How to Manage the Top Five
Global Economic Challenges
The world’s economic system has been through a lot
in recent years — from the challenge of the financial crisis to income
inequality, the pressures of immigration, changing technologies and geographic
shifts in production, to name a few. In this opinion piece, Kalin Anev Janse,
secretary general and a member of the management board of the European
Stability Mechanism (the eurozone’s lender of last resort), considers five
major challenges and why international organizations offer the best hope for
managing them.
A year ago, we were shaken by geopolitical shifts with
unpredictable ripple effects. The situation looks no more stable today. The
Brexit vote and the U.S. presidential election outcome signal dramatic changes
in cooperation globally and a push for more protectionism. In practice, these
votes called into question the multilateral institutions and international
collaboration among countries that embody that cooperation. In autumn 2017, we
gathered together a group of senior officials from the 13 largest
international organizations to try to crack these problems.
What happened?
Exactly 10 years ago, in 2007, the first signs of the Great
Recession emerged. By 2008, the U.S.-led subprime crisis evolved into a global
financial crisis. By 2010, Europe had become engulfed in its own crisis,
throwing financial markets into turmoil and several sovereigns into a downward
spiral of debt and banking crises.
Despite the current ongoing recovery, and the successful
economic rebound both in North America and Europe, worrying trends became
apparent in 2016. Some major players demonstrated a reduced commitment to
multilateral cooperation, criticism of open and free trade, and fading interest
in climate change. This new landscape increased uncertainty and poses a threat
to more buoyant macroeconomic and financial fundamentals. It also puts a strain
on relations between major players internationally, as well as between citizens
domestically. In countries like the U.S. and the UK, it abruptly split
societies in half and threatened a reverse of seven decades of international
cooperation.
All these elements are putting pressure on international
organizations as well. International organizations are increasingly called upon
to redefine their role to ensure that their programs and activities are still
relevant in this evolving political and macroeconomic landscape. They are also
pushed to show how they add value to citizens’ lives. At the same time, they
need to maintain lean structures to minimize the burden on taxpayers, and enhance
efficiency and effectiveness of their activities. So, what has changed?
Five Major Shifts that Rocked Our World
There are five trend shifts globally that by their nature call
for international cooperation, but they have been underestimated, undervalued
and under-addressed both nationally and internationally. The results shook our
world with an unforeseeable force.
1. Growing Income Inequality
People have an age-old tendency to compare themselves to their
neighbors, especially when it comes to wealth. We are less concerned about our
absolute level of wealth, but look more at what we have and own in relative
terms to the people around us. Global private wealth reached a record $166.5
trillion in 2016, an increase of 5.3% over the previous year, according to a
report by the Boston Consulting Group (BCG). In 2015, the increase was
4.4%. Faster economic growth and stock price performance mainly drove the rapid
increase.
But this growth is not spread equally. Private wealth in
Asia-Pacific is likely to surpass that of Western Europe by as early as the end
of this year, BCG’s analysis shows. This could be an economic shock for many
citizens of traditional western powerhouses. Such changes need to be watched
and managed carefully as they tilt economic and political power. British
geographer and politician Sir Halford Mackinder used to say: “Unequal growth
among nations tends to produce a hegemonic world war about every 100 years.” We
can only hope he is wrong.
Inequality is getting ever worse. A tipping point was reached in
2015, when the richest 1% in the world owned as much as the rest of humanity.
This trend has continued and further accelerated. Just eight men now own the
same wealth as 3.6 billion people globally, more than half of
humanity, according to a January 2017 Oxfam report. Income inequality is on the
rise as the affluent continue to accumulate wealth, often at the expense of the
poorer.
Richard Reeves points out in his book Dream Hoarders,
that we shouldn’t only be worried about the top 1% or 0.01%. More importantly,
in some countries, like the U.S., there is a widening gap in society between
the upper middle class and everyone else. (Reeves defines the upper middle
class as those whose incomes are in the top 20% of U.S. society.) These growing
disparities are reflected in family structure, neighborhoods, attitudes and
lifestyle. The top income earners are becoming more effective at passing on
their status to their children, thus reducing overall social mobility and
increasing social divisions, along class as well as income lines.
And all this has an interesting twist: the inequality paradox.
Despite the progress in reducing global poverty and reduction of inequality
among countries since 1980s, income inequality within countries
has been rising. These days, almost one-third of global inequality is
attributable to in-country inequality, making clear why many voters across the
western world feel as they do.
2. Technology Driving Change in Jobs
How disruptive will the effect of globalization and
technological advances be on labor markets? That is a key question today. Over
the last three decades, advanced economies have seen labor-intensive sector
jobs move to emerging markets. In other cases, new technologies have made
certain occupations obsolete. UNCTAD (United Nations Conference on Trade and
Development) released a policy brief last year that said robots could take
away two-thirds of jobs in developing countries.
We see some of these shifts already. Today’s five largest global
companies are: Apple, Alphabet (Google), Microsoft, Amazon, and Facebook. They
employ around 720,000 people. A decade ago, the big five were completely
different: Petrochina, Exxon Mobile, General Electric, China Mobile, and Bank
of China. They employed around 1.3 million people. What a decade can do!
Today’s five biggest companies are all technology companies. Their market
capitalization is 30% higher than that of the top five a decade ago; they
achieve that with a whopping 44% less staff. This has a large impact on labor
markets and jobs.
Does this alter work preferences? Yes, and this is best assessed
by looking at the two most dynamic groups of (future) job seekers: millennials
and today’s teenagers. They feel that they are receiving conflicting messages
from employers and career advisors: On the one hand, they are told that robots
are bound to replace future jobs; on the other, they need technical skills to
compete in the job market.
Caught in this conundrum, they are trying to create new types of
jobs, rather than going for traditional ones such as banking, finance, or
accounting. They dream of becoming YouTube stars, famous videogame vloggers, or
Instagram travel bloggers who are paid by sponsors to visit hotels and restaurants
around the world and generate sufficient number of likes. New creative
companies pop up even in professions that well-educated young people ignored
for many decades. Old merchants’ jobs have been revived, from organic bakers to
cool rural wine-makers and hipster butchers.
I am less concerned about the imaginative young generation; they
will find their way. It is the group of middle-to-older,
middle-to-lower-skilled workers where issues might arise. A recent McKinsey
estimate shows that 45% of the global working age population is underutilized,
either unemployed or underemployed. Unless there is a redirection of investment
into labor-intensive productive sectors and retraining, the desired job
creation may not happen, fueling unhappiness, unrest and populism.
3. Rising Protectionism
G20 countries have become more protectionist. The total number
of discriminatory protectionist measures implemented by G20 countries has
increased over the past five years. The main driver has been the U.S. According
to the Global Trade Alert report, had the United States been excluded, the
total number of protectionist policy instruments imposed by the G20 would have
been lower in 2017 than in 2016. The U.S. has implemented the most
protectionist and trade restrictive measures of its peer group, the European
Union the least. This sounds counter-intuitive for the country that prides
itself as an open economy, but it seems that it is Europe that is championing
trade barrier reductions and the avoidance of protectionist measures.
4. Increasing Migration
The recent refugee crisis in Syria and the resulting arrival of
more than one million migrants in 2015-2016 in Germany presented a formidable
challenge to political and social stability. In addition to tougher checks on
the EU’s external borders, and a controversial refugee pact with Turkey, the EU
is investing more in the migrants’ countries of origin. The refugees from Syria
have been fleeing a brutal civil war. They are escaping violence, as many also
are from Iraq and Afghanistan, and, in such cases, humanitarian reasons should
always prevail over other considerations. Wars, climate change, and broader
economic and social inequalities are the root causes of migration flows. While
these increases in migration are all easy to understand, they nonetheless cause
issues in the countries of arrival: integration problems, absorption limits and
skills-mismatches.
5. Growing Influence of Social Media and the
Post-truth World
Social media pose the final major challenge to international
organizations. According to a recent analysis by the Reuters Institute for the
Study of Journalism, 51% of people with online access use social media as a
news source. Social media is the primary source for news for 44% of smartphone
users in the U.S. and 38% in the U.K. . Coupled with the proliferation of
so-called fake news, which became so prominent in last year’s U.S. elections,
as well as social media’s favoring of ever shorter and catchier messages, it is
no wonder that many observers are saying we are living in a post-truth world.
A recent BuzzFeed analysis of social media traffic in the run-up
to the November 2016 U.S. elections found that top fake election news stories
generated more total engagement on Facebook than the top election stories from
the 19 major news outlets combined. These trends represent serious tests on
many fronts, including combating terrorism and securing the proper functioning
of democratic institutions. Fear, anger and despair enlist recruits for
terrorism. They also create a more polarized social climate and the rise of
extremism, as we were recently reminded by the tragic events in Charlottesville
in the U.S. or by some half a dozen car terror attacks in Europe this year.
Is Peaceful International Collaboration
Ending?
Despite these daunting challenges, there are also reasons to be
optimistic. At the European level, political leaders have regained faith in
sticking together to address global and societal realities. At least two
factors have been crucial to the recovery of confidence in the European
project. First, the EU is delivering economically. The euro area and the
broader EU recently recorded their highest ever employment levels. Investment
is up, and growth is projected to be on a par with, if not higher than, growth
in the U.S. this year.
Second, despite growing populism, Europe’s citizens have
confidently stood for democracy, open borders, economic reforms, and more
Europe. The results of the elections in the Netherlands and France bore witness
to this positive trend among European societies. In spite of the recent
electoral gains of an extreme right-wing party in Germany, the election outcome
was again clearly pro-European. The continent appears in better shape today
than it did after Brexit one year ago.
In my view, Europe can offer lessons in regional integration
that are relevant for other parts of the world. Among others, my institution –
the European Stability Mechanism (ESM) – is a product of European cooperation
in response to the financial and economic crisis. As the largest and most
active regional financing arrangement, the ESM works closely with its peers in
other regions of the world.
Beyond Europe, the continued rise of Asian economies, as well as
those in Latin America, present new opportunities for strengthening
international cooperation in many of the areas I have mentioned, including
finance, infrastructure, energy, education, climate change and others.
So what does this all mean for public international
organizations? These organizations act as agents of their shareholders (i.e.,
member states) and are called upon to help address difficult challenges. Some
international organizations that raise funds in the capital markets for their
operations, like mine, also have to be attuned to the concerns of their
investors. In general, international organizations also dispose of soft power,
derived from funds and moral suasion based on extensive experience, as well as
the values and norms that they adhere to and champion. Obviously, international
organizations also need a broad-based buy-in from the public at large, in
particular in times of change and uncertainty. All this needs to be done while
maintaining lean organizational structures to keep the costs for taxpayers low.
In our autumn 2017 session of the group of senior officials from
international organizations, we pushed ourselves to find modern ways to explain
better what we do and what we can offer when it comes to tackling these
challenges. Among other matters, we discussed using more social media and empowering
our talented and hard-working staff to share their personal stories, because it
can best demonstrate the tremendous impact of their work.
We also need to make our institutions less bureaucratic and
truly “lean, clean and green,” not only because it is more efficient but also
because it can help us attract more talent among the millennial generation. And
finally, we need to work even harder to better cooperate with each other and to
ensure the missions and activities of our institutions make a difference,
because nothing can demonstrate the value of multilateralism better than
international organizations delivering effective and sustainable solutions to
the most pressing global challenges.
But at the end there is only one question that matters: Is there
any alternative way to making our world with more than 7 billion people work?
Not at this stage – multilateral institutions and international organizations
have proven to be the most effective way to solve complex global problems in a
peaceful and constructive way. All other alternatives involve far more
violence, aggression and isolation. If we look through the eyes of our
children, it is much wiser to collaborate and work together rather than fight
(digitally) with our global neighbors, whether close by or far away.
(This article reflects the personal opinion of
Kalin Anev Janse. It is adapted from a speech he gave to senior officials from
the 13 largest international organizations, including the World Bank and the
International Monetary Fund.)
http://knowledge.wharton.upenn.edu/article/what-are-the-top-five-challenges-for-international-organizations/?utm_source=kw_newsletter&utm_medium=email&utm_campaign=2017-11-02
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