A decade after financial crisis, world economy remains under stress: UNCTAD report

Hyperglobalisation has not resulted in a win-win world. The global economy very much remains on a shaky ground even a decade after the 2008 financial crisis, and the trade wars we see are a symptom of a deeper malaise, says the Trade and Development Report 2018: Power, Platforms and the Free Trade Delusion. Released on Wednesday, it  is an annual  report of the United Nations Conference on Trade and Development (UNCTAD). The report offers us no reason to cheer!

Says the report: “What is surprising, with hindsight, is the complacency in the run up to the crisis(of 2008). What is more surprising still is just how little has changed in its aftermath. The financial system, we are told, is simpler, safer and fairer. But banks have grown even bigger on the back of public money; opaque financial instruments are again de rigueur, shadow banking has grown into a $160 trillion business, twice the size of the global economy; over-the-counter derivatives have surpassed the $500 trillion figure; and bonus pools for bankers are overflowing once again”. The report believes that the greatest damage has been dwindling trust in the system.

Prof C.P. Chandrasekhar of the JNU's Centre for Economic Studies and Planning referred to the “Panglossian disconnect” where unemployment was falling, even as there was a sluggish wage growth. He attributed it to what he called  “signs of speculative boom in asset markets where there were extremely high valuations.”  “This has become a basis for worsening inequalities”, he asserted, adding that the problems of large debt, which feed into asset markets and result in asset market inflation, had returned. While the emerging markets were struggling to retain “footloose capital”, oil prices were increasing, many currencies depreciating and the US protectionism adding to global uncertainty. 

In Geneva, Mukhisa Kituyi, secretary-general of the UNCTAD pointed out that the world economy was again under stress. “The immediate pressures are building around escalating tariffs and volatile financial flows, but behind these threats to global stability is a wider failure—since 2008—to address the inequalities and imbalances of our hyperglobalised world”

The report examines how economic power is being concentrated in a smaller number of big international firms and the impact this is having on the ability of developing countries to benefit from their participation in the international trading system and to gain from new digital technologies. The top one per cent of each country's exporting firms account for more than half of its exports!

Trade under hyperglobalisation has failed to foster broad-based structural change in developing countries and has contributed to increased worldwide inequality, the UNCTAD study based on empirical research says. The profitability of top transnational corporations and their growing concentration have acted as a major force, pushing down the global income share of labour, thus exacerbating income inequality, it avers.

Trade does not drive growth in India. China, the report shows, is the only BRICS nation to benefit out of trade. 

Infrastructure investment is not necessarily helping the developing countries transform their economies and achieve sustainable prosperity, the report says, pointing out that though infrastructure projects in developing countries are back on the agenda—it cites the Belt and Road Initiative of China—such efforts may not help countries promote the much needed industrialisation and structural transformation. 

Despite infrastructure spending conjuring up images of traditional public goods such as highways, ports and schools, policy debate often denigrates the public sector and lauds the role of private capital and opaque financing techniques.

Chandrasekhar said in the ongoing trade war, everyone will be losers, and the confidence of investors and consumers would be shaken. The all-round challenges are as true of the digital age, where benefits will go to the bigger digital monopolies. “Big technology companies are bigger than ever”.

The report suggests active policies and regulatory measures to prevent predatory digital behaviour and data localisation laws, and active policies to benefit from global trade.