Abstract
This chapter elaborates on many of the domestic policies and institutional features that are most relevant to the task of strengthening an economy’s aggregate distribution function—its underlying ecosystem of legal and other norms, policy incentives and public administrative capacities that strongly influence the extent to which it grows in an inclusive, sustainable and resilient manner. Countries should devote at least as much policy attention and effort to strengthening the distribution function as production function of their economies by investing on an ongoing basis in policy incentives and institutional capacity relating to the five “factors of distribution” of household employment and entrepreneurial opportunity; disposable income; availability and affordability of material necessities; economic security; and environmental security. This is a structural way of improving the social quality as well as quantity of economic growth—that is to say, median household living standards as well as productive output or GDP. Extensive comparative data are presented in each of these policy domains demonstrating that nearly every country has a substantial social “welfare gap”—underperformance on one or more aspects of median household living standards relative to the frontier of outcomes and enabling policy practices in peer countries. Like output gaps, these can be narrowed by examining what works well in peer countries and how it can be adapted to national circumstances through policy innovation and investment.