Build a better future for all
While globalisation has helped foster economic growth, the world still needs to make it more inclusive and sustainable
Since the establishment of the Bretton Woods system, and especially since the British and US governments began to sponsor neoliberalism globally in 1980, the global economy has become increasingly integrated.
Although this has accelerated the division of labour among countries and increased economic growth, globalisation has stalled, partly due to a lack of inclusivity.
Today, 4 billion people still live in low- or lower-middle-income countries; 327 million people live in countries that experienced negative per capita income growth over the past four decades. Even in China, which many see as the biggest beneficiary of globalisation, 600 million people still live on a monthly income of only 1,000 yuan (HK$1,198). In the West, as globalisation has hurt the middle class, governments are increasingly inclined towards protectionism.
Moreover, the current globalisation model is not ecofriendly, with governments and companies focused on maximising consumption.
The West accounts for only 12 per cent of the world’s population, but more than half of global final consumption. If the rest of the world became as “developed”, or, to put it differently, as wasteful as the West, humanity would require four additional Earths.
So, even if globalisation did foster economic growth, the world still needs to make it more inclusive and sustainable. Here’s how that could be done.
First, financial markets in the Global South should be more interconnected.
Financial resources have become increasingly concentrated in a few financial centres and the Global North, increasing the Global South’s financial dependency on the Global North and making the international financial system more fragile.
Building peer-to-peer connections between financial markets in the Global South can reverse this trend. For example, the Shanghai/Shenzhen-Hong Kong Stock Connect has helped China open up its financial markets while maintaining financial stability.
In the future, China’s financial markets could also establish two-way connections with other emerging markets, commodities exporters and members of the Regional Comprehensive Economic Partnership.
Such connections would not only improve the return on Chinese savings and reduce the volatility of Chinese stock market valuations, but also increase transaction volumes and raise market valuations in other developing countries.
Interconnections between other developing countries, such as between India and the United Arab Emirates, Iran and Turkey, or Brazil and Argentina, would be equally beneficial. Such interconnections also apply to countries with capital controls.
Eventually, companies from the Global South would be able to reach international investors via domestic financial markets; listing at home would be nearly as good as listing overseas. Capital markets in the Global South may grow mature enough to support a locally rooted entrepreneurial ecosystem, allowing for greater global participation in innovation and higher long-term global economic growth.
Second, the allocation of international currencies should be more balanced over time.
Countries such as China, Russia, South Korea and Mexico, which have large export and trade surpluses, should conduct trade settlements in local currencies. This could end the overvaluation of reserve currencies and bring manufacturing jobs back to developed countries.
Current US-Mexico trade, for example, is largely settled in US dollars, allowing the United States to run a large trade deficit with Mexico. If the US were to use the Mexican peso to buy Mexican goods, it would have to sell more items to Mexico to earn pesos or buy pesos on the foreign exchange market. The peso would then appreciate against the dollar, and American workers would also become more competitive.
Ultimately, changes in the settlement currency may lead to changes in reserve currency allocations, which would be adjusted partly in tandem with each country’s share of global exports.
Many currencies would assume the function of a world currency, preventing one country from appropriating the foreign exchange reserves of others and stopping financial risks in one country from spreading across the globe.
Last, the prices of physical products made from natural resources should rise relative to those of other goods and services.
The relative prices of physical products in the US have fallen dramatically. Since the early 1980s, the overall consumer price index has risen by 188 per cent.
During the same period, although the cost of college tuition, medical care services and motor insurance has surged by a whopping 796 per cent, 490 per cent and 489 per cent respectively, that of electricity, new vehicles and apparel only rose by 141 per cent, 68 per cent and 29 per cent And the prices of televisions and personal computers plunged by 94 per cent and 96 per cent from 1997 to 2015. This dichotomy has abetted wasteful consumption in the US and elsewhere.
From a global perspective, the rise in the relative price of physical goods would push people to consume less and instead choose more virtual goods and services, reducing resource depletion and household waste.
Global inflation today mainly manifests through the rising price of physical goods, and thus it can be conducive to a more inclusive and sustainable globalisation.
Globalisation has left many people behind and caused an enormous waste of resources. With more connectedness within the Global South, more dynamically adjusted world currencies and a higher relative price of physical products, globalisation could be more geared towards inclusivity and sustainability, creating a better future for all.
The rise in the relative price of physical goods would push people to consume less and instead choose more virtual goods and services, reducing resource depletion and household waste