Faced with a backlash against globalisation that threatens to trigger a damaging retreat, the OECD has been thinking hard about how to better address the downsides while preserving the benefits of economic openness.
During OECD Week in June 2017, both at the OECD Forum on 6-7 June and the OECD Ministerial Council Meeting on 7-8 June, we will discuss these questions, we will explore how to bridge challenging divides in our economies and societies, and we will seek practical responses to these problems.
Globalisation, which in a broad sense refers to the growing integration of the flows of goods, services, capital, people and ideas throughout the planet, has brought net benefits worldwide. By facilitating the spread of know-how, encouraging specialisation and a more efficient allocation of resources, it has boosted global growth and helped lift hundreds of millions of people out of poverty. The period of rapid globalisation since the Second World War has yielded the greatest increase in global prosperity in history, despite a near-tripling of the world population, and it has also helped to spread peace and democracy worldwide. Europe is perhaps the most striking example: with its four freedoms–free movement of people, capital, goods and services– the EU is probably the most highly globalised region of all, and this continent, so ravaged by war over the centuries, has experienced more than seven decades of peace.
Nonetheless, there is a growing and widespread feeling of discontent towards globalisation in many segments of our societies, anchored in the perception that those benefits have not been equally shared and may be concentrating in a few hands.
One aspect of this is the slowdown in the growth of median incomes, which has been particularly marked since the start of the crisis, though in some OECD countries, real median incomes have failed to grow for 20 years or more. Meanwhile, incomes and wealth at the top end have continued to rise rapidly. Across the OECD, the richest 10% of the population now earn almost 10 times more than the poorest 10%, up from seven times in the 1980s. And wealth is even more concentrated than income: the richest 1% of households in the OECD possess 19% of total wealth, while the bottom 40% own just 3%. This has been accompanied in many cases by a fall in social mobility, which is related to deprivation becoming entrenched at a young age. Children are at most risk of poverty, and on average across OECD countries, 17% of 20-24 year-olds are not in employment, education or training.
All this has led many people in advanced countries to feel that globalisation is benefitting others, but not them. Moreover, many feel that some of the processes through which globalisation is advanced are insufficiently transparent and democratic. And citizens have been expressing their discontent in the ballot box.
Is globalisation to blame for the stagnation of middle-class incomes in some advanced economies and the widening disparities of income and wealth? Reality is surely complex, but there are some plausible mechanisms through which it may have contributed.
For example, tax systems in the OECD have become less progressive in the past few decades, with a shift of the tax burden onto labour. That has contributed to the slow growth of median incomes and increasing inequality.
Also, globalisation has deepened the financialisation of our economies, which appears to be positively associated with higher income inequality across OECD economies. Moreover, financialisation was a key factor leading to the global crisis, and the slowdown in median income growth has been particularly marked since then.
In addition, digitalisation–“globalisation on steroids”–is bringing disruption along with opportunity. We estimate that 9% of jobs are at high risk of being automated. Furthermore, many new jobs are non-standard, with unclear implications for the quality of work.
Lastly, while globalisation should typically foster competition, there is some evidence that market concentration has been increasing across a range of industries. Possible globalisation-related reasons include “winner-takes-most” features in some markets. This tendency towards greater market concentration is associated with an observed widening of the divergence of productivity and wages between leading and laggard firms within given sectors. This has also been feeding inequality and yielding stagnant incomes for many workers. While all these mechanisms have some plausibility, it is difficult to disentangle globalisation from other factors, especially technological change. If we don’t respond to the concerns being expressed by our citizens, we risk seeing a damaging retreat from openness. We urgently need to make globalisation work for all.
That is what our MCM agenda is all about, shaped by Denmark’s vision as chair of the meeting, and animated by the new ideas coming from our New Approaches to Economic Challenges (NAEC) and initiatives; and our Productivity- Inclusiveness Nexus developed at last year’s MCM. Our ministerial discussions, held back-to-back with the OECD Forum, will be nourished by rich debates among decision-makers and thought leaders from civil society on how to bridge divides, marshal digitalisation and win public trust in a better, more inclusive, future. Indeed, our attempts to “fix” globalisation to make it work for all will only succeed if they are set in the context of inclusive growth.
For example, providing people with adequate income support in the case of negative contingencies is vital, but it is not enough. What is needed is an empowering state. Social protection systems must become social enabling systems. Among other things, this means focusing on gender inclusion, the integration of migrants and early childhood education, as well as lifelong learning. Policies have to make it easier for workers to participate in global production networks and adapt to a rapidly changing environment.
We also need more and better international co-operation to address problems such as a race to the bottom in standards and market-distorting behaviour, as well as aggressive tax avoidance and irresponsible business conduct. While in some cases new standards may be needed, in others it is a question of broadening the coverage of existing standards and enforcing their compliance. The OECD is already working on many of these issues.
Also, countries should go further in building standards in trade and investment agreements. Many modern free trade agreements (FTAs) have started to address such issues by including provisions on labour, social and environmental questions, as well as addressing new issues such as state-owned enterprises.
This is a welcome trend. The OECD is doing its bit to ensure more inclusive globalisation, including through its support for the G20 and G7, and we are supporting new initiatives, such as the Global Deal launched in 2016 with the Swedish government and the International Labour Organization. This is a multi-stakeholder partnership to encourage social dialogue to create jobs and support more inclusive growth.
We also need to listen to people’s concerns and engage more effectively with citizens. The OECD could help governments better communicate the benefits and challenges of globalisation through the establishment of a permanent platform for engagement with civil society, as well as continuing our work on open government.
When it comes to making globalisation work for all, we can learn a lot from this year’s MCM chair, Denmark. As one of the world’s most open countries, Denmark has established a robust safety net to protect people from the creative destruction that globalisation brings. Indeed, provisions in Denmark ensure that Danes can re-skill, upskill and adapt to innovation and technological change.
Globalisation is a means to an end, not an end in itself. We have to ensure that the growth it fosters is inclusive and sustainable, that globalisation works for all. Openness and multilateralism are worth preserving and enhancing: they bring greater prosperity, peace, innovation, diversity and cultural exchange. But we will only succeed if we ensure that their benefits are widely shared.
OECD Week 2017 will provide a space to discuss how we can best preserve openness and multilateralism, bringing to the table our analysis and ideas to ensure that globalisation works for all.
Adapted from remarks delivered at Copenhagen, Denmark, 27 April 2017
©OECD Yearbook 2017. See www.oecd.org/forum/oecdyearbook
Angel Gurría Secretary-General of the OECD
© OECD Yearbook