Globalization's Rules OECD: Please Press the Reset Button

Global trade needs new standards, focusing on people’s well-being, argues a leading representative of the Organisation for Economic Co-operation and Development. Leading economies should fight income and education inequalities, raise investments and curb tax evasion.
For some, globalization has not helped to improve their livelihood.

As of yet, the world economy has not recovered from the global financial crisis. Economic growth, investments and trade continue to be below pre-crisis levels. The gaps in growth being created in the world economy are, every two years, the equivalent to the whole economic output of Canada.

Added to that are a series of structural and social factors. Compared with 20 years ago, income and opportunities for a livelihood are today significantly more unevenly distributed in almost all countries which are a member of the Organisation for Economic Co-operation and Development, OECD.

In the mid-1980s, the richest 10 percent of the population had a disposable income per capita seven times as high as the poorest 10 percent, based on averages in OECD countries. Today, the richest make on average 10 times more, but in many OECD countries the earnings gap is much larger.

The ongoing digitalization bears the risk of further increasing inequality if appropriate measures are not taken for digital inclusion, for life-long education and training, and media competence.

Even more pronounced is the inequality in wealth and assets. Opportunities for education continue to hinge on place of residence and the level of education of the parents. In many societies in the Western world, social background continues to have a greater influence on opportunities in life than one’s own achievements. The OECD now has clear evidence that increasing inequality is not only weakening social cohesion but also growth dynamic.

That is why we need a new growth narrative that focuses on people and their well-being. With the motto of a resilient, sustainable, and responsible world economy, orientated to the needs of the people, Germany has presented an ambitious program for its current G20 presidency designed to take on these challenges.

In the OECD’s view, key elements of the German plan are to supplement the overstretched monetary policies with fiscal and structural measures. Moreover, countries having the relevant fiscal latitude should increase investments in areas promising additional growth, in clean infrastructures, education and specialized training, as well as in high quality health care. Such an initiative would be even more effective if it were supported by all G20 states.

The ongoing digitalization bears the risk of further increasing inequality if appropriate measures are not taken for digital inclusion, for life-long education and training, and media competence. Quite rightly, the G20 had recognized already last year, the growing inequality as one of the key challenge of our times.

A further challenge is the fight against climate change and the development of a climate- and environment-compliant path of growth. Without adequate efforts by the G20, business and society will be facing enormous costs. We must concentrate on freeing the world economy of its dependency on fossil fuels. In the view of the OECD, it is first a matter of removing the wrong instruments, such as subsidizing fossil fuels.

At the same time, we must readjust our standards of prosperity. Free trade relations, investments, and economic growth should not be allowed to be an end in themselves any longer. They are also a means to improve people’s living conditions. That also means that a policy only aimed one-sidedly at growth is not enough. A global economy demands global standards. This, as well, is a key point of the German G20 presidency. The German chancellor has already taken over a leading role in this years ago.

The fight against corruption, money laundering, and tax evasion is a contribution to a resilient and responsible world economy. We should also implement the tax agenda that the G20 has worked out with the aid of the OECD. It creates transparency and ensures that global companies are unable to evade their contribution to the community.

We must see to it that companies behave responsibility and respect standards of human rights, industrial health and safety, and environment and contribute to the society that supports them. The OECD Guidelines for Multinational Enterprises offer such a standard that enables civil society to demand compliance. We should push for the establishment of such standards of responsible corporate governance and sustainably-organized supply chains on a global level as well.

 

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