Article by Governor Carlos da Silva Costa in the OMFIF’s 10th Anniversary brochure: "Saving globalization"
POLICY-makers face a major economic challenge: how to reinvent a global development model based on trade and rules enforced by multilateral institutions which sanction anti-competitive practices.
This model will be effective and sustainable only if it delivers fair, inclusive growth. Globalisation has resulted in ‘creative destruction’ – innovation wiping out traditional production processes. This has fostered convergence among countries, but also sectorial adjustment costs, widening intra-country divergence and unleashing new forms of protectionism and populism.
Stronger supranational institutions and common policies are needed to underpin deeper economic integration intended to optimise resource allocation. Production processes have evolved into global value chains, which have become pivotal decision centres. These chains can be regulated effectively only through a multilateral global governance framework.
Policies are also needed at national level to mitigate the unequal distribution of gains and losses from global trade. Rising inequality brings a sense of unfairness, threatens social cohesion and translates into wasted opportunities and resources. Decision-makers must find a policy mix that promotes fair income redistribution and ensures everyone can participate in the generation of income, while improving domestic institutions.