Letter IEDI n. 1025–Promotion of sustainable economic growth, according to UNCTAD
The economic recovery after the adverse shock caused by the COVID-19 pandemic may prove to be weaker than necessary to fully reverse jobs and income lost during the crisis. This is because the private sector is expected to be more indebted, the number of corporate bankruptcies can be high and it may take longer to substantially reduce the level of unemployment.
Additional COVID-19 outbreaks and a delay in developing a vaccine are key variables that may contribute to holding up the recovery of economies. Against this background, governments in countries affected by the pandemic have postponed the end of emergency measures to preserve jobs and businesses and have designed recovery plans that support the digitization of their economies and promote environmental sustainability, such as the European Union's € 750 billion initiative.
The need for a more sustainable economic growth pattern, from both an environmental and a social point of view, was already present even before the COVID-19 crisis. This was advocated by UNCTAD—the UN department for trade and development—last year, when it released the report “Financing a Global Green New Deal.”
The present Letter IEDI addresses the third chapter of this work, which provides a broad guidance to the actions of developed and developing countries so as to foster a more robust growth for the global economy and to promote socially and environmentally sustainable development.
UNCTAD recognizes that the world economy has experienced important challenges, which were already worsening even before COVID-19 and compromising the achievement of the sustainable development goals set out in the United Nations 2030 Agenda. Among these challenges are the weakening of productive investments, the fall in wages' share of countries' national income, the decrease of public actions, including in social areas, and the increase in carbon dioxide emissions.
As a way of reversing this process, UNCTAD advocates the adoption of effective domestic policies that recover the State's capacity to strengthen investment coordination with the private sector, in order to build a strategy for sustainable growth from an economic, social and environmental perspective.
Although no specific measures are discussed, the study emphasizes a broad strategic orientation to reactivate world growth and, at the same time, reduce carbon emissions, social inequalities and economic instability. The main considerations about this strategic framework are:
• Fostering a transition to green investments;
• Promoting investment and the design of an industrial strategy;
• Financing investment, with adequate public credit and financial regulation;
• Redistributing income;
• Changing fiscal policy, with progressive taxation and increased public spending, in line with inflation and debt trajectories;
• Reviewing trade and investment agreements when too asymmetric;
• Promoting greater international coordination.
From three axes—income redistribution, recalibration of fiscal policy and a greener investment horizon—UNCTAD simulates trajectories for the set of developed and developing countries, in order to compare the effects of adopting a new strategy in relation to a base scenario in which there is no change in the direction of the prevailing policies in recent decades.
UNCTAD urges a strategy that aims to reverse the fall in the share of wages in national income, to recompose public spending financed through more progressive taxation and to promote energy transition.
The aggregate multiplier effects calculated by UNCTAD with this type of action are significant. The growth rates of national GDPs could increase between 1% and 1.5% for developed economies and 1.5% to 2% for developing countries (excluding China), compared to current standards.
According to the report, such positive effects could be even greater under a global coordination for the implementation of these measures. This is what is expected in the face of the current social and environmental challenges, as they have a global character.