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.

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Autumn Statement 2015: George Osborne abandons his target

How will George Osborne close the deficit after his U-Turns? Answer: he won't, of course. 

“Good governments U-Turn, and U-Turn frequently.” That’s Andrew Adonis’ maxim, and George Osborne borrowed heavily from him today, delivering two big U-Turns, on tax credits and on police funding. There will be no cuts to tax credits or to the police.

The Office for Budget Responsibility estimates that, in total, the government gave away £6.2 billion next year, more than half of which is the reverse to tax credits.

Osborne claims that he will still deliver his planned £12bn reduction in welfare. But, as I’ve written before, without cutting tax credits, it’s difficult to see how you can get £12bn out of the welfare bill. Here’s the OBR’s chart of welfare spending:

The government has already promised to protect child benefit and pension spending – in fact, it actually increased pensioner spending today. So all that’s left is tax credits. If the government is not going to cut them, where’s the £12bn come from?

A bit of clever accounting today got Osborne out of his hole. The Universal Credit, once it comes in in full, will replace tax credits anyway, allowing him to describe his U-Turn as a delay, not a full retreat. But the reality – as the Treasury has admitted privately for some time – is that the Universal Credit will never be wholly implemented. The pilot schemes – one of which, in Hammersmith, I have visited myself – are little more than Potemkin set-ups. Iain Duncan Smith’s Universal Credit will never be rolled out in full. The savings from switching from tax credits to Universal Credit will never materialise.

The £12bn is smaller, too, than it was this time last week. Instead of cutting £12bn from the welfare budget by 2017-8, the government will instead cut £12bn by the end of the parliament – a much smaller task.

That’s not to say that the cuts to departmental spending and welfare will be painless – far from it. Employment Support Allowance – what used to be called incapacity benefit and severe disablement benefit – will be cut down to the level of Jobseekers’ Allowance, while the government will erect further hurdles to claimants. Cuts to departmental spending will mean a further reduction in the numbers of public sector workers.  But it will be some way short of the reductions in welfare spending required to hit Osborne’s deficit reduction timetable.

So, where’s the money coming from? The answer is nowhere. What we'll instead get is five more years of the same: increasing household debt, austerity largely concentrated on the poorest, and yet more borrowing. As the last five years proved, the Conservatives don’t need to close the deficit to be re-elected. In fact, it may be that having the need to “finish the job” as a stick to beat Labour with actually helped the Tories in May. They have neither an economic imperative nor a political one to close the deficit. 

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