World Economy

UNCTAD Calls for Global Economic Makeover

Instead of continuous belt-tightening, the UNCTAD economists called for the broad use of fiscal policy to work towards full employment and finance public investments in physical and social infrastructures
UNCTAD headquarters in GenevaUNCTAD headquarters in Geneva

The world economy, stunted by years of austerity and growing inequality, needs a global "new deal", inspired by policies that helped Europe rebound after World War II, the United Nations trade and development agency, UNCTAD, said Thursday.

"The world economy remains unbalanced in ways that are not only exclusionary, but also destabilizing and dangerous for the political, social and environmental health of the planet," UNCTAD said, AFP reported.

"What is urgently needed now is a global new deal," the agency said in its flagship Trade and Development Report.

The original New Deal, launched in the United States in the 1930s in response to the Great Depression, was replicated at the international level with the Marshall Plan, which is widely credited with helping western Europe make a spectacular recovery after World War II.

"Seven decades later, an equally ambitious effort is needed to tackle the inequities of hyper-globalization in order to build inclusive and sustainable economies," UNCTAD said.

As with the previous plans, the report argued that the world, at both national and international levels, should be focusing on job creation, the expansion of taxes to enable redistribution of wealth and regulation aimed at taming finance.

UNCTAD chief Mukhisa Kituyi said the global economy was picking up but still not lifting off. “A combination of too much debt and too little demand at the global level has hampered sustained expansion of the world economy,” he said in a statement.

Much of the blame was aimed at “neo-liberalism”, a term used to refer to governments cutting back on their own role and leaving the private sector to lead economic and social development within a free-market capitalist system.

End Austerity, Increase Investments

"Ending austerity and harnessing finance to serve society once again, rather than the other way around, are the most urgent challenges," the report said. It pointed out that nearly a decade after the global financial crisis, "a strong recovery has remained elusive".

UNCTAD forecasts that the global economy will grow 2.6% this year, only slightly higher than the 2.2% registered in 2016, and far below the 3.2% average seen in the years leading up to the financial crisis.

Growth in developed countries is expected to tick in at 1.9% this year, up from 1.7% in 2016. The sluggish growth in richer nations, along with renewed volatility in global capital flows, has also limited growth in developing countries, the report said, forecasting growth there of 4.2% this year up from 3.6% in 2016.

And the widespread tendency to turn to austerity as a default policy had made the situation significantly worse, hampering investments and entrenching inequalities, it warned.

Instead of continuous belt-tightening, the UNCTAD economists called for the broad use of fiscal policy to work towards full employment and finance public investments in physical and social infrastructure.

Investments should also be made in major public works programs, including ones aimed at mitigating and adapting to climate change, and in public services like child care and elderly care, they said.

They also urged states to give organized labor a stronger voice and to bolster regulations in the financial sectors and clamp down on the use of tax havens.

The report also called for the creation of a "global competition observatory" as a "first step towards coordinated international best practice guidelines and policies, and to monitor global market concentration trends and patterns."

"Competition policy more generally should be designed with an explicit distributional objective," it said.

Mantra Falling Apart

The world now needs a “21st century makeover”, the document states. “The whole neo-liberal mantra that ‘there is no alternative’ has begun to fall apart,” Richard Kozul-Wright, UNCTAD’s globalization director, told a news conference later, Reuters said.

“There are plenty of alternatives out there and they are urgently needed given the kind of economic and social imbalances that we are currently facing.”

Kozul-Wright said that central bank chiefs such as the UK’s Mark Carney and US' Janet Yellen seem to think they solved the crisis and blamed any continuing risks on China.

But the global system was still serving narrow interests, and the change that was needed went beyond simply “tinkering with education or credit for poor people or … putting the word ‘inclusive’ in front of every possible economic process you can imagine and believing you’ve solved the problem”.


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