Unjust economy

Our official economic managers led by their political bosses are painting a highly alluring picture of the economy five, 10 or 25 years hence. On the other hand, most of our independent economists seem extremely worried about the current state of economy. It is, of course, not a case of one claiming that the glass is half full and the other asserting that it is half empty. Embedded in the claim of the former is the assertion that the current state of economy was not bad at all while the latter appears to be in total disagreement with this contention.
The officials and their political bosses perhaps believe that the so-called macroeconomic stability that they had imagined (wrongly) to have achieved by 'adhering' to the prescriptions of the just concluded IMF programme ensured an accelerated rate of growth in the years ahead and that perhaps they further believe this rate of growth would result in generation of plenty of national wealth and prosperity by the next decade or two. The independents, however, not only reject this mistaken belief of the former as in their opinion the Fund's program had in fact caused stagnation rather than growth and that the official data contrary to this fact was nothing but a 'dressed up' concoction.
Since there appears to be no common ground for the two to meet, it would perhaps help both the contending parties reassess their respective contentions by taking a closer look at the World Economic Forum's Inclusive Growth and Development Report 2017 which lays out strategies for increasing not just GDP but the extent to which this top-line performance of a country cascades down to benefit society as a whole. According to the report, this can be achieved by placing people and living standards at the centre of national and international economic policies.
The following are some of the salient features of the Report gleaned from dispatches (Agenda, weekly) of Adrian Monck, Head of Public Engagement and Foundations, Member of the Managing Board, World Economic Forum Geneva:
Education, infrastructure, ethics, investment, entrepreneurship and social protection are just some of the factors playing into creating this new economic policy - and the mix will be different for each country.
An old dividing line - class - is re-emerging. The picture that has emerged in recent past shows on the one hand, an increasingly wealthy, powerful and many would argue out-of-touch elite; on the other an angry, disillusioned and squeezed middle class, one pay cheque away from poverty.
In the aftermath of the Brexit and the election of Donald Trump, many in the establishment were quick to criticize voters for their shortsightedness. But the message from leaders in Davos was a different one: we did not see this coming because we are out of touch with the real world.
It's because the political and business elite seem out of touch that people have started turning to populist leaders. And unless mainstream leaders start listening, this trend will continue.
Leaders need to do a better job of listening to the anger, the discontent, the frustrations, and the resentment - even when they take sometimes ugly, odious forms - because there is something to learn. There are, embedded in those frustrations, legitimate grievances and aspirations that we have not successfully addressed for quite some time.
But more than listening, it requires actually giving people a voice, allowing them to have a say in decisions that will affect their lives. What people seem to be calling out for, when faced with powerful but faceless forces like globalization and automation, is a sense that they at least have some control over their destiny.
Participants at the World Economic Forum in Davos considered a novel "old" cure: wealth redistribution. But they seemed split over the model (voluntary or through taxation), and over whether a more familiar recipe wasn't better: to make the pie bigger, rather than to give others a bigger slice.
If anyone still needed reminding of the causes of public discontent, Winnie Byanyima from Oxfam International provided a rallying cry for more equality. "8 men have the same wealth as 3.6 billion of the world's poorest people," she wrote on Agenda. "We must rebalance this unjust economy."
Her message was echoed by many Davos participants. There were calls for creating social safety nets for the dispossessed. In other words: the wealthy should share more with the rest of society.
If that message was still rather veiled, it came out in the open in a session that was aptly called "Squeezed and Angry: How to Fix the Middle-Class Crisis". Christine Lagarde, the chief of the International Monetary Fund, called explicitly for redistribution. "It's an opportune time to put in place the policies we know help," she said. "When you have a real crisis, what kind of measures do we take to reduce inequality? It probably means more redistribution."
In his last speech as US vice-president, Joe Biden made it clear he was an ardent supporter of higher taxes to pay for rising standards of living for the middle class. "Our goal should be a world where everyone's standard of living can rise together," he said, adding that there was an urgent need to take "common sense" steps like "implementing a progressive, equitable tax system where everyone pays their fair share."
Some participants went even further, supporting a plea that "we should all have a basic income". Most notably, World Economic Forum Foundation Board Member Marc Benioff opined in Fortune that "we need to look at universal basic income, where governments would provide citizens additional income beyond what they already earn at their jobs."
But not everyone agreed that such "radical" solutions needed to be government-led. In a session on corporate social responsibility, Chobani founder Hamdi Ulukaya urged more voluntary action by employers. He is leading by example: he started a profit-sharing program at Chobani five years ago. "We gave all full-time employees a chance to share in our growth," he said. "Compensating our workers fairly was not only the right thing to do; our record shows that it has also been economically smart."
But for every advocate of redistribution and corporate action, there seemed to be another one for government "laissez-faire", preferring a pro-growth medicine to heal the ails of a struggling middle class. "Davos would do better thinking of growth, rather than redistribution," said Ken Moelis, Founder and CEO of Moelis & Co Ray Dalio, founder of the American investment firm Bridgewater Associates, suggested the key to reinvigorating the middle class was to "create a favorable environment for making money," He touted in particular the "animal spirits" unleashed by stripping away regulations.
It opened the door to a "two-track economic plan", which Rwandan Minister of Finance Claver Gatete said had worked best for his country: one to promote growth, and another one to eradicate poverty and strengthen the middle class. But with inequality increasing rapidly, the World Economic Forum's own recommendation was clear: "Move away the focus from plain wealth creation towards accomplishing a combination of other goals, producing more inclusive development."
Christine Lagarde did her best effort to underline that message. In Martin Wolf's closing panel on the Global Economic Outlook she reminded participants that "growth will not be sustainable if it is not inclusive". It followed her earlier warning that "if policy makers don't get it now, I don't know when they will."
The following are some of the out-of-the-box suggestions for promoting inclusive growth: "I would pay teachers at schools in poor communities such high wages that the very best people would want to take the job. That's not the only change needed in education. We must also think more seriously about the skills our children will need for the world they'll graduate into, and how to equip them with those skills. And the needs will differ from place to place, so more local control over education policy would make sense, too. But the top priority should be getting society's most talented people on the task of preventing whole communities from falling further and further behind." - Diane Coyle, Professor of Economics, University of Manchester.
"Now, if you ask me about a specific policy, I'd say taxing financial transactions - particularly on capital outflows, but not only - would probably be a place to start. The levy need not be high, but even a symbolic amount would, in its compound effect, reduce the risks of boom-bust cycles that make managing the structural strains of globalization even harder. When that fails, a financial tax would also be a source of useful revenue to underwrite adjustments - maybe even someday financing universal basic incomes." - Ian Bremmer, President, Eurasia Group
"The economic model that has profited the 1% is a failed model of low wages, insecure and often unsafe work where freedom of association and other rights are denied by corporations outsourcing responsibility. This now means that up to 94% of the workforce they depend on is a "hidden workforce" which even encompasses informal work and pockets of modern slavery.
"There is only one answer: we need to change the rules and give people hope. I would like to see: * A global pay rise. Reverse the income flow to the 1% with universal social protection, minimum living wages and collective bargaining. We should also increase labor market optimism with investment in jobs through infrastructure and the care economy. Security at work. The rule of law and corporate responsibility. Regulate the digital economy. Root out the cheaters. End tax fraud and transparency through 'beneficial ownership' laws for corporate structures." - Sharan Burrow, General Secretary, International Trade Union Confederation