Economy in need of rebalance
• What is required is a globally co-ordinated strategy of expansion
In contrast to the ambitions of the 2030 Agenda for Sustainable Development, the world economy remains unbalanced in ways that are not only exclusionary, but destabilising and dangerous for the political, social and environmental health of the planet, according to the United Nations Conference on Trade and Development (Unctad) Trade and Development Report 2017.
The report, which is titled Beyond Austerity: Towards a Global New Deal, says even when economic growth has been possible, whether through a domestic consumption binge, a housing boom or exports, the gains have disproportionately accrued to the privileged few.
“A combination of too much debt and too little demand at the global level has hampered sustained expansion of the world economy.
“Austerity measures adopted following the global financial crisis nearly a decade ago have compounded this state of affairs. Such measures have hit the world’s poorest communities the hardest, leading to further polarisation and heightening people’s anxieties about what the future might hold.
“Some political elites have been adamant that there is no alternative, which has proved fertile economic ground for xenophobic rhetoric, inwardlooking policies and a beggarthy-neighbour stance.
“Others have identified technology or trade as the culprits behind exclusionary hyperglobalisation, but this too distracts from an obvious point: without significant, sustainable and co-ordinated efforts to revive global demand by increasing wages and government spending, the global economy will be condemned to continued sluggish growth, or worse.”
The report argues that now is the ideal time to crowd in private investment with the help of a concerted fiscal push — a global new deal — to get the growth engines revving again, and help rebalance economies and societies that, after three decades of hyperglobalisation, are seriously out of kilter.
However, according to Mukhisa Kituyi, secretarygeneral of Unctad, in today’s world of mobile finance and liberalised economic policies, no country can do this on its own without risking capital flight, a currency collapse and the threat of a deflationary spiral. What is needed is a globally co-ordinated strategy of expansion led by increased public expenditures, with all countries being offered the opportunity of benefiting from a simultaneous boost to their domestic and external markets.
“The Sustainable Development Goals (SDGs) agreed to by all members of the UN two years ago provide the political impetus for this much-needed shift towards global macroeconomic policy co-ordination,” says Kituyi.
“The report calls for more exacting and encompassing policy measures to address global and national asymmetries in resource mobilisation, technological know-how, market power and political influence caused by hyperglobalisation that have generated exclusionary outcomes, and will perpetuate them if no action is taken.
“It argues that, with the appropriate combination of resources, policies and reforms, the international community has the tools available to galvanise the requisite investment push needed to achieve the ambitions of the SDGs and promote sustainable, inclusive outcomes at global and national levels.”
The report states that people should be put before profits, calling for a 21st century makeover to offer a global “new deal”. Ending austerity, clamping down on corporate rent seeking and harnessing finance to support job creation and infrastructure investment will be key to such a makeover.
Unctad notes that this year the world economy’s growth is expected to reach 2.6%, slightly higher than in 2016 but well below the pre-financial crisis average of 3.2%. Most regions are set to register small gains, with Latin America exiting recession and posting the biggest turnaround, even if only at 1.2% growth. The eurozone is expected to see its fastest growth since 2010 (1.8%) but is still lagging behind the US.
The main obstacle to a robust recovery in the advanced economies is fiscal austerity, which remains the default macroeconomic option.