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GLOBALIZATION, INCLUSION AND SUSTAINABILITY I N A GLOBAL CENTURY

G7 INTERNATIONAL FORUM*

Under the “auspices” of the Italian G7 Presidency

Rome

May 8th-9th, 2017

Under the “auspices” of the Italy’s G7 Presidency, a group of analysts and experts intends to offer to the G7 Heads

of Government, through their Ministers of Foreign Affairs and International Cooperation, some considerations and

proposals. These are aimed at facing proactively today’s great challenges, because the measures adopted so far appear

not to have achieved their desirable objectives. The analysts and experts come from several Institutions and

Universities (namely, Fondazione Universitaria Economia Tor Vergata and Link Campus University Foundation),

national and international Research Centers, as well as from the spheres of culture and politics.

*This Forum follows the previous one “The G8 and beyond: the economics and politics of a global century?”, organized by the same Institutions (Fondazione Universitaria Economia Tor Vergata and Link Campus University Foundation) and held in Villa Madama on 21st and 22nd June 2009 in preparation for the G7 of L’Aquila (Italian Presidency) held on July 2009. The methodological approach adopted is to start from the ideas prevailing in G7 countries giving audience at the same time to the voice of the countries neither included in G7 nor being part of the G20. Our choice is to have put “in dialogue” people coming from different backgrounds and with different “sensibilities”. In this way, the G7 International Forum, has the objective of a truly global approach, creating a network in progress working continuously in the next future.

Globalization is a phenomenon that has accompanied the history of humanity and is not reversible, but a cooperative governance of

the process of the adjustment of the process of globalization is now crucial to avoid devastating conflicts.

Globalization, has been exalted as development engine for a long time. Today it is considered the most important reasons for

the sense of anxiety and mistrust in the future emerging over the long crisis exploded in 2008 and intensified by the

explosive increase in the flow of refugees and migrants all over the world.

Job loss, wage stagnation, growing income inequalities and commercial deficits, deterioration of the natural environment, unbalance of

the relationship with national sovereignties, growth of social discomfort, crisis of governability, and growing corruption at the global level are all

considered part and parcel of globalization.

Nobel Prize A. Deaton (2016) argued that “growth depends on globalization and on legitimate inequality”. We cannot ignore,

he said, those who are hurting, but we need to ensure that our “fixes” don’t make the problem worse. The true bogeymen are

the rent-seekers who have captured so much of our government. The inequality that they have wrought is the inequality that needs

to be eliminated”.

B. Milanovic (2015) claimed that globalization can be observed from a historical point of view. In this context, its costs tend to

perpetuate a cycle where periods of global integration and technological progress generate rising inequality which triggers two

countervailing forces: redistribution policies and political upheaval. Globalization has reached a stage where its costs have been

largely ignored. The results of recent empirical analyses (K. Desmet, 2016) show that, despite a growing sentiment of

discontent, globalization remains a powerful engine of growth and the world stands to benefit greatly from a non-stopping

liberalization process.

Is there any role for European Union in making proposals and deals is this respect? Going forward, Governments need to address

inequality and social inclusion, boost global investment, and restore confidence.

In this context, the African continent can be considered as an ideal laboratory. Africa is in fact the only continent that in the next

thirty years will know a strong growth of its population. Africa will also have a young population, large natural resources and the

highest growth potential. It will also feature fully complementary features to Europe, making it an ideal partner for the old Continent.

Chinese President Xi Jinping presented the “new silk road as a part of the history showing that civilization thrives with openness

and that nations prosper from exchange”. No doubt that “one belt, one road” initiative, is based on positive principles, facilitating

trade, connectivity and improving infrastructures. Nevertheless the benefits for the countries along its route may be different one

from another.

We have therefore to develop a “polylogue” (“the conversation of many”) as a form of synchronous political communication of all

political actors involved in global governance; polylogue is a way to solve the problem of equal participation in global governance

and provide a collective leadership.

The latest Global Trade Alert Report emphasizes the mounting evidence on the acceleration in the G20’s resort to protectionism

since 2012. The jumps in G20 protectionism in 2015 and 2016 coincide with the halt in the growth of global trade volumes (S.

J. Evenett, 2016). What would be the consequences on international trade and on the G7 economy of President Trump proposal

renegotiating the Nafta and imposing extra-tariffs on imports from Mexico

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and China? China needs to draw on policies that go beyond the simple purposes of securing China’s own economic interests.

The emergence of China is felt as a major competitive shock by all manufacturing producers in rich countries. This is

particularly true in the labour-intensive sector, where the traditional comparative advantage of low-wage countries is compounded

by trade liberalization in form of import quota removals.

The employment trajectories of workers, who were employed in manufacturing industry exhibit strong polarization between high

skill/high wage jobs and low skills/low wage jobs, the losers being the middle skills/and wage jobs (W. Keller et al., 2016). Rising

import competition can increase income inequality, but it also accounts for a substantial part of all high-wage employment gains.

In Europe we have just entered an era that can be defined as “post-Brexit”, where Brexit risks being a turning point, a change

of era that can change the future, as it has happened so many times in our history.

The upshot of a supposed convergence of economic efficiency with social justice created a breakage of trust which goes to

the root of civil society.

The loss of trust and the increased insecurity prevailing in our society made room for the proposal of the so-called responsible

nationalism.

The proposal has emerged as a response to a growing uneasiness on the consequences of globalization, in spite of the ancient

historical roots and irreversible nature of global integration trends. Nationalism is responsible when it is able to face the need to

ensure well-being and equity in national systems (responsible nationalism cannot do without responsible government) in the universal

framework of fair globalization (with a strong and practical support for multilateralism); for this reason, it is important that the supra-

national political institutions work as a link between global regulatory regimes (public and private).

L. Summers defines responsible nationalism as “… an approach where it is understood that countries are expected to pursue

their citizens’ economic welfare as a primary objective but where their ability to damage the interests of citizens of other countries

is circumscribed. With such an approach, the content of international agreements would be judged not by how much is harmonized

or by how many barriers to global commerce are torn down but by whether people as workers, consumers and voters are

empowered”.

In this context, argued P.L. Scandizzo, the European Union appears more and more like the designated victim because it is the

last bastion of over-nationalism, in unfinished form and therefore more vulnerable.

The concept of “responsible nationalism” is useful only to the extent in which it helps avoiding the distortions of “irresponsible

nationalism”, which has characterized many past experiences and to which no one should like to return.

These distortions are at the roots of the real problems of our “developed” societies and their relationships with the “emerging”

economies.

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We will mention two of them, undoubtedly crucial:

a) The increase in inequalities and insecurity in our national societies and at global level. Austerity policies were not able

to lead Europe as a whole to adequate growth and development rates to keep up with the economies of the rest of the

world. At the same time, they have increased poverty, insecurity and the social tensions from growing immigration. The

rhetoric of development exacerbates the existing problems, thus widening the social gap between the wider majorities,

victims of growing social exclusion and very narrow and increasingly richer oligarchies.

b) The narrowing of the spaces of democratic experience in our democracies “competitive 4.0”, “emptied”, “refuge” of

populisms of different nature (very different from context to context). We have to face - politically and globally - the

relationship between globalization and sovereignty, looking at each specific context.

At the same time, we are increasingly witnessing several forms of “exit” from “anaemic” regional contexts such as the EU and

without a planning view, in the dangerous nostalgia for “irresponsible” nationalism.

To confront this risk, the G7 should propose resources and actions for each country. Eurozone countries in particular, should

aim to deal more effectively with international emergencies such as migratory flows, natural disasters, terrorists and cyber

attacks. Solving these issues requires, paradoxically, giving up sovereignty to preserve it: “co-ordinated sovereignty”, “networked

sovereignty”.

In this context a new policy approach has to be adopted, involving the G7 in carrying out the 17 Sustainable development

goals (as an indivisible, universal programme), not only related to climate-environment but also to the dramatic socio-economic

realities of our time.

Italy really has an opportunity in hosting the G7 to ensure that the largest economies in the world reaffirm their commitment to the

2030 sustainable development agenda.

It is essential, at the international level, to promote and invest in education, lifelong learning, social protection and innovation (in

particular, we have to politically manage the “digital revolution”.

The Forum focused on three sets of issues:

The issue of fair globalization, aimed at rediscovering its cultural and political soul. How can globalization be more inclusive? In

order to promote a more inclusive and sustainable globalization, links between global regulatory regimes should be developed,

conditioning free trade, global funding, “choice of law”, to compliance with global standards on environment, democracy, rule of

law, human reflects, social welfare.

What is relevant in order to make globalization feasible and acceptable is not only reducing inequalities produced by innovation and

growth but to make that losers can feel they can be the future winners. A new humanism of the 21th century is the only viable

response to those who feel unsafe, forgotten, excluded and that would increasingly reject, in all field, precooked solutions imposed

from political or economic elites.

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Corruption at global level a disruptive phenomenon which can no longer be tolerated.

Competition which require respect of common rules globally.

The Digital Revolution which has to be managed politically so that it benefits to all instead of splitting societies into two.

J. P. Fitoussi argues that countries can develop solidarity at the global level by financing the provision of public goods. D. Rodrik

contends that we cannot have hyper-globalization, national sovereignty and democratic politics all at once, but only two out of

three. He suggests to put democracy to work for the global economy, instead of the other way around. The risk being today

that the social strains of hyper globalization will drive a populist backlash that undermines globalization and democracy.

Moreover, he argues, it is too late for winners to compensate the losers for the re-distributive consequences of removing tariff

and non-tariff barriers on trade.

We must reassess the balance between national autonomy and economic globalization.

The key challenge for national states is to operate and co-operate in areas that fundamentally challenge their sovereignty, but

they can only do so if they pool or share some of the sovereignty with other states. Given the transnational and networked nature

of the problem, a transnational and networked response is required.

The second issue is related to the policies to be adopted to react to the protectionist pressures.

P. Lamy recently argued that the new world trade is a world where production is transnational along supply chain of goods and

services where obstacles to trade are about protecting the consumer from risks. Security, health safety and environmental

sustainability tend to prevail on tariffs and non-tariff measures. This context reinforces D. Salvatore proposal to direct the G7

to the strict enforcement of agreed-upon WTO rules and regulations.

The Trump Administration view is that free-trade agreements are responsible for income stagnation over the past two decades.

J. Sachs (2016) considers an economic fallacy the claim that America’s current- account deficit (or trade deficit), which is in fact the

result of America’s low and falling saving rate, is an indicator of unfair trade practices by Germany and China two current-

account surplus countries. No doubt that China needs to draw on policies that go beyond the simple purpose of securing China’s

own economic interests.

Anyway the more that is done today from G7 members to engage and debate the foreign policy with the Chinese elite, the better the

chances are for future policies that reflect the world’s interests.

At the same time it is important to achieve a balance between the capabilities and ambitions of the new leading countries.

President Trump intends to provide workers with “protection” by putting protectionists in charge. Trade and investment

agreements, if and when they will resume after the stop put by President Trump and by hostilities mainly determined by the fears

of social and other kinds of dumping, should consider also this aspect among others in setting standards and rules, including those

on environment and taxation.

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R. Baldwin (2016) argues that “protectionism will not boost American industrial competitiveness”, even if it saves a few thousand

jobs in sunset sectors. Moreover, ripping up trade agreements and raising tariffs will do nothing to create new, high-paying

factory jobs because the twenty-first-century globalization is knowledge-led, not trade-led.

With US workers already competing against robots at home, and against low-wage workers abroad, disrupting imports will just

create more jobs for robots”.

The consequence is job polarization between high skills/high wage jobs and low skills/low wage jobs, both increasing their quota

in the economy. The medium skills/medium wage workers that represent the majority in manufacture had not experienced any

significant increase in their income in the last 10 years.

Globalization and technological innovation imply the need to invest in retraining initiatives, lifelong education, mobility and

income-support programs, and regional transfers.

The third issue is the sustainable development policy involving G7 action to rebuild the foundations of renewed trust.

A first priority is “citizen safety” which comes from the demand for security on the part of the citizens, in a society dominated by

systemic risk and destabilizing trends, where most certainties of the past, from job security to social nets have been waning or

disappearing altogether. A major disproportion exists between real and present dangers and local countervailing capabilities, where

global risks can only be confronted with actions coordinated and deployed on the same global scale Sustainability, inclusion and

shared prosperity are challenged by globalized trends. They cannot be taken as pure external policy variables, and must themselves

be linked to the provision of trust, security and social justice endangered by the spreading of globalization. As national welfare

systems prove to be less sustainable and incapable of providing sufficient social insurance, they should be the object of a major

effort in international cooperation. A major government failure of globalization derives from the fact that politics is the only activity

that remains absolutely national, in the sense of democratic rule. Paradoxically, this has created a drive back to nationalism, but it

is the wrong answer. To build the foundations of renewed trust, resources and finance for public investment projects must be

obtained and deployed at global level, by using existing multilaterals, and through new global institutions. Higher risks and loss of

confidence imply a fall in the worldwide investment rate, which reverberates negatively on economic growth and employment,

further exacerbating the feeling of insecurity and the loss of confidence in the future.

The G7 could make proposals for coordinating policies directed to increase productivity and growth, particularly in the Eurozone

countries.

IMF pointed out in 2014 (IMF, WEO, 2014) that the evolution of the stock of public capital - the most widely available proxy

for infrastructure - indicates rising inadequacies in infrastructure provision. Public capital has declined significantly in quality

and as a share of output over the past three decades in both advanced and developing countries.

Maintenance spending has also fallen, especially since the financial crisis. Reinvigorate public investment to lay the foundation for

long-term economic performance and job growth, including by investing in large-scale infrastructure

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renovation (M. D. Knight, 2017).

Redistributive policies require higher tax rates and tend to have an adverse impact on growth. The Roosevelt Foundation (2016)

suggested that reducing inequality is not just a matter of redistribution, “Rewriting the Rules” could be the most important

policy option. Economic policies affect the distribution of income both before and after taxes and transfers. The tax system,

for instance, may encourage some inequality-generating activities at the expense of others.

“We must devise new policies to eliminate the distortions that pervade our financial sector, our corporate rules, our

macroeconomic, monetary, tax, expenditure, and competition policies, our labor relations, and our political structures”.

Globalization is a de facto game changer, to which states and G7, have to adjust. Accelerated by digitalization, globalization re-

structures societies and challenges existing rules. The developments in international taxation are a proof and an alarm. The century-

old international tax framework could not hold globalization’s forces, with harsh consequences. It is currently being discussed with

the support of G7 in cooperation with about 100 countries in an inclusive framework; it is a promising start indicating the way

forward.

Re-launching innovation is a must. Nobel Prize E. Phelps argued “Lost innovation, not trade, is the main culprit of economic

stagnation” (2017). Though “an economy open to new concepts and novel ventures is bound to generate unequal gains, it

would be a mistake to misunderstand the relation of inequality and innovation. It is less innovation - not more - that has

widened inequality in the United States in recent decades”.

Renewable energy technologies and energy efficiency are important devices facing climate change, but are also engines pushing

innovation in the economy as it is stated in “Better Growth, Better Climate” (UN, New Climate Report, 2015). International

agreements and rules on climate will be deciding climate policies.

Following the United States’ presidential election, many observers fear that international efforts to combat climate change -

such as the Paris accord and the Sustainable Development Goals - could be derailed.

Nobel Prize J. Stiglitz (2016) points out that, if Trump does not pursue climate-friendly policies, other countries might

“start imposing tariffs against US products made in ways that violate global climate-change rules”.

Even if President Trump reneges on US commitments, and does not implement national policies to reduce emissions, such a

move would kill the Paris agreement only if other countries decided to do the same.

Is this likely to happen?

To preserve and strongly defend the Paris Agreements, we have to invest in energy security, in decarbonization of the economies

and in the access to electricity in developing countries.

What should governments and G7 do to respond to the needs for more forceful policies of economic development and

international assistance, and, at the same time of reduction of poverty and income inequalities within their own countries?

International development policies are increasingly perceived as in contrast with efforts to improve the conditions of

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most disadvantaged within the richer countries.

Injustice and inequalities appear to increase in the globalized world. Retrenching into nationalism challenges development

programs and policies of assistance and aid for poor countries and their population. Migratory phenomena are both humanitarian

emergencies and persistent and growing realities. The pessimistic views about the Sahel region that take for granted immigration

as the only long term solution for Burkina Faso, Mali, Mauritania, Niger and Tchad - the G5 Sahel - has to be rejected

(J. De Melo, 2017). What about EU “migration compact”?

Demography and migratory flows are two central issues for a globalized world, especially today for Europe, witnessing the

surge of 2.3 million refugees and asylum seekers arrived in Europe during 2015 and 2016. Although this episode is only a small

part of the broader global phenomenon, it has presented Europe with the most dramatic wave of forced migration the continent

has experienced since the aftermath of World War II (F. Mattern et al., 2016).

Demography plays an important role in a sustainable development policy. Migration flows are challenging European Institutions

that have to solve the dilemma on refugees hospitality: investing on immigration or protecting from it? No doubts about the

answer in an ethical perspective. But the answer doesn’t change either under a demographic perspective of sustainable

development.

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May 8th, 2017 - Ministry of Foreign Affairs and International Cooperation Benedetto Della Vedova (Undersecretary of State for Foreign Affairs and International Cooperation) Vincenzo Scotti (President, Link Campus University) Luigi Paganetto, (President, Tor Vergata University Economics Foundation) Paul Richard Gallagher (Secretary for Relations with States, Holy See)

First Session - Globalization, Protection and Protectionism Introductory paper: Jean-Paul Fitoussi (Sciences Po, Paris)

Paola Amadei (EU-LAC Foundation) Mladen Andric (Diplomatic Academy, Ministry of Foreign and European Affairs, Croazia) Antonio de Aguiar Patriota (Ambassador of Brazil in Italy) Olga Leonova (Lomonosov Moscow State University) Maurizio Melani (Link Campus University) Holger Nehring (Stirling University) Rodrigo Olivares-Caminal (Queen Mary University of London) Rogelio Pfirter (Ambassador of Argentina at the Holy See) Giovanni Tria (University of Rome Tor Vergata)

Second Session – Growth, Trade, Inequality and Poverty Introductory paper: Dominick Salvatore (Fordham University, N.Y.)

Adel A. Beshai (American University, Cairo) Luigi Bonatti (University of Trento) Innocenzo Cipolletta (UBS Italia SIM S.p.A.) John Gardner (Stirling University) Yu Jie (London School of Economics and Political Science) Giorgio La Malfa (Ugo La Malfa Foundation) Joseph Mifsud (Stirling University) Andrea Montanino (Atlantic Council) Nawaf Obaid (Essam & Dalal Obaid Foundation – Belfer Center, Harvard Kennedy School)

Third Session - The Search for Sustainable and Inclusive Development Introductory paper: Pasquale Lucio Scandizzo (Tor Vergata University Economics Foundation)

Saud al-Sarhan (King Faisal Center for Research and Islamic Studies) Amitav Banerji (Global Leadership Foundation) Sabino Cassese (School of Government, LUISS) Franco Frattini (Link Campus University) Michael Frendo (Venice Commission - Frendo Advisory) Paolo Guerrieri (Sapienza University of Rome) Hubert Kempf (Ecole Normale Supérieure Paris-Saclay) Noelle Lenoir (Cercle des Européens) Alberto Melloni (Giovanni XXIII Foundation)

Sustainability policies and Global Cooperation: an open debate Hassan Abouyoub (Ambassador of the Kingdom of Morocco in Italy) Michael Cox (London School of Economics and Political Science) Jaime De Melo (University of Geneva) Francesco La Camera (Ministry of the Environment and Protection of Land and Sea) Paola Subacchi (Chatham House) Massimo Gaiani (Director General for Global Issues, Asia, Africa and Latin America – MAECI) Dessima Williams (General Assembly of the United Nations)

May 9th, 2017 - Link Campus University Adriana Cerretelli (Il Sole 24 Ore)

First Session Abdulwahab Al Betairi (Watar Partners, Kingdom of Saudi Arabia) Najah Alotaibi (Gulf Research Centre) Nabil Ayad (The Academy for Diplomacy and International Governance, Loughborough Univ.) Alexander N. Chumakov (Lomonosov Moscow State University) Pasquale De Muro (University of Roma Tre) Sebastiano Fadda (University of Roma Tre) Andrea Maria Locatelli (Università Cattolica del Sacro Cuore) Mehraliyeva Shafag (ADA University, Azerbaijan) Dario Speranza (ENI)

Second Session Piero Calandra (Link Campus University) Cristiano Colombi (Pontifical University of Saint Thomas Aquinas - Angelicum) Marianne Lanatza (London Centre of International Law Practice) Pierluigi Matera (Link Campus University) Carlo Maria Medaglia (Link Campus University) Carlo Alberto Pratesi (University of Roma Tre) Claudio Roveda (COTEC Foundation) Leonello Tronti (Sapienza University of Rome) Piergiorgio Valente (Link Campus University)

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