Info Service on UN Sustainable Development (Sept17/04)
20 September 2017
Third World Network
A global new deal needed to build more inclusive economies
Published in SUNS #8534 dated 19 September 2017
Geneva, 18 Sep (Kanaga Raja) - A global new deal that fosters proactive
fiscal policies, along with coordinated strategies that address the
triple challenges of large inequalities, demographic change and environmental
problems, has been advocated by the UN Conference on Trade and Development
In its flagship Trade and Development Report 2017 (TDR-2017) released
on 14 September UNCTAD has argued that a new policy agenda is needed
to help create more inclusive societies and economies.
The original New Deal, launched in the United States in the 1930s
and replicated elsewhere in the industrialized world, particularly
after the end of the Second World War, established a new development
path that focused on three broad strategic components: recovery, regulation
and redistribution, said the TDR.
It said that while these components involved specific policy goals
tailored to particular economic and political circumstances, they
made job creation, the expansion of fiscal space and the taming of
finance a common route to success along this new path.
Building a new deal today could draw on those same components; and,
as before, States require the space to tailor proactive fiscal and
other public policies to boost investment and raise living standards,
supported by regulatory and redistributive strategies that tackle
the triple challenges of large inequalities, demographic pressures
and environmental problems.
"However, the specific challenges of inequality and insecurity
in the twenty-first century will not be tackled by countries trying
to insulate themselves from global economic forces, but rather by
elevating, where appropriate, some of the elements of Roosevelt's
New Deal to a global level consistent with today's interdependent
world," said UNCTAD.
As economic historians have pointed out, Roosevelt's break with austerity
policies was initially short-lived, with a reversal in 1936; it was
fully completed only with the surge of war-related expenditures from
the end of the 1930s, the TDR noted.
In a foreword to TDR-2017, UNCTAD Secretary-General Mukhisa Kituyi
points out that in sharp contrast to the ambitions of the 2030 Agenda
for Sustainable Development, "the world economy remains unbalanced
in ways that are not only exclusionary, but also destabilizing and
dangerous for the political, social and environmental health of the
The gains of economic growth have disproportionately accrued to the
privileged few, and a combination of too much debt and too little
demand at the global level has hampered sustained expansion of the
Austerity measures adopted in the wake of the global financial crisis
nearly a decade ago have compounded this state of affairs, hitting
the world's poorest communities the hardest, leading to further polarization
and heightening people's anxieties about what the future might hold.
While some political elites have been adamant that there is no alternative,
this has proved fertile economic ground for xenophobic rhetoric, inward-looking
policies and a beggar-thy-neighbour stance.
Others have identified technology or trade as the culprits behind
exclusionary hyper-globalization, but this too distracts from an obvious
point: without significant, sustainable and coordinated efforts to
revive global demand by increasing wages and government spending,
the global economy will be condemned to continued sluggish growth,
The Trade and Development Report 2017 argues that now is the ideal
time to crowd in private investment with the help of a concerted fiscal
push - a global new deal - to get the growth engines revving again,
and at the same time help rebalance economies and societies that,
after three decades of hyper-globalization, are seriously out of kilter.
The Sustainable Development Goals (SDGs) agreed to by all members
of the United Nations two years ago provide the political impetus
for this much-needed shift towards global macroeconomic policy coordination.
The Trade and Development Report 2017 calls for more exacting and
encompassing policy measures to address global and national asymmetries
in resource mobilization, technological know-how, market power and
political influence caused by hyper-globalization that have generated
exclusionary outcomes, and will perpetuate them if no action is taken.
With the appropriate combination of resources, policies and reforms,
the international community has the tools available to galvanize the
requisite investment push needed to achieve the ambitions of the SDGs
and promote sustainable and inclusive outcomes at both global and
national levels, he said.
THE WORLD ECONOMY AND PROSPECTS
According to the report, despite renewed optimism about the prospects
for a broad-based global recovery, global growth is unlikely to rise
much beyond the average rate of 2.5 per cent recorded in the five-year
period 2011-2016. The forecast for the world economy in 2017 is 2.6
per cent, not much higher than the 2.2 percent in 2016, and the same
as in 2015.
The pick-up in performance can be attributed largely to the turnaround
in some larger developing countries that were experiencing recession,
and in the group as a whole (from 3.6 in 2016 to 4.2 per cent in 2017).
With growth in Japan, United States, and the core euro zone economies
stuck at a low level and clear signs of a slowdown in the United Kingdom,
unless there is a significant, and coordinated, break with fiscal
caution and austerity in these economies the global environment will
continue to hamper growth prospects across the developing world.
The situation in developing economies is, if anything, even more difficult
to gauge, with considerable regional and country-level variation.
The rapid recovery from the initial financial shock of 2008 has given
way to a persistent slowdown in growth.
The rate of output growth for the group declined continuously from
7.8 per cent in 2010 to 3.6 per cent in 2016, and is currently projected
to rise to 4.2 per cent in 2017.
The start of 2017 also saw some of the other larger emerging economies
move out of the recessionary conditions of the previous year, but
with little chance of growth returning to rates registered in the
first decade of the new millennium.
Two factors play a role here. The first is that while oil and commodity
prices are up from their recent troughs they are still well below
the highs they experienced during the boom years, which dampens the
recovery in commodity-exporting countries.
Second, fiscal tightening and/or enforced austerity continue to constrain
domestic demand and growth in many countries. Indeed, with advanced
economies abnegating responsibility for a coordinated expansionary
push, austerity has become the default macroeconomic policy position
in many emerging economies.
This is certainly true of those facing fiscal imbalances and mounting
debt levels, but it is also relevant in other countries pressured
by foreign, especially financial, investors.
Not surprisingly, anxious policymakers across the South are focusing
their attention on the actions of the United States Federal Reserve,
on the decisions of commodity traders and on the predatory practices
of hedge funds, with a growing realization that they have limited
control over some of the key components of their economic future.
In the absence of sustained international efforts to manage a coordinated
expansion across the global economy against a backdrop of austerity,
boom and bust is likely to remain the dominant growth pattern. Despite
some moments of guarded optimism, stable and inclusive economies will
remain elusive, said the TDR.
Whether a country has been able to grow largely based on the domestic
market or has relied on exports as the driver of growth, global conditions
are not conducive for a return to more widespread buoyancy.
Talk of technology or trade as the disruptive villains in this narrative
distracts from an obvious point: unless significant and sustainable
efforts are made to revive global demand through wage growth in a
coordinated way, the global economy will be condemned to prolonged
stagnation with intermittent pick-ups and recurrent downturns.
In a world of mobile finance and liberalized economic borders, no
country by itself can attempt a significant fiscal expansion without
risking capital flight, a currency collapse and a crisis.
What is needed therefore is a globally coordinated strategy of expansion
led by state expenditures, with intervention that guarantees some
policy space to allow all countries the opportunity of benefiting
from the expansion of their domestic and external markets.
As of now the sentiment seems to be different, with nationalist rhetoric,
protectionist arguments and a beggar- thy-neighbour outlook dominating
economic discourse. Growing inequalities feed this xenophobic turn,
which provides a convenient "other" to blame for everybody's
"Clearly, viable and equitable growth in this context will require
a fiscal stimulus, along with other elements of a regulatory and redistributive
framework, that must be coordinated across countries," said the
MOVING FROM HYPER-GLOBALISATION TO A GLOBAL NEW DEAL
There are, undoubtedly, reasons to worry about the current health
of the global economy, and about emerging threats to rising living
standards, political stability and environmental sustainability.
Questions over the strength and effectiveness of multilateral institutions
designed to help manage the challenges of an interdependent world
order are also of concern.
Much of the current discussion assumes that these institutions were
immaculately conceived at the end of the Second World War, and that,
subsequently, they have overseen a steady march towards a level global
playing field of open and competitive markets and broadly shared prosperity.
The reality, however, is more punctuated and nuanced.
The three decades or so after, the Second World War ushered in multilateral
rules and structures to prevent "beggar-thy-neighbour" policies,
restrain volatile capital flows and extend international cooperation.
But there was still enough space for national governments to undertake
proactive public policies in support of full employment and extended
welfare provision in the North, and resource mobilization and industrialization
in the South.
This balancing act was built around a political consensus (and related
compromises) aimed at avoiding a repeat of the international economic
disintegration of the 1930s, and the waste, wretchedness and war that
That consensus required the leading economies (and their corporations)
to accept some constraints on their ability to dominate international
markets and to move capital freely from location to location, whilst
giving a privileged role to the dollar as a means of stabilizing foreign
But it also supported high rates of aggregate capital formation along
with wages that rose broadly in line with productivity in the developed
countries. These generated strong global aggregate demand, leading
to a rapid rise in international trade. Nevertheless, this remained
only a partial globalization, in that the rules and structures were
designed primarily by and for developed rather than developing countries,
and was concerned more with openness to trade than to financial flows
or transfers of technology.
These arrangements buckled under a series of distributional pressures
and economic shocks in the 1970s, giving way to hyper-globalization
from the early 1980s. It was characterized by an extensive deregulation
of markets - particularly financial and currency markets - in rich
and poor countries alike, the attrition of the public realm, and the
extension of profit-making opportunities to ever-widening spheres
of not only economic, but also social, cultural and political life.
The associated withdrawal of public oversight and management of the
economy included the curtailment, and sometimes even the elimination,
of policy measures previously used by States to manage their integration
into the global economy. This was based on the belief that the unregulated
forces of supply and demand were best suited to this task, said the
New patterns and players in international trade emerged along with
a surge in international capital flows and significant shifts in the
international division of labour.
Hyper-globalization has also been accompanied by a radical break in
the governance of the post-war international framework, whereby "bodies
once designed to foster sovereignty are now recast to curtail it".
Meanwhile, there has been a proliferation of more informal cross-border
governance arrangements built around corporate networks and public-private
Expansionary monetary policies have become the principal instrument
of macroeconomic management, even as tight fiscal policies have constrained
expansion. And the goal of financial stability has taken a back seat
to the promotion of "financialization", enabling financial
markets, financial motives, financial institutions and financial elites
to assume the upper hand in the operation of the economy and its governing
institutions, at both national and international levels.
Together these pressures have steadily eroded the checks and balances
that had previously helped channel market forces into the creative
and productive activities needed for long-term growth. Capital formation
has stagnated, speculative investments (by banks, businesses and households)
have proliferated, and rising levels of private debt have replaced
rising wages as the binding agent in increasingly insecure and fragile
Even as many economists were anticipating a prolonged period of economic
stability and income convergence, hyper-globalization entered its
own dammerung (twilight) with the financial crisis of 2008-2009, causing
deep and long-lasting damage in the developed economies and a delayed,
but now evident, slowdown in developing economies.
According to UNCTAD, the crisis was linked to rising economic inequalities
both as a cause and an effect, and those inequalities were further
accentuated by the policies adopted after the crisis. This trend has
become a growing concern for policymakers seeking to promote hyper-globalization
to an increasingly sceptical public.
There is now a greater willingness, says TDR, to acknowledge that
inequality may be an obstacle to growth, that it can pose a serious
political threat to more open societies, and that current levels of
inequality are morally unacceptable. However, the challenge of forging
a more inclusive agenda is compounded by difficulties in measuring
Beyond some basic indicators of extreme deprivation, measuring poverty
has never been straightforward; it is subject to changing social attitudes
and political sentiments. Moreover, poverty data quickly become embroiled
in a whole range of contentious issues that divide supporters and
critics of hyper-globalization; for example, is it "the market"
or the Chinese State that deserves the most applause for lifting more
than a billion people out of extreme poverty?
The TDR said even as inequality has emerged as a primary political
concern, the international community has lacked a convincing narrative
linking distributional issues to the challenges of growth and development;
instead, it has been focusing on the failure of national policymakers
to adapt to the borderless forces of economic progress.
The current discussion continues a debate that began in the early
1990s, on whether it is increased North-South trade or technological
change that is the principal source of economic disruption in the
The impact of technological change is usually traced to relative price
movements, the factor content of production and elasticities of substitution,
with a bias towards new technologies (particularly information and
communication technologies, or ICTs) that give skilled labour a wage
premium over unskilled labour, thereby skewing income distribution.
This argument seems to offer a more palatable explanation than trade
shocks, given the ubiquitous reach of technological change and its
reported growth impulses (traditionally measured through the large
residual in growth accounting exercises). It also lends itself to
an easy policy agenda that targets education as the surest way to
achieve more inclusive growth.
The "trade versus technology" discussion has served to highlight
the critical role of employment in fostering inclusive economies,
particularly given that a growing number of households are increasingly
worried that the kind of stable, well-paid jobs needed to secure a
middle-class lifestyle have already been hollowed out in the developed
economies, and are also increasingly out of reach for an aspiring
middle class in many emerging economies.
"However, the evidence linking greater inequality to either trade
or technology remains inconclusive, in part because the scale of changes
in both these areas over the past two decades does not directly match
the pattern of job destruction in the manufacturing sector."
The TDR further argues that the workings of the global economy and
of individual national economies are closely tied to the cumulative
sources of market power augmented through specific policy measures,
including those that have helped to boost profits at the expense of
This has given rise to unstable growth regimes, driven by rising levels
of debt, and it reinforces the point that hyper-globalization has
become intimately connected to the financialization of economic activity
and to concomitant increases in income inequality within and across
Since the financial crisis of 2008-2009, researchers have paid growing
attention to these links between polarization and instability, in
part because inequality is increasingly considered a factor that contributed
to that crisis.
Thomas Piketty's Capital has become the leading opus in this emerging
canon, and, despite its methodological shortcomings, it has refocused
the inequality debate from the bottom of the income ladder (extreme
poverty) to the top 1 per cent. This, in turn, has drawn attention
to systemic economic causes of rising inequality.
Moreover, by bringing wealth back into the discussion, Piketty has
revived Adam Smith's political economy aphorism (borrowed from Thomas
Hobbes) that wealth is power, and - by implication - that an increasingly
unequal distribution of wealth is likely to skew political power,
and with it, policy design in favour of those at the top of the income
The TDR also said two big trends characterize the era of hyper-globalization:
a massive explosion in public and private debt, and the rise of super-elites
loosely defined as the top 1 per cent of income earners. These trends
are associated with the widening gap in ownership of financial assets,
particularly short-term financial instruments, and the related growth
of financial activities that, as James Tobin (1984) noted long ago,
"generate high private rewards disproportionate to their social
"This is a world where rent extraction has become a much more
pervasive source of income inequality," said the TDR.
The TDR noted that less attention has been given to the ways in which
non-financial corporations have become adept at using rent-seeking
strategies to bolster their profits. Indeed, financial incomes constitute
only one part of rents in this broad definition.
It said a significant proportion of rents has also accrued through
monopolies or quasi-monopolies created by intellectual property rights
(IPRs), while still others can be described as "political rents"
derived from the ability to influence particular aspects and details
of government policies in ways that disproportionately favour certain
Recent evidence of rising market concentration across several sectors,
both at the national and international levels, has revived interest
in the links between market power, rent-seeking and income inequality.
Market concentration and rent extraction can feed off one another,
resulting in a "winner-takes-most competition" that has
become a visible part of the corporate environment, at least in some
The TDR highlighted three evident sources of exclusion: (i) the automation
of production, in particular robotization, and the threat of this
causing a "hollowing out" of the human workforce; (ii) the
segmentation of labour markets, in particular in terms of the gender
dimension, which threatens to engender a "race to the bottom";
and (iii) corporate strategies to concentrate control over markets,
particularly by non-financial corporations, combined with growing
Each presents its own distinct challenges to policymakers, in both
developed and developing countries, who seek more inclusive outcomes.
However, they are all interconnected through the deregulation of markets
and a tighter control of assets, along with asymmetries in market
power as a potent source of growing inequality.
"From all this, it is clear that moving away from hyper-globalization
to inclusive economies cannot be a matter of simply boosting human
capital, filling information gaps, honing incentives, ensuring better
provision of public goods - particularly education - extending credit
to the poor and providing stronger protection to consumers."
Rather, said the TDR, it demands a more exacting and encompassing
agenda, which addresses the global and national asymmetries in resource
mobilization, technological know-how, market power and political influence
that are associated with hyper-globalization, and which generate and
perpetuate exclusionary outcomes.
Such an approach would bolster the SDG (UN Sustainable Development
Goals) agenda of tackling income inequality, both within and across
countries, with a strong narrative around which effective policy measures
could be designed, combined and implemented.
Today, no less than 50 years ago, achieving prosperity for all in
an interdependent world must still involve paying close attention
to the biases, asymmetries and deficits in global governance that
can stymie inclusive and sustainable outcomes.
With this in mind, a possible narrative around which an alternative
inclusiveness agenda might be fashioned is a "global new deal",
The original New Deal, launched in the United States in the 1930s
and replicated elsewhere in the industrialized world, particularly
after the end of the Second World War, established a new development
path with three broad strategic components: recovery, redistribution
and regulation. While these components gave rise to specific policy
goals tailored to particular economic and political circumstances,
they made the taming of finance a common route to success along this
Franklin D. Roosevelt, in his 1944 address to the United States Congress,
belatedly added another ambitious set of economic rights as a final
component to achieving a secure and prosperous post-war United States.
These included: the right to a useful and remunerative job, the right
to economic security at all stages of life, the right to fair competition,
the right to a decent home, adequate medical care, good health and
a good education.
The shift from partial globalization to hyper-globalization has failed
to bring about a more stable, secure and inclusive international order;
and the lead role, ceded to unregulated financial markets, appears
to be particularly ill-suited to delivering the SDGs. Just how an
agenda built around recovery, regulation, redistribution and rights
takes shape will depend, again, on local circumstances, and policymakers
will need to ensure that they have the requisite policy space.
However, the specific challenges of inequality and insecurity in the
twenty-first century will not be tackled by countries trying to insulate
themselves from global economic forces, but rather by elevating the
elements of the original New Deal to a global level consistent with
today's interdependent world.
POSSIBLE ELEMENTS OF A GLOBAL NEW DEAL
According to the TDR, just as in the past, today's global new deal
will have to face the challenge of reclaiming and renewing the public
sphere in ways that offer an alternative to the short-term, predatory
and, at times, destructive behaviour of deregulated markets that is
increasingly provoking a popular backlash.
Achieving this will require a more proactive State, but it will also
mean empowering non-State actors to better mobilize and direct productive
resources, and to establish levels of cooperation and coordination
to match the ambition required.
According to the TDR, some possible elements of a global new deal
* Ending austerity: This is a basic prerequisite for building sustainable
and inclusive economies. It involves using fiscal policy to manage
demand conditions, and making full employment a central policy goal.
Monetary expansion should also be used differently, so as to finance
public investments which add to inclusive and sustainable outcomes.
As part of a general expansion of government spending that covers
physical and social infrastructure, the state can act as an "employer
of last resort"; specific public employment schemes can be very
effective in job creation, especially in low-income countries, where
much of the workforce is in informal and self-employed activities.
Both public infrastructure investments and employment schemes are
important for reducing regional imbalances that have arisen in developed
and developing countries.
* Enhancing public investment with a strong caring dimension: This
would include major public works programmes for mitigating and adapting
to climate change and promoting the technological opportunities offered
by the Paris Climate Agreement, as well as addressing problems of
pollution and degradation of nature more generally. It also means
dealing with demographic and social changes that erode local communities
and extended families by making formal public provision of child care
and elderly care a necessity. In both respects, public investments
should be designed to enable and attract more private investment,
including SMEs and in more participatory ownership forms such as cooperatives.
* Raising government revenue: This is key to financing a global new
deal. A greater reliance on progressive taxes, including on property
and other forms of rent income, could help address income inequalities.
Reversing the decline in corporate tax rates should also be considered
but this may be less important than tackling tax exemptions and loopholes
and the corporate abuse of subsidies, including those used to attract
or retain foreign investment.
* Establishing a new global financial register: Clamping down on the
use of tax havens by firms and high-wealth individuals will require
legislative action at both national and international levels. Interim
efforts in this direction could include a global financial register,
recording the owners of financial assets throughout the world.
* A stronger voice for organized labour: Wages need to rise in line
with productivity. This is best achieved by giving a strong voice
to organized labour. At the same time, job insecurity also needs to
be corrected through appropriate legislative action (including on
informal work contracts) and active labour market measures. More innovative
supplementary income support schemes could be considered for achieving
a fairer income distribution, such as a social fund that could be
capitalized through shares issued by the largest corporations and
* Taming financial capital: Crowding in private investment requires
taming financial institutions to make them serve the broader social
good. In addition to appropriate regulation of the financial sector,
it is important to tackle private banking behemoths, including through
international oversight and regulation, as well as to address the
highly concentrated market for credit rating and the cosy relationship
between rating agencies and the shadow banking institutions that have
allowed "toxic" financial products to flourish.
* Significantly increasing multilateral financial resources: This
should include meeting ODA targets, but also ensuring better capitalized
multilateral and regional development banks. In addition, the institutional
gap in sovereign debt restructuring needs to be filled at the multilateral
* Reining in corporate rentierism: Measures aimed at curtailing restrictive
business practices need to be strengthened considerably if corporate
rentierism is to be reined in. The 2013 OECD BEPS (base erosion and
profit shifting) initiative is a start, but a more inclusive international
mechanism for the regulation of restrictive business practices will
be needed. Earlier attempts in the United Nations, dating back to
the 1980s, would be a good place to begin. Meanwhile, stricter enforcement
of existing national disclosure and reporting requirements for large
corporations would be useful. A global competition observatory could
facilitate the task of systematic information gathering on the large
variety of existing regulatory frameworks, as a first step towards
coordinated international best practice guidelines and policies, and
to monitor global market concentration trends and patterns. Competition
policy more generally should be designed with an explicit distributional
* Respecting policy space: Meaningful reform of the many restrictive
investment and intellectual property policies enshrined in thousands
of bilateral - and the growing number of regional - trade and investment
agreements, will be impossible without a fundamental overhaul of the
current international investment regime. This should begin with rethinking
its current narrow purpose of protecting foreign investors in favour
of a more balanced approach that takes the interests of all stakeholders
on board and recognizes the right to regulate at the national level.
The international investment dispute settlement and arbitration system
needs to be fixed, and if necessary, replaced by a more centralized
system with proper appeal procedures and grounded in international
law. An Advisory Centre on International Investment Law could help
developing country governments navigate disputes with multinational
corporations on more egalitarian terms.