Under the theme – Creating a Shared Future in a Fractured World – attendees of the 2018 World Economic Forum in Davos recognized that the undeniable gains from the growth in international trade have bypassed some countries and some people in just about every country. However, the meeting was short on remedies to address this reality.
Fractured Global Economy
The World Economic Forum (WEF) is held annually in Davos, bringing together leaders from government, industry, academia, international organizations, and civil society. The shared goal of the 2018 meeting was to reaffirm international cooperation on crucial shared interests, including the fractured global economy.
In the ten years since 2006, trade in goods has increased in value by 32% and trade in services by 64%. For millions of people, trade has been an engine of growth. However, for 44 least developed countries (LDCs) their share of that trade has been less than 1%. Thirty-eight of the LDCs are in sub-Saharan Africa and Southeast Asia, which accounts for 80% of the people still living in extreme poverty. In developed economies, the votes of those sectors of the populations left behind by the rising tide of trade have produced unimaginable results.
Following are some of the pronouncements made at Davos 2018 regarding today’s fractured global economy.
Trade is at a crossroads. International commerce has helped lift hundreds of millions of people out of poverty, but many feel left behind or experience growing inequalities. (WEF System Initiative on Shaping the Future of International Trade and Investment)
Working-age people, especially the young, are falling behind. Without action, a generation may never be able to recover. (Christine Lagarde, Managing Director, International Monetary Fund (IMF))
82% of the wealth created in 2017 went to the top 1% of the world’s population. And even as corporations prosper, wages in many parts of the world remain flat. Meanwhile, only half of Africa’s population has access to electricity. (WEF Annual Meeting 2018 Report, p. 10)
The fruits of the massive technological innovations of the 21st century are going to a small group of people, most of whom are here. The dissatisfaction in the economic system is not going away. (Zanny Minton Beddoes, Editor of The Economist)
The globe’s richest 1% own half the world’s wealth, their share rising from 42% in 2008 to 50%, or $140 trillion, in 2017. (Statistics from Credit Suisse)
In the US, the wealthiest 1% captured 95% of post-financial crisis growth from 2009-2014, while the country’s bottom 90% became poorer. (Oxfam International)
Prescriptions or Platitudes?
What remedies or prescriptions were advanced to begin to address this fractured reality?
There was some recognition that one cause of the global inequality is the way in which the fruits of industry and trade are distributed.
The world’s wealthiest need to find a way to share out the fruits of technological change and globalization more generously. (Kristalina Georgieva, CEO of the World Bank)
Unfortunately, it does not appear that the meeting participants went beyond platitudes to a search for real solutions.
There appeared little appetite at Davos . . . to debate attempts to significantly rebalance the benefits of capitalism away from the few towards the many. (WEF Annual Meeting 2018 Report, p. 10, p. 22)
A problem that is unacknowledged cannot be solved. In this regard, it is noteworthy that the Davos forum of the world’s brightest and wealthiest persons has begun to shine a light on the problem. In fact, this inquiry was also highlighted at the 2017 Forum, whose theme was Responsive and Responsible Leadership. The key question posed then was –
How can leaders be responsive to the genuine frustration of people left behind by globalized market capitalism, in a responsible way that offers workable, fair and sustainable solutions?
This question was predicated upon “a worldwide consensus on the need for a more inclusive and sustainable model of growth and development that promotes high living standards for all.” 2017 Forum.
Here are some more questions in search of a solution. What rules and models are needed so that more people in more countries attain a high living standard in today’s global economy? For trade and growth to be more inclusive, will some of the rules have to change? Are the persons who benefit from the existing rules willing to lead the process of real change?
A WEF project developed the Inclusive Development Index as a broader measure of national economic performance than “Gross Domestic Product (GDP)”. The Index measures how countries perform along three pillars: (1) growth and development; (2) inclusion; and (3) intergenerational equity – sustainable stewardship of natural and financial resources. These new matrices are intended to help focus the attention of “companies, policy-makers and the public on areas of society most in need of attention”.
The 2018 Index reports that scores have risen over the past five years for 64% of the 103 economies for which data is available. This result suggests that many countries are using the Index to pay greater attention to socioeconomic progress. However, the 2018 Index also reports that low-income economies have fallen further behind.
These results underscore the need for WEF annual meetings and projects to continue to shine a light on today’s fractured global economy. Just as importantly, this global elite also needs to continue to dedicate resources to the search for new rules and models of inclusive trade and economic growth.