World Economy

BIS Head Says: Globalization Made a ‘Scapegoat’

Globalization  Made a ‘Scapegoat’Globalization  Made a ‘Scapegoat’
BIS claims closer cross-border ties are not to blame for within-country inequality and urges cooperation with governments to manage risks

Economic globalization has contributed to a substantial rise in living standards and falling poverty over the past half-century. Tighter trade and financial integration are deeply intertwined: international trade not only relies on, but also generates, financial linkages. 

Together, international trade and finance have enhanced competition and spread technology, driving efficiency gains and aggregate productivity. Like any other form of far-reaching economic change, globalization poses challenges, news outlets reported. 

Claims that globalization has peaked are misplaced, the Bank for International Settlements, the central bank for the world’s central banks said on Sunday, although policymakers need to manage its side-effects carefully.

The BIS said the pace of globalization had been slowed by the global financial crisis, and that challenges created by an uneven distribution of wealth are known, but there was no basis to say it was going into reverse.

The international body claims that globalization has been made a “scapegoat” for rising inequality, as it launched a defense of closer cross-border ties.

Against the backdrop of protectionist rhetoric in many countries, including from US President Donald Trump, BIS used its annual report to argue that globalization has cut global poverty and will continue to lift living standards around the world.

The body–which is known as the central bank of central banks–warned that reversing globalization would be “greatly detrimental to living standards”. The BIS concedes gains from trade have not been evenly distributed at the national level but that other factors, most notably technology, have played a bigger role in widening the gap between rich and poor.

“Arguments that question the benefits of globalization have been receiving greater attention in the public debate,” head of the BIS, Jaime Caruana, said in a pre-released chapter of its annual report.

“This shows that we risk forgetting the lessons of the past and taking for granted the gains in living standards, productivity and prosperity achieved over the last half-century.”

The report said there was strong empirical evidence that globalization was also not actually the main cause of increased within-country income inequality; technology was.

Globalization itself has seen “global value chain” trade between emerging markets more than double since 2001 with China alone now responsible for 19% of that compared to 7% at the start of the century.

Dollar-denominated credit to firms and governments in emerging markets has also doubled since the outbreak of the financial crisis to $3.6 trillion, as global interest rates have tumbled.

Fostering More Adaptability

Over the last two decades there has also been significant rise in the co-movement of global asset prices. For example, the correlation of advanced economy sovereign 10-year bond yields have more than doubled relative to the previous two.

Some of the options the BIS report cites to address the problematic effects of globalization include government policies to foster more adaptability, such as retraining programs and employment initiatives in affected regions.

Banking systems also have to be made strong enough so any financial busts can be cleared up quickly. It also called for globally applicable regulations and for beefed-up currency swap lines between the world’s big central banks.

“Instead of retreating from the ties of global trade and finance, we should reinforce them. Instead of loosening them, we should make them more resilient,” Caruana said.

Making Labor Markets Flexible

The strong backing for globalization echoes pleas from the International Monetary Fund and the Organization for Economic Cooperation and Development not to move towards more inward-looking policies.

After Trump’s presidential win following a campaign on an anti-globalization platform, both bodies emphasized the apparent benefits from more global trade and placed the onus on national governments to ensure the gains are fairly shared.

The BIS took a similar line in Sunday’s report, urging governments to make their labor markets flexible enough to help people whose jobs are displaced to retrain and to benefit from regional employment drives. It also calls for international cooperation to shore up the stability of the global financial system.

 “Instead of retreating from the ties of global trade and finance, we should reinforce them. Instead of loosening them, we should make them more resilient,” Caruana said.

“We must work together to create well designed policies, both domestically and internationally. Only then can we make sure that globalization will continue to lift economic growth and living standards around the world for generations to come,” Caruana said.

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