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    Indra Nooyi on leadership for a new era
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    Multilateralism, the global system of international cooperation exemplified by institutions like the United Nations and the World Trade Organisation, has had a good run. The period after World War II saw unprecedented growth, but recent events like Brexit and various trade wars have led many to conclude this era is coming to an end. Is that true, and if so, how should investors react?

    As part of Barclays Asia Forum 2021, our flagship client event series in Asia Pacific, Joseph Stiglitz, Nobel laureate economist and professor at Columbia University, recently provided his “3 Point Perspective” on the headwinds buffeting trade and globalisation, and what might come next.

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    Globalisation has peaked

    While some may argue whether globalisation is dead, the reality is that it has certainly peaked. For example, the trade share of global GDP plateaued shortly after the 2008 global financial crisis.

    For a long time, there was a belief that everyone would benefit from innovation and globalisation.  Technology enhanced the productivity of workers, which increased the demand for workers and therefore increased their wages. Innovation and globalisation would make the pie bigger and so everybody could benefit. But we now know that it is not necessarily true that everyone would benefit.

    Today, technology is often labour-replacing or labour-saving, decreasing the demand for unskilled workers. In advanced countries, globalisation has a similar effect, which leads to fewer jobs. The reduced demand for labour leads to more unemployment and/or lower wages. This contributes to the growth in inequality that we have seen recently.

    Global coronavirus cases spread rapidly

    Source: World Trade Organisation

    Moreover, globalisation was not managed very well. Many believed that trickle-down economics worked, but ignored the immobility of labour from one part of a country to another and thought it would be easy to move people from the sectors that were declining to those that were increasing. Not enough was done domestically or politically to make sure that the fruits of globalisation and of innovation were evenly shared.

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    Borders are back

    We can no longer pretend that borders aren't important.

    Two events made that abundantly clear.

    The first: the former US administration undermined the World Trade Organisation (WTO) and built border walls, both of which served to demonstrate that a leader of any major country has the power to change the rules of the game. Organisations like the International Monetary Fund (IMF), The World Bank and the WTO worked hard to create an international rule of law, but we must be aware that the system is vulnerable and anything can happen.

    The second: COVID-19. The pandemic reinforced the importance of borders because suddenly neither people nor goods could cross them. We saw travel bans and disrupted supply chains. And on top of that, the heightened tension between the US and China reduced trade further.

    Effect of China’s ban on importing waste plastic

    Source: ICAO

    These developments changed the global landscape in fundamental ways that make the integration of the global economy more difficult. Furthermore, these changes impeded the flows of investment, which in turn has affected flows of goods and services and people.

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    Focus on global public goods

    Despite the return of borders, the response we’ve seen to the COVID-19 pandemic is a cause for optimism. The managing director of the IMF, Kristalina Georgieva, has been very forceful in articulating the need for everyone to be vaccinated and for more financial resources for developing countries and emerging markets. The supranational organisation has pivoted and while it maintains its old mandate, it has supplemented that with a real focus on “global public goods”.

    Global corporate ESG bond issuance reached a record high in 2020

    Source: Our World in Data

    For example, global knowledge is an important global public good that has been instrumental in creating life-saving vaccines against the coronavirus.

    A Hungarian researcher working in the US performed some of the basic analysis based on DNA research from the UK. And a German company produced a vaccine in conjunction with researchers from Turkey. This rapid development of vaccines in the private sector would have been impossible without the foundation of global public knowledge.

    Domestic leadership ought to acknowledge that we can only address global problems collectively. Rather than trying to tear down international institutions, we should emphasize the reasons we need to cooperate for the common good. And right now, more than ever, our common purpose is avoiding climate change, fighting the pandemic and promoting shared prosperity around the world.

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    About Joseph Stiglitz

    Joseph E. Stiglitz is an American economist and a professor at Columbia University. He is also the co-chair of the High-Level Expert Group on the Measurement of Economic Performance and Social Progress at the OECD, and the Chief Economist of the Roosevelt Institute.

     

    A recipient of the Nobel Memorial Prize in Economic Sciences (2001) and the John Bates Clark Medal (1979), he is a former senior vice president and chief economist of the World Bank and a former chairman of the US president's Council of Economic Advisers.

     

    In 2000, Stiglitz founded the Initiative for Policy Dialogue, a think tank on international development based at Columbia University. In 2011 Stiglitz was named by Time magazine as one of the 100 most influential people in the world. Known for his pioneering work on asymmetric information, Stiglitz's work focuses on income distribution, risk, corporate governance, public policy, macroeconomics and globalization. He is the author most recently, of People, Power, and Profits, Rewriting the Rules of the European Economy, and Globalization and Its Discontents Revisited.

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