarters of the region’s population has seen below-average income growth, and over half of its people have not closed the income gap with richer G7 nations. “These economies can no longer afford to leave the issue of economic inclusion for later,” he said, pointing to a growing recognition that inequality is “causing unrest in many countries. There’s now a political permission to do something about it.”

The issue is just as acute in developed economies, where deindustrialisation, automation and the 2008 financial crisis have impoverished former industrial areas and held down median incomes. As UK civil service Chief Executive Sir John Manzoni pointed out after Chakrabarti’s presentation, “the parts of the [UK] which were left behind in the last phase of industrial change could well be left behind again as we move onto the ‘Fourth Industrial Revolution’.”

Structural challenges

So why are the proceeds of growth not diffusing through the economy? Part of the problem, explained Chakrabarti, is that medium-skilled jobs in manufacturing and services are being automated away – leaving the low-skilled jobs that are too awkward or uneconomic to automate. In Eastern Europe, he noted, “the share of income accruing to labour as opposed to the owners of capital dropped by about 5% between 1994 and 2017.” And in advanced countries, very slow productivity growth holds down wages: this, Chakrabarti suggested, is due to a “lack of capital investment in the production function.”

Demographic factors are also important: even fast-growing economies such as Thailand and China are “getting old before they can get rich,” so people must work for longer and support elderly relatives. And when people’s working lives are extended in fast-changing economies, lower-skilled people often find themselves trapped in shrinking jobs markets – while those with more skills or education can retrain mid-career, bolstering their incomes.

Discrimination and poor income mobility exacerbate the problem, he continued. Between 20% and 50% of income inequality is explained by accidents of birth – such as gender, ethnicity, home town and parental income – and this is both “deeply unfair, and deeply inefficient.”

Taxation, equalities and safety nets

To address these challenges, said Chakrabarti, governments must act on many fronts. Changes to fiscal policy may be required, he said: “I think taxing of wealth could play a more prominent role as a source of government revenue. Taxing wealth tends to have fewer side effects compared with taxing income, when it comes to individuals’ incentives to work and to innovate.” But while “redistributing income can help, the key is to improve people’s opportunities to succeed in life regardless of their gender, ethnicity, place of birth or parental background.”

Sometimes, this can be achieved by reducing regulatory barriers. In Kazakhstan, he explained, the EBRD has helped persuade the government to lift gender restrictions that prevented women from entering 96 occupations – first gathering evidence on how the status quo held back growth, then inviting international businesses to share their experience and supporting a “public consultation which helped to hear and reconcile different views, including from the line ministries and the employers’ associations.”

More substantively, governments must rethink their approach to social safety nets, training and education. The public sector can’t shield jobs from the winds of economic and technological change, said Chakrabarti – but it can help individuals to adapt to changes with services such as unemployment benefits, portable pensions and mid-career retraining. And new technologies, the source of so many of these economic challenges, can also provide solutions by improving the operation of government, tackling corruption and boosting tax income. A shift to cashless payments can strengthen tax administration, he explained, and e-procurement can squeeze out corruption and drive down public sector costs.

Financial inclusion

Chakrabarti mentioned Mastercard as an EBRD partner on digital government: the financial technology company was a Summit knowledge partner, and Nicola Villa – Senior Vice President for Strategic Growth, and Global Lead for the firm’s Government Center of Excellence – was on hand to explain how the business is helping governments to tackle financial and digital exclusion: people’s lack of access to bank accounts, mobile technologies and digital transactions. “Financial inclusion is essential for the health and stability of the global economy, but it’s also essential to the business health of a company like Mastercard,” he said. “If the world thrives, the middle class is stronger – producing more revenue and more business.”

Nicola Villa says plugging people and public bodies into digital and financial systems can help entrepreneurs and SMEs grow their businesses, ease access to public services and improve public sector efficiency

Plugging people and public bodies into digital and financial systems can help entrepreneurs and SMEs grow their businesses, ease access to public services and improve public sector efficiency, said Villa. For example, Mastercard has worked with the Global Alliance for Vaccines and Immunisation and the Alliance for a Green Revolution in Africa, creating a card-based system through which African smallholders can receive agricultural materials and have their children vaccinated. In the Czech Republic, Mastercard and other banks are contributing to a fund that provides cashless payments systems to SMEs and public bodies, cutting their costs and enabling them to offer new services. And the business is also working with the Italian government on its ‘universal basic income’ pilot programme, creating payments systems that prevent recipients from spending the money on problematic goods and services, such as gambling.

To address growing public disenchantment, governments must first understand the roots of discontent, said Paul Huijts, Secretary-General of the Netherlands’ Ministry of General Affairs – which supports the prime minister and cabinet. And many of the problems in economies’ operation don’t show up in traditional metrics, he commented: on most measures, people are becoming wealthier and healthier – but they’re increasingly pessimistic about the future.

The end of optimism

For decades, “everyone had a general feeling that things were getting better – if not for them, then for their children,” he said. “But over the last 20 years, insecurity has become a part of daily life.” The era of ‘jobs for life’, final salary pensions and plentiful skilled manual jobs is long gone, and in recent years governments – pushed by demographic changes and slow growth – have had to cut public pension schemes, while health and social care services come under ever greater pressure. Meanwhile, he added, house prices have spiralled out of reach for many young people, while permanent jobs give way to freelancing, temporary roles and zero-hours contracts. “A lot of certainties have been traded for uncertainties,” said Huijts. “And most people don’t deal very well with insecurity.”

That struck a chord with Catherine Blewett, Deputy Clerk of the Privy Council and Associate Secretary to the Cabinet of Canada. There’s a paradox, she suggested: while there’s plenty of data showing that citizens are better off than ever, social discontent is growing in many quarters. In Blewett’s view, governments need to collect data “at a more granular level. We tend to look at very traditional markers and indices, and I think we may need to conceive of this in a different way.”

While there’s plenty of data showing that citizens are better off than ever, social discontent is growing in many quarters, says Catherine Blewett. She believes governments need to look beyond the “very traditional markers and indices”.

Chakrabarti agreed wholeheartedly. During his days at HM Treasury, he recalled, “we used to just look at GDP data: we wouldn’t look at wellbeing, life satisfaction, mental health. Now those things are changing in many governments, thankfully.” And these days, said Katherine Jones, Deputy Secretary of Australia’s Department of Finance, “there’s copious amounts of data flowing into government from multiple sources.” The challenge now, she added, is to build the systems to combine and assess this wave of data: “We just don’t yet have the capacity to sufficiently analyse it, getting the insights to deliver better services.”

Clearing the path forwards

As governments start to make use of this data, commented Yip, they’ll face yet another challenge: “This data is looking in the rear-view mirror. What we need to do is paint a picture looking forward through the windscreen.” And that picture will have to reassure people that governments can help tackle the insecurity they feel – helping them to cope with a more turbulent, fast-changing jobs market, and supporting them to secure housing, health, education and social services for their families.

In the end, concluded Chakrabarti, progress will depend on governments’ willingness to make difficult decisions in the national interest. “Technology, institution-building, long-term thinking: all of that’s very important,” he said. “But the fundamental thing we find in our work is that the willingness of governments to take effective action depends on their appetite to challenge vested interests. The governments that challenge the status quo, supporting those with an interest in a more inclusive order, are the ones that are making progress on this journey. And those that don’t are building up more problems for the future.”

This is part one of our report on the 2020 Global Government Summit, held in Singapore at the end of January. In part two, officials debate how to get departments working together. Part three covers how civil services can attract, develop and manage the highly skilled workforces required to address public policy challenges. And the fourth and final part explores the way forward on civil service reform.

While the event is held under the Chatham House Rule, we ask delegates to approve quotes for use in these reports – enabling us to share civil service leaders’ key messages and perspectives with our readers.

A list of the Global Government Summit 2020 attendees can be found here.

About Matt Ross

Matt is a journalist and editor specialising in public services, policymaking, government and management. He was the editor of trade title Civil Service World from 2008 to 2014, serving an audience of senior UK officials; and the features editor of weekly news magazine Regeneration & Renewal between 2002 and 2008, covering urban regeneration, economic growth and community development. He has also been a motoring and travel journalist, and now combines his role as editorial director of Global Government Forum with writing for other publications including The Guardian and Planning magazine.

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