Global inequality, household indebtedness, insufficient investment and stagnant economic recovery are the consequences of the dominance of large financial and corporate bodies in shaping globalization says lead author of 2017 Trade & Development Report, Richard Kozul- Wright, UNCTAD chief economist
October 24, 2017 Produced by Lynn Fries
Lynn Fries: Welcome to The Real News. I’m Lynn Fries reporting from the UN Geneva on the 2017 launch of UNCTAD’s flagship report, The Trade and Development Report as its main author, Richard Kozul-Wright, is given the floor at the UNCTAD Trade and Development Board meeting. Here is a clip of that meeting.
Richard Kozul-Wright: Finance – not trade, not technology – has been the dominant force shaping the trajectory of the global economy over the last 30 years. It would be nice to have a kind of killer diagram that would kind of summarize our position in one chart. I have not found that killer diagram.
We have 3 diagrams that speak to what we think are the problems with the hyperglobalized world – the problems of growing inequality, the problems of indebtedness, the problems of insufficient investment and the problems of increasing insecurity. We think those are 4 common features that one finds across developed and developing countries in the world that has become hyperglobalized. And to some extent these three charts, and again in the case for the United States, are an attempt to capture those kinds of dynamics.
The first chart on my left hand side is an indication of the widening gap between productivity – which is the blue line in this chart, hourly productivity in this case – and wages or compensation. The red line is hourly compensation. And in the case of the United States that divergence between what people are making and what people are being paid to make stuff has been rising considerably over the last four to five decades. But quite dramatically over the last 3 decades as real wages have essentially stagnated, in this case in the United States.
The middle graph, the orange line here is private capital formation. One of the arguments for financializing the world was this would be good for investors, good for investment. And of course it has been very good for paper investors, people who make their money out of rising asset prices. It has not been good for people who are investing long term in people and equipment and machinery which is essentially the yellow trend in the middle chart which has been declining systematically over the period of hyperglobalization. At the same time, the debt and particularly in this case household debt has been rising at a tremendous rate in the period of hyperglobalization. So it has not been good for investment and it has forced people into a level of indebtedness that we think is a source of serious instability.
And finally it is a world that doesn’t really recover very successfully when problems occur. The final graph in this triplet is the recovery from 3 crises. The blue line is the recovery from the Great Depression, the green line is the recovery under Ronald Reagan from the post 1979, 1980 crisis and the red line is the recent recovery in the United States. And it has been tepid at best. And it certainly does not compare with the Reagan recovery, let alone the recovery in the 1930s.
And this is the same graph for the United Kingdom. I apologize that was a bias of my report. Similar kind of…. you see similar trends. There are differences across countries, of course, the historical and policy differences. But the broad trends are surprisingly similar across the advanced world in terms of rising inequality, falling investment and rising debt particularly household debt, and slow recovery from crisis
So that’s our understanding of a hyperglobalized world and the problems that policy makers should be addressing if they are going to try and build more inclusive and sustainable economies.
Lynn Fries: Joining us now to discuss this is Richard Kozul-Wright, Director of the Division on Globalization and Development Strategies here at UNCTAD. Welcome Richard.
Richard Kozul Wright: A pleasure to be here.
Lynn Fries: A major event in the 2017 launch of the Trade and Development Report is the presentation of the TDR to the UNCTAD Trade and Development Board. Give us some context on that.
Richard Kozul-Wright: Obviously our immediate audience for The Trade and Development Report is the members of UNCTAD itself. And UNCTAD is a universal body so it has full membership of both developed and developing countries. So the report is presented to the full membership at our Trade and Development Board each year. So they are first consumers of the ideas in this report. The Trade and Development Report is now 35 years old.
Lynn Fries: In the current debate over what is at the source behind the problems like rising inequality in today’s globalized world, you do not point the finger at trade or technology, the usual suspects. Comment on that and more broadly on what differentiates the direction of your report from that of most other international institutions.
Richard Kozul-Wright: Well I think we are really taking the debate away from what we see as a slightly sterile polarization between trade and technology as the sources of inclusiveness, precariousness, insecurity. And saying, look, the way in which markets are being structured now by large financial and corporate bodies is at the source of this polarization and insecurity. And these very large private institutions have begun in fairly dramatic ways to corrupt the public sector. That’s true both of the public sector at the national level and the public sphere at the international level. And so we need to find ways of mitigating that economic power without one hopes damaging the benefits that come with scale. Because there are advantages of having large big innovative firms that can undertake research and development and innovation. But if they become a law unto themselves rather than a law subject to wider democratic will and representation, then that is where the problem lies.
So we have to…getting back to the underlying systemic causes of why people have become disillusioned with the current state of affairs, it’s not about trade. People are not disillusioned with trade. They know trade brings benefits as well costs. They are not disillusioned with technology. They know that technology has been transformative even as it has brought challenges to them. What they are disillusioned about is the way in which political representation has been corrupted by economic power. That is what really disillusions ….this is what people are finding increasingly difficult to deal with. And they do not trust the people that claim to be representing them. And that is true at the international level of course as well as the national level. So the report, I think the real meat of the report is to get down to the systemic forces that are channeling economic power into political power and in the process reinforcing the economic power that is increasingly behind this polarized and fragmented and increasingly distant system that people are experiencing.
Lynn Fries: Explain what you mean by a hyperglobalized world. And why you see the deadweight of austerity, as you put it, as essentially the default macroeconomic policy of a hyperglobalized world.
Richard Kozul-Wright: For us the hyperglobalized world is a world in which finance has essentially gained the upper hand in policy making. Finance has essentially followed the idea that government is not the solution. Government is the problem. And so deregulation, privatization, liberalization have been the overarching policy mantra of the hyperglobalized world. And in that world when things go wrong, as they inevitably do, the macroeconomic response is always to cut – to cut government expenditure, to cut social services of one kind or another, to clamp down on wages even when the source of the problem is not spending of that nature. Cutting spending always becomes the default policy solution. And we have seen that again since the 2008-2009 crisis particularly in the advanced economies. And it has not worked. Inequality has continued to rise. Growth and the recovery have been historically slow. These are the slowest recoveries from an economic crisis that we have seen in the modern era. And finance has been able to resist any sort of serious attempt to rein in its influence. There have been attempts in the Basel discussions in the Financial Stability Board etcetera. So there has been an attempt but it’s been weak and it’s already being rolled back. So austerity is this kind of broad policy brush against which business as usual – the kind of predictable neoliberal policy agenda has been able to survive even as its impact has been shown to have been negative and destructive.
Lynn Fries: Comment on the outlook as you see it for moving beyond austerity towards the kind of Global New Deal you outline in the TDR.
Richard Kozul-Wright: You have to change the narrative. Obviously we are 30 odd years into a narrative about the world economy and related policy challenges that have been driven by the neoliberal agenda. That agenda has been challenged in recent years. I mean the financial crisis being the most obvious challenge to that but also the weakness of the post-crisis recovery. All pose a big challenge to this dominant narrative. But you can only move forward of course if you have an alternative narrative. And it is the job, I think, of an institution like UNCTAD and The Trade and Development Report to try and fashion an alternative narrative. And that is what the report does speaking primarily to policy makers at the national level of course. Because that is …they are the policy makers that can actually enact the changes. So the aim of the report is very much to change the narrative – that there are alternatives to neoliberalism both alternatives that we see today and also drawing on historical lessons. In this report, we hark back to New Deal, the 1930s effort in the United States to refashion the relationship between the economy, society and its citizens. Because we feel many of the imbalances and challenges of the 1930s have their analogue in imbalances and challenges today. And if it was done before in the 1930s why can’t it be done again today. And that is where the report kicks off from.
Obviously a Global New Deal is not going to take place overnight. It is not something that one can wave a magic wand and shift 35 years of neoliberalism into a different direction. That is clearly not going to happen. But the kinds of pressures and tensions that we are describing in the global economy we think are forcing policy makers, often against their wishes, to think differently from the last 35 to 40 years. And it is to play on those concerns and those opportunities I think UNCTAD as an institution needs to do more of.
I think the important thing is not simply to focus on immediate political shocks – Trump or Brexit. I mean this is a problem that has been decades in the making. It is not something that has suddenly emerged in 2016 as a series of problems. The negative impact of austerity has been felt in developing countries beginning in the early 1980s. It was there in the debt crisis in Latin America and Sub-Saharan Africa. It resurfaced again after the Asian crisis in 1997. Austerity has a much longer history than the last few years. And looking at all those experiences I think we can comfortably say that it has not delivered on the promises that it claimed it would make which is to make a healthier and more dynamic and more productive economy. And so I think the – there is no alternative – which is a phrase that was hatched by Margaret Thatcher in the early 1980s has outlived its relevance in terms of the kinds of challenges – the problems of inequality, of instability, indebtedness, insecurity – that policy makers are grappling with today
There isn’t an international governance system separately from the nation states that make up that system. And therefore you have to be talking, you have to persuade nation states that they need to change if the international governance system is going to change. That’s clear. So you are pitching an argument not at some airy fairy level about the independence of multilateralism. It’s how can governments… what do national level governments particularly the systemically important governments have to do to change the system in a way that we can begin to see improvements in the area that we are outlining in the report.
Pressure is building up to try alternatives. I think that is clear. One can see that in efforts in the United Kingdom… in the recent election. One can see it in the efforts of the European Commission to clamp down on monopoly power of leading IT companies, of tax evasion efforts that you see in the OECD, in the EU. There are efforts to address some of the kinds of abuses of power that we highlight in this TDR. Obviously, this has yet to amount to a concerted move away from neoliberalism. It is still picking at the edges but it is a mood shift. And I think it is the job of a report like the TDR to build on that change of sentiment and to offer a bolder vision about how these individual or isolated efforts to deal with the consequences of neoliberalism can be woven into a larger narrative and a broader set of policy initiatives which if implemented in a more concerted manner can provide the necessary policy alternative to deliver the inclusive and sustainable outcomes that governments have expressed their desire to achieve through the Sustainable Development Goals and other platforms.
Lynn Fries: Richard Kozul-Wright, thank you.
Richard Kozul-Wright: Thank you
Lynn Fries: And thank you for joining us on The Real News Network.
Richard Kozul-Wright, Director of the Division on Globalization and Development Strategies at the United Nations Conference on Trade and Development, is the author of Transforming Economies: Making Industrial Policy Work for Growth, Jobs and Development.
Originally published at TRNN