Trade and Development Report 2018 · Average shares of top 1 per cent, 5 per cent and 25 per cent...

The economy is the realm of uncertainty; three quarters of the factors on which economic action is based arewrapped in a fog of greater or lesser uncertainty. A sensitive and discriminating judgment is called for; a skilledintelligence to scent out the truth.

• 10 years after multilateral action saved the global economy from financial meltdown the multilateral system is in crisis

• A fragile global economy walking a tightrope between debt-fuelled growth spurts and financial instability; sugar rush in the US? softening elsewhere, recession in some (table 1)

• Haven’t addressed the underlying problems (footloose capital, persistent inequality, rising debt); falling unemployment but stagnant wages; “safer-simpler-fairer” financial system but growing asset bubbles; high profits but low real investment (figure 1.8 and debt figure).. debt fueled booms tend to end badly we just don’t know when and how!

• Save the banks, push austerity, tolerate shadow banking; encourage mega-mergers; the “free trade” drum has provided the economic beat for a “medici vicious circle” and the rise of a rent-seeking economy (TDR 2017 and Martin Wolf)

• Trust is being sucked out of politics; a “trade war” has filled the resulting vacuum but not the end of 70 year liberal order .. that died 30 years ago .. (too big to fail, bail, jail)

The fog of (economic) war

Trade and Development Report 2018

Trade war: spreading the pain, who loses?


• Tariff war unlikely to seriously disrupt trade flows, but investors and consumers’

confidence will be shaken

• In a trade war scenario policy-makers are likely to find ways to compensate additional cost

of tariff to their exporters

• Wage-earners would be the first in line to make concessions to avert losing out to trade

competitors• Consumption growth will slow

down; investment confidence will be

hit; and output growth will

decelerate

• The sluggish growth of GDP

affecting all warring countries will

weaken import demand and thus

everyone’s exports

• Shock in vulnerable countries where

financial conditions are weak could

be very damaging(*) Measured in percentage points of GDP; thus negative numbers imply

decerelations of wage earnings are sharper than those of GDP

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%World USA China

Otherwarringcountries

Cumulative growth loses over five years (per cent)

GDP Private investment Consumption

Wage Share (*) Export Volume

• Trade is a big firm game (fig 2.10); these firms have been unequalising at home (superstar firms, monopolisation, etc) but also abroad (lead firms in GVCs)• Hollowing out of domestic value added in manufacturing (table 2.1)

• Headquarters and owners gain … producers lose (table 2.2)

• Rising profits, growing inequality (fig 2.14)

• Intangible assets a pervasive source of rents (fig 2.12)

• Digital economy is dominated by very big players and possibly even more prone to rent seeking behaviour (fig 3.6/7) ..

• Are the rules rigged in their favour (link to FT) … making more money in Luxembourg than Germany says they are; corporate rent seeking doesn’t stop at the border (fig 2.B1)

• Free trade agreements are none of these (Voltaire fig 2.B2)

The wretched spirit of monopoly


• Digital is the world of intangibles (R&D, design, software, etc) where data is the key ingredient of profit-making (oil, blood?); disruptive technologies; leapfrogging

• Quasi public good … non-rival (networks effects) but excludability is possible (first mover, market concentration, IPRs) .. Artificial scarcity

• Output is cooperative but control is privatized; rent-seeking is the game (Prebisch) and winner-takes-most outcomes carry big distributional consequences within and across countries; if data is the lifeblood of this economy, giant vampire firms are sucking the economic potential out of many developing countries

• Industrial policy is critical for building capacity and linkages• Data localization

• Anti-trust (tax avoidance)

• Innovation and technology transfer

• South south cooperation

Digital diversions


• The rise of the South? BRICS vs RIBS (fig 2.6/fig 2.4/fig 2.B3) ... But East Asia’s success hasn’t transformed other developing economies (mediated through GVCs)

• These chains have left many countries trapped in a narrow range of activities … and not just commodity exporters (fig 2.8/2.9)

• Countries are certainly trading a lot more … but not earning more (fig 2.7)

• Submerging economies … vicious cycle of financialised economies ... no decoupling, monetary normalization will hit the South hard .. divergent commodity price trends squeezing some countries hard

• And the policy space needed to do something about all this is diminishing: Q. if state ownership, technology transfer agreements and subsidies work to sustain growth and eliminate poverty (China) why do advanced countries want to deny others their use?

Hyperglobalised, hyperspecialised … hyperanxious


• Need to rethink multilateralism in progressive ways (a plague on the houses of regressive nationalism and corporate cosmopolitanism)

• A Havana Charter for the 21st Century

• Active macro policy … a healthy trade system emerges from healthy economies that are creating decent jobs (austerity damages trade)

• Active distributional policy … decent jobs pay decent wages and curtail corporate rent seeking (races to the bottom and regressive tax policies damage trade)

• Active industrial policy … productive investment, technological upgrading and strong productivity growth underpins healthy economies … need policy space to manage these (rigged markets damage trade)

• Active infrastructure policy … infrastructure is key to sustained growth but there is more to this than bankability of projects (poorly planned infrastructure damages trade)

Back to the future


World output growth, 1991-2018


Table - World output growth, 1991-2018

(Annual percentage change)

Country or area 1991–2000a 2001–2007a 2008–2010a 2011–2016a 2017 2018b

World 2.8 3.5 1.1 2.7 3.1 3.1

Developed countries 2.6 2.3 -0.7 1.6 2.3 2.1

Japan 1.3 1.4 -1.3 1.1 1.7 0.9

United States of America 3.6 2.7 -0.5 2.1 2.3 2.7

European Union (EU-28) 2.2 2.2 -1.0 1.2 2.5 2.0

Eurozone 2.1 1.9 -1.1 0.8 2.5 1.9

United Kingdom of Great Britain and Northern Ireland2.7 2.7 -1.4 2.2 1.8 1.2

Transition economies -4.9 7.2 0.2 1.4 2.1 2.2

Russian Federation -4.7 6.8 -0.4 1.0 1.5 1.7

Developing countries 4.8 6.2 5.0 4.7 4.4 4.6

Africa 2.6 5.8 4.6 3.2 3.0 3.5

South Africa 2.1 4.3 1.2 1.9 1.2 1.1

Latin America and the Caribbean 3.1 3.6 2.2 1.6 1.1 1.7

Mexico 3.2 2.2 -0.3 2.8 2.3 2.1

Brazil 2.8 3.5 3.7 0.5 1.0 1.4

Asia 6.3 7.4 6.2 5.9 5.5 5.5

China 10.6 10.7 9.8 7.6 6.9 6.7

India 6.0 7.4 7.1 6.5 6.2 7.0

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Table - World output growth, 1991-2018

(Annual percentage change)

Country or area 1991–2000a 2001–2007a 2008–2010a 2011–2016a 2017 2018b

World 2.8 3.5 1.1 2.7 3.1 3.1

Developed countries 2.6 2.3 -0.7 1.6 2.3 2.1

Japan 1.3 1.4 -1.3 1.1 1.7 0.9

United States of America 3.6 2.7 -0.5 2.1 2.3 2.7

European Union (EU-28) 2.2 2.2 -1.0 1.2 2.5 2.0

Eurozone 2.1 1.9 -1.1 0.8 2.5 1.9

United Kingdom of Great Britain and Northern Ireland2.7 2.7 -1.4 2.2 1.8 1.2

Transition economies -4.9 7.2 0.2 1.4 2.1 2.2

Russian Federation -4.7 6.8 -0.4 1.0 1.5 1.7

Developing countries 4.8 6.2 5.0 4.7 4.4 4.6

Africa 2.6 5.8 4.6 3.2 3.0 3.5

South Africa 2.1 4.3 1.2 1.9 1.2 1.1

Latin America and the Caribbean 3.1 3.6 2.2 1.6 1.1 1.7

Mexico 3.2 2.2 -0.3 2.8 2.3 2.1

Brazil 2.8 3.5 3.7 0.5 1.0 1.4

Asia 6.3 7.4 6.2 5.9 5.5 5.5

China 10.6 10.7 9.8 7.6 6.9 6.7

India 6.0 7.4 7.1 6.5 6.2 7.0

Panglossian disconnect


35,1

106,9

66,2

86,8

148,9

103,2

64,5

161,8

10,9

17,6

5,7

15,3

78,1

4,8

25,2

55,1

0

20

40

60

80

100

120

140

160

180

France Germany UnitedKingdom

United States India Japan Republic ofKorea

Thailand

Stock index value Average nominal wages

Stock market appreciation and nominal wages increase, selected economies, 2009-2015 (percentage change)

United States

United Kingdom

AustriaBelgium

Denmark

France

Germany

Italy

Luxembourg

Netherlands

Norway

Sweden

Switzerland

Canada

Japan

Finland

Greece

Iceland

Ireland

Malta

Portugal

Spain

Australia

New Zealand

Cyprus

Israel

Hong Kong SAR

Korea, Republic of

Singapore

Czech RepublicSlovak RepublicEstonia

Latvia

Lithuania

Slovenia

-30

-20

-10

0

10

20

30

40

50

-60 -40 -20 0 20 40 60 80 100

Gro

wth

ra

te o

f p

riva

te c

ap

ita

l sto

ck (

20

08

-20

15

)Growth rate of nonfinancial corporate debt, loans and debt securities (2008-

2015)

Growth rates of private corporate debt and private capital stock, advanced economies, 2008-2015

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Average shares of top 1 per cent, 5 per cent and 25 per cent exporters in country total export, 1997–2014


30

40

50

60

70

80

90

100

1997 2000 2003 2006 2009 2012

C. Developed countries

Top 1% Top 5% Top 25%

2014

30

40

50

60

70

80

90

100

1997 2000 2003 2006 2009 2012

D. Developing countries

Top 1% Top 5% Top 25%

2014

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Changes in value added shares in gross exports, 1995–2014(Percentage points)

FOREIGN DOMESTIC

Agriculture and extractives

Manufacturing Services

Argentina 6.8 1.0 2.3 -10.1

Brazil 4.7 17.6 -16.5 -5.8

China -1.7 -2.8 11.9 -7.4India 11.6 -3.5 -12.9 4.8Indonesia 0.1 3.7 4.3 -8.1Mexico 6.1 0.0 0.4 -6.5

Republic of Korea 15.5 -0.6 -6.1 -8.8

Russian Federation 0.8 8.7 -6.4 -3.1Saudi Arabia -0.6 5.3 -0.3 -4.4South Africa 7.5 8.3 -12.3 -3.5Turkey 12.9 -0.3 1.8 -14.4Rest of the World -2.8 12.1 -4.9 -4.5

Developing economies 4.2 4.3 -3.5 -5.1

Developed economies 7.2 1.7 -10.1 1.1back


Shares in exported value added in manufacturing GVCs, 2000–2014

Global level High income

2000 2014 Difference 2000 2014 Difference

Capital 44.8 47.8 3.0 40.3 42.3 2.0

Labour 55.2 52.2 -3.0 59.7 57.7 -2.0

Headquarter functions 31.7 30.4 -1.3 35.2 37.0 1.7

Fabrication 23.5 21.8 -1.7 24.5 20.8 -3.7

China Other countries

2000 2014 Difference 2000 2014 Difference

Capital 57.0 49.6 -7.5 59.2 59.4 0.2

Labour 43.0 50.4 7.5 40.8 40.6 -0.2

Headquarter functions 13.6 19.7 6.0 22.5 23.7 1.1

Fabrication 29.3 30.8 1.4 18.3 16.9 -1.3back

Top 2,000 TNCs profit and the global labour income share, 1995–2015 (Percentage of world gross product)


-4

-3

-2

-1

0

1

2

3

4

1995 2000 2005 2010 2015

B. Change compared to 1995

1995 benchmark Top 2,000 TNCs net income Labour income Capital income excluding top 2,000 TNCs net income

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Payments and receipts related to the use of foreign IPR, selected country groups, 1995–2015


0

50

100

150

200

250

300

350

400

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1995 2000 2005 2010 2015

$ b

illio

n

Perc

enta

ge

A. Payments

Other developing countries

Ireland, Luxembourg, the Netherlands, Singapore and Switzerland

Other developed countries

Value (right scale)

0

50

100

150

200

250

300

350

400

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1995 2000 2005 2010 2015

$ b

illio

n

Perc

enta

ge

B. Receipts

Other developing countries

Ireland, Luxembourg, the Netherlands, Singapore and Switzerland

Other developed countries

Total value (right scale)

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Digital vampires


0

5

10

15

20

25

30

2000 2003 2006 2009 2012 2015

Profits Sales or revenues Assets Market capitalization

Share of “big tech companies” in top 100 non-financial corporations

27

31 31

25

43

3739

24

52

43

47

27

0

10

20

30

40

50

60

Share in marketcapitalization

Share in revenues Share in physicalassets

Share inemployment

1996-2000 2001-2008 2009-2015

Shares of top 1 per cent companies from technology, software and IT-services sector, 1996–2015

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Income of the United States on direct investment abroad, selected countries, first quarter 2000 to first quarter 2018 (billons of dollars)


0

10

20

30

40

50

60

70

80

2000Q1 2002Q2 2004Q3 2006Q4 2009Q1 2011Q2 2013Q3 2015Q4 2018Q1

A. Selected offshore financial centres

Netherlands Ireland Luxembourg

Bermuda Switzerland

0

10

20

30

40

50

60

70

80

2000Q1 2002Q2 2004Q3 2006Q4 2009Q1 2011Q2 2013Q3 2015Q4 2018Q1

B. Other economies

Germany China Japan

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WTO-plus and WTO-extra policy areas included in trade agreements (number of treaties)


0

50

100

150

200

250

300

Tar

iffs

on in

dust

rial g

oods

Tar

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on a

gric

ultu

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Cus

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Exp

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Ant

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Tec

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San

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Sta

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TS

Cou

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TR

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Pub

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Sta

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TR

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Com

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Pol

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Inve

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Mov

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Env

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Info

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Soc

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Vis

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Reg

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Agr

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Labo

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Res

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Eco

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Indu

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Sta

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Con

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Cul

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Pol

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SM

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Soc

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Fin

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Tax

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Ant

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Dat

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App

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Hea

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Inno

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Illic

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Aud

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Hum

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Min

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Mon

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Ter

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Nuc

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Saf

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Civ

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n

A. WTO-plus policy areas in trade agreements B. WTO-extra policy areas in trade agreements

Included Legally enforceable

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The Rise of the South?


0

5

10

15

20

25

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

RIBS BRICS

Share of BRICS versus RIBS in world economy, 1990–2016

0

20

40

60

80

100

1948 1958 1968 1978 1988 1998 2008

B. Percentage of world gross exports

Developed countries First-tier NIEs

China Rest of the world

0,0

0,5

1,0

1,5

2,0

2,5

3,0

0

20

40

60

80

100

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015

Trilli

ons o

f curr

ent

dolla

rs

Perc

enta

ge

Other developing coutries and economies in transition

China

First-tier NIEs

Developed countries


Shares in top 2,000 TNCs profits, selected countries and country groups, 1995-2015

Total gross exports, selected country groups and China, 1948–2016

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Export structure by technological levels, selected developing regions, 1990–2016 (percentage and trillions of dollars)


0,0

0,1

0,2

0,3

0,4

0,5

0,6

0

20

40

60

80

100

1990 1995 2000 2005 2010 2016

A. Africa

0,0

0,2

0,4

0,6

0,8

1,0

1,2

0

20

40

60

80

100

1990 1995 2000 2005 2010 2016

B. Latin America and the Caribbean

0,0

0,5

1,0

1,5

2,0

2,5

0

20

40

60

80

100

1990 1995 2000 2005 2010 2016

C. China

0,0

0,2

0,4

0,6

0,8

1,0

1,2

1,4

1,6

1,8

2,0

0

20

40

60

80

100

1990 1995 2000 2005 2010 2016

D. First-tier NIEs

0,0

0,2

0,4

0,6

0,8

1,0

1,2

1,4

0

20

40

60

80

100

1990 1995 2000 2005 2010 2016

E. West Asia

0,0

0,1

0,2

0,3

0,4

0,5

0,6

0,7

0

20

40

60

80

100

1990 1995 2000 2005 2010 2016

F. South, South-East and East Asiaa

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Medium- and high-skill and technology-intensive manufactures (percentage)

Processed commodities and low-skill manufactures (percentage)

Unprocessed commodities (percentage)

Value of total exports (trillions of current dollars, right scale)

World trade in value added by sectors, selected country groups, 1995–2011


0

1

2

3

4

5

6

7

8

9

10

0

20

40

60

80

100

1995 1997 1999 2001 2003 2005 2007 2009 2011

Trilli

ons o

f curr

ent

dolla

rs

Perc

enta

ge

A. Developed countries

Agriculture and extractive Manufacturing

Services Total value (right scale)

0

1

2

3

4

5

6

7

8

9

10

0

20

40

60

80

100

1995 1997 1999 2001 2003 2005 2007 2009 2011

Trilli

ons o

f curr

ent

dolla

rs

Perc

enta

ge

B. Developing countries

Services

Manufacturing

Agriculture and extractive


Value excl. NIEs (right scale)

Value excl. NIEs and China (right scale)

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Trade and Development Report 2018 · Average shares of top 1 per cent, 5 per cent and 25 per cent...

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