Deglobalization will reduce growth and increase poverty. Word of Visco (Bank of Italy)
Extract from the Final Considerations of the Governor of the Bank of Italy, Ignazio Visco, during the shareholders' meeting of the Central Institute
A reflection has been underway for some time on international balances and on the governance of globalization, imposed by the serious shocks that have hit the world economy in succession in the last 15 years, by the distributional consequences of this process in the various countries, as well as by the progressive changes in weight. relative – demographic, economic and political – of advanced and emerging nations (fig. 5). The war in Ukraine threatens to divert the course of this necessary rethinking and bring us back to a world divided into blocs, with fewer movements not only of goods, services and financial capital, but also of technologies, ideas and people.
In the last thirty years, with the end of the Cold War, the opening of trade and technological progress have produced profound changes. Billions of people who previously were effectively excluded have had access to global markets; an unprecedented expansion ensued. World product is now two and a half times the level of 1990, that per capita has increased by 75 per cent, international trade has more than quadrupled (Figure 6). In some areas, particularly in emerging Asian countries, economic development and improved living conditions have been extraordinary. Despite the simultaneous increase in the world population – from 5 to 8 billion, over 90 per cent concentrated in emerging and developing economies – the number of people in conditions of extreme poverty has fallen sharply, with the exception of Africa. sub-Saharan, from nearly 2 billion to less than 700 million.
The efficiency gains generated by the exploitation of economies of scale, by differences in productivity and by the different availability of factors of production between countries and areas have been amplified by the organization along global value chains, within which it took place, before the pandemic, about half of international trade. At the same time, capital flows continued to support economic integration, ensuring a better allocation of resources and greater risk diversification.
It was a process that was not without uncertainties and difficulties. The nature of capital movements has changed: the role of non-bank financial intermediation has greatly increased since the global financial crisis. While the riskiness of the banking component was mitigated by a vast reform of the rules and by micro- and macro-prudential policies, the widening of the degree of diversification of the sources of financing to the economy was accompanied by marked episodes of volatility. The lengthening of the value chains has accentuated the financing needs of companies; for those operating in emerging economies and least developed countries, the large share of currency debt has aggravated their vulnerability to external shocks. The worldwide reproduction of just-in-time planning organizational models has increased the fragility of production chains and the risks of international propagation of local production difficulties.
Globalization has also leveraged the regulatory differences between jurisdictions – in particular with regard to profit taxation, environmental sustainability and worker protection regimes. Furthermore, despite the significant reduction in disparities in per capita incomes between countries, inequalities in the distribution of wealth and income have increased sharply within many economies, especially advanced ones, giving rise to demands for greater social protection and undermining confidence. in the benefits of globalization and technological progress, also due to the absence of adequate responses from national policies. Repeated external shocks, in addition to amplifying income volatility, have increased uncertainty about individual economic prospects and contributed to widespread insecurity.
The pandemic, with the sharp fall in international trade and bottlenecks in the supply chains of some intermediate goods, and the Russian invasion of Ukraine, with its repercussions on energy and food supplies, could push towards a reorganization of international trade. which favors the stability of the offer, especially in strategic sectors. In this framework, exchanges could be concentrated within areas made up of politically similar countries or united by regional economic agreements.
However, a division of the world into blocs would risk undermining the mechanisms that have stimulated growth and reduced poverty on a global level. A recomposition of the dense network of interdependencies between countries, even if distributed over time, could hardly take place without tensions and strong corrections in the prices of goods, services and financial and real assets. The allocation of global savings would inevitably be less efficient, the financing of the debts, public and private, of individual countries less easy. Fragmentation along boundaries defined by political security considerations, albeit necessary, could have very negative consequences for smaller economies, especially those with lower income that do not benefit from participation in consolidated regional economic areas.
In a world divided into blocks, we would also, and above all, lose that heritage of mutual trust – however fragile and not obvious – which, in addition to being indispensable for peaceful coexistence between nations, represents an irreplaceable basis for facing the crucial challenges for the next generations. The containment of global warming, the fight against extreme poverty and the fight against pandemics are formidable goals, which no country can tackle alone. The experience of the Italian Presidency of the Group of Twenty (G20) last year showed that, despite considerable and growing difficulties, collective action can achieve important results, even if one cannot fail to note how much more difficult it is made by the changed political context.
A course correction aimed at combining the benefits of globalization with policies aimed at containing its negative consequences is indispensable. It must be based on an open discussion of the rules and governance of the global economy, leading to a new international balance taking into account the increased importance of emerging countries and the need to ensure substantial respect for the principles and founding values of peaceful coexistence between the nations.
Otherwise, the most vulnerable and poorest social groups and countries would pay the highest price of a disordered "deglobalization", even if there would be pressure on advanced economies, and in particular on Europe. More than half of the expected increase in the world population, of 2 billion over the next thirty years, will be concentrated in Africa: sustained and sustainable development of the economies of this continent is crucial to reduce extreme poverty and ensure a consistent improvement in economic and economic prospects. of its inhabitants, as well as to prevent the onset of migratory flows that are difficult to manage in terms of intensity and size.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/la-deglobalizzazione-ridurra-la-crescita-e-aumentera-la-poverta-parola-di-visco-bankitalia/ on Tue, 31 May 2022 09:16:21 +0000.