The R word from Davos

This piece on the Davos discussions suggests that, if we’re real about confronting the rise of populism and the anger and frustration by which it is fuelled, we’re going to have to contemplate the prospect of the “R” word – redistribution.

Written by Peter Goodman, the article is punchy and direct.

“What is striking,” he notes about the Davos panels and speeches, “is what generally is not discussed: bolstering the power of workers to bargain for better wages and redistributing wealth from the top to the bottom.”
“That agenda is anathema to a lot of Davos men and women,” he quotes  Joseph Stiglitz, a Nobel laureate economist and author of numerous books on globalisation and economic inequality. “More rights to bargain for workers, that’s the part where Davos man is going to get stuck. The stark reality is that globalisation has reduced the bargaining power of workers, and corporations have taken advantage of it.”

Goodman reports that Davos is – at least rhetorically – consumed with worries about the shortcomings of globalisation. About the deepening anxieties of the middle class in many developed economies. About the threat of trade protectionism and its attendant hit to economic growth. About the fear that robots are on the verge of sowing mass unemployment.

It is, he argues, a conversation fuelled in part by fear. But his analysis is unflinching:

The Davos elites have enjoyed outsize influence over economic policies in recent decades as a growing share of wealth has, perhaps not coincidentally, landed in the coffers of people with a need for bank accounts in the British Virgin Islands, while poor and middle-class households have seen their earnings stagnate and decline.

The view is rapidly growing that some kind of engagement with a genuinely redistributive policy, together perhaps with the discussion about variations on the universal basic income approach, is going to be necessary in the light of rising in equality and the loss of jobs from automation especially.

But it’s obviously not that simple.

Goodman reports that at the Davos discussions, Ian Goldin, a professor of globalisation and development at Oxford University, “celebrated the connectedness of the global economy and the technological advancements that have liberated humans from disease, poverty and the drudgery of manual labor.”

He denounced the frightened retreat from globalisation manifest in Trump’s threats of a trade war with China, and in Britain’s abandonment of Europe, commonly known as Brexit. Goodman’s report captures Professor Goldin’s concerns this way:

“You can’t stop managing an entangled environment by disconnecting,” he said. “This is the fundamental mistake of Brexit, of Trump, and of so many others. We are not simply connected. We are entangled. Our lives, our destinies are intertwined. What happens in China, what happens in Indonesia, what happens in India, what happens across Europe, and what happens in North America, across Africa and Latin America will affect all of us in dramatic new ways. The idea that somehow we can forge our future in an insular way, even for the biggest countries like the US, is a fantasy.”

Professor Goldin pointed out, though, that the benefits of globalisation are not spread more equitably, the world could be in for a replay of the Renaissance, an extraordinary period of scientific progress, commercial growth and artistic creativity in Europe that ultimately yielded popular resentment.

Goodman reports that Christine Lagarde, managing director of the International Monetary Fund, injected a rarely heard word into a conversation about the crisis for middle-class households: redistribution.

“There are things that can be done,” she said. “It probably means more redistribution than we have at the moment.”

But there are other views.

The story notes that Ray Dalio, founder of the American investment firm Bridgewater Associates paid $1.4 billion in 2015 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.

Stiglitz again:

People talk about inequality, how it’s a major problem, the greatest threat to globalisation and the global economy. You have to recognize that the way we have managed globalisation has contributed significantly to inequality. But I have not yet heard a good conversation about what changes in globalisation would address inequality.

Goodman’s prognosis is not hopeful.  Any “sincere list” of things to be done to confront rising inequality “would have to include items that involve transferring wealth and power from the sorts of people who come to Davos to ordinary workers via more progressive taxation, increased bargaining rights for labor unions, and greater protections for labor in general.”

Unlikely, he thinks.  Which means the “global populism insurrection is unlikely to lose momentum anytime soon.”.