AFP, GENEVA: The world economy, stunted by years of austerity and growing inequality, needs a global “New Deal”, inspired by policies that helped Europe rebound after World War II, the UN said Thursday. “The world economy remains unbalanced in ways that are not only exclusionary, but also destabilising and dangerous for the political, social and environmental health of the planet,” said the UN development agency, UNCTAD. “What is urgently needed now is a global new deal,” the agency said in its flagship Trade and Development Report.

The original New Deal, launched in the United States in the 1930s in response to the Great Depression, was replicated at an international level with the Marshall Plan, which is widely credited with helping Western Europe make a spectacular recovery after World War II.

“Seven decades later, an equally ambitious effort is needed to tackle the inequities of hyper globalisation in order to build inclusive and sustainable economies,” UNCTAD said.

As with the previous plans, the report argued that the world, at both national and international levels, should be focusing on job creation, the expansion of taxes to enable redistribution of wealth and regulation aimed at taming finance.

End austerity

“Ending austerity and harnessing finance to serve society once again, rather than the other way around, are the most urgent challenges,” the report said.

It pointed out that nearly a decade after the global financial crisis, “a strong recovery has remained elusive”. UNCTAD forecasts that the global economy will grow 2.6 per cent this year, only slightly higher than the 2.2 per cent registered in 2016, and far below the 3.2 per cent average seen in the years leading up to the financial crisis. Growth in developed countries is expected to tick in at 1.9 per cent this year, up from 1.7 per cent in 2016.

The sluggish growth in richer nations, along with renewed volatility in global capital flows, has also limited growth in developing countries, the report said, forecasting growth there of 4.2 per cent this year up from 3.6 per cent in 2016.

And the widespread tendency to turn to austerity as a default policy had made the situation significantly worse, hampering investments and entrenching inequalities, it warned.

Instead of continuous belt-tightening, the UNCTAD economists called for the broad use of fiscal policy to work towards full employment and finance public investments in physical and social infrastructure.

Investments should also be made in major public works programmes, including ones aimed at mitigating and adapting to climate change, and in public services like child care and elderly care, they said.

They also urged states to give organised labour a stronger voice and to bolster regulations in the financial sectors and clamp down on the use of tax havens. The report also called for the creation of a “global competition observatory” as a “first step towards coordinated international best practice guidelines and policies, and to monitor global market concentration trends and patterns.” “Competition policy more generally should be designed with an explicit distributional objective,” it said.