The global economy remains unbalanced in ways that are not only exclusionary, but also destabilising, posing substantial dangers for global peace and stability, according to the United Nations Conference on Trade and Development’s (Unctad’s) 2017 Trade and Development report titled ‘Beyond Austerity: Towards a Global New Deal’.
The report highlights that people’s needs need to be prioritised over profits and that this should be implemented through a “new New Deal” policy, similar to that implemented after the Great Depression of the 1930s, which, encompassing the end of austerity, should clamp down on corporate rent-seeking and use finance to support job creation and infrastructure investment.
The original New Deal policy was a series of federal programmes, public works projects, and financial reforms and regulations enacted in the US, in response to that era’s Great Depression.
Providing an overview of the Unctad report at a Johannesburg-based seminar on Thursday, senior economist Dr Diana Barrowclough pointed out that, even when a country has been able to grow its economy, these gains have been “disproportionately accrued to the privileged few”. Barrowclough added that the combination of high debt and lack of demand at a global level has constrained expansion efforts worldwide.
Unctad’s report states that the implementation of austerity in response to the global economic downturn has impacted on some of the poorest communities, leading to further polarisation and heightening anxiety about what the future holds.
Emphasising the need for a ‘new New Deal’, Barrowclough highlighted three broad strategic components that need to focused on, namely recovery, regulation and redistribution.
She added that, while these components involved specific policy goals to address particular economic and political circumstances, their common path to success included job creation, expansion of the fiscal space and the taming of finance.
The report says that the creation of a new New Deal would play a critical role in addressing the challenges of large inequalities, demographic pressures and environmental problems.
However, it comments that the specific challenges of inequality and insecurity cannot be tackled by countries insulating themselves from global economic forces, but rather will be met by elevating, where appropriate, some elements of the original New Deal to a global level, consistent with the world’s interdependency.
According to Barrowclough, elements that need to be considered include ending austerity; enhancing public investment with a strong caring dimension; raising government revenue; establishing a new global financial register; ensuring a stronger voice for organised labour; taming financial capital; significantly increasing multilateral financial resources; reining in corporate rentierism; and respecting policy space.
Unctad’s report found that, on the back of sustained increases in their market and lobbying powers, large corporations were boosting profits by making rules to suit themselves. It says that the 2008 financial crisis exposed these practices in financial markets, that the abuse of tax havens by the wealthiest 1% of societies was common knowledge, and that these practices were also extended to non-financial sectors.
Through data analysis on non-financial companies in 56 developed and developing countries, the report highlights the “winners” were receiving most of these profits. Between 1995 and 2015, surplus profits grew from 4% to 23% of total profits for all firms and from 19% to 40% for the top 100 firms. In 1995, market capitalisation of the top 100 firms was worth 31 times that of the bottom 2 000 firms. However, 20 years later, it had risen to 7 000 times the worth.
Unctad’s analysis found that the big firms from emerging markets had started to enter the global stage, owing largely to booming domestic markets. However, it established that firms from developed countries still dominated, particularly in high-profit sectors such as pharmaceuticals, the media, and information and communication technology. They also accounted for the transfer of profits across borders.
The report notes, moreover, that the big firms amassed an even greater control of markets, while their employment share had not risen proportionately. Based on one measure of market concentration, the top 100 firms increased fourfold in market capitalisation, but less than twofold in employment.