How we can make globalisation fairer

We need international action to halt the slide on corporation tax.

The world's wealthy and powerful have convened in the small Swiss town of Davos this week with income disparity high on the agenda. But although it tops the list of CEO risks, no one here appears clear about how to deal with the problem.

The global financial crash should have been the left's moment but now in the fifth year of the crisis, which unpicked many of the principal assumptions of neoliberalism and the Washington Consensus, social democrats and progressives are no closer to having an analysis about how to make the global economy work more equitably and sustainably.

The occupy movement have done much to raise awareness of the issue - spooking company bosses along the way - but they have been largely silent on alternatives, passing the buck to politicians. In the UK our elected representatives have fallen over one another to call for a more popular, responsible or mutualist form of capitalism but suggest micro measures at the domestic level. They miss the point that global fairness in a global economy starts at the global level.

A new report by IPPR, launched today in Davos, takes an analytical and historical look at globalisation to break it down into component parts and understand what has delivered progressive outcomes and what has failed. On the BBC's Today programme this morning, Lord Mandelson - who led our Globalisation project and wrote a foreword to the report - spoke of how markets, while indispensable, can become volatile and need to be regulated, and that globalisation creates income inequalities. Unlike the laissez faire approach to globalisation of the 1990s which appeared to see globalisation as an end in itself, we see that globalisation has the potential to lift people out of poverty and expand the global middle class, as it has most dramatically in China, but that it comes with risks too.

Chief among the risks are the prospect of a downward spiral on corporation tax and the excessive volatility inherent in some forms of capital mobility. The first has moved the tax burden away from global corporations towards individual income, consumption and domestic firms; the latter is part of a wider problem in the financial services sector where pay and performance have become unhinged with all the incentives geared at the short term gains rather than long term value.

Our report recommends concerted international action to halt the slide on corporation tax by making profits across Europe contingent on where sales, staff and production is actually based rather than where the head office is registered. We also push for a more widespread understanding that capital controls, which the IMF now advocate but other organizations like the WTO still oppose, are a legitimate policy in certain circumstances.

In surplus countries like China, health, unemployment and retirement insurance systems are key to reducing savings rates and increasing domestic demand. Conditional cash transfers, like, for example, former President Lula's 'bolsa familia' policy of giving poor families incentives to vaccinate their kids and send them to school, are also a good way of lifting living standards.

In current account deficit countries like the UK and US, the challenge is to increase levels of trade. The projected increases in the global middle class create huge export opportunities for Britain in educational services, higher education, medical devices,green technology, the creative industries and tourism as well as our more traditional comparative advantages such as financial services, aerospace and pharmaceuticals.

In addition we must ensure that consumption is based not on debt but on rising wages. Efforts to broaden the living wage is key to this but so too should countries like Britain reorient their welfare policies towards the crisis points that globalisation can cause like unemployment. Wage loss insurance, which would mean higher benefits when people lose their job but a requirement to pay it back when they return to employment, is another idea worth exploring. Ensuring that Britain

Meeting the concerns of citizens everywhere who feel anger at the growing disparities in society at a time of austerity is by no means easy. But it is essential if governments and CEOs are to avoid an even bigger populist backlash.

Will Straw is Associate Director at IPPR

Will Straw is Associate Director at IPPR.

Photo: Getty Images
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What do Labour's lost voters make of the Labour leadership candidates?

What does Newsnight's focus group make of the Labour leadership candidates?

Tonight on Newsnight, an IpsosMori focus group of former Labour voters talks about the four Labour leadership candidates. What did they make of the four candidates?

On Andy Burnham:

“He’s the old guard, with Yvette Cooper”

“It’s the same message they were trying to portray right up to the election”​

“I thought that he acknowledged the fact that they didn’t say sorry during the time of the election, and how can you expect people to vote for you when you’re not actually acknowledging that you were part of the problem”​

“Strongish leader, and at least he’s acknowledging and saying let’s move on from here as opposed to wishy washy”

“I was surprised how long he’d been in politics if he was talking about Tony Blair years – he doesn’t look old enough”

On Jeremy Corbyn:

"“He’s the older guy with the grey hair who’s got all the policies straight out of the sixties and is a bit of a hippy as well is what he comes across as” 

“I agree with most of what he said, I must admit, but I don’t think as a country we can afford his principles”

“He was just going to be the opposite of Conservatives, but there might be policies on the Conservative side that, y’know, might be good policies”

“I’ve heard in the paper he’s the favourite to win the Labour leadership. Well, if that was him, then I won’t be voting for Labour, put it that way”

“I think he’s a very good politician but he’s unelectable as a Prime Minister”

On Yvette Cooper

“She sounds quite positive doesn’t she – for families and their everyday issues”

“Bedroom tax, working tax credits, mainly mum things as well”

“We had Margaret Thatcher obviously years ago, and then I’ve always thought about it being a man, I wanted a man, thinking they were stronger…  she was very strong and decisive as well”

“She was very clear – more so than the other guy [Burnham]”

“I think she’s trying to play down her economics background to sort of distance herself from her husband… I think she’s dumbing herself down”

On Liz Kendall

“None of it came from the heart”

“She just sounds like someone’s told her to say something, it’s not coming from the heart, she needs passion”

“Rather than saying what she’s going to do, she’s attacking”

“She reminded me of a headteacher when she was standing there, and she was quite boring. She just didn’t seem to have any sort of personality, and you can’t imagine her being a leader of a party”

“With Liz Kendall and Andy Burnham there’s a lot of rhetoric but there doesn’t seem to be a lot of direction behind what they’re saying. There seems to be a lot of words but no action.”

And, finally, a piece of advice for all four candidates, should they win the leadership election:

“Get down on your hands and knees and start praying”

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.