CHART THE RIGHT COURSE FOR ECONOMIC GLOBALIZATION

CHART THE RIGHT COURSE FOR ECONOMIC GLOBALIZATION*

January 17, 2017

“It was the best of times, it was the worst of times.” These are the words used by the English writer Charles Dickens to describe the world after the Industrial Revolution. Today, we also live in a world of contradictions. On the one hand, with growing material wealth and advances in science and technology, human civilization has developed as never before. On the other hand, frequent regional conflicts, and global challenges like terrorism, refugees, poverty, unemployment, and a widening income gap have all added to the uncertainties of the world.

Many people feel bewildered and ask themselves: What has gone wrong with the world?

To answer this question, one must first track the source of the problem. Some blame economic globalization for the chaos. Economic globalization was once viewed as the treasure cave found by Ali Baba in The Arabian Nights, but it has now become a Pandora’s box in the eyes of many. The international community finds itself in a heated debate on economic globalization.

Today, I wish to address the global economy in the context of economic globalization.

The point I want to make is that many of the problems troubling the world are not caused by economic globalization. For instance, the refugee waves from the Middle East and North Africa in recent years have become a global concern. Several million people have been displaced, and some small children have lost their lives while crossing the rough sea. This is indeed heartbreaking. It is war, conflict and regional turbulence that have created this problem, and its solution lies in making peace, promoting reconciliation, and restoring stability. The global financial crisis is another example. It is not an inevitable outcome of economic globalization; rather, it is the consequence of excessive pursuit of profit by financial capital and a grave failure of financial regulation. Simply blaming economic globalization for the world’s problems is neither consistent with reality, nor helpful for finding solutions to the problems.

From the historical perspective, economic globalization is a result of growing social productivity, and a natural outcome of scientific and technological progress - not something created by any individuals or any countries. Economic globalization has powered global growth and facilitated flows of goods and capital, advances in science, technology and civilization, and interactions among peoples.

But we should also recognize that economic globalization is a double-edged sword. When the global economy is under downward pressure, it is hard to make the cake of global economy bigger. It may even shrink, which may cause conflicts between growth and distribution, between capital and labor, and between efficiency and equity. Both developed and developing countries have felt the pinch. Voices against globalization have exposed problems in the process of economic globalization that we need to take seriously.

As a line in an old Chinese poem goes, “Honey melons hang on bitter vines; sweet dates grow on thistles and thorns.” In a philosophical sense, nothing is perfect in the world. Those who claim something is perfect because of its merits, and who view something as useless just because of its defects have failed to see the full picture. It is true that economic globalization has created new problems, but this is no justification to write it off altogether. Rather, we should adapt to and guide economic globalization, cushion its negative effects, and make it benefit all countries and all nations.

There was a time when China, too, had doubts about economic globalization, and was not sure whether it should join the World Trade Organization. But we came to the conclusion that integration with the global economy is a historical trend. To grow its economy, China must have the courage to swim in the vast ocean of the global market. Those who fear to face the storm and explore the new world will sooner or later drown in the ocean. Therefore, China took the bold step to embrace the global market. From time to time we have struggled to keep our heads above the water, and we have encountered whirlpools and choppy waves, but we have learned how to swim in this process. It has proved to be the right strategic choice.

Whether you like it or not, the global economy is the great ocean from which you cannot escape. Any attempt to cut off the flow of capital, technologies, products, industries and people between economies, and channel the waters in the ocean back into isolated lakes and creeks is simply not possible. Indeed, it runs counter to the historical trend.

The history of humanity tells us that problems are not to be feared. What should concern us is refusing to face up to problems and not knowing what to do about them. In the face of both the opportunities and challenges of economic globalization, the right thing to do is to seize every opportunity, jointly meet challenges, and chart the right course for economic globalization.

At the APEC Economic Leaders’ Meeting in late 2016, I spoke about the need to make the process of economic globalization more vigorous, more inclusive, and more sustainable. We should be proactive and manage economic globalization appropriately so as to release its positive impact and keep the process in balance. We should follow the general trend, proceed from our respective national conditions, and embark on the right pathway of integrating with economic globalization at the right pace. We should strike a balance between efficiency and equity to ensure that different countries, people from different social strata, and different groups of people may all share the benefits of economic globalization. The people of all countries expect nothing less from us, and this is a responsibility we cannot shirk as leaders of our time.

At present, the most pressing task before us is to steer the global economy out of difficulty. The global economy has remained sluggish for quite some time. The gaps between poor and rich and between North and South are widening. The root cause is that the three critical issues in the economic sphere have not been effectively addressed.

First, lack of robust driving forces for growth makes it difficult to sustain a steady growth of the global economy. Global economic growth is now at its slowest pace in seven years. Growth of global trade has been slower than global GDP growth. Short-term policy stimuli are ineffective. Fundamental structural reform is only beginning. The global economy is now in a period of moving towards new growth drivers, and the role of traditional engines to push growth has weakened. Despite the emergence of new technologies such as artificial intelligence and 3D printing, new sources of growth are yet to emerge. A new path for the global economy remains elusive.

Second, inadequate global economic governance makes it difficult to adapt to new developments in the global economy. Mme Christine Lagarde recently told me that emerging markets and developing countries already contribute 80 percent of the growth of the global economy. The global economic landscape has changed profoundly in the past few decades. However, the global governance system has not embraced those new changes and is therefore inadequate in terms of representation and inclusiveness. The global industrial landscape is changing, and new industrial chains, value chains and supply chains are taking shape. However, trade and investment rules have not kept pace with these developments, resulting in acute problems such as closed mechanisms and fragmentation of rules. The global financial market needs to be more resilient against risks, but the global financial governance mechanism fails to meet the new requirements and is thus unable to effectively resolve problems such as excess international financial market volatility and the build-up of asset bubbles.

Third, uneven global development makes it difficult to meet people’s expectations for better lives. Dr Schwab has observed in his book, The Fourth Industrial Revolution, that this round of industrial revolution will produce extensive and far-reaching impacts such as growing inequality, particularly the possible widening gap between return on capital and return on labor. The richest 1 percent of the world’s population owns more wealth than the remaining 99 percent. Inequality in income distribution and uneven development space are worrying. Over 700 million people in the world are still living in extreme poverty. For many families, to have a warm house, adequate food and secure employment is still a distant dream. This is the biggest challenge facing the world today. It is also what is behind the social turmoil in some countries.

All this shows that there are indeed problems with world economic growth, governance and development models, and they must be resolved. Henry Dunant, the founder of the Red Cross, once said, “Our real enemy is not the neighboring country; it is hunger, poverty, ignorance, superstition and prejudice.” We need to have the wisdom to dissect these problems and, more importantly, the courage to take actions to address them.

First, we should develop a dynamic, innovation-driven growth model. The fundamental issue plaguing the global economy is the lack of driving force for growth. Innovation is the primary force leading development. Unlike the previous industrial revolutions, the fourth Industrial Revolution is unfolding at an exponential rather than linear rate. We need to chart a new course through innovation. Only with the courage to innovate and reform can we remove bottlenecks blocking global growth and development.

With this in mind, the G20 leaders reached an important consensus at the Hangzhou Summit, which is to take innovation as a key driver and foster new driving forces for growth for both individual countries and the global economy. We should develop new development concepts and go beyond the debate about whether there should be more fiscal stimulus or more monetary easing. We should adopt a multipronged, holistic approach to address both the symptoms and the underlying problems. We should adopt new policy instruments and advance structural reform to create more space for growth and sustain its momentum. We should develop new growth models and seize opportunities presented by the new round of industrial revolution and the digital economy. We should meet the challenges of climate change and aging population. We should also address the negative impact of informatization and automation on jobs. When cultivating new industries, new business forms, and new business models, we should create new jobs and restore confidence and hope to our peoples.

Second, we should pursue a well-coordinated and interconnected approach to develop a model of open and win-win cooperation. Today, humanity has become a close-knit community of shared future. Countries have extensive converging interests and are mutually dependent. All countries have the right to development. At the same time, they should view their own interests in a broader context and refrain from pursuing their interests at the expense of others.

We should commit ourselves to growing an open global economy, share opportunities and interests through opening up, and achieve win-win outcomes. We should not just retreat to the harbor when encountering a storm, for this will never get us to the other shore of the ocean. We must redouble our efforts to develop global connectivity to enable all countries to achieve interconnected growth and share prosperity. We must remain committed to developing global free trade and investment, promote trade and investment liberalization and facilitation through opening up, and avoid protectionism. Pursuing protectionism is like locking oneself in a dark room. While wind and rain may be kept outside, the dark room will also block light and air. No one will emerge as a winner in a trade war.

Third, we should develop a model of fair and equitable governance in keeping with the trend of the times. As the Chinese saying goes, “Shrewd people of petty mind attend to trivial matters, while people with vision attend to the governance of institutions.” There is a growing call from the international community for reforming the global economic governance system, which is a pressing task for us. Only when it adapts to new dynamics in the international economic architecture can the global governance system sustain global growth.

Countries, big or small, strong or weak, rich or poor, are all equal members of the international community. As such, they are entitled to participate in decision-making, enjoy rights, and fulfill obligations on an equal basis. Emerging markets and developing countries deserve greater representation and voice. The 2010 IMF quota reform has entered into force, and its momentum should be sustained. We should adhere to multilateralism and uphold the authority and efficacy of multilateral institutions. We should honor commitments and comply with rules. No one should select or bend rules as they see fit. The Paris Agreement is a hard-won achievement which is in keeping with the underlying trend of global development. All signatories should stick to it as this is a responsibility we must assume for future generations.

Fourth, we should develop a balanced, equitable and inclusive development model that benefits all. As the Chinese saying goes, “When the Great Way rules, the land under Heaven belongs to the people.” Development is ultimately for the people. To achieve more balanced development and ensure that the people have equal access to opportunities and to the benefits of development, it is crucial to have a sound development philosophy and model, and make development more equitable, effective and balanced.

We should foster a culture that values diligence, frugality and enterprise, and respects the fruits of the hard work of all. Priority should be given to addressing poverty, unemployment, the widening income gap, and the concerns of the disadvantaged to promote social fairness and justice. It is important to protect the eco-environment while pursuing economic and social progress so as to achieve harmony between humanity and nature and between humanity and society. The 2030 Agenda for Sustainable Development should be implemented to realize balanced development across the world.

A Chinese adage reads, “Victory is ensured when people pool their strength; success is secured when people put their heads together.” As long as we keep to the goal of building a global community of shared future and work hand in hand to fulfill our responsibilities and overcome difficulties, we will be able to create a better world and deliver better lives for our peoples.

* Part of the keynote speech at the opening ceremony of the World Economic Forum 2017 in Davos, Switzerland.

(Not to be republished for any commercial or other purposes.)