Globalization has failed to create a level playing field in trade, investment, and corporate behavior, contributing to a backlash against economic openness in many countries and a decline in confidence in government institutions, says a new report from the Organisation for Economic Co-operation and Development (OECD).
“There is a growing perception that globalisation is not working for large sections of society, in both advanced and developing economies, and that it is driving inequality and hurting less-skilled workers,” the recently published OECD Business and Finance Outlook 2017 said.
Many people believe that the benefits of globalization are not being evenly shared, with the incomes of the middle and lower classes stagnating or falling, it said. Meanwhile the cost of housing, education, and healthcare is rising, and employment conditions and social mobility are deteriorating.
“At the same time, the top income groups have prospered, sometimes spectacularly,” the outlook added.
The report traced the growing anti-globalization sentiment to “the failure of international co-operation to match the pace of changes wrought not only by economic globalization but by accompanying social, demographic and technological change.”
It urged stepping up global collaboration, and ensuring global markets, companies, and institutions follow the same rule book in order to restore productivity growth, avoid excess capacity, and improve public confidence.
The outlook said this entails that countries establish fair “rules of the game” and commit to a common set of transparent principles “that are consistent with mutually beneficial competition, trade and international investment.”
“The backlash against globalisation has grown in many countries and too little has been done to help more people cope with the inter-related impact of trade, foreign direct investment and technological change,” said OECD Secretary-General Angel Gurría.
“In addition to developing more effective domestic policies, it has become essential for all nations to work together to ensure a level playing field in trade, investment and corporate behaviour to better address the downsides of globalisation while preserving the benefits of economic openness,” Gurría continued.
“This will ensure that the growth it fosters is inclusive and sustainable, and that globalisation works for all.”
Key areas of action
The report also addressed other areas where action is needed to level the playing field. These include the impact of state-owned enterprises (SOEs), which grew from 9.8% of the Fortune global 500, to close to 23% in recent years.
“It is critical that SOEs governance and ownership respect best practices and prevent government support or subsidies that distort competition,” the document stressed.
Another area is collusion through cross-border cartels, which is raising prices for consumers and low-income families. The paper said 240 cartels were detected and fined between 1990 and 2015, affecting US$7.5 trillion in sales.
“Countries need to enforce rules around bid rigging and reduce barriers to collecting information and sharing investigations between authorities in different countries,” it said.
A third area is the stricter enforcement of bribery and corruption laws, as rent-seeking behavior is estimated to be 2% to 3% of world GDP.
The paper revealed that strong bribery laws cause countries to invest less in corrupt regimes and more in countries with sound property rights and accountability.
Finally, competition in equity finance markets needs to be strengthened. The outlook said that for initial public offerings of less than US$100 million, the average cost is 9% to 11% of the transaction. This increases the cost of equity and works against long-term productive investment.
