Info Service on Finance and Development (Feb18/02)
5 February 2018
Third World Network
A Global New Deal needed to rebalance globalization
Published in SUNS #8611 dated 31 January 2018
Geneva, 30 Jan (Kanaga Raja) - Rebalancing globalization and exiting
this age of anxiety needs a profound change in the thinking and policy
mix that caused these problems in the first place: it needs a Global
New Deal, the UN Conference on Trade and Development (UNCTAD) has
In its Policy Brief No. 63, UNCTAD has suggested an inter-related
set of policies that it says will be needed to address the problems
of hyper-globalization and help build more inclusive, stable and sustainable
According to UNCTAD, the broad aim is to catalyse a big transformative
push by breaking with austerity economics, promoting public investment
and crowding-in productive private investment, and levelling the playing
field for working families everywhere.
While the appropriate mixture of recovery, regulation and redistribution
will vary across countries (and with policy experimentalism of particular
importance in the developing world), all policymakers can still usefully
recall the original New Deal of the 1930s, but they must further translate
its message to the global level to leverage the opportunities of today's
UNCTAD noted that in many countries, governments are currently grasping
for a "quick fix" to the problems of hyper-globalization
- whereby, over three decades or more, the prioritizing of narrowly
financial interests has created an unsustainable and inequitable world
in which too many people in too many places feel left out.
Stagnant wages, vertiginous levels of debt and recurrent financial
crises are the most visible manifestations of a dangerously unbalanced
But rigged markets, corporate rentierism and a dearth of productive
investment are also hobbling economic recovery and longer term transformation.
In developing countries, these problems are compounded by premature
deindustrialization, the diminishing opportunities for export-led
growth and a heightened vulnerability to external shocks both economic
Other, older problems that long hindered developing countries are
now emerging in even the most advanced economies - such as the surge
in informality in many parts of the economy, resources lost to transfer
pricing, or, after years of low investment, the problem of ageing
and inadequate infrastructure.
"Despite this daunting landscape, the default policy regime in
most advanced economies has not changed much since a global economic
meltdown was averted following the sub-prime crisis of 2007-2008,"
It continues to be a mixture of quantitative easing, fiscal austerity
and market liberalization; the outcomes have been neither sustainable
Having resisted the austerity route for longer, the recent slowdown
of growth in many developing countries, along with attendant debt
market pressures, is beginning to encourage some policy makers in
The heightened sense of economic anxiety has not only stoked a distrustful,
and at times xenophobic, politics but a sense of alarm each time interest
rates rise by infinitesimally small amounts, currency and equity markets
wobble or commodity prices take a dip and there is a growing fear
that technological advances, such as robotics, will only work for
the few rather than the many.
Quick fixes, from tax cuts to public-private partnerships (PPPs) have
been tried, but have failed.
"Rebalancing globalization and exiting this age of anxiety needs
more than tinkering around the edges, it needs a profound change in
the thinking and policy mix that caused these problems in the first
place. It needs a Global New Deal," said UNCTAD.
It noted that an enduring lesson from the original New Deal is the
need to establish and nurture a pro-growth, inclusive macroeconomic
regime which uses all the levers of aggregate demand not just to absorb
under-utilized resources and boost incomes but to raise productivity
by supporting structural transformation.
It said that the policy mechanisms are many and vary depending on
country conditions and circumstances, but include short-to-medium-term
proactive counter-cyclical policies alongside long-term investment
in social and physical infrastructure.
They need also to be supported by a bold political and social vision
that goes beyond cautious technocratic tinkering.
"This calls for rejecting austerity while prioritizing spending
over tax cuts to maximize multiplier effects and using public investment
programmes to crowd-in private investment to priority sectors."
Government spending should be seen as a vector with both magnitude
and direction: increased spending on social services, for example,
not only boosts overall demand but generates many jobs as well as
improving quality of life.
Government procurement, particularly in developing countries, can
be an effective way of stimulating both demand and investment, as
long as it is well designed and with appropriate monitoring and feedback
According to UNCTAD, a second, complementary element, common to advanced
and developing countries alike, is public investment in transformative
infrastructure - just as during the 1930s and post-WWII European reconstruction,
when markets were unable to generate the investment needed to meet
economic, human, social or environmental needs.
Massive public works schemes (in the US) such as the Tennessee Valley
Authority galvanized structural transformation and created dynamic
new sources of growth and development, as well as thousands of jobs.
"China's ambitious Manufacturing 2025 shows the lesson has not
been forgotten today, and indeed in many other countries governments
plan to revive public investment in infrastructure in order to restore
their economic fortunes."
Hyper-globalization has not been short of cheap money, not least in
the post-crisis era; but it has been short of demand, particularly
in advanced economies.
Even so, the idea of a global new deal quickly faces talk of budget
constraints and financial impropriety. But as Keynes recognized, by
taking care of jobs (and rentiers) much of the concern about budget
pressures, at the national level, will take care of itself.
In some parts of the world fiscal revenues are already sufficient
for what is needed but should be better directed; in others, even
a small change in fiscal policy could have positive effects on boosting
government's spending capacities.
While the case for lowering taxes has little empirical support, UNCTAD
finds that raising taxes by 5 per cent, on the top income decile in
43 countries that either belong to the OECD or G20, could gather additional
revenues of around $1 trillion.
INCLUSIVE MACROECONOMIC PROPOSALS
According to UNCTAD, inclusive macroeconomic proposals include:
* For developing and advanced economies alike, placing job-creation
with decent remuneration as top priority over other targets.
* Employing the full menu of fiscal policies in order to manage demand,
and encourage credit allocation towards the most productive and job-creating
uses; and directing interest rate and exchange rate policies to the
goal of recovery, job-creation and expansion, rather than exclusive
targets for inflation. Particularly in developing countries, the Central
Bank can become a more active participant in creating and directing
* Use public procurement as an effective mechanism stimulating employment,
consumption and investment demand; this can include large-scale public
* Targeting job-creation to where the unemployed or underemployed
can quickly best benefit. This may likely require a strong regional
focus. Also, investing in paid care - both for the environment and
people - can absorb large numbers in jobs that are not easily replaced
by technology, and create large multiplier effects in terms of aggregate
* Income policies can help boost effective demand and promote formalization;
managing resulting macro-economic trade-offs and legislative action
(minimum wage, proper contracts for informal work, etc.) can help
rebalance labour markets back towards the needs of working households.
The UNCTAD Policy Brief notes that rolling-back regulations on the
movement of capital while restricting the ability of labour to organize
collectively have, over recent decades, not only led to a sharp decline
in the wage share, but equally significant increases in market concentration
and a proliferation of "rentierism", whereby the world's
largest corporations protect their privileged market position and
power through a variety of exclusionary (and on occasion predatory)
mechanisms in search of surplus profits.
"Such a world is a long way from the textbook paradigm of perfect
competition and is linked with excessive financialization, whereby
easy speculative gains are privileged over patient investment and
job creation in the productive economy."
Rising corporate debt levels have pumped up the market capitalization
of the largest firms with bloated dividend payments and excessive
share buybacks crowding out reinvested profits.
According to UNCTAD, bilateral and regional trade agreements that
give corporations wide-ranging powers to shape or dispute regulatory
policies, have locked-in a financialized world with no boundaries
and limited countervailing pressures.
UNCTAD has proposed some policy recommendations to reverse these trends:
* Stricter enforcement of anti-trust legislation, along with stronger
national disclosure and country-to-country reporting requirements
for large corporations and a distributional component in competition
* Reining in value-stripping CEOs, by establishing a code of practice
for executive pay, making salary packages of top managers more transparent
and based on long-term performance, not on stock-based compensation.
* Stopping the looting of natural monopolies through a mixture of
public ownership and stronger oversight along with a closer eye on
the scale and scope of subsidies made to the private sector through
PPPs and privatization programmes.
* Creating a more diversified and stable banking system that can cater
to different needs, including through stronger regulation of shadow
banking and supporting public banks for infrastructure lending and
for venture capital for small and medium sized enterprises.
According to UNCTAD, redistribution was the last of the three R's
of the original New Deal (Recovery and Regulation being the other
two) encompassing measures to bolster social security and promote
a broad range of economic rights.
"These are just as essential today. Persistent insecurity and
inequality is at the heart of the current malaise and the underlying
cause of the loss of trust in the economic system and its ability
to provide sustainable livelihoods and credible pathways to prosperity."
Support for redistribution is gathering pace as people realize unequal
societies are not only socially unstable but also economically inferior.
Measures must involve not only ex-post social transfers that shift
wealth and opportunities more equitably from richer to poorer, but
also address profound imbalances in bargaining power between capital
and labour, and between governments and globalizing corporations,
that have been allowed to develop in recent decades.
In this context, UNCTAD has suggested the following proposals for
* Adopting progressive taxation measures beginning with a return to
the marginal income tax rates in place at the start of the hyper-globalization
era and extended to rents earned through intellectual property rights,
property incomes, etc.
* Innovative supplementary income support schemes including social
funds capitalized through shares issued by the largest corporations
and financial institutions; or acquiring shares in publicly supported
companies and IPOs in key sectors.
* A universal basic income as a complement, not a replacement to existing
social and public services.
The original New Deal offered a positive alternative to a fearful
society, in which social inclusion went hand in hand with economic
recovery, shared technological progress and a healthy environment.
It dropped any pretense that markets, left to their own devices, could
deliver desirable outcomes and instead built a mixed economy underpinned
by effective government policies and regulations and a strong social
"Today, as then, much can be achieved at the national level,
and typically that is the main locus of transformative development
A full employment and infrastructure agenda at the national level
can, moreover, help to revitalize and rebalance world trade and fend
off protectionist threats.
But inclusive macroeconomic policies will require policy coordination
across countries, particularly amongst the systemically important
economies, to ensure the buildup of global imbalances does not undermine
expansionary measures at the national level.
Just as importantly, reversing the inequities of hyper-globalization
needs a global approach, because many of the sources of exclusion
and stratification have a large international footprint, and some
of the tools needed to build a more inclusive economy have been constrained
or even forbidden by international rules and agreements that strengthen
the hand of footloose capital.
Reviewing these agreements is a prerequisite for ensuring governments
have sufficient space to adapt policies to local conditions and capabilities.
But policy space is a double-edged sword and must be employed responsibly
and pragmatically, said UNCTAD.
As such, responsible nationalism depends on effective international
coordination to avoid beggar-thy-neighbour approaches, to support
national policy efforts, and to share the benefits of inclusive growth
amongst all countries.
"After 70 years of operation, a public auditing of the multilateral
system with a view to identifying gaps, biases and over-reach is long
POLICIES TO SUPPORT A GLOBAL NEW DEAL
UNCTAD has suggested the following policies that it said can help
support a Global New Deal:
* Continue efforts to stop global tax base erosion and profit-shifting,
which is costing governments hundreds of billions of dollars annually.
Introduce a financial transaction tax which on some estimates could
generate another half trillion dollars.
Clamping down on the use of tax havens will require legislative action
at the international level but interim efforts could include a global
financial register, recording the owners of financial assets just
as the owners of physical assets are required in most countries.
* Increased mobilization of multilateral financial resources, strengthening
of regional reserve funds, payment systems and development banks;
as well as the coordinated use of other public resources, such as
Sovereign Wealth Funds, currently valued at more than $7.5 trillion
should also be considered.
* Increased ODA (official development assistance) to meet the 0.7
per cent target and more, to refocus aid programmes in ways that enable
recipients to mobilize resources quickly for sustainable economic
* A more balanced approach to sovereign debt restructuring; in particular
establishing a set of statutory procedures for relief restructuring
and recovery that supports both debtors and creditors.
* A Global Competition Observatory to monitor market concentration
and restrictive business practices, and to gather information on the
large variety of existing regulatory frameworks around the world,
including on investment agreements, as a first step towards coordinated
international best practice guidelines and policies.
* Extending the redistribution agenda to the global level by ensuring
that working conditions of expatriate and migrant workers are decent,
not precarious or exploitative, including globally portable insurances
and pension schemes.
"The constraints and deficits perceived to block today's Global
New Deal are, typically, believed to be financial and motivational
But UNCTAD noted that finance is not lacking, though it has often
been hidden or misdirected.