United Nations Commission on Trade and Development

The United Nations Commission on Trade and Development (UNCTAD) issued its 2012 Annual Report in September. The report presents a detailed analysis of current global economic, trade, and development conditions, together with recommendations for future global action and coordination to restore growth and achieve a greater degree of income equality within and among nations. The UNCTAD report comprises six chapters that address the following aspects of global trade and development: (i) Current Trends and Challenges in the World Economy; (ii) Income Inequality: The Main Issues; (iii) Evolution of Income Inequality: Different Time Perspectives and Dimensions; (iv) Changes in Globalization and Technology and their Impacts on National Income Inequality; (v) The Role of Fiscal Policy in Income Distribution; and (vi) The Economics and Politics of Inequality Reconsidered. There are many statements and recommendations in each of these six chapters that provide a platform for concerted global action to meet the challenges and opportunities in the area of global trade and development.

The world economy continues to suffer as a result of the fallout from the global financial crisis that began in late 2007 and the subsequent systemic meltdown in September 2008. Current global economic conditions indicate a continuing weakness in the rate of economic recovery that has not been able to return to the growth conditions that existed in the decade preceding the advent of the global financial crisis. Those previous economic conditions had provided the right environment for economic and social progress in the developing world. Once the worst of the global financial crisis had been contained, the resulting momentum, especially in some of the larger developing countries, had helped to generate a broad recovery in the overall world economy. However, those large developing countries are now losing that momentum and, as a result, downside risks for the world economy are growing again. The immediate problem is the inability of the developed countries to return to a normal growth pattern, but there is also an equally serious problem of contagion. With a weak economic recovery, ineffective macroeconomic policies, and an unreformed financial sector, the developing countries will find it difficult to sustain their own growth, let alone that of the global economy. In the United States, a sluggish recovery remains vulnerable to events in Europe, given their inter-related financial systems. Europe as a whole is on the brink of a deep recession; attempts to overcome the present crisis are dominated by policies of fiscal austerity, combined with calls to introduce reforms to labor markets. In practice, this means wage restraint and, in some cases, massive wage reductions. However, these policies are more likely to further weaken economic growth and to increase unemployment instead of stimulating investment and job creation. At the same time, as has been demonstrated with similar structural reform policies in the developing world over the past 30 years, these policies will reinforce the trend towards greater inequality that has become a resulting feature of finance-driven globalization. A fundamental policy reorientation is needed, recognizing that healthy and inclusive growth will require a stable expansion of consumption and investment in productive capacity based on favorable income expectations of entrepreneurs. This requires a rethinking of the principles underlying the design of national economic policy and supportive international institutional arrangements. In particular, while globalization and technological change, and their interplay, have created both winners and losers, their apparent adverse impacts on overall income distribution in many countries must be understood in the context of the macroeconomic, financial and labor market policies adopted. Those policies have caused unemployment to rise and remain high, and wages to lag behind productivity growth, and they have channeled rentier incomes towards the top one percent of the income ladder. Neither globalization nor technological improvements inevitably require the kind of dramatic shift in the distribution of income that favors the very rich and deprives the poor and the middle-class of the means to improve their living standards. On the contrary, with more appropriate national and international policies that take into account the crucial importance of aggregate demand for capital formation, structural change and growth dynamics, job creation can be accelerated, inequality reduced and the requisite degree of economic and social stability guaranteed. The UNCTAD report concludes that the experience of the past few decades has shown that greater inequality does not make economies more resilient to the shocks that cause rising unemployment. On the contrary, it has made economies more vulnerable. A comprehensive incomes policy linking wage and productivity growth, and including legal minimum wages, and a tight social safety net for poorer families would favor investment dynamics and monetary stability. Moreover, it will allow monetary policy to be more closely geared to the stimulation of investment and growth.

The complete UNCTAD Trade and Development Report, 2012 is available at http://unctad.org/en/PublicationsLibrary/tdr2012.en.pdf.