Sustainable Globalisation Requires Global Governance

Since the fall of the Iron Curtain in the early 1990s, globalisation has gained momentum – the world economy has become more and more integrated. Borders have been opened and companies from all over the world have entered distant markets. Between 1990 and 2018, global trade in goods increased sixfold. During this period, cross-border investment stocks increased by about fourteen times, while global economic output quadrupled (UNCTAD).

Does Globalisation Benefit All?

But do people really benefit from globalisation and market opening? In fact, global income has developed very positively. Between 1990 and 2018, it has not only more than quadrupled, it is distributed among a world population that has grown more slowly (by 44 percent) than the global economy. As a result, average incomes have risen worldwide. Globally, the average per capita income increased by the factor 2,6 between 1990 and 2018 (UNCTAD). So far, the economic starting conditions of the younger generation are by far better than they are for their parents' generation.

But were the poorest people in the world also able to benefit from this growth in prosperity or has only a global elite become rich? Over the course of globalisation, the incomes of the world’s poorest people have improved significantly. Since 1990, the proportion of people living in extreme poverty (1.90 U.S. dollars/day) has fallen from 36 percent (1990) to ten percent (2015) worldwide. At the same time, incomes are more evenly distributed worldwide than they were 30 years ago. According to the International Monetary Fund (IMF), the Gini index – a statistical measure of income distribution – fell from 69.7 in 1988 to 62.5 in 2013. The gaps in wealth between the individual countries have also narrowed significantly; income convergence between developing and industrialised countries is thus increasing.

At the same time, it is also true that in some countries, even in advanced economies, poverty and inequality have increased. The gap is smallest in Europe. In 2016, the top ten percent controlled 37 percent of national income; in North America it was 47 percent. The causes of growing income inequality are both global and national. Industrial and social policies in the countries concerned are needed to counteract the decline in prosperity and cushion social inequalities.

Is Globalisation Harming the Environment?

Since 1990, the global population has grown by 44 percent, coupled with an increased demand for natural resources. Do globalisation and open borders further promote the exploitation of natural resources? Open borders create the opportunity for more people to cooperate with each other. This makes it possible to produce more and cheaper, but also to guarantee production with a lower consumption of resources. According to the Organisation for Economic Cooperation and Development (OECD), the energy intensity of production, i.e. the energy input required to produce 1,000 U.S. dollars in economic output, fell by 30 percent between 1990 and 2015. We owe this development not only to modern production technologies but also to trade. Trade agreements help to spread high environmental and social standards internationally. The same holds true for foreign direct investment: Both customers and internationally active companies increasingly expect Western standards to be applied in less developed countries. In addition, rising prosperity in developing and emerging countries can contribute to the transition to modern and environmentally friendly technologies. This also opens up export opportunities for German industry, which has much to offer in the field of environmental technologies.

Global Governance Is Necessary 

Globalisation and open markets are effective tools in the fight against poverty. They are not in conflict with ecologically sustainable development. However, global trade and investment need fair and modern rules. Much has already been achieved in shaping this framework. Global standards such as the International Labour Organisation (ILO) core labour standards, the OECD Guidelines for Multinational Enterprises, and the UN Principles for Business and Human Rights lay down minimum global norms. The Paris Climate Agreement established an international framework for achieving global climate targets. The World Trade Organisation (WTO) has significantly improved openness and fairness in global trade, also to the benefit of emerging and developing countries. By creating the International Initiative for Transparency in the Extractive Industries (EITI), abuses in the extraction of raw materials in developing countries can be addressed.

But much remains to be done. The global regulatory framework needs to be further developed. Global rules must be equally socially, ecologically and economically sensible if they are to gain international recognition. A concrete step in this direction would be to extend the application of established standards such as the ILO core labour standards or the OECD guidelines. The expansion of global trading in CO2 certificates would be a further step. The reform of the WTO and the conclusion of trade and investment agreements with modern environmental and social standards are also necessary so that trade can continue to create prosperity for all. International fora such as the G7, G20 and the OECD must be used to a greater extent in order to be able to bring about cross-border agreement on issues of global regulatory policy. In addition to the unity of the European Union, a prerequisite for this is a good transatlantic relationship. The German government and the new European Commission are confronted with the major task of steering globalisation in a sustainable social and ecological direction while further dismantling barriers to trade and investment.