Nothing good will come of Davos

Those on the left of the political spectrum argue that many of the world’s problems are caused by big business exploiting the poor. Those who support a free economy, meanwhile, lay many of the world’s problems at the door of public debt, high taxes or government regulation simply not allowing a thriving entrepreneurial economy.

Both sides of this debate tend to be agreed, however, that little good and much harm comes from a cosy relationship between big business and big government which exploits the people to the benefit of corporate and state interests.

This is a rather inauspicious starting point for considering whether the Davos meeting of the world’s political and business elites will bring about useful change.

In political circles, there is much talk of poverty, inequality and the 1 per cent. But the big news of the last generation is the number of people who have actually been lifted out of grinding poverty as a result of continued globalisation.

Unprecedented improvement

Recent improvements in living standards of the world’s poorest people are unprecedented. Many parts of Asia have grown at extraordinarily rapid rates, and Africa is not only growing more rapidly and more sustainably than at any time in the post-war period, but inequality seems to be falling too.

It is true that much more needs to be done. The right policies, for example, would ensure that India grows as rapidly over the next two decades as China has in the past two. This doesn’t require grand pledges of aid or other action agreed at the Davos talking shop. In India, 40 per cent of food rots before it gets to market because of poor supply chains and petty bureaucracy, a situation that will only end when the economy liberalises. A change in domestic policy is required. The necessary reforms will be homegrown and not determined in European ski resorts.

There are also changes to the world’s trading system that would help poorer countries. Within Africa, there is very little trade between the different nations – intra-African trade represents just 10 per cent of the continent’s total trade, and the bureaucratic obstacles can be formidable. A recent Brookings Institution Report described one African border crossing where up to 15 different government agencies bogged things down in paperwork and procedures.

The removal of trade barriers – especially in relation to agricultural goods – imposed by rich countries against poor countries would also be of great help. But there are already forums in which these things should be dealt with, including the World Trade Organisation.

Insofar as inequality is a major problem that needs to be addressed, one wonders what a meeting of a group of the world’s most privileged people will achieve. To some extent increases in inequality, especially within countries, are an inevitable result of the process of globalisation that has improved the living standards of so many very poor people.

Let’s take an example. Compare Kevin Pietersen with Sir Leonard Hutton. Both were leading cricketers of their generation. Globalisation – for example of television sport and the brand of the India Premier League – means that Pietersen can extract the value from his services worldwide from anybody with a television through a complex network of commercial enterprises. Hutton was confined to the earnings he could extract from minor promotional work and playing cricket (more or less confined to England) and being watched only by those who turned up at the ground. But now consider the person serving the coffee at the Oval cricket ground. This is a job where there is no global brand for the worker to leverage. The skills are not specialist (you can increase the supply of people serving coffee but there is only one Kevin Pietersen); indeed, migration increases the pool of people who can do the coffee server’s job.

These changes are beneficial. Many, many more people can watch Kevin Pietersen than could watch Sir Leonard Hutton. The Indian public as well as the British are better off. Some gain more than others and Kevin Pietersen gains much more than anybody else. The same is true for global entrepreneurs. Their brands such as Google and Microsoft enrich us all but they enrich some more than others.

Enriching us all

While not wishing to reverse the changes brought about by globalisation, politicians can ask themselves what changes would both move policy in the right direction and help the least-well-off who may, in developed countries, have benefited relatively less from greater freedom to trade.

The answers may vary from country to country, but in the UK they are pretty clear. Here are three policies that would greatly decrease living costs for the poor: a huge liberalisation of planning laws; the abolition of the Common Agricultural Policy and other trade restrictions in the EU; and a reconsideration of green policies that increase energy bills.

But don’t expect these policies to come out of discussions among the international business and political elites in Davos. Helping the worst-off requires solutions which do not seem to be on the agenda of the global elites.

An earlier version of this article was published on The Conversation.

Academic and Research Director, IEA

Philip Booth is Senior Academic Fellow at the Institute of Economic Affairs. He is also Director of the Vinson Centre and Professor of Economics at the University of Buckingham and Professor of Finance, Public Policy and Ethics at St. Mary’s University, Twickenham. He also holds the position of (interim) Director of Catholic Mission at St. Mary’s having previously been Director of Research and Public Engagement and Dean of the Faculty of Education, Humanities and Social Sciences. From 2002-2016, Philip was Academic and Research Director (previously, Editorial and Programme Director) at the IEA. From 2002-2015 he was Professor of Insurance and Risk Management at Cass Business School. He is a Senior Research Fellow in the Centre for Federal Studies at the University of Kent and Adjunct Professor in the School of Law, University of Notre Dame, Australia. Previously, Philip Booth worked for the Bank of England as an adviser on financial stability issues and he was also Associate Dean of Cass Business School and held various other academic positions at City University. He has written widely, including a number of books, on investment, finance, social insurance and pensions as well as on the relationship between Catholic social teaching and economics. He is Deputy Editor of Economic Affairs. Philip is a Fellow of the Royal Statistical Society, a Fellow of the Institute of Actuaries and an honorary member of the Society of Actuaries of Poland. He has previously worked in the investment department of Axa Equity and Law and was been involved in a number of projects to help develop actuarial professions and actuarial, finance and investment professional teaching programmes in Central and Eastern Europe. Philip has a BA in Economics from the University of Durham and a PhD from City University.

1 thought on “Nothing good will come of Davos”

  1. Posted 23/01/2014 at 21:50 | Permalink

    Well done Philip. A cracking read

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