A “New Economics of Social Inclusion” for a changing world

Creative Commons. Author Debangana Mukherjee

Penang, 16 Oct (Kanaga Raja) — Persistent exclusions, emerging challenges and the mounting costs of leaving people behind call for a “New Economics of Social Inclusion (NESI)”, according to United Nations Department of Economic and Social Affairs (UN DESA).

In its World Social Report 2026, UN DESA said NESI starts from a simple premise: under conditions of rapid and interconnected change, social inclusion is not just a social objective or a downstream outcome of growth, but is at the core of how economies adapt, transform and grow.

It said that most of the post-war development models treated broadly shared gains mainly as a later outcome of development, not a condition for it.

Moreover, neoclassical and endogenous growth theories placed capital accumulation, human capital and technological change at the centre of long-term growth, without making the breadth of participation a core concern.

The report said NESI shares the view of capability and well-being economics that growth is not the sole objective of policy. Growth and transformation remain objectives, and inclusion is treated as a design condition rather than an expected by-product.

From this perspective, the central constraint is unequal access to the economic, social and political systems that people need in order to adapt continuously to change, said the report.

These systems include learning and re-skilling, connectivity and infrastructure, finance and risk-sharing, health and social protection, and institutions that support voice, coordination and fair access to opportunity, the report added.

Where access to these systems is broad, people can adjust more continuously, productivity gains diffuse more widely, and shocks are less likely to produce lasting exclusion, it further said.

However, where access is narrow, productivity gains become more concentrated, and growth becomes slower and more fragile.

“This matters especially in a context where adjustment time is compressed, and scale effects are stronger. Under these conditions, exclusion is more likely to become self-reinforcing because those left outside key systems face steeper barriers to catching up later.”

According to the report, the core feedback loop that NESI seeks to make explicit is that exclusion is not only an underinvestment in people; it can also act as a change-blocking mechanism inside the growth process, as uneven adaptation concentrates advantage, concentrated advantage shapes the rules, and those rules restrict the pathways through which productivity gains spread.

The result is narrower entry, slower diffusion, and weaker long-term adaptation, it stressed.

The report said that if inclusion were merely an outcome of growth, transformation gains would be expected to translate progressively into broader participation.

Instead, the report documents persistent “conversion gaps”, where countries at similar levels of income and transformation show very different inclusion outcomes.

The report benchmarked the progress of 168 countries in the past 25 years on socially inclusive transformation

(SIT) by measuring advancements in economic, digital and energy transformation alongside economic and social equity.

The analysis revealed that transformation and inclusiveness do not automatically reinforce one another, it said.

The report said countries with similar levels of economic, digital, and energy transformation often achieve very different inclusion outcomes, demonstrating that transformation does not guarantee shared prosperity.

European countries have generally advanced furthest in both transformation and inclusion, while many African countries lag, particularly in digital and energy transformation, it added.

Guiding principles

NESI argues that social inclusion shapes transformation through two reinforcing channels, which also serve as its two guiding principles: adaptive capacity and inclusive institutions, according to the report.

“Together, they provide a dual test for policy: whether people have the means to adapt and whether the rules governing change keep opportunity open and broadly shared.”

Adaptive capacity describes the ability of people, households and communities to access and use the systems they need to sustain participation, adapt, and improve their prospects as conditions change, the report said.

As economies reorganize around new technologies, new energy systems, and different global rules, participation depends increasingly on whether people and firms can connect to and use enabling systems effectively.

Meanwhile, inclusive institutions describe a setting where the rules, institutions, and policy processes that govern transformation keep opportunities open, markets contestable, and access broadly shared.

“It is not enough for people to be formally connected to markets and systems if they have little agency, weak voice, or limited influence over the rules that govern access to opportunity.”

The report said these questions include how standards, data and intellectual property are governed, how ownership and bargaining power are distributed and whether affected groups have a meaningful voice in decisions.

When advantage compounds rapidly, concentrated control over technology, finance and investment can narrow entry, slow diffusion and reduce dynamism, it suggested.

This kind of asymmetry is visible in current market structures: just 100 firms account for over 40% of global business research and development investment, concentrated in a small number of economies, it said.

The international policy environment is also becoming denser. More than 2,500 industrial policy measures were introduced in 2023, with roughly seven in ten classified as trade-distorting.

Adaptive capacity determines whether people, households and communities have the means to participate, adjust and achieve upward mobility and productivity gains, according to the report.

“Inclusive institutions determine whether the pathways of adjustment remain accessible, fair and open to broader participation.”

When both are present, productivity gains diffuse more widely, progress is more resilient, and adjustment is less likely to produce lasting exclusion, it said.

“When both are weak, the gains from growth become more concentrated, adaptation becomes more fragile, and the costs of delayed inclusion rise.”

As NESI argues, the capacity to work, invest, learn, adopt and adjust is inherently connected to the ability to have a voice in the systems, institutions and rules that determine participation, said UN DESA.

It said socially inclusive transformation is the process of governing economic, digital and energy change so that everyone can contribute to it, benefit from it, and have a voice in how it unfolds.

Its intended outcome is transformation that is productive, resilient and broadly shared, the report underscored.

It said NESI thus provides the framework; adaptive capacity and inclusive institutions are its guiding principles; socially inclusive transformation is the process that puts them into practice; and the policy compact organizes the response around four areas.

According to UN DESA, the four connected priorities are:

* Build the capabilities to adapt – governments should expand access to quality education, lifelong learning, digital and AI skills, resilient health systems and universal social protection.

* Connect everyone to the new economy – affordable digital connectivity and reliable, sustainable energy must become universally accessible, including through decentralized and off-grid solutions for under-served communities.

* Make labour markets work for people – policies should support decent work, workers’ voices, equal pay, portable benefits, targeted training and active labour-market programmes that help people move into new opportunities.

* Ensure that prosperity is widely shared – stronger wage-setting institutions, collective bargaining, profit- sharing and progressive fiscal systems are needed to distribute the gains from transformation more fairly. – Third World Network