“Don’t ditch multilateralism, invest in improving it”

8 December 2017
ITC News
Statement by ITC Executive Director Arancha González at a debate with Jeremy Corbyn, Nikhil Seth and moderated by Paul Ladd (UNRISD)
Geneva 8 December 2017

Thanks Paul for organising this timely debate.

I am just about to jump on a plane to attend the WTO Ministerial Conference in Buenos Aires. What will be at stake there is multilateralism in trade, which is facing very strong headwinds.

As Jeremy [Corbyn] just noted, this is not the finest hour for international cooperation. On the great collective action problems of our age –curbing climate change, managing migration, adjusting to tectonic shifts in geopolitics and technology – the quality of our cooperation is not equal to the gravity of the challenge.

But what I want to argue today is that:

- the international economic order has in fact been wildly successful;
- that the institutions commonly referred to as ‘neoliberal’ afford their members ample space to pursue domestic social objectives;
- and that the most promising way forward for rights-based multilateralism is not to throw away the world order, but to improve the one we have;

To be clear, there is much to improve, and business as usual cannot get us to where we need to be. But I will return to that later.

The existing world order has been a remarkable success

First, let’s look at the case for the current world order. By most objective measures of human well-being, we have never had it so good.

Last year marked the first time in recorded history that less than one person in ten lived in extreme poverty. We have not quite achieved freedom from want, but today we humans are healthier, more educated, and less likely to die in childbirth or childhood than any previous generation. Freedom from fear, too, is closer within reach: we are less likely than almost any of our ancestors to die violently.

In little over a generation, the world has been transformed. As recently as 1981, over 40% of the global population lived in extreme poverty. Today, the Sustainable Development Goals realistically target its eradication by 2030.

The primary driver of this decrease in deprivation was rapid and sustained economic growth, especially in populous developing countries like China, India, Indonesia, and Brazil.

The adoption of market-oriented domestic policies at home did much to spur this growth. But a global economy that was increasingly open to trade and investment was an essential factor in making fast growth possible.

Trade lets countries ‘import what the world knows and export what it wants’. Open global markets allow countries with small home markets to use external demand to shift people and resources out of subsistence activities, and into more productive tradable goods and services. Following the example of postwar West Germany and Japan, countries from Korea to Vietnam, China to Morocco, hitched their wagons to the world economy. Growth rates rose sharply. Poverty rates plummeted.

International rules and institutions played an important role here. Governments anchored market-opening commitments at the General Agreement on Tariffs and Trade, the predecessor of the World Trade Organization. These pro-openness obligations and norms helped governments withstand domestic pressures to raise barriers in the face of new sources of competition. Slamming markets shut would have nipped nascent growth miracles in the bud.

No neoliberal order but plenty of neoliberal policies

Let me now turn to ‘neoliberalism’, and how it fits in to this story.

I know you will think I am a bit provocative but in my view there is no neoliberal order; there are neoliberal policies, plenty of them!

Take the WTO, which many dub as neoliberal. The fact is that we need cooperative, multilateral economic institutions to achieve the Sustainable Development Goals. Our economies are closely entwined, and our environmental impacts respect no borders. To maximise benefits and minimise cross-border frictions, we need to cooperate.

Focusing too much on neoliberalism risks throwing the baby out with the bathwater. Neoliberalism is an ill-defined term, used more frequently to insult than to enlighten. Broadly speaking we can probably agree that it favours market incentives and private entrepreneurship. The term gained currency when it became associated with economic globalization in the 1990s.

So far, so straightforward. But if we try to come up with a scorecard for the neoliberal era, things quickly become complicated.

For instance, neoliberalism is typically associated with rising inequality. Yet at the global level, the past 30 years of growth and poverty reduction have benefited the many, not just the few.

The post-1989 heyday of neoliberalism has seen global inequality decline for the first time since the dawn of the industrial revolution. If we take the world population as a whole, an immense gap in income inequality opened up after the early 19th century, the result of a great divergence between the living standards of Westerners and everyone else. Only in the 1980s did this gap begin to narrow. And as we have seen, that had much to do with moves towards market incentives, at home and externally, in places like China and India.

Of course, there is a flip side to this story. Within-country inequality has increased in many countries.

In advanced economies in particular, working class and less-educated voters have been on the sharp end of a generation’s worth of changes in both trade and technology. The hardest-hit sectors and regions of some countries are less ‘pockets’ of poverty than they are the entire trousers!

In emerging economies, meanwhile, growing inequality is fuelling social resentment, potentially sowing the seeds of a future backlash. Not to forget the left-behind countries of the so-called “bottom billion”, which remain on the margins of the world economy.

Don’t blame globalisation for what governments failed to do at home

It has become commonplace to view rising inequality and exclusion as an inevitable consequence of globalisation. This is an unfortunate excuse, because there is nothing inevitable about it.

Let’s look at income inequality within advanced economies, a key factor in the current political tensions around globalisation. For all of these countries, the forces of technology and trade openness have been roughly identical. But the outcomes have been very different. In the US, the UK, Ireland, and Australia, the share of total income going to the top 1% has risen sharply since 1980. In Denmark, the Netherlands, France, and Germany, however, the share of the 1% has not risen much at all.

Now, it’s possible that the real problem is the English language. But a much likelier explanation is that the second group of countries actively used domestic tax, transfer, labour, and education policies to ensure that the gains from growth were more widely shared. These policies were in no way constrained by their membership in the WTO. In fact, another institution generally thought of as neoliberal, the International Monetary Fund, recently urged governments to make their tax systems more progressive. It called for raising top marginal rates on income, and taxing capital more effectively. This is good advice, whatever the source.

To sum up: countries had the tools to deal with rising inequalities of income and opportunity at home. Many of them failed to use these tools, and instead blamed the “system”, the “order”. We should not be surprised that voters are angry.

Is closing markets the solution? No. The open global economy has helped deliver unprecedented prosperity. Abandoning it would diminish growth and development potential everywhere, especially for the ‘bottom billion.’

Without ending marginalisation within and between countries, we will be unable to achieve the economic, social, and cultural rights set out in the Universal Declaration on Human Rights. Nor can we hope to achieve the SDGs. This demands action at home, and better cooperation at the international level. And it is why the organisation that I head, the International Trade Centre, works to connect small and medium-sized enterprises from marginalised countries and communities to international markets.

Improving the world order we have

The post-war order has achieved much of what it set out to achieve. But today we face a new set of defining challenges:

• A changing balance of political and economic power.
• Climate change on a trajectory that poses an existential threat to our lives.
• An economy in brutal transformation, with intelligent machines increasingly capable of replacing human workers across a growing range of activities.

To tackle each of these challenges effectively, we need to strengthen and build on the existing world order. We must act simultaneously, both internationally and at home.

In a multipolar world economy, we need international cooperation to manage the inevitable frictions. This cooperation is not about naivety, it is about efficiency. Constructive engagement in international institutions must in turn rest on political consensus at home. This goes both ways: effective engagement abroad can increase governments’ ability to act at home in service of their citizens’ well-being.

To take one example, global action to close tax havens would make it easier for national governments to fund the education and social protection programmes necessitated by large-scale automation.

On climate change, too, national efforts to curb emissions were greatly boosted by the international Paris Agreement. As countries work to ratchet down emissions even further, action at the WTO could play a useful supporting role. Governments could lower trade barriers to environmental goods and services, cut fossil fuel subsidies, and agree on shared parameters for supporting the development of new renewable energy technologies. Cutting subsidies that contribute to overfishing is something WTO members could accomplish at MC11.

Positive reinforcement between the national and international levels can take many forms. Next week in Buenos Aires, over one hundred WTO members will sign a declaration on women and trade committing themselves to learn from each other about to empower women within the global economy.

But vicious circles are possible too. If large numbers of people feel that their interests are being consistently neglected, opportunistic leaders might well seek to direct their frustration outwards, against trade and immigration. A malfunctioning international economy would in turn make it harder to achieve broad-based growth at home.

Political illusionists dangle the image of ‘control’, of a fully sovereign home unsullied by political compromise with others. What they don’t tell you is that in such a home, everyone would be poorer.

Today, countries frequently have to balance national policy space against greater economic opportunity. Imagine you and I agree to harmonise our product regulations and recognise the verdicts of each other’s regulatory authorities. Do I still have full regulatory autonomy? No, I don’t. But my companies get way better access to your market. These trade-offs should be made honestly, in full public scrutiny. Sometimes, they may not be worth the price. But no one should pretend we can get the opportunities without the constraints.

Voters and elected officials alike will have to embrace complex ideas. The idea that ‘control’ can be about alliances enabling a country to punch above its weight class on the global stage. The conviction that national identities can be broadened and redefined, so that people see each other as fellow citizens irrespective of religious identity or ethnic origin.

Is this a tall order? It is. Is it unrealistic? Not if we’re serious about rights or multilateralism.