What world leaders must do now to restore trust in globalization

A construction worker stand at the base of the Shanghai Tower (L), which is under construction, at the financial district of Pudong in Shanghai August 2, 2013.

Image: REUTERS/Carlos Barria

Hans Paul Bürkner
Chairman, The Boston Consulting Group
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This article is part of: World Economic Forum Annual Meeting

Globalization is facing its biggest test. For 40 years, the process of closer integration through the free movement of goods, capital, people and ideas around the world has recorded many remarkable achievements.

The overall standard of living has never been higher. According to the United Nations, there are more than 200 million fewer hungry people than there were 25 years ago. Also, almost all boys and girls go to school. Meanwhile, life expectancy increased by five years between 2000 and 2015, the fastest increase since the 1960s, according to the World Health Organisation.

In other words, the world is flatter - more equal - than it has ever been.

And yet, in the past year, there has been an astonishing backlash - mainly in developed countries. In the United States, the great bulwark of globalization, there is a rising clamour to reverse the trend towards greater integration - signalled by the election of a president who has pledged to unpick free trade agreements and build walls between nations (rather than tear them down).

In Europe, the UK has voted to withdraw from the European Union - and other nations may follow suit, depending on the outcome of upcoming elections. Several countries have seen an upsurge in populist politicians who are tapping into a rage felt by ordinary people angered by the rising tide of migration and its perceived consequences: diminishing employment prospects, heightened security fears, and challenges to national identity.

It is easy to criticise this backlash as wrongheaded. But it cannot be ignored. The fact is that millions of people feel that they have been left behind by the march of globalization - not only in developing but also in developed markets. Some people have seen their wage - and, with it, their way of life - stagnate. Even in the US, the great land of opportunity, things have ossified. A visit to the so-called “rustbelt” cities provides stark testimony to this.

And yet, some people - the so-called “elites” - have profited amid the gloom. In many countries, the gap between the richest and the poorest in society has got wider, even as relative global income inequality has declined. In 2015, in the 34 member states of the OECD, the richest 10% of the population earned 9.6 times the income of the poorest 10%. In the business world, the gap between the top executives and the workers was even wider. In the US, the top 500 CEOs earned 340 times the average worker’s wage in 2015, according to a report by the AFL-CIO, the largest federation of US unions.

So while globalization has been glorious for billions of people, for some, it hasn’t been glorious at all. Or, at least, that’s their perception. As a result, the world risks going into reverse.

This must not be allowed to happen.

It would be an utter disaster if globalization was stopped in its tracks. There are still 800 million people - more than Europe’s population - who are still registered as “hungry”, according to the United Nations. There are still nearly 60 million children - roughly equivalent to France’s population - who do not attend primary school. There are still around 2 billion adults who do not have a basic bank account.

Children wait for meal ration from a non-government organisation providing food to slum communities in the Philippine capital Manila September 15, 2008. Image: REUTERS/Romeo Ranoco

So what is to be done?

It is time to get the world moving again. This might seem counter-intuitive at a time of high migration, when clearly millions of people are moving in a desperate search for a new start in life. But the point is this: in so many ways, the world has stalled. Global growth is anaemic, not least because of the slump in international trade caused by a lack of investment and rising protectionism. At the same time, productivity growth has plummeted, and hovers below 1% in the US and most countries in western Europe.

As a result, people feel trapped. Now, they want their future back. They want to see that their expectations of a better life are being met. To facilitate this, the world’s leaders need to focus on one thing: delivering inclusive growth.

A plan for world leaders

Whether you run a country or a company, you need to give every one of your stakeholders the opportunity to grow. If you do that, you can hope to deliver inclusive growth - which is the most sustainable kind.

We have developed an overarching approach for national and corporate leaders. It focuses on five key elements required to ensure the free movement of people, goods, ideas and capital. Try to put aside your myriad other concerns, and focus on these five elements. Give each one a dial on your mental dashboard. If you can make real progress against each element - at the same time - then you can make real progress towards the goal of delivering inclusive growth.

It may sound like so much common sense. And it is. But, time and time again, we have found that common sense gets lost in a crisis.

And there is no question that the world is facing a crisis.

The agenda for national leaders

You should invest more heavily - and more wisely - in:

  • Health, education and training: you need to give all your citizens access to hospitals, schools, universities and other reskilling facilities throughout their lives to ensure a thriving workforce.
  • Transport Infrastructure: you need a constantly updated network of roads, rail roads, ports, airports to break down internal and international barriers.
  • Digital networks: you need comprehensive and fast online connectivity that brings people closer together.
  • Financial capital: you need to boost financial inclusion, provide access to a bank account, increase access to credit, and keep developing the financial market.
  • Governance institutions: you need to uphold the rule of law, eradicate corruption, and invest in an effective civil service.

The result: sustainable growth thanks to capable citizens with portable skills (which leads to high employment), an interconnected transport network for conveying people and goods, a digital highway for spreading information and ideas, a functioning financial system for fuelling investment, and a governance structure ensuring a level playing field.

The caveat: it does not mean that nobody will lose her or his job. But people will have the capability to find new jobs when they lose their old ones.

Workers are seen at a construction site in Sandton outside Johannesburg, South Africa June 20,2016. Image: REUTERS/Siphiwe Sibeko
The agenda for corporate leaders

This mirrors the agenda for national leaders, but on a smaller scale. You should invest more heavily and wisely in:

  • Your employees: in particular, enhanced recruitment to access a diverse group of people and sophisticated retention programs to facilitate personal development and promotion.
  • Your supply chains: fast and flexible links between suppliers, manufacturers, retailers and customers.
  • Your digital capability: an online facility for sales and/or communication with suppliers, distributors, employees and customers.
  • Your use of capital: everything from improved banking relations and the smart use of the capital markets to asset productivity.
  • Your leadership structure: an executive and board that can be trusted to deliver on the company’s promise to customers, to employees, to suppliers, to shareholders and to society-at-large.

The result: profitable growth thanks to satisfied employees with transferrable skills, a seamless organisational chain from supplier to customer ensuring the timely delivery of innovative products and services, a two-way online capability for deepening the relationship with customers, returns to investors that are eager and willing to invest more, and a leadership team that can be trusted.

The caveat: this does not mean that all companies will succeed. But many new companies will be established when some old companies fail.

Leading from the front (and by example)

If countries and companies are to achieve inclusive growth, then stakeholders will need to have trust in their leaders. Over the past few years, a spate of scandals affecting political and business leaders - especially during and in the wake of the Great Recession - has led to a significant erosion of trust. Last year, Edelman, a PR firm which produces a global trust barometer, found that government was the least trusted institution, trailing NGOs, business and the media.

So it is incumbent upon the current and next generation of leaders to restore the faith of their stakeholders - voters in the case of political leaders; employees, suppliers and customers in the case of corporate leaders.

To do this, you need to:

  • Listen hard: Make sure you meet people and press the flesh. Hear what people have to say. Don’t just rely on surveys and big data analyses.
  • Decide: turn your findings into a deliverable action plan
  • Communicate: let people know what you are planning to do. Get their buy-in. Be open and transparent.
  • Deliver: once you’ve said what you’re going to do—do it
  • Follow-up: hold everyone - and above all, yourself - accountable

This may sound overly simplistic in a complex world. But the fact is that delivering to the needs of the large majority of stakeholders - and, ultimately, the large majority of people in society - is neither simple nor easy. If it were, it would have been done by now. It requires determination and persistence. It requires you constantly to question yourself and your actions and to deliver on your promises.

If you can do this, you can hope to spark a new era of inclusive growth in your country or your company.

And together, we can hope to get the world moving again.

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