The World Economic Forum (WEF) has concluded in Davos but questions remain on the outcomes as well as the message from the international community on reviving the global economy.
If one observes the discussions, reports and analysis broadly, we arrive at important conclusions. These two conclusions are overarched by the strong political commitments made by two big nations of the world — China and India — towards a shared future to revive the global economy in the interest of mankind.
Chinese President Xi Jinping’s vision of ‘Building a Community with a Shared Future for Mankind’ put forward by Liu He as well as India’s Prime Minister Narendra Modi’s vision that India has believed in Samagrata or Purnata and emphasising it in ‘Vasudhaiva Kutumbakam’ (The world is one family) indeed made an impact.
Inadequate Economic Governance
The first conclusion would be inadequate global economic governance is making it difficult to adapt to new developments in the global economy. The global economy is now growing at its slowest pace in seven years. Growth of global trade has been slower than the global GDP growth.
Short-term policy stimuli have been ineffective and fundamental structural reforms are just unfolding. Emerging markets and developing countries already contribute 80% to the global economy.
The global economic landscape has changed profoundly in the past few decades. However, the global governance system has not embraced those new changes and is, therefore, inadequate in terms of representation and inclusiveness.
The global industrial landscape is changing and new industrial chains, value chains and supply chains are taking shape. However, trade, investment and institutional rules (collective action) have not kept pace with these developments, resulting in acute problems such as closed mechanisms and fragmentation of rules.
The global financial market needs to be more resilient against risks but the global financial governance mechanism fails to meet the new requirement and is thus unable to effectively resolve problems such as frequent international financial market disturbances.
Alternatives to Privatisation
Economists and social scientists have challenged the current economic orthodoxy and stated that there are indeed alternatives to privatisation and markets in generating wealth and human well-being.
For example Nobel laureate Elinor Ostrom contended that the principles of individual freedom, responsibility, resourcefulness and entrepreneurial creativity that make capitalism flourish can also apply to cooperative economics. To substantiate it, one has to understand the last global recession of 2007-08, which exposed the shortcomings of market fundamentalism, and also the collapse of Soviet Union, which showed the defects of state regulation.
Capitalism failed to effectively distribute capital and manage risk in America’s financial markets. The forces of globalisation caused failures of the markets, plunging the world in a deep economic recession. The ensuing economic crisis had severe negative impacts on the majority of enterprises the world over.
However, very few know that cooperative enterprises with inclusiveness and social equity have withstood such crises successfully. This is a model of business that is not at the mercy of stock markets because it relies instead on member funds for its value; and is not subject to executive manipulation and greed because it is controlled by local people for local people.
It is a business where the profits are not just distributed to its shareholders but are returned to those who trade with the business, thus keeping the wealth generated by local businesses in the local community for the good of the local environment and families.
According to a UN report, cooperative enterprises, such as financial cooperatives, have been financially quite sound; agricultural cooperatives have reacted successfully with new marketing options and have even shown real growth rates; consumer cooperatives have reported increasing turnover and worker cooperatives have sustained growth in the periods of global recession.
So, today there is an alternative secure, stable and sustainable model of business owned and controlled by 800 million people worldwide. Agriculture cooperatives with over 400 million-member farmers are responsible for over 50% of the agricultural production and marketing in the world.
It is no coincidence that the world’s most successful and stable economies generally also happen to have the world’s most cooperative economies.
The second conclusion would be that uneven global development makes it difficult to meet people’s expectations for better lives. According to a research report by Deloitte Global presented at the WEF, while executives conceptually understand the changes the fourth industrial revolution (Industry 4.0) characterised by digital technologies such as analytics, artificial intelligence, cognitive computing and the internet of things (IoT) will bring, they are less certain how they should act to benefit from those changes.
The fourth industrial revolution is expected to produce extensive and far-reaching impacts such as growing inequality, particularly the possible widening gap between return on capital and return on labour. The richest 1% of the world’s population owns more wealth than the remaining 99%.
Inequality in income distribution and uneven development space are worrying. Over 700 million people in the world still live in extreme poverty, in India it’s 290 million. For many families, to have own house, enough food and secure jobs is still a distant dream. This is the biggest challenge facing the world today.
“Three countries in particular — India (32%), South Africa (28%) and China (23%) — envision social upheavals and increased income inequality as a result of Industry 4.0,” the report noted. All this shows that there are indeed problems with world economic growth, governance and development models, and they must be resolved.
NGOs and civil society leaders have correctly articulated in many forums at Davos the question: Isn’t it ironic that to reiterate their commitment towards a more equal world, they need a platform that is basically looking to grab every possibility to multiply business and profits? It is this challenge that has to be overcome by the countries as well as the international community
(The author is an MLA)