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Time to Rethink Globalization
G20 must address inequality and dissatisfaction
By Kerry Brown | NO. 34 AUGUST 25, 2016


People rally in Dresden in Germany on October 19, 2015, to protest against the inflow of refugees (XINHUA) 

Since 2009, the G20—the international forum for economic cooperation—has become one of the key means by which global leaders can get together and work out ways to cooperate and address common themes. This year, the G20 Leaders' Summit takes place in Hangzhou, China, in early September. With its membership spanning nations like China, India, Russia and the United States, as well as the EU, the group as a whole constitutes close to 85 percent of the global economy, and its decisions have potentially immense impact. The questions are, what can everyone agree on, and how can those decisions be carried forward?

Off target

The problem with the G20 in the past was that it often seemed to miss opportunities to address the most pressing issues at any one time. Discussion at the 2014 G20 Summit held in Brisbane, Australia, was restricted because of the unwillingness of the host nation's government to prioritize talk of climate change and the environment. This was a great pity because the United States and China, at the Asia-Pacific Economic Conference in Beijing a few weeks earlier, had just agreed to a major accord in which both sides would restrict their carbon emissions over the next two decades. The Brisbane summit also did little to prepare for the United Nations Climate Change Conference held in Paris the following year, which resulted, to the surprise of many, in a meaningful international agreement. In that respect, the Brisbane event missed a big opportunity.

The pressure on this year's G20 to deliver something is heightened due to the number of pressing issues facing the world and their complexity. The United States is experiencing what looks to be its most contentious presidential election in recent history, with Republican nominee Donald Trump standing on a vehemently anti-globalist, protectionist platform. In Europe, the UK's decision in June to exit the EU has been ascribed by most experts to similar anti-globalist public anger elsewhere in an era of trade deals and opening of markets that have resulted in as many losers and winners. In France, the radical right-wing National Front, under Marie Le Pen, currently enjoys its highest ever position in the polls. In Austria, a rerun for the presidency (a largely ceremonial but hugely symbolic role) is likely to result in another extreme right-wing success.

The revolt against globalization has spread across political systems, resulting in more-nationalistic and more-divided electorates and communities. Predicting where all this might lead proves very difficult. One thing is certain, though. Given the levels of anger and frustration, complacency is not an option.

A catch-22 situation

This year's G20 Summit gives global leaders the chance, from the perspectives of their different economies and political systems, to think about the central paradox of the current age: People have never lived longer, enjoyed higher standards of living, or enjoyed better health than they do at present, yet levels of dissatisfaction are also sky-high.

What can be done, however, when the very means to unlock more growth and stimulate more economic activity is also perceived by many as being the source of all their ills? Free Trade Agreements and trade deals are regarded with deeper and deeper suspicion, and protectionist sentiment is intensifying, despite the evidence from most economists that unless trade barriers are removed and access to markets is increased internationally, global GDP is likely to flatline. Such stasis would almost inevitably cause more unhappiness and dissatisfaction, thereby creating a vicious circle. So, what is the solution to this conundrum?

Fear and loathing

Common issues at the G20 will include inequity and inequality, issues that underlie the anti-globalization movement. Societies want to incentivize innovation; they want to encourage entrepreneurial individuals and to have dynamism in their economies and their companies. But studies—from a famous one by French scholar Thomas Piketty to one by British economist Richard Wilkinson a decade earlier—have shown that across the developed world, and now in the developing one, inequality has never been more severe.

The Gini coefficient is the most commonly used measure of economic inequality, with one representing complete inequality (one person having all the wealth, for example, and everyone else having nothing) and zero representing absolute equality, with everyone having exactly the same. According to this measure, the United States, China, and parts of Latin America, Africa and Europe are now highly unequal societies. While north European countries like Sweden, Denmark and Norway exhibit high levels of equality, with Gini coefficients of around 0.25, China comes in at 0.46, the United States at 0.45, and the UK at 0.32.

Although the phenomenon of increasing inequality is recognized, how to deal with it remains undecided. Redistributive tax systems offer one method, but they have proved poor at coping with the upper levels of wealth, and in the case of corporations, they have largely failed. One of the great controversies in both the United States and the EU in recent years has been the ability of transnational companies to seek out benign tax regimes. In an era in which so much trade occurs online, the issue of the physical location where business actually happens and where taxes accrue has become more blurred and harder to manage. Outrage at how major companies like Amazon, Apple and Starbucks have been able to make huge profits yet pay limited amounts of tax is one of the factors contributing to public anger at globalization.

Another is weariness with austerity measures. For large sections of society in the United States and the EU, wages have remained stagnant, and job security has been eroded. Many people in the UK blame immigration for their adverse economic circumstances, despite academic studies showing that it usually stimulates growth. Fear exists that openness to outside markets means greater insecurity at home. Almost a decade has passed since the financial crisis of 2008. Yet, its fallout continues, with public distrust and anger at banks, international finance and liberal market systems remaining high.

The way forward

The G20 members all share the issue of how to deal with the benefits and pains of globalization as well as the challenge of finding ways to preserve the good things offered by unimpeded access to other markets while protecting their home markets and core constituencies.

While each nation has particularities in its issues with globalization, from China to the United States and Australia, the acknowledgement that inequality, unequal development and public uneasiness need to be addressed cannot be avoided. A new kind of global dialogue about globalization and its impacts needs to start. What was regarded by some as unambiguously positive over most of the last two decades is now looking more complex.

The author is an op-ed contributor to Beijing Review and director of the Lau China Institute at King's College London

Copyedited by Chris Surtees

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