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.
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