Davos Elite Shifts Focus To Fractures In Globalisation
Increasing protectionism and inequality appear as fresh concerns as global growth improves.
Since the global financial meltdown nearly a decade ago, discussions at the annual World Economic Forum revolved around getting the post-crisis recovery right. With a stable economic momentum in sight, economists and policymakers shifted the narrative towards risks that globalisation faces.
The world is moving towards greater protectionism and “undoing what globalisation has been able to achieve”, said French President Emmanuel Macron in his special address at the World Economic Forum 2018 in Davos, Switzerland. “Let us not be naive as globalisation is going through a major crisis and this needs to be fought collectively with global solutions.”
Macron wasn’t the only one. Prime Minister Narendra Modi, who gave the first speech by an Indian head of state at Davos in two decades, said that globally “the fractures and fault lines are really frightening”. In his plenary address, Modi outlined protectionism as one of the three big threats to world right now, alongside climate change and terrorism.
The biggest reasons for fractures at the international level are control of territories—both direct and indirect; and control of transactions—including cross-border trade and movement of people.Narendra Modi, Indian Prime Minister
The comments stem from the backlash against globalisation that has been visible across the globe in the last two years. U.S. President Donald Trump, with his America First policy, has attempted tearing up global trade agreements such as Nafta and the Trans-Pacific Partnership. He has also spoken at lengths about curbing the influx of skilled immigrants into the U.S. mainly through hiring by tech companies. But it isn't confined to just the U.S. In 2016, the U.K. also voted to separate from the European Union bloc in the historic Brexit referendum. The specifics of that transition are still being examined.
But protectionism is not the answer, German Chancellor Angela Merkel said. “Shutting ourselves off from the rest of the world will not help.”
Inequality In Focus
The Davos elite recognised about how globalisation had led to unequal gains for some, and that there was a need to rethink the model.
“It is a question of how sustainable is this economic model? It is giving all the gains to the top end and that's not sustainable," said Nobel Laureate in Economics Christopher Pissarides. “We need to take action to transfer some of the gains to workers lower down.” When ownership is concentrated then inequality is bound to go up, Pissarides said.
The stark inequality seen in the distribution of wealth was hotly debated in 2017, with economists such as Thomas Piketty, Lucas Chancel, James Heckman, Jean Tirole and Peter Diamond stressing on its rise since the financial crisis. A recent report by Oxfam International showed that the top 1 percent population had laid claim to 82 percent of the new wealth created between March 2016 and March 2017. The poorest half got nothing. Not just that, ordinary workers have seen their income rise just 2 percent a year on an average over the last decade, it said.
The global growth is painting too rosy a picture of the world economy and is masking the fractured workforce which is struggling with unemployment, said International Trade Union Confederation general secretary Sharan Burrow. “The lack of jobs and stagnant wages will blow apart the bubble that is being created here as a goodwill feel,” she said. All this is a result of globalisation going “too far dominated by corporate greed”, she said.
If we want to have an interconnected world, then you got to have a new set of rules. Eighty-five percent of the people agree with this. They want the rules of economy re-written.Sharan Burrow, General Secreatary, IUTC
Even Paul Sheard, vice chairman of S&P Global, weighed in saying that global growth was “perhaps focussed too much historically on the gains from trade”. He said that economists were at the forefront of promoting globalisation as a good thing, which influenced policymaking too. But when you rely on gains from trade, there are always winners and losers, he said.
Perhaps the labour market was not as flexible as economists assumed. There are a lot of issues here that policymakers, governments, politicians have to more of a deep dive, revisit some of their basic assumptions, and make some adjustment to public policy.Paul Sheard, Vice Chairman, S&P Global
Modi acknowledged the inequality issue right upfront in his address. “There are obvious inequalities in incomes and opportunities,” he said. “There are disparities and divides in the distribution of assets and resources.”
Macron too stressed the need to share the wealth and reassess globalisation. "It’s time for a new framework to rein in the excesses of global capitalism,” he said. The new framework should be based on co-operation, avoid the race to bottom on taxes and trade standards, and instead “focus on the common good, social cohesion, health, education, climate and the fight against inequality,” he said.
But it isn't all grim. With Xi Jinping's China opening up to the world with its One Belt, One Road initiative, Modi stressing on the need for global co-operation, and Europe talking with openness despite Brexit, means “isolatism” is not very probable, Pissarides said. “The Trump factor is not as risky as we thought it might be.”