Davos Download: This time it MUST be different

This year’s World Economic Forum, was given a flying start by the Managing Director of the IMF, Christine Lagarde, who delivered the organisation’s first ever Davos update on the world economic outlook. For the first time since the financial crisis, economists are now forecasting that the global economy will soon be operating at or near full capacity, with growth in emerging markets and developing countries up at 4.5% this year.

In their magisterial account of the world’s long history of financial crises, Carmen Reinhart and Ken Rogoff once observed that in every business cycle, experts chime “this time is different” claiming that the old rules of valuation no longer apply and that the new situation bears little similarity to past disasters’. Well, this time, we have to make sure things are very different to the upswings of the past.

President Trump, however, was not quite in a position to make the world an offer of genuinely ‘inclusive growth’. The week’s big speaker, he was keen to underline his message that making America great did not mean America acting alone. In truth, his plan for huge corporate tax for American firms is unlikely to fuel a revival in the fortunes of the average American worker, never mind workers around the world. The Tax Policy Centre, based at Brookings, believes:

“In general, higher income households receive larger average tax cuts as a percentage of after – tax income, with the largest cuts as a share of income going to taxpayers in the 95th to 99th percentiles of the income distribution.”

Christine Lagarde indeed worries that the American tax cuts are so big, they are one of the world’s top three risks to global growth. Thankfully, global policy makers are quite clear that the way growth is shared has got to be different. As Jim Yong Kim, President of the World Bank, put it: “If we don’t act now, not only will our goals of ending extreme poverty and boosting shared prosperity be out of reach.” Oxfam underlined the message with an extraordinary report ‘Reward Work, Not Wealth,’ which revealed that 82 percent of new wealth was bagged by the world’s richest 1 percent last year while the poorest half of humanity got nothing.

So, the challenge is stark: to turn this anxiety into answers. The stage is set for the OECD’s Global Parliamentary Network on Inclusive Growth, which we’re very proud to be hosting in the UK’s House of Parliament in April.

Liam Byrne MP is the founder and Co-Chair of the All-Party Parliamentary Group on Inclusive Growth.