What makes globalisation possible

We need to reverse these trends, complementing social reforms with policies that promote transparency and nurture a culture of integrity. We need an effective and fair global tax architecture, we need comprehensive and multilateral anti-corruption tools, we need instruments to tackle counterfeiting and regulate lobbying, we need robust standards in responsible business conduct and good corporate governance.

Third, we need to make trade and investment work for all and resist protectionism. We must keep building more inclusive global value chains GVCs ; supporting medium, small and micro-enterprises by providing better financing and lowering the costs of regulation; and facilitating access for Low Income Developing Countries LIDCs.

It is also crucial to empower our people with the skills needed to unlock jobs in the most sophisticated sectors. We cannot continue to base our key comparative advantage on low salaries. The OECD is working with China and many other countries to address these challenges and to ensure globalisation works for all. For example, our Productivity Inclusiveness Nexus study is filling evidence gaps on the link between slowing productivity and rising inequality.

We have also launched a new horizontal project on harnessing digitalisation for inclusive growth and are supporting the implementation of the G20 Blueprint on Innovative Growth adopted in Hangzhou. The lower unit cost of shipping products around the global economy helps to bring prices in the country of manufacture closer to those in export markets, and it makes markets more contestable globally. Many economists believe that there has been an increase in the minimum efficient scale MES associated with some industries.

If the MES is rising, a domestic market may be regarded as too small to satisfy the selling needs of these industries. Many emerging countries have their own transnational corporations. The desire of businesses to benefit from lower unit labour costs and other favourable production factors abroad has encouraged countries to adjust their tax systems to attract foreign direct investment FDI. Many countries have become engaged in tax competition between each other in a bid to win lucrative foreign investment projects.

Old forms of non-tariff protection such as import licensing and foreign exchange controls have gradually been dismantled. Borders have opened and average import tariff levels have fallen. Yet such an environment exists in relatively few places. This explains why, though the global innovation landscape is certainly changing, the transformation has not been as fast or profound as one might expect.

Globalization has already been shown to have enormous potential to bolster innovation, productivity, and growth worldwide. Rather than opposing it, more countries should be building their capacity to take advantage of it.

Otaviano Canuto. This article is published in collaboration with Project Syndicate. The views expressed in this article are those of the author alone and not the World Economic Forum. The innovation born from the pandemic has created a host of new digitally native businesses designed to meet evolving needs and new market opportunities.

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