The world economy in 2017 is picking up but not lifting off, stuck on its path to recovery, says a new report from the United Nations Conference on Trade and Development (UNCTAD), while offering an alternative policy route to build more inclusive and caring economies.
“A combination of too much debt and too little demand at the global level has hampered sustained expansion of the world economy,” said UNCTAD Secretary-General Mukhisa Kituyi at the recent launch of Trade and Development Report 2017: Beyond Austerity—Towards a Global New Deal.
To unshackle growth, the report states that people should be put before profits, calling for a twenty-first 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,” it said.
UNCTAD said world economic growth in 2017 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 U.S.
The main obstacle to a robust recovery in the advanced economies is fiscal austerity, which remains the default macroeconomic option. According to UNCTAD findings, 13 out of 14 leading advanced economies experienced austerity between 2011 and 2015.
The super-elite class
Lead author Richard Kozul-Wright said, “Two of the biggest socioeconomic trends of recent decades have been a debt explosion and the rise of super-elites, loosely identified as the top 1 per cent.” These, the report suggests, are linked, through the deregulation of financial markets, to the widening ownership gap of financial assets and a fixation on short-term returns.
As such, inequality and instability are hard-wired into hyperglobalization. The report shows that this makes for a world with insufficient levels of productive investment, precarious jobs, and weakening welfare provision. This has become self-perpetuating, with the run-up to a crisis driven by the “great escape” of top incomes, while their aftermath is marked by austerity and stagnating incomes at the bottom.
The report warns that “failure to correct the excesses of hyperglobalization is not only jeopardising social cohesion but diminishing trust in both markets and politicians.”
It argues that far too much has been made of trade and technology in explaining the troubles of a hyperglobalizing world. Instead it calls for a serious examination of market power, rent-seeking behavior and “winner-take-most” rules of the game, which have generated exclusionary outcomes.
The growing concentration of markets is a major issue highlighted in the report, with potentially corrosive consequences for the political system.
“As long as policymakers continue to brandish the austerity sword and measure policy success by asset prices and profit levels, big business will dominate in key sectors, and the already significant inequalities may worsen further,” said the report.
Growing surplus
“Moving away from hyperglobalization towards building inclusive economies is not just a matter of making markets work better. It requires a more exacting and encompassing agenda that addresses global and national asymmetries in technological know-how, market power and political influence.”
With the United States withdrawing from its role as global consumer of last resort, recycling surpluses is a key element in rebalancing the global economy. The report turns the spotlight on the eurozone—especially Germany—which is now running a large surplus with the rest of the world. The recent Group of 20 proposal made by Germany—a Marshall Plan for Africa—is welcome, but so far lacks the requisite financial muscle. The trillion-dollar Belt and Road Initiative of China is much bolder, even as its surplus has dropped sharply over the last two years.
The report outlines a global new deal to build more inclusive and caring economies. This would combine economic recovery with regulatory reforms and redistribution policies, and do so with speed and at the requisite scale.
“In today’s integrated global economy, Governments will need to act together for any one country to achieve success. UNCTAD urges them to seize the opportunity offered by the Sustainable Development Goals and put in place a global new deal for the twenty-first century,” it said.
Key measures discussed in the report include ending austerity with more and better public investment, with a strong caring dimension, including major public works programs that improve infrastructure and generate employment.
Photo: Jerzy Gorecki
