Inequality

Globalization 4.0 must provide for the poorest, or it risks causing chaos for everyone

A woman carries a child and a bag on her head within the trading centre of the U.S. President Barack Obama's ancestral village of Nyang'oma Kogelo, west of Kenya's capital Nairobi, July 15, 2015. President Obama visits Kenya and Ethiopia in July, his third major trip to Sub-Saharan Africa after travelling to Ghana in 2009 and to Tanzania, Senegal and South Africa in 2011. He has also visited Egypt, in North Africa, and South Africa for Nelson Mandela's funeral. Obama will be welcomed by a continent that had expected closer attention from a man they claim as their son, a sentiment felt acutely in the Kenyan village where the 44th U.S. president's father is buried. Picture taken July 15, 2015. REUTERS/Thomas Mukoya - GF10000168089

By 2030, one in five children in sub-Saharan Africa will be living in poverty Image: REUTERS/Thomas Mukoya

Sara Pantuliano
Chief Executive, Overseas Development Institute
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Inequality

This article is part of: World Economic Forum Annual Meeting

Globalization has helped lift millions out of poverty and improved living standards across the world, including in some of the poorest regions and states. But it has also deepened inequalities, as the vast majority of the wealth it has generated rests in the hands of a very select few. There is an inescapable sense that the process disproportionately benefits a globalized elite, whose profits continue to grow, aided by weak regulation, while the wages of the lowest earners in developed economies continue to fall in value.

Industry 4.0 is driving a new phase of globalization, underpinned by technological developments and the growth of automation. It is critical for businesses and governments alike to work together to find ways for Globalization 4.0 to deliver broad-based economic transformation and job creation. They must help reduce unacceptable inequalities, rather than deepen them, or they will produce a political backlash that may in the long term erode the benefits that globalization has brought.

Current trends are not encouraging. Populism, resentment of established politics and social divisions in OECD countries are all growing, alongside increasingly isolationist policies in the US, the UK’s decision to leave the European Union and the general growth of nationalism and authoritarianism, including in liberal democracies.

For those in lower-income countries, the opportunities offered by Globalization 4.0 are in danger of being outweighed by the risks, especially given the pace of automation and its impact on manufacturing jobs. ODI research shows that robots in the US could become cheaper than workers in Kenya in certain sectors within 15 years. As the cost of building and operating robots falls in rich countries, these economies will find it more efficient to move manufacturing back home from overseas, as the need for cheaper African and Asian labour declines.

Africa’s share in robot sales in 2015 was 0.2% - 15 times lower than its global share of GDP, which is around 3%. African firms face many challenges around digitalization, including the high cost of capital and electricity, unreliable power supply, lack of relevant skills and poor customs services and logistics. The pace of change is so rapid that Africa risks being left behind, the victim of a deepening digital divide with the US, Europe and Asia, unless urgent action is taken to prepare for a digital future.

These trends are coinciding with and reinforcing significant demographic shifts and high levels of inequality. As poverty is reduced elsewhere, it is becoming increasingly concentrated in Africa. ODI research estimates that around one in five children in sub-Saharan Africa will be living in poverty by 2030, and that these children will account for 43% of global poverty. The search for a better livelihood, safety and security has always driven people to migrate, and as poverty deepens we can only expect more large-scale population movements like those that so unsettled European governments and publics three years ago.

There is little sign that OECD governments will be any better prepared or equipped to manage another large-scale influx, or to frame a public discourse that does not present the arrival of large numbers of desperate people as a threat to jobs, services and their way of life. Indeed, in the UK and across Europe, the pressures of a decade of austerity, as well as the mismanagement of the process and perceptions of migration, have led to an increasingly ugly public mood, and equally ugly reactions from governments seeking to isolate their nations from global forces they cannot control.

Meanwhile, there is clear evidence that barriers and restrictions to mobility do nothing to stem the flow, but only force people onto more dangerous informal migration routes, at the mercy of smugglers and traffickers along the way. When they finally reach their destination, they become trapped in insecure, exploitative and badly paid work, and in shoddy accommodation.

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This does not have to be. A different world is possible, but if Globalization 4.0 is to achieve it, then we need governments to work together, along with responsible business, to move away from hyper-globalization based on large short-term capital flows, towards better-managed globalization with built-in compensation mechanisms for those who benefit the least.

A new approach must be found that delivers for all, or current divisions will continue to deepen and Globalization 4.0 will bring more chaos for us all. The immediate prospects are not good, given the current global direction of travel. What is required is a new generation of political, societal and corporate leaders with the courage and vision to transcend nationalistic narratives and purely financial interests to create a new global architecture for a progressive Globalization 4.0.

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