The ‘Alternative economic models: Curbing inequality’ economic panel was held on 7 October during the 15th Rhodes Forum. The panel was moderated by the director of the Land Research Trust, Fred Harrison and the senior advisor on finance and development at the South Centre, Manuel Montes.
The panelists were the CEO of the Falcon Equity Group, Holger Heims; the vice-president of the World Bank (2003-2006) and Professor of Globalisation and Development at Oxford University, Ian Goldin; senior advisor at PWC Arata and research director at the CANON Institute for Global Studies, Daisuke Kotegawa; the DOC’s research director for economics and political science, Vladimir Popov; and senior research fellow at the Observer Research Foundation, Jayshree Sengupta.
Participants discussed the causes of recent trends and possible recipes for ensuring inclusive and sustainable development. The panel addressed the following questions:
- Convergence and divergence in the global economy. Are developing countries catching up with developed countries?
- What policies should developing countries pursue for rapid catch up with richer countries?
- Is the Chinese model sustainable – both in terms of its internal dynamics and its impact on the rest of the world?
- What kind of international economic order is needed for the quick catch up of developing countries?
- What are the major drivers of income and wealth inequalities?
- What are the main driving forces behind the increase in inequality in major countries since the early 1980s?
- What are the consequences of growing inequalities within countries?
Ian Goldin presented reflections on the world’s future development and addressed various key challenges for the global economic landscape.
Vladimir Popov presented reflections on income inequalities. Income and wealth inequalities in most countries – in the West, in former communist economies, and in the developing world – have been on the rise in the last three decades but with some notable exceptions. Inequalities in the nineteenth century were much higher than before the Industrial Revolution. Following the rise of workers’ movements in the West and the 1917 Bolshevik revolution, the growth of inequalities in the previous century was reversed for over half a century up until the 1980s, as the threat of the spread of communism inspired welfarist and redistributive reforms, giving capitalism a more human face. Such checks and balances have been greatly weakened in recent decades, even though improved economic performance in many developing countries, including sub-Saharan Africa in the last decade, has contributed to some convergence of incomes between rich and poor countries.
Jayshree Sengupta reflected on policy alternatives for reducing inequalities of income and wealth, stressing policy alternatives for reducing inequality in India. In the last three decades, at the behest of the IMF and the World Bank, neo liberal pro-growth policies have been followed by many developing countries as part of structural adjustment programmes. Faster growth has been achieved by emerging market economies like India but has been accompanied by an unprecedented rise in income and wealth inequalities. In China and India, higher GDP growth has indeed led to a decrease in extreme poverty but it has also led to huge gaps in income and wealth between the rich and the poor. Globally also, while levels of absolute poverty have come down, inequalities have risen, especially with stagnating incomes of the middle classes in high income countries. Growing inequalities threaten the long term social and economic development of countries experiencing high GDP growth. Inequality destroys people’s self-worth and confidence, breeds crime, leads to various types of ill health, and can lead to terrorist activities and environmental degradation. In an interconnected world, the rise in inequality affects everyone, no matter who we are and where we come from.
Daisuke Kotegawa made a presentation on Donald Trump and the world economy. He pointed out that the victory of Donald Trump can be seen as the culmination of a series of events, such as the May 2016 presidential elections in the Philippines and Brexit in June 2016. These events were revolts against the expanding gap between the rich and the poor, a trend that is continuing, as indicated by the general election results in the United Kingdom. Trump also symbolises the necessary change of the world economy from financial capitalism to a manufacturing economy. The reason is very simple: The financial sector only helps widen the gap between the rich and the poor, while manufacturing closes it.
Holger Heims reflected on the themes of social capitalism and the digital economy, asking whether new technology could represent a powerful toolset for combatting inequality. He argued that amidst rising inequalities, governments and (new) multinational bodies should play a more active and coordinated role and consider new combinations of tightly enforced regulatory frameworks and economic incentives to limit relentless capitalism, foster domestic investment, and vigorously expand their own infrastructure to participate in the digital global economy. Heims stressed that a variety of tools can be considered, including both protectionist (to enable catch-up) and capitalist (oligopolistic, cross-border), in combination with taxation, social, and educational measures which create a defensible framework for inclusive and sustainable progress, rooted in principles of Catholic social teachings and similar ethical approaches from other denominations.
Fred Harrison presented ideas on future economic development and the possibility of a coming global economic crisis. In particular, he argued that in many countries today, substantive change is seen as essential, for at least two reasons. Firstly, stress levels imposed by dysfunctional economic conditions have become intolerable for a critical mass of people. Secondly, repetitive errors that stem from government decisions have persuaded people that there is something fundamentally defective in the methodologies employed by policymakers. Harrison presented data that forecasted the next economic crisis to come within the next eight or nine years.
Participants argued that the most well-known problems in global governance stem from imbalances in economic decision-making. These imbalances must be addressed if the catastrophic experience of the first reversal of globalisation in the 20th Century is to be avoided in the 21st Century.
Participants agreed on the need for profound reform of the world economic order and the development of a humane and values-based economic model. They recommended the following actions:
- Research and implement advanced economic development models, which engage infrastructural development, new emerging regions of economic growth, and take humane and values-based approaches into account.
- Support trade policy that promotes domestic enterprise and employment, industrial development, exchange rate management oriented towards protecting domestic economic activities and reducing instability from external shocks, and the regulation of capital flows as legitimate tools of ‘catch up development’. Facilitate these tools through concerted and cooperative national regulatory frameworks.
- Reform the prevailing global trade and tax regime that unduly privileges the international protection of intellectual property.
- Introduce a more reasonable and fairer regime of protection for intellectual property rights and technology transfers.
- Reinstate government policy tools to reduce domestic inequality, including more progressive and robust tax systems, public support for education, health, and other social services, and the protection of labour rights. Develop fair wealth taxes, which would go a long way to reducing extreme inequality.
- Check illicit financial outflows and counter tax avoidance that leads to illicit outflows of cash to offshore tax havens and Swiss banks.
- Impose a living wage or a minimum wage. Governments should establish and enforce a national minimum wage.
- End contract labour in developing and advanced countries: Companies worldwide are replacing permanent jobs that were once stable with temporary and contractual labour. These workers are denied various social benefits like paid leave, pensions, and retirement funds. Contract labour is convenient for employers as it helps cut costs but increases inequalities.
- Reintroduce the Glass-Steagall Act as an urgent priority to stop investment banks from further engaging in large-scale risks, risking the destruction of the world economy.
- Governments must take the lead in stimulating national economies, because the corporate sector, as well as households, has to reduce its assets by repaying debt to banks, which was borrowed during preceding financial bubble. Fiscal stimulus, including the construction of economic infrastructure, is essential to stimulating real demand.
- Corporate social responsibility should be defined and applied to international companies operating at the host nation level.
- Address imbalances in economic decision-making and support the activities of the G20, BRICS, ASEAN, and similar institutions. These are significant parties for a multilateral model of global economic cooperation.
- New infrastructure projects should take ecological and climate change challenges into account at the planning and construction stages in order to counter possible negative scenarios and reduce climate risks in line with the Paris Agreement.
- Use digital technologies to increase efficiency of infrastructure projects and give preference to new projects (and upgrade existing ones) with ‘smart’ layers.
- National governments and international development agencies should contribute towards a common understanding and definition of proper evaluation and measurement indexes and indicators of progress in achieving Sustainable Development Goals (SDG) at local and global levels.
- Bridge the SDG infrastructure investment gap by presenting innovative models of funding, governance, development, and maintenance, involving the full breadth of possibilities provided by the private sector and other stakeholders.
- Promote cross-border cooperation in research and development in order to bridge the inequalities gap in the economic and social development of different regions.
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