Inequality must be addressed - by the community if not the government
Andrew Sheng says social policy must complement growth strategy to improve the global economy
The year end is not a bad time to reflect on where we are headed in a year of huge uncertainties. At the beginning of the year, the major headline events - Ukraine, Islamic State, the oil crash and Occupy Central - were not on most people's radars. As the year proceeded, there was a realisation that we are heading towards a period of slower growth and higher volatility, with little inflation, as commodity and oil prices fell to levels not seen since the 1990s.
The Global Citizen Foundation has just published Towards a Better Global Economy, a book detailing its research project involving top development thinkers' take on how to achieve better growth amid globalisation. This is important. Meanwhile, in his survey of "The Past, Present, and Future of Economic Growth", Princeton professor Dani Rodrik suggests that a key phase of past economic growth - when East Asia-led growth allowed the developing world to catch up with the advanced countries and brought millions out of poverty - may be ending.
Rodrik's recommendations for struggling emerging markets are to focus on "a stable macroeconomic framework, incentives for economic restructuring and diversification (both market-led and government-provided), social policies to address inequality and exclusion; continued investment in human capital and skills; and a strengthening of regulatory, legal and political institutions over time". In other words, greater complementarity between growth strategy and social policy.
Rodrik and his colleagues recognise that a world that is more diverse would be more stable and sustainable than one being made more "harmonised and coordinated" in trade and finance - the old model which drove globalisation under the Washington Consensus.
Because there is a gap between the demand for the desired amount of global public goods (such as clean air and water) and its supply, governments need to consider feedback from citizens that will inevitably push for some "deglobalisation" and diversity of views and action.
Nothing illustrates this decline in the global peace dividend more than in the economic costs of the Iraq and Afghan wars for the US. The Financial Times reported this week that the two wars combined cost US$2.7 trillion, excluding future costs in terms of military pensions, medical services and disability costs. Despite the price, US efforts have arguably not solved the civil unrest in the Middle East.
No single country can afford to maintain global peace any more. That inevitably means local conflicts and unrest will escalate. Such local wars will rewrite the artificial borders written in the colonial era, and will change the growth game.