Industrialisation, innovation, inclusion: Microeconomic factors and the role of innovation

Can industrialisation be socially inclusive? Is higher income inequality within and between countries the inevitable outcome of technology-driven industrial development? In this paper, prepared as background for the UNIDO's Industrial Development Report 2015, we examine the role of industrialisation and innovation in socially inclusive development. First, we define social inclusiveness and describe the relationship between technological innovation, structural change and social inclusiveness. Second, we discuss globalisation and technological innovation and their joint impact on income inequality. Third, we explore conditions under which technology-driven industrial development may be consistent with socially inclusive development. In our conclusions we emphasise the importance of education to enable workers to utilise technology, and of fiscal policies to strengthen the resilience of communities when rapid technological change causes disruptions in the labour market. Finally we argue that a 'social contract' between governments, their citizens and corporations is crucial for inclusive industrialisation.