Inequality is a business risk EJINSIGHT

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“We live in a more shock-prone world,” IMF Managing Director Kristalina Georgieva recently observed, “and we need collective strength to deal with future shocks.” She’s right. In the space of just a few weeks, Russia’s invasion of Ukraine has already shifted geopolitical lines, plunging the world into widespread uncertainty and opening new diplomatic rifts. Societies will have to redefine their choices to take into account new global dynamics affecting fundamental issues such as food, energy, digital security and the organization of world trade.

Although globalization is not coming to an imminent end, its acute vulnerabilities have certainly been exposed. Structural changes in the way business is conducted are already materializing, as evidenced by the complex reorganization of manufacturing infrastructure associated with proximity and relocation. Companies and governments are evaluating their dependencies.

In such a challenging environment, building collective resilience is of utmost importance. But this will require political solidarity and cooperation at all levels: global, supranational (especially in Europe), national, and between business, government and civil society. Success will depend on our ability to ensure not only energy and food security, but also equity and justice in decision-making. After all, existing inequalities have continued to grow, undermining the capacity for collective action. We will have to put aside arguments about the pros and cons of globalization and start working towards a more sustainable and inclusive economy.

With hindsight, it is clear that China’s entry into the World Trade Organization in 2001 amplified global imbalances, triggering a rush towards offshoring and accelerating the deindustrialisation of the West. While the resulting price cuts have been welcomed by consumers, they have not been sufficient to offset or mask the loss of middle class purchasing power or the growing sense of insecurity in communities. which had lost their industrial base – an outcome which undermined social cohesion and fueled populism.

Western workers have been left behind by their employers’ rush for cheap labor. While public spending and redistributive programs have partly alleviated growing economic inequality, the problem has become so pressing that we can no longer rely on state action alone. The private sector will also have to intervene to consolidate the social contract. Some companies have training, inclusion and diversity policies, and support and sponsor related civil society efforts. But investors and managers need to see inequality as a matter of corporate sustainability.

Banks and financial institutions are uniquely placed to help tackle inequality, which they can do in at least three ways. First, they can do more to reach socially, digitally and financially excluded people. If banks are to serve the millions of people who are struggling financially, they will need to offer more services specifically designed to meet day-to-day difficulties. Too often, financial products are simply not tailored to people’s needs.

The COVID-19 crisis has both exposed and exacerbated many forms of marginalization, from social isolation and digital divide to food insecurity and lack of access to affordable housing. These questions should concern us all. These are essential social and political battlegrounds.

Second, banks and financial institutions should pay more attention to local actors, both public and private. Widespread prosperity is impossible if most economic activity and wealth is concentrated in just a few regions. Banks can help by providing better terms for investments and businesses in these areas. Social cohesion and long-term shared prosperity depend on vibrant local communities, and local communities depend on high-quality social infrastructure and entrepreneurship.

Finally, banks and financial institutions can support decarbonization. In many industries, the transition to carbon-intensive practices will be rapid, potentially leading to job losses. The collective pursuit of net zero emissions will only remain politically tolerable if the costs and benefits are shared equitably among companies, employees, shareholders, governments and regions. To this end, banks can help their clients monitor their business practices from an ecological and social perspective, so that they have the information needed to redirect investments and financing towards carbon neutrality. To ensure a “just transition”, these parameters must be taken into account directly in all decision-making.

At global gatherings, it is repeatedly heard that inequality hurts economic development and that supporting emerging markets and developing economies is both good for business and good for the soul. But if today’s business leaders really mean it, they need to go much further. This amounts to recognizing that there can be no long-term value creation without redistribution, and that inequalities must occupy a central place in our economic models.

The stakes could not be higher: economic development and the basis of our democracies. None of us can afford to ignore the problem. Businesses that are not aligned with societal values ​​and expectations run undue risks.

Copyright : Project Syndicate
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