Davos: how global economic growth can drive fight against inequality
The global economy is continuing its forward momentum. As the IMF indicated on Monday, 2017 was a year of accelerating global growth and the outlook remains similarly sunny for 2018 and 2019.
Measured by GDP, nearly three-quarters of the world’s economies are on an upswing. For the first time in nearly a decade, we are experiencing broad-based economic growth.
We should be encouraged, but not satisfied.
The theme for this year’s gathering in Davos, which I am pleased to be co-chairing with six extraordinary women, is: “Creating a shared future in a fractured world.”
Why is this theme so relevant? Because despite the improved economic outlook, there are still far too many people left out, still too much inequality, and still a great deal of uncertainty about the future.
In fact, about a quarter of emerging markets and developing economies saw their per capita incomes decline in 2017. More broadly, from the ripple effects of globalisation to the impact of automation, people are asking questions about whether they will be able to pass on a better life to their children.
Our challenge is to make 2018 a year where we can answer these difficult questions and continue to build more inclusive economies which truly benefit all.
Where should we start?
Higher global growth means many countries have a chance to reduce dangerous debt levels while others have a golden opportunity to make new investments in their own people and economies.
What kind of investments do we need? In many parts of the world, productivity remains stubbornly low and aging populations risk dragging down labour force participation rates. So spending money on research and education, and increasing the number of women in the workforce, are smart strategies.
In Japan, for example, estimates show that if women participated in the workforce at a similar rate as men, GDP would rise by 9 per cent. In India, GDP could increase by nearly 27 per cent.
To put it simply, bringing women into the workforce is an economic no-brainer.
Central bankers have a critical role to play as well.
Weak inflation in many advanced economies means that monetary policy should continue to support growth. At the same time, the long period of low interest rates has led to a buildup of potentially serious financial vulnerabilities.
A related concern is the continuation of corporate debt increases in emerging markets, including China. While policymakers in Beijing have taken steps to contain some risks, all economies need to be vigilant. This includes preparing for eventual monetary policy normalisation and fully implementing the regulatory reform agenda.
Much of this work requires international cooperation.
Think about it. From corruption to climate change, the threats to our economies and our world ignore borders. We need to collaborate if we are going to be effective in tackling these problems.
Consider trade. This past year, we have seen a rebound in global trade — which we know is essential for growth. This year it is possible we will see major changes in the international trading system, including the North American Free Trade Agreement and the United Kingdom’s economic relationship with the rest of the European Union.
As negotiations continue, policymakers should keep in mind the damage that trade barriers can inflict on their own economies — as well as the global economy — and resist the siren call of protectionism.
And while we must focus on today’s shared challenges, we also must prepare for what comes next.
As Klaus Schwab has said — we are entering the fourth industrial revolution. While that revolution holds the promise of enormous progress, the reality is that there will also continue to be a great deal of disruption.
2018 will see more temporary and part-time jobs as the so-called “gig economy” continues to expand. So new training and protections for workers, rebalancing of benefit systems, and more progressive tax structures may be needed for some economies to reach their full potential and help the next generation.
As new IMF research on Europe shows, income inequality across generations has risen sharply since 2007. Too many young people all over the world are still struggling.
We can change that narrative in 2018 by creating more opportunity.
Recently I have been borrowing a line from President Kennedy, who once said, “The time to repair the roof is when the sun is shining.”
As world leaders gather this week in Davos, in the middle of winter, they will be reminded that the current sunlight is indeed precious and, of course, cyclical.
So while we appreciate this growth momentum, let us also use this moment to find lasting solutions to the big challenges facing the global economy in 2018. The writer is managing director of the International Monetary Fund