TWN Info Service on Finance and Development (Sept17/02)
21 September 2017
Third World Network

United Nations: Need for a global new deal that is anti-austerity
Published in SUNS #8533 dated 18 September 2017

Geneva, 15 Sep (Kanaga Raja) - There is need for a "global new deal" that is anti-austerity and puts reflation, full employment and decent jobs ahead of tackling inflation and government debt, a senior official at the UN Conference on Trade and Development (UNCTAD) has said.

Speaking at a media briefing on 11 September ahead of the launch of UNCTAD's Trade and Development Report (TDR) 2017 on 14 September, Richard Kozul-Wright, Director of the UNCTAD Division on Globalization and Development Strategies, said that there are plenty of alternatives out there (to the neo-liberal agenda) and they are urgently needed given the kinds of economic and social imbalances that is currently being faced.

This year's Trade and Development Report has called for a twenty-first century make-over through a global new deal, ending austerity, clamping down on corporate rent-seeking, and harnessing finance to support job creation and infrastructure investment being key to such a make-over (an article on the main themes highlighted by the TDR will appear in a future issue of SUNS).

At the media briefing, Kozul-Wright highlighted the frustration with the traditional view of looking at the challenges around globalisation as a trade versus technology debate.

"And we (UNCTAD) just do not think that those get to the real systemic challenges that the kind of globalisation that we have been facing now for thirty years really addresses. And issues of a more macro-economic nature and in particular issues of economic power need to be seriously addressed if we are going to achieve the more inclusive and sustainable growth path that everyone claims is the objective of policymaking in the twenty-first century."

Referring to the chapter in the TDR on the impact of robotics on developing countries, Kozul-Wright said that "we basically argue that the kind of anxiety and paranoia that has been promoted by the press in recent years" is certainly overdone in the case of most developing countries.

That is not to say that there are not problems with automation and robotics, but those are problems that are derived from the combination of automation and slow growth and austerity, he said, adding that "we are not technophobes".

"We believe that new technologies offer real opportunities including for the South but if you combine these technologies with slow growth, premature de-industrialisation and austerity tendencies, then there are grounds to be anxious," he emphasised.

"We don't see a threat yet from robotics in poorer countries which have a weak industrial base and where the sectors that they are concentrating in are sectors like textiles and low-skill industries that are not likely to be knocked out by robotic technology in the near future," Kozul-Wright noted.

Essentially, at the end of the day, most technology - and it will be true of robotics - is embodied technology and for it to spread and to make a positive contribution socially and economically, it must go along with high rates of capital formation.

"You need to invest to put theses machines in place. And the problem right now, certainly in the North and in many developing countries, is not a problem of technology and robotics per se, it's a problem of a shortage of investment."

"And that problem has to be solved and it can only be solved - we argue in this report - by changing the macro-economic policy stance in both North and South away from a fixation with inflation and austerity and towards a much more expansionary macro-economic policy that addresses the shortages of aggregate demand, which we continue to emphasise, is the main constraint on faster growth in the global economy in general and in individual countries in particular," Kozul-Wright said.

A lot of these problems of a more macro-economic nature about the nature of globalisation stem not from so much on the trade side of the globalisation story as on the finance side of the story.

"What we call hyper-globalisation is a form of globalisation that has been dominated by un-regulated financial flows of one kind or another," he said.

"We don't really appreciate the discussion that we need to defend globalisation or we need to defend multilateralism because it is not a very precise way of understanding the kind of global arrangements that have emerged over the course of the last three decades, which are not the same as the kind of globalisation that emerged in the first two-and-a-half, three decades after the end of the second world war."

It is a different kind of globalisation that is being experienced now and that is largely because finance dominates the contemporary globalisation world in a way that we think produces the kinds of imbalances and policy problems that has been talked about in the TDR.

"One of the things I think we have been innovative in highlighting in the TDR is the way in which that kind of financialised globalisation tends to generate a highly unequal global economy. It leads to serious internal distributional problems," said the UNCTAD official.

The hollowing out of the middle class and the rise of the super one percent have gone hand in hand with a much more fragile set of economic arrangements that are subject to shocks and crises of one kind or another - shocks and crises that tend to exaggerate the existing inequalities in society.

"We are now in a world of vicious circles in which un-regulated finance, growing inequality, financial and economic crises of one kind or another have become self-reinforcing."

Kozul-Wright also referred to the Financial Stability Board (FSB) and its chairman Mark Carney (in presenting the last report from the FSB) essentially saying problem solved - that the financial system now is safer, securer and fairer.

According to Kozul-Wright, they are pointing the finger at China because they see structured investment vehicles and high levels of private debt that they think will lead to crisis in China.

They blame China to some extent for not really undertaking what they see as the necessary regulations to bring about a more stable financial system in that country.

"It is not a position that I would necessarily agree with," he said. What he and the TDR do not agree with is the belief that the financial system in the advanced economies have solved the problem of stability and fairness.

Kozul-Wright said one of the reasons for that is while the FSB fixated on the big banks, a lot of the contemporary financial system has drifted into the shadow banking system which is largely un-regulated and has not been subject to the same scrutiny that the FSB has applied to the banking system.

He said it is true in most countries that big banks are bigger today than they were in 2006 and 2007. They might be slightly better capitalised and slightly more liquid in terms of the assets that go into that capitalisation, but they are much bigger and more powerful institutions than they were in 2007, and they are already pushing back against Dodd-Frank (regulatory reform legislation instituted in the United States) and other financial initiatives that have been pursued since the crisis.

In this context, he highlighted the issue of economic power: financialisation has focused attention on the power of financial institutions to manipulate and rig markets in one way or another.

"What we wanted to do in this report, beacuse we think it is often neglected, is not to focus as much on financial firms and the financial sector but on non-financial firms and the corporate sector where we think rent-seeking has become rife as a strategy for enhancing profits."

In the context of rent-seeking behaviour in the corporate sector, he highlighted the use of intellectual property rights, often fictitious intellectual property rights, or "what Donald Trump might call fake intellectual property rights, as a tool, not for innovation, but as a tool for excess profit-making."

Kozul-Wright said whilst we are all fully behind the Sustainable Development Goals (SDGs), unless these issues are tackled seriously, then it will be very difficult to meet the goals on inclusiveness and structural transformation.

He also highlighted the need for political will, vision, and a serious amount of dedicated policy effort and finance to achieve these kinds of goals.

"We need a global new deal. We need a deal that is anti-austerity, that puts reflation and full employment and decent jobs before tackling inflation and government debt. It needs a serious regulation of abuse in both the financial and corporate sector. And it requires serious re-distributional measures both fiscal and more innovative measures."

He said that most people are beginning to recognise that hyper-globalisation is beginning, in a very serious way, to haemorrhage trust in the political system because most people believe that the political system is now serving a much narrower economic and social interest groups than it should be, and that is reflected in recent political events.

Asked how he would see the world moving away from austerity to a global new deal, Kozul-Wright said that "one would like to think that given the kinds of problems that we do identify, there would be an outpouring of rational kind of thought and action, but that's obviously not going to happen."

It will be interesting to see in the case of the United States where the Democratic Party has begun to move towards a platform that has elements of this (moving away from austerity) in it, how that would evolve moving forward.

At this point in time, it is more likely to come from countries like the United States than it is to come from mainland Europe. Mainland Europe at this moment in its history, seems to be extremely resistant to this kind of agenda.

He suggested that "maybe it's because the Anglo-Saxon world is being subject to this kind of stuff for much longer that you're actually seeing this kind of backlash already in the Anglo-Saxon world more than you're seeing it in mainland Europe, for example."

Kozul-Wright said that the developing countries are already thinking about these issues. They are worried, for example, about the growing influence of corporate power in shaping their economies.

They would like to see stronger competition policy and they can try to do that at the national level.

Hopefully by pointing out these problems, developing countries too can begin to think about the kind of multilateral framework that they would like to see moving forward.

"We are in this moment where the advanced economies are abandoning the multilateral framework and developing countries are emerging as its defenders. I don't want the developing world to be defending the kind of multilateral structures we have now in place because I think they are part of the problem," said Kozul-Wright.

What he would like to see the developing countries do is given the kinds of problems they face, to think hard about the limits and weaknesses of the current multilateral system and to begin to articulate ideas of a global competition authority, which is an idea that UNCTAD has raised a couple of times in the past TDRs.

"That is something that we would like developing countries to get behind. The old chestnut of an international sovereign debt workout mechanism, which UNCTAD has raised endlessly, is being a gaping hole in the international financial system, [and] needs to come back on the agenda and we hope the developing countries will begin to rally around that."

Kozul-Wright was asked if he saw inequality as the biggest threat right now and are there any lessons learned after the 2008 crisis.

He was also asked to comment on UNCTAD Secretary-General Dr Mukhisa Kituyi's travels with Alibaba Group founder and executive chairman Jack Ma (who is also Special Advisor to UNCTAD for Youth Entrepreneurship and Small Business and he had visited Nairobi and Kigali in July). Is there a sort of a disconnect with what he is supposed to do and what he is not doing?

On the issue of inequality, Kozul-Wright said that it is a growing problem in the North and the South.

"I think what the report is trying to do is to highlight features that we see have been neglected in that discussion rather than to just rehash on inequality as a problem. It is looking at the macro-economic factors behind inequality. It is looking at issues of market power and how those feed into the inequality story."

"It is not just to say inequality is bad and we need to tackle it. We need to go beyond that discussion as I think we need to go beyond the discussion of trade versus technology as being the ingredients of inequality."

Kozul-Wright said that governments still have a lot of room at the national level to address issues of inequality and there are things that can be done at the national level, and "we need to insist upon this as part of any sort of inclusive and sustainable growth process."

But, he said, you need to recognise the sources of that inequality before you come up with the solutions and too much of the "inclusiveness" debate doesn't really get to the heart of the issue on inequality.

Kozul-Wright said that market power and the emergence of new corporations from the South like Alibaba is an interesting feature of the contemporary global economy that you are getting the emergence of large players from the South and what that means for developing countries is a complicated question.

"We want to see more successful firms from the South ... and that's what UNCTAD was set up to do."

The asymmetry between the North and South is reflected in the production sphere where big firms from the North still dominate the most profitable sectors.

"But we have seen this emergence of firms from the South. That per se is something we welcome."

He however said that big firms in the South can cause problems in the South as well, "so the need to regulate big firms from the South should be part of the Southern agenda too - a Southern inclusive development agenda."

"Whether that's inconsistent or not with having Jack Ma as an advisor, I don't think its inconsistent as long as Ma himself recognises there is an important role for government regulation in sectors like e-commerce and the digital economy, and there is no reason that he should resist that per se, at least if he is development-friendly."

"Because we insist that inclusive sustainable development cannot be left to market forces. That's an UNCTAD position," Kozul-Wright underlined, adding that having big firms from the South is not inconsistent with having big governments that regulate.

He noted that the Chinese government is a big government that regulates.

In response to the question about the UNCTAD SG and Alibaba, Kozul-Wright said "so I think it's a question of where your emphasis falls, probably. I can't speak for the SG, but I don't necessarily see an inconsistency as long as we know what it is we are trying to get at here."

Kozul-Wright further indicated that it's a Group B (developed countries) agenda.

Asked about the capture of democratic processes and power by big corporations, for example, in India today, Kozul-Wright pointed to what Chicago economist Zingales has called the "Medici complex" - the idea that economic entities as they grow will capture the political process and then use the political process to reinforce their dominant economic position.

He said that this is something that UNCTAD recognises in this report and warns about. He noted that the originator of this idea is essentially Adam Smith, who warned about economic power grabbing political power and reinforcing economic power.

"It is a worry that goes back to Adam Smith and it's certainly a worry that is central to the message in this report," he said.