The Bank for International
Settlements (BIS), which reflects the thinking among central bankers across the
word, has launched a passionate defense of the economic benefits of
globalization but acknowledged the subsequent rise in income has not been evenly spread and called for sound domestic policies to help those who are negatively affected.
In a early release of a
chapter from next week's annual report, BIS tackles one of the central
questions of the political discourse of the 21st century: Does
globalization benefit or hurt mankind?
"Globalisation has had
a profoundly positive impact on people's lives of the past half-century," answered BIS, the Swiss-based organization that is also known as central bankers'
bank.
"Nevertheless, despite
its substantial benefits, it has been blamed for many shortcomings in the
modern economy and society."
BIS admits that income
gains from global trade are unevenly distributed and the benefits to unskilled
labour in advanced economies may well be diminished because of the greater competition
from the large pool of unskilled labour in emerging markets, which then in turn
may benefit.
"The biggest gains
have accrued to the middle class of fast-growing EME's and the richest citizens
of advanced economies," said BIS, adding that the global upper
middle class has experienced little income growth."
Other the other hand,
global trade leads to lower prices for goods that are disproportionately
consumed by lower-income households, boosting their relative purchasing power
so the net effect on inequality from open trade is uncertain, BIS said.
By releasing a single
chapter and foreward from its annual report, BIS adds weight and importance to
its message about the benefits of globalization. BIS has credibility: It warned
authorities and the financial community well in advance about the build up in
credit that eventually burst and unleashed the 2008 global financial crises.
But while globalization has
reduced poverty and raised living standards worldwide, for example in China, the
uneven distribution of its benefits within countries has allowed its critics to
confound the challenges it poses with the main drivers of many economic and
social ills.
"High inequality
appears to be harmful to growth and has undermined public support for
globalization," said BIS.
BIS clearly fears that
lessons from the past and gains in living standards will be overlooked in the
current political climate, most notably in the United States where U.S.
President Donald Trump has blamed globalization for a loss of jobs and low
wages in some industries.
"Critics often blame
globalization for the rising inequality in some industrialized countries,"
said BIS General Manager Jaime Caruana, adding:
"Empirical studies
show that other factors, mainly technology, have played a bigger role."
While globalization has
been made a scapegoat by opportunistic politicians, BIS says globalization is
not responsible for a rise in income inequality within countries and instead of
rolling back globalization it should be properly managed, domestically and
internationally.
BIS, which draws its staff
from central banks worldwide as well as academia, called for a international
regulatory approach to ensure that policymakers manage global financial risks,
one of the integral aspects of globalization.
Click to read
"Understanding globalization", chapter VI in this year's annual report.
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