Four ways we can fix economics in 2019

dollars 2019

(Unsplash, 2019)

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

Author: Saadia Zahidi, Managing Director, Head of Social and Economic Agendas, World Economic Forum


“It was a chance… for us to send pain the other way. And we took it.”

A Brexiteer’s statement in the wake of the referendum in 2016 captures the frustrations felt by many under the twin forces of globalization and the Fourth Industrial Revolution. Never has the economy changed so quickly, nor with such glaring visibility of the gap between the winners and those left behind. The backlash is hardly surprising.

Although many advanced economies have reaped enormous benefits from globalization and technological advances in recent decades, they have also experienced a hollowing out of the middle class; growing market concentration within many sectors which means fewer employers and less power for workers; as well as a decoupling between productivity growth and wage increases.

The decline in the portion of US income that goes to workers
Image: Brookings

In many emerging markets, the picture is different. People feel more positive about digital technology when it helps to level the playing field by providing access to information, markets, services and employment, allowing entrepreneurs to thrive. Yet, as the promise of the manufacturing-led development model of the past fades, it is unclear what will replace it. A newly prosperous middle class is starting to worry whether a path to success will be open to their children.

One of the pillars of trust in a society is the feeling that life is getting better, not worse. But in too many economies, there is a sense that opportunities for the next generation are dwindling rather than expanding. The Fourth Industrial Revolution has cut the tethers to our familiar reference points and left us with lingering insecurity – fuel to the populist fire.

Finding common purpose

A central priority for managing both globalization and the Fourth Industrial Revolution, in both advanced and emerging economies alike, should be fleshing out a new social contract that restores a sense of common purpose and basic economic security.

Put another way: how can we ensure new technologies help us to flourish as people and as economies, rather than sowing division and discontent? This question has no easy answers. It needs a common and objective understanding of the key challenges, the evidence base associated with them and the range of response options. This common framework for decision-making is often missing.

Ahead of the Annual Meeting in Davos, the World Economic Forum’s Global Future Councils on the New Economic Agenda, the New Social Contract and New Metrics have sought to take an interdisciplinary approach to identifying the economic challenges for 2019 and to objectively lay out the spectrum of response options, with a range of underlying values, ideologies and principles. Some of these responses are wholly mutually exclusive while others overlap. The results of this synthesis are captured in Shaping the New Economy in the Fourth Industrial Revolution, a white paper released this week.

It focuses on four questions:

Do we need to fundamentally rethink what constitutes economic value – and what practical avenues exist for doing so?

As the digital economy has taken shape it has introduced several new dimensions of “value creation” that are not fully integrated into traditional concepts and metrics. In particular, new types of assets and economic activity are not well understood and new sources of consumer welfare (and loss) are not adequately measured. What is the value of the open knowledge on Wikipedia, or the toll taken by the incursion of digital technology into our private lives? Additionally, there is an incomplete picture of how gains are being distributed and questions about who is truly creating value in the economy.

Five approaches have been put forward for rethinking economic value: 1) identify and account for a range of new intangible assets; 2) adapt or complement GDP to account for digitally-derived value; 3) adapt measures of consumer welfare, well-being and societal value; 4) focus new metrics on distribution and disaggregated data; and 5) rethink the fundamental definition of value, highlighting the distinction between the creation of value and rent-seeking, and rethinking markets as co-created by both public and private sector actors.

Do we need to address the market concentration created by online platforms – and how can concerns be balanced against benefits?

Digital platforms are the source of a range of consumer benefits thanks to the introduction of new services, greater choice, higher matching speed and lower costs. They can facilitate the entry of new businesses by giving access to marketing channels, credit, logistics and other basic services. And they can benefit workers and employers by enabling more efficient job matching as they increase the amount of information available on both sides of the market. Yet at the same time, scale and the resulting concentration of market power can offset some of these benefits, with potential repercussions on innovation, quality and distributional outcomes.

Five approaches have been put forward to address the market concentration of platforms, each with a very different underlying view of platforms:

1) Improve and adapt existing regulations but don’t make radical change because platforms are no different from other businesses.

2) Develop new metrics to measure the impact of market concentration in the platform economy.

3) Use technology to reduce barriers to entry.

4) Incentivize the creation of alternatives.

5) completely overhaul the regulatory framework.

Do we need to consider proactive measures for job creation – and what do they entail in today’s economy?

As technological advances rapidly shift the distribution of work tasks performed by humans and those performed by machines and algorithms, global labour markets are undergoing major transformations. If managed wisely, these transformations could lead to a new age of good work, good jobs and improved quality of life for all. If managed poorly, they pose the risk of greater inequality and broader polarization. While there is a wide-ranging debate on actions to manage job displacement in the 4IR, views around whether and how best to enhance job creation are more limited.

Five approaches have been suggested:

1) Incentivize job growth through a focus on priority sectors, such as IT, green energy, education and care, shaping more cohesive societies in the process.

2) Improve education and skills as the key path to maintaining and creating jobs, building up skills that play to human’s comparative advantage.

3) Focus on the broader enabling ecosystem to create the right environment for job creation, including policy and behaviour shifts across the public and private sectors.

4) Develop new metrics to better understand the new labour market.

5) Ensure new jobs are quality jobs and find win-win approaches to new job formats, including online work.

Do we need to re-imagine social safety nets – and what range of options exist for doing so?

In developed economies, the efficacy of social insurance policies tied to formal work and stable employment contracts is depleting, as increasing numbers of people become displaced or experience insecure work, low pay and unequal access to good jobs. In developing economies, where work has largely been diverse and informal, technological advances look set to continue that trend and offer additional flexible work opportunities, leaving open the question what a future social protection model might look like. While there is broad consensus that workers will need support in the transition to the new world of work, there is significant debate as to the level of depth and breadth of such support as well as the key stakeholders responsible for its delivery.

Six approaches have been suggested:

1) Enforce and improve existing methods such as employment laws and civic space for unions.

2) Focus on new financing models and revenue collection for social protection; 3) harness the potential of commercial solutions, such as financial technology solutions to the income volatility often experienced by gig workers.

4) Develop the flexibility and interoperability of social protection benefits.

5) explore the potential of precision safety nets; 6) introduce universal or conditional basic income and services.

There is a unique window of opportunity today to shape the new economy to make life better for future generations. This window will not remain open for long before the trends of the new economy – and the societal forces they unleash – become locked in.

Next week, leaders at Davos will discuss the thorny issues behind the questions outlined above and more. Over the coming year, the Forum will provide a platform for those response options to be tested, for sharing best practices, and shaping consensus on the best course of action and for scaling solutions. We invite you to join us by sharing your ideas for emerging challenges in the new economy and how they should be addressed.

Advertising

the sting Milestone

Featured Stings

Can we feed everyone without unleashing disaster? Read on

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

Where America’s refugees came from in 2018

A breath of fresh air: How three disused industrial areas became beautiful parks

The big challenge of leadership and entrepreneurship in Europe

We can decide to live within the limits of our planet

Despite lagging in the Global Goals, Africa can meet the 2030 deadline: Rwandan President

Gender disparity in salary and promotion in medicine: still a long way to go

Trust links up supply chains. How do you establish it in the digital era?

Four things the UN chief wants world leaders to know, at key COP24 climate conference opening

Banks promise easing of credit conditions in support of the real economy

To improve women’s access to finance, stop asking them for collateral

With lifelong learning, you too can join the digital workplace

Uneven progress on climate action at Bangkok conference

EU confronts environmental threats as global leaders attempt to revive the global sentiment at NYC climate week

Youth policy in Europe not delivering for young people

Voices of Afghan women ‘must be heard at the table in the peace process and beyond’ UN deputy chief tells Security Council

This app lets you order leftovers to help fight food waste

I cycled over 6,000km across the United States to document climate change. Here’s what I learned

Trade barriers: EU removes record number in response to surge in protectionism

Economic sentiment and business climate stagnate in miserable euro area

Ground-breaking clean air protocol to guard human health and the planet, enters into force

Gender Equality as a platform to improve Medicine

Deliver ‘significant results now’, UN General Assembly President tells COP25 climate conference

Nigel Farage and Boris Johnson: who forced the two ‘brave’ Brexiteers to quit?

4 things to know about the state of conflict today

Reduce costs, save lives: how healthcare data can help emerging economies

On Youth Participation: Are we active citizens?

6 surprising side effects of this year’s global heatwave

UN spotlights wellbeing of seafarers on International Day

Prospect of negotiated peace in Afghanistan ‘never been more real’ – UN mission chief

Everything you need to know about the coronavirus

UN chief hopeful for Libya, after Quartet meeting in Tunis

Fresh airstrikes kill dozens in conflict-ravaged Syria

Central Asia bloc has important role in ‘peace, stability and prosperity’ beyond region, says Deputy UN chief

Four ways Artificial Intelligence can make healthcare more efficient and affordable

The economic cost of anti-vaccination movements in Italy

MEPs call for EU rules to better protect minorities’ rights

State aid: Commission finds Luxembourg gave illegal tax benefits to Engie; has to recover around €120 million

Why banks escape from competition rules but not pharmaceutical firms

China repels EU allegations of export subsidies

#EUBeachCleanUp: EU organises record number of cleaning actions worldwide

Why economic growth depends on closing the interview gap

Ship Recycling is the Commission’s Titanic

Over 1 million health consultations provided in Yemen in 2019: UN migration agency

Chernobyl nuclear disaster-affected areas spring to life, 33 years on

Disillusioned young people – France thinks it has a solution

Technology can help solve the climate crisis – but it will need our help

5 libraries doing innovative things to help their communities

Commission concludes that an Excessive Deficit Procedure is no longer warranted for Italy at this stage

Health privatization to blame for health inequality or poor investment in public health?

What has changed in the French politico-economic horizon

The Banking Union may lead to a Germanic Europe

Global Cooperation for Local Action: Fighting antimicrobial resistance

How responsible businesses can step forward to fight coronavirus

Brexit: PM May must hush Boris Johnson to unlock the negotiations

Monday’s Daily Brief: global homicide figures, neo-Nazi recruitment, Kashmir, and migrants’ plight in USA

What does the world really think about the UN Sustainable Development Goals?

Wednesday’s Daily brief: Day 3 of anti-hatred summit, UNFPA turns 50, Ben Stiller #WithRefugees, updates on Abyei

$683 million appeal to deliver reproductive health services, where they’re most needed

Brexiteer May gets lip-service from Trump and Turkish promises from Erdogan

Colombia: New Congress marks rebel group’s transition ‘from weapons to politics’, says UN

More Stings?

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s