Global economy slows down as wealth inequality worsens

As the elites of global capitalism converged this week for the 2019 World Economic Forum (WEF) in Switzerland’s Davos resort, they were presented with dim projections of world economic growth by three multilateral institutions, the rich nations’ club, and a multinational corporate consulting firm.

The International Monetary Fund (IMF) cut its 2019 global growth estimate to 3.5 percent from 3.7 percent in 2018, seeing risks ahead such as “higher trade uncertainty.” Similarly, the World Bank, the Organization for Economic Cooperation and Development (OECD), and other forecasters downgraded their growth estimates for this year.

Even more cautious, the United Nations Conference on Trade and Development (UNCTAD) put the global growth for 2019 and 2020 at a static 3 percent pace. In presenting its report on the World Economic Situation and Prospects 2019, UN Secretary-General Antonio Guterres noted that the UNCTAD “raises concerns over the sustainability of global economic growth in the face of rising financial, social and environmental challenges.”

For the Philippine economy, which grew more slowly (6.2 percent) than anticipated in 2018, UNCTAD nevertheless predicted full-year growth in 2019 to average 6.5 percent in 2019 and 6.4 percent in 2020; this would be due to “strong government spending and infrastructure investment.” But the “risk of persistently high inflationary pressures,” it warned, could further constrain consumer spending.

Before the four-day WEF events began on Wednesday, the consulting firm Pricewaterhouse Coopers (PwC) released the results of its latest annual survey of 1,300 chief executive officers (CEOs) of big corporations worldwide. It showed 30 percent of them bugged by the prospect of growth decline in 2019, six times more than those who expressed pessimism in 2018.

“Confidence is waning amid rising trade tension and protectionism,” noted PwC chairmn Bob Moritz, citing the following survey findings:

• 35 percent of CEOs saw overregulation as the top threat to businesses, but regarded “policy uncertainty” (a new metric introduced this year) as a close second threat.
• The number of CEOs choosing the US as top market for growth dropped 41 percent, and optimism among North American executives declined from 63 percent to 37 percent.

• 98 percent of US CEOs and 9 in 10 of their Chinese counterparts voiced concerns about the US-China trade war.

Whereas the US was deemed as the center of gravity of capital markets over nearly 50 years, “now you’ve got it shifting a little bit more east,” Moritz said, referring to China and other parts of Asia.

A much bigger problem than these concerns was brought up by the non-profit Oxfam which reported that income and wealth inequality has rapidly worsened worldwide. Consider this: In 2018, the 26 richest individuals owned as much wealth as 3.8 billion people who constituted 50 percent of the poorest of the world’s population (7.4 billion as of 2016).

Following are data from Oxfam’s annual wealth check released for WEF 2019:

• The wealth of the 2,200-plus billionaires across the globe has increased by $900 billion in 2018 alone, or by $2 billion a day.

• The 12 percent increase in the wealth of the richest contrasted with the 11 percent drop in the wealth of the 3.8 billion poorest. But only 26 billionaires owned as much wealth in 2018 as the 3.8 billion poorest, dropping in number from 61 in 2016 to 43 in 2017; there is tremendous concentration among the richest of the rich.

• In 10 years (since the 2008 world financial-economic crisis), the number of billionaires nearly doubled. Between 2017 and 2018 a new billionaire was created every two days.

Oxfam’s director of campaigns and policy, Matthew Spencer, pointedly noted: “The massive fall in the number of people living in extreme poverty is one of the greatest achievements of the past quarter of a century, but rising inequality is jeopardizing further progress.”

For “much of the decline in extreme poverty,” Oxfam credited China’s rapid growth over the past 40 years. Altogether 600 million Chinese left extreme poverty behind in that period.

A Xinhua commentary, timed with WEF 2019, recalls how China made a “historical choice to ride the unpreventable tide” of economic globalization at the end of the 1970s. This meant adopting economic reforms and opening up to the world. China has since become the second-largest economy globally (after the US) with a trade volume of $3 trillion.

How did this happen? According to China’s president, Xi Jinping, who was quoted by Xinhua as telling the Davos forum two years ago: “We have had our fair share of choking in the water and encountered whirlpools and choppy waves, but we have learned how to swim in this process. It has proved to be a right strategic choice.”

In dealing with the problems caused by globalization, Xinhua explained, China has kept its domestic focus: while it’s important to “expand the economic pie, it is even more imperative to undertake domestic reforms and ensure fair distribution.” That’s why, it added, “China has worked so diligently in reducing poverty and went ahead with broader and bolder reforms.”

Rooting out the rapidly worsening disparity in wealth distribution, Oxfam’s Spencer observed: “The way our economies are organized means wealth is increasingly and unfairly concentrated among a powerful few while millions of people are barely subsisting.”

“It doesn’t have to be this way,” he went on. “Governments should act to ensure that taxes raised from wealth and businesses paying their fair share are used to fund free, good-quality public services that can save and transform people’s lives.”

Oxfam is endorsing a proposal to further tax the wealth of the world’s 1 percent super-rich. (In the US their taxes have been cut by the Trump administration.) A 0.5 percent added tax could raise US$418 billion a year, it says, enough to send to school 262 million out-of-school children and provide health care to prevent 10,000 extremely poor people from dying every day.

Participants in the Davos meeting are supposed to discuss “Creating a more inclusive capitalism” as key idea in this year’s theme: “Shaping a new architecture in the age of the Fourth Industrial Revolution.” But will they ever consider paying 0.05 percent more tax on their enormous wealth as proposed by Oxfam and others? It really shouldn’t be much of a burden – since each of them easily pays an annual WEF membership fee of $52,000 and $19,000 for admission to the Davos forum (besides travel and other expenses).

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Email: satur.ocampo@gmail.com.

Published in Philippine Star
Jan. 26, 2019

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