Key trends in the Global Economy Federico Steinberg

Outline Economic Globalization Economic impact Political impact Social, economic and technological global trends Governance of a multipolar global economy

A world in transition Convergence, interdependence and multipolarity Societies are more democratic, older, more urban, more unequal More civil wars and less wars between countries Increasing economic and geopolitical rivalry From a rules based multilateral international system to geoeconomic and political conflict Crisis/transformation of global economic governance institutions From the Atlantic to the Pacific

What is economic globalization? “A dynamic process of global economic integration characterized by increasing freedom in the movement of labor, goods, services, technology, and capital” (De la Dehesa, 2000). Increase in international flows of: Goods Services Capital Information ¿Migration?

Trade to GDP Ratio

The transformation of international trade: MNCs, the breakdown of the production process and New Global Value chains

Why did all this happen? Explanations: - Ideas - interests - Institutions - Technology Is reflected in: - Deep economic liberalization - Incorporation of millions of people to the world economy, especially in Asia - Change in the balance of power

In theory, Economic globalization should imply… Greater economical interdependence Better allocation of resources Higher opportunities for growth Faster nort- south technological transfer Greater incentives for international cooperation But…

New costs and risks… Less policy space for governments in economic policy: The Welfare State under pressure in rich countries Unequal opportunities in poor countries Short run adjustment costs: Higher unemployment/lower wages Sectorial restructuring, relocation and outsourcing Increased inequality (more on this later) Greater economic insecurity: Microeconomic level: personal economic risks Macroeconomic level: higher markets volatility and greater exposure to external shocks

Is globalization something new? Ratios of commercial and financial integration similar to the ones in 1900…BUT: New role of trade in services Intra-industrial trade Role of MNCs Higher financial interdependence: Importance of the portfolio investment flows Frequency of crisis: México 1994/95, Asia 1997, Brazil/ Russia 1998, Argentina 2001, CURRENT Role of emerging markets

The Catch up process … They are at the forefront of global growth Leaders of a new virtuous narrative

Emerging markets re-emerge

Decline of the west / Rise of the Rest And especially of China

A new world map

…and define a new international order? Which we tend to overestimate

They will keep growing Especially Asia An increasingly selective approach in investments will be needed

Interdependence is still key Developed Economies Fiscal Consolidation Weak financial systems Unemployment Debt purchase Emerging Economies Exports Uncertainty Lack of trust Political Tensions

Political effects of Globalisation Diffusion of power in the global economy: Nation States loose power vis a vis: Markets International economic institutions Non-state actors (MNCs, NGOs, mafias, ...)  sovereignty is reduced But : Nation States remain the key actors of the international system Power losses by states are asymmetrically distributed

Demography

Ageing + 40 -30 -20

Demographic giants turn into economic giants GDP PPP, 2016

SOCIAL TRENDS (II) Ageing Urbanization

Inequality

Due to trade or technological change? It speeds up opposition to globalization

Poverty is falling

Social trends (IV): FALLING OF POVERTY AND NEW MIDDLE CLASSES New opportunities for MNCs Important! Products must be tailored

In sum More global markets + National economic policies Unequal distribution of the gains Reduction in sovereignty = CONFLICT Need for new global rules  Global Economic Governance

The governance problem Enormous economic interdependence due to globalization, especially financial integration and global value chains Need for higher economic cooperation (global problems require global solutions) Decline of the west/rise of the rest Divergent views of how to govern the global economy Rising discontent with globalization in advanced countries

Global Governace “Global governance refers to the creation of rules and the exercise of global power [...] As there is no global government, global governance involves strategic interaction between entities that are not distributed in a hierarchical manner. "Robert Keohane Economic perspective: global governance focuses on the provision of global public goods: No rival in consumption Not excludable through the price system With positive externalities and transboundary effects In a multipolar world, without a hegemonic power, international cooperation is needed to provide global public goods WHICH?

Problems and challenges (I) Global governance could be democratic or not Even if it is democratic, it has accountability problems and often a democratic deficit Therefore, the challenge is to establish a democratic global economic governance able of: Taking advantage of the benefits of globalization and reducing its adverse effects Distributing more equally material benefits in order to avoid a backlash against globalization

Problems and challenges (II) Global governance requires transfering sovereignty States resist this. Above all: - US (Post Kyoto, ICC, ODA, etc.). - Emerging countries (irresponsible stance?) The European Union as a model for supranational governance?

Problems and challenges (III) A legitimate (and efective) leadership Long run vision

How to manage interdependency Domestic problems + No risk of global collapse = Difficult international economic cooperation (G20)

Gradual accumulation of: Protectionist and monetary tensions Currency wars? Regional trade agreements which give rise to rival blocs (TPP, TTIP). Or not? Slight deglobalization. Or fast? Low-intensity conflicts. Or not?

Conclusion A world in transition The relative decline of The West A multipolar economy Risks and opportunities associated to globalization