Fourth Industrial Revolution

How we can make globalization more inclusive

Workers are reflected in an office building's windows in Sydney's Barangaroo business district in Australia's largest city, May 8, 2017.  REUTERS/Jason Reed - RC11A5782D60

Globalisation and/or technological progress have resulted in job polarization and higher within-country inequality. Image: REUTERS/Jason Reed

Sergei Guriev
Jonathan D. Ostry
Professor of Economics, Global Affairs and Public Policy, University of Toronto
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Fourth Industrial Revolution

Globalisation has reached new highs in the 21st century. Together with technological progress, it has brought benefits to many, but the gains have not been distributed evenly, often fuelling discontent. While global poverty and global inequality has been declining in recent decades (Milanovic 2016), in many (advanced, emerging and developing) countries, globalisation and/or technological progress have resulted in job polarization and higher within-country inequality (Piketty 2013, Autor et al. 2017). Furthermore, as those left behind have given their support to populist politicians and their nativist agendas, there is now an increased attention by economists to the relationship between globalisation and technological progress on the one hand, and high or rising inequality (of outcomes and of opportunity) on the other (Rodrik 2017). Recent research has provided many insights on why deepening global integration may give rise to rising inequality at the national level (Leipziger 2016). There is, however, much less discussion of potential solutions.

In this column, based on our work for the World Economic Forum’s Global Futures Council on Economic Progress (Ostry 2017), we list a set of policies that can make globalisation more inclusive. None of them is a silver bullet – nor are they easy or costless to implement – but without concerted effort by governments and business to deal with the excesses of globalisation, the global economy will be worse off and trust in the fairness of the economic system will not be restored.

Skilling, re-skilling, and dealing with job displacements

Globalisation and the Fourth Industrial Revolution increase the speed of change in labour markets. Previously, the need for upgrading skills or changing occupations was gradual enough that most workers would not need to change occupations during their lifetimes. Not so any longer. This means that individuals must be adaptable to change, and that public policies are needed not only to cushion transitions via income support, but also to provide information and incentives for skills acquisition. This involves collaborating with the private sector that understands the demand side to provide life-long learning opportunities within the framework of effective active labour market policies. This is a change in mindset for people and a change in policy focus for governments, without which dislocations will cause social backlash to globalisation and technological advances.

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We offer the following concrete proposals for action:

Investing in life-long learning to retrain, retool, and reskill – perhaps providing grants to individuals for training throughout their working lives in the form of Individual Skill Accounts; providing adequate public resources to support effective active labour market policies (ALMPs) (the goal is to provide individuals with actual jobs rather than merely transfers to offset income losses)

Stronger private sector involvement in training and skills development

Improvements in public education with an emphasis on genuine skills acquisition to meet the changing needs of the labour force

Taxation, inequality, and social protection

Taxation policy lies at the core of inequality and social protection through channels of tax avoidance, tax expenditures, tax havens, and unfairness of tax systems. The financing of social protection requires robust tax collections and well-executed and targeted programmes of support. National governments may well need to examine options of universal basic income (UBI) or other redistributive alternatives to deal with household income declines caused by job displacement, regardless of the causes. A UBI’s cost and impact on poverty and income distribution are sizable. While effective means-tested social support is preferable, a UBI may be an option if substituting for inefficient and inequitable programmes. Strengthening social safety nets is the necessary corollary to open trading systems.

While preferences over redistribution vary with country-specific social contracts, empirical evidence suggests that redistribution does not necessarily hurt growth (Ostry 2014) and can be successful in mitigating the impact of globalisation on inequality (Ostry et al. 2014, 2016). Key elements of redistributive and fair fiscal reform include taxation of rents and inheritance – and enhancing tax compliance so that everyone pays their share. Our concrete proposals for action include:

Cooperative efforts to stem corporate tax avoidance, tax inversions, and tax shelters

More effective taxation of rents and inheritance

Better targeting of fiscal transfers to improve coverage of poor and vulnerable groups and reducing leakage to higher-income groups

Financial markets that work for all

There is a large and challenging agenda for strengthening the resilience of the financial system to crises that disproportionately impact segments of the population least able to deal with them. Better cross-border coordination of regulation and enforcement is needed, macroprudential rules need bolstering. And countries need to avail themselves of policies at their disposal—to manage the exchange rate, credit flows, and asset prices—to ensure that the risks associated with boom-bust cycles in cross-border capital flows are manageable and don’t result in serial crises and the distributional fallout (Ostry et al. 2012, Ghosh et al. 2016). Beyond this, the implicit capture of the state by financial interests at the expense of large portions of the population cries out for reversal as does increasing financial inclusion, including for women, and financial literacy more generally.

Our concrete proposals for action include:

More aggressive actions against money-laundering and illegal financial centres

Better cross-border regulation and concrete actions to ensure that risk-takers bear a large cost for their actions

Investment in financial literacy and financial customer protection

Increasing fair competition, avoiding crony capitalism and capture

Fair competition is a prerequisite for the efficiency of markets at home and internationally – and for public trust in the economic system. Low barriers to entry encourage innovation and benefit the consumer, with some recognised trade-offs for markets that are disrupted by technology or trade. Selectively halting fair competition yields poor results; moreover, unfair competition in key markets or in international trade hurts the cause of globalisation. Hence, whether in industry, services or in the media, anti-trust actions to avoid capture are in the broader interests of inclusiveness. Societies that are intrinsically unfair and do not offer opportunities to their populations are incompatible with globalisation’s goals, since benefits are narrowly captured. Level playing fields at home and rules-based international trade gains require effective competition policies, fair trade rules that are enforced, and lack of capture of these institutions by the powerful or the state-sponsored.

Our concrete proposals for actions include:

Coordinated efforts to resist anti-competitive actions by countries, groups of countries or state-led entities that limit real competition; more aggressive naming and shaming of violators of global trade rules

Fighting media capture by powerful interests

Lifting barriers to entry to ensure competitive markets, including in high-tech industries, facilitating technology transfer and punishing technology theft; strengthening the environment for R&D and appropriate intellectual property enforcement. Policies to stimulate entrepreneurship and facilitate both firm entry and exit can help consumers.

Fostering a new era of international cooperation

Strengthened cooperation in areas as diverse as migration, international trade, anti-money laundering and tax evasion, and anti-corruption efforts is indispensable for the future of globalisation. Balancing national and common global interests is difficult and requires more effective institutions. Inclusiveness is always easier in a growing pie, which means coordinated policies to improve global economic outcomes, adherence to global rules and standards, and fairness in national redistribution policies.

Our concrete proposals for action include:

Expanding the scope of trade rules to growing areas such as services and digital commerce, and to ensure stronger provisions in areas like labour, subsidies, and competition with state-owned enterprises

Global action on migration – its mitigation, management, and consequences

Bridge gaps in global rules regarding the role of tools to manage cross-border capital flows (e.g. between the IMF and OECD)

Further governance reforms at international institutions to improve voice and accountability

Authors’ note: The views expressed are those of the authors, and should not be attributed to the institutions with which they are affiliated.


Autor, D, D Dorn, L Katz, C Patterson and J van Reenen (2017), “Concentrating on the Falling Labor Share”, American Economic Review 107(5).

Ghosh, A, J D Ostry and M Qureshi (2016), “When Do Capital Inflow Surges End in Tears?”, American Economic Review 106(5).

Leipziger, D (2016), “Make globalisation more inclusive or suffer the consequences”,, 8 December.

Milanovic, B (2016), Global Inequality: A New Approach for the Age of Globalization, Harvard University Press.

Ostry, J D (2017), “To save globalization, its benefits need to be more broadly shared”, World Economic Forum, 16 January.

Ostry, J D, A Ghosh, M Chamon and M Qureshi, 2012, “Tools for Managing Financial-Stability Risks from Capital Inflows”, Journal of International Economics 88.

Ostry, J D, A Berg and C Tsangarides (2014), “Redistribution, Inequality and Growth,” IMF Staff Discussion Note 14/02 and forthcoming in Journal of Economic Growth. See also

Piketty, T (2013), Capital in the Twenty-First Century, Belknap Press.

Rodrik, D (2017), “Populism and the Economics of Globalization,” CEPR Discussion Paper 12119.

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