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Recover better: Economic and social challenges and opportunities

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A compilation of the High-level Advisory Board on Economic and Social Affairs

By Liu Zhenmin

INTRODUCTION

The United Nations High-level Advisory Board (HLAB) on Economic and Social Affairs was established in June 2018 to help strengthen the United Nations Department of Economic and Social Affairs (UN DESA) in the context of United Nations development system reform, and as a key part of efforts to enhance support to Member States of the United Nations in implementing the 2030 Agenda for Sustainable Development.

The HLAB consists of sixteen globally renowned experts in the economic and social policy fields, including former Heads of State, a Nobel Laureate, former Senior Government Officials and intellectual leaders. It has provided guidance to the research and policy analysis work of UN DESA, including topics for its flagship publications. The Board members themselves have played an active role in strengthening the linkage between UN DESA and the global economic and social policy research community, and have promoted UN DESA publications and reports at national and global levels.

The Board also, through its bi-annual meetings, has provided advice to the United Nations on broad economic and social issues, including near-term prospects and risks for the world economy, frontier technologies, inequality, migration, issues associated with countries in special situations, as well as the implications of these issues for multilateralism and the implementation of the 2030 Agenda for Sustainable Development.

Over the course of the last two years, the HLAB has deliberated on many contemporary and cross-cutting issues and challenges. The interventions and insights of the Board have greatly expanded our understanding of issues of important economic and social significance and inspired the United Nations to break new ground in policy research. This volume is envisaged as the legacy of the first HLAB to advancing the sustainable development agenda.

OUR WORLD IN 2020

With the future being shaped by the COVID-19 pandemic and humanity’s responses to it, critical insights are more important than ever. Even prior to the pandemic, progress towards the Sustainable Development Goals (SDGs), as Recovering better: economic and social challenges and opportunities A compilation of the High-level Advisory Board on Economic and Social Affairs Liu Zhenmin Mr. Liu Zhenmin has been the United Nations Under-Secretary-General for Economic and Social Affairs since 2017. Prior to his appointment, Mr. Liu was Vice-Minister for Foreign Affairs of China since 2013. Among his various diplomatic assignments, he served as Ambassador and Permanent Representative, Permanent Mission of the People’s Republic of China to the United Nations Office at Geneva and other International Organizations in Switzerland (2011-2013).enshrined in the 2030 Agenda for Sustainable Development, was mixed. This was the conclusion of several overarching assessments and reports published in late 2019 that brought together the latest science and data about progress in economic, environmental and social sustainability. These reports informed five summits held on the occasion of the seventy-fourth session of the United Nations General Assembly. In the case of some targets, progress before the COVID-19 crisis was encouraging; in some others, it was present but insufficient; in yet others, the trends were not even moving in the right direction.

Taken together, these reports issued dire warnings and calls for urgent action to step up progress towards the achievement of the SDGs and the Paris Agreement on Climate Change, with the overall message that business as usual would not be enough, and that the window of time within which to act was closing fast. The reports also underscored that vulnerable populations—those in countries in special situations, in conflict and post-conflict settings; migrants; women; older persons; youth; persons with disabilities; and indigenous persons, among others— continued to be at risk of being left behind.

The human tragedy of the pandemic, with more than half a million deaths worldwide so far, has imposed additional challenges. Mandated restrictions on activity have helped to prevent even greater loss of life, but have also resulted in lost livelihoods and incomes, forced absence from classrooms, foregone vaccinations against other infectious diseases, stresses on mental health, and, for women in particular, a disproportionate increase in the burden of care work as well as greater risk of domestic violence.

At the aggregate level, economies are in recession, leading to falling public revenues and shrinking fiscal space, likely to result in poorer public services. Additional stresses are arising in economies dependent on tourism or commodity exports, and with disruptions in food supply chains. At the same time, falling fossil fuel prices and temporary declines in greenhouse gas emissions could help accelerate a just transition towards a low-carbon world.

Uncertainties about the future course of the pandemic and its socioeconomic consequences will persist for the foreseeable future, affecting consumption and investment behaviours. Social distancing and mobility restrictions may make certain kinds of businesses unviable, while encouraging others to grow. These in turn can create new regulatory challenges to which policymakers may need to respond quickly.

Initial assessments are already indicating some of the likely outcomes, at least in the short term. As many as 40 million people may fall into extreme poverty, reversing a declining trend that lasted over two decades. Some 1.6 billion working in the informal sector could see their livelihoods at risk, and many lack access to any form of social protection. Numbers such as these are indicative of the immense risks of not acting swiftly, coherently, and in a coordinated manner. At the same time, they indicate the imperative to “build back better,” in order to forestall similar risks to our future.

KEY DETERMINANTS OF PROGRESS TOWARDS THE SUSTAINABLE DEVELOPMENT GOALS

The chapters collected in this edited volume reflect and further the discussions HLAB members have had on a wide range of development trends and issues of critical importance to the achievement of the SDGs and the recovery from COVID-19. The insights shared could help to accelerate action, which is particularly important given that the window of opportunity for attaining the SDGs is closing quickly.

The observations and recommendations reported here can inform COVID-19 responses so that countries build back better and avoid returning to a pre-pandemic pathway, where progress towards important objectives was not rapid enough, or was happening at the cost of significant reversals on others. Taken together, they reflect an understanding of key underlying trends that will need to be leveraged and managed as we design and implement policies for the pandemic response and recovery.

Policy elements are highlighted in the chapter summaries below.

Chapter I: Uncertainties surrounding the global economy and their implications for the global development agenda

Chapter I, by José Antonio Ocampo, discusses the multitude of uncertainties that the global economy is facing, putting them in perspective with a historical account of key economic trends in the past decades. He recommends actions that the international community can take in areas such as trade, finance and tax cooperation to put the global economy on a more sustainable path.

The chapter notes that a synchronized growth slowdown began prior to the COVID-19 pandemic and was later accentuated by it. The slowdown is broad based, and economic growth in developing-country regions has been especially hindered by two trends: weak progress concerning structural changes and low spending on research and development (R&D). Further complicating the global economic outlook is significant trade uncertainty. Already facing tepid trade growth since the global financial crisis, international trade is confronted by the uncertainty generated by trade frictions between major economies and, most recently, the pandemic. The analysis points to some positive developments around plurilateral trade agreements, but stresses that the global community must continue to defend multilateralism and address multiple issues on the agenda of the World Trade Organization, including clarifying the relationship between multilateral rules and those established by bilateral and plurilateral trade agreements.

Chapter I highlights high financial volatility as another prominent feature of the global economy, with countries facing varied intensity of boom-bust cycles of external financing. In addressing such volatility, the chapter calls for strong macroprudential regulations that manage capital flows, and the use of more ambitious financing instruments by the International Monetary Fund, including more active use of special drawing rights. A multilateral institution that facilitates the sovereign debt restructuring with private creditors is also proposed, as well as institutional reforms of the Bretton Woods Institutions that broaden the participation of emerging and developing countries. Regarding international tax cooperation, and in particular on addressing tax avoidance and evasion, the chapter notes that in-depth solutions should include three elements: (i) consolidated taxation of multinationals as a single firm; (ii) a global minimum effective corporate income tax rate; and (iii) a single global asset registry that documents information on final beneficiaries.

The chapter points out that global economic uncertainties, coupled with the ongoing threat to multilateralism, pose a significant challenge to sustainable development. In this view, the United Nations must become the forum for reaching major political agreements on these issues, which is critical to the achievement of the ambitious sustainable development agenda.

Chapter II: Digital challenges for developing countries

In this chapter, Jayati Ghosh stresses rising concerns over the adverse and often unintended implications of digital technological advances. While presenting tremendous development potentials, new technologies, if mismanaged, could exacerbate inequality; enable tax avoidance; create health, safety and ethical issues; and generate risks concerning privacy related to large-scale monitoring and surveillance. For developing countries, adding to these challenges are the difficulties with technology transfer, subpar digital infrastructure, digital divides, and the adverse effects on export-oriented industrialization due to developed countries’ reshoring of production. By highlighting the negative effects of digital technologies, the chapter makes a convincing case for Governments to focus on devising innovative and context-specific policy measures that address these new challenges in the interest of achieving sustainable development.

Chapter II brings attention to the implications of technology for labour markets, noting the fear that human labour will be increasingly replaced by robots. It is, however, important to distinguish technological changes that improve productivity from those that simply create conditions for changes in how goods and services are produced and distributed. The new productive possibilities should be welcomed, while policy efforts can aim at countering the adverse employment effects of new technologies by promoting new economic activities, such as care services and creative work that are labour intensive and contribute to better quality of life.

The chapter also highlights the potential of technologies for delivering public services, but stresses that they cannot be a solution to inequality or replace critical human elements in the provision of essential services. The increasing use of biometric identification associated with public service provision also creates concerns over the mishandling of personal data, as data collection, transmission and storage are susceptible to identity fraud, data breach and human errors, among other issues. Developing countries also face the additional challenge that data are collected by multinational firms based outside of their own jurisdictions, which could have implications for tax collection and national security. The chapter concludes with a call for active state intervention in promoting R&D, investing in infrastructure and education, and introducing regulatory practices that ensure that technology-induced organizational arrangements generate decent jobs, while remaining mindful of possible government overreach with new technologies.

Chapter III: Inclusive catch-up: the new structural economics approach

Justin Yifu Lin and his colleague Peilin Liu contend in their chapter that the strategy of enabling firms to make industry entry decisions and technology choices based on the economy’s comparative advantage allows for better performance than the alternative comparative-advantage-defying (CAD) strategy. The former is more effective at allowing countries to catch up and to reduce poverty and within-country inequality—all of which are essential to the achievement of the 2030 Agenda.

Given that developing countries are typically characterized by an abundance of labour and therefore have comparative advantages in labour-intensive sectors, promoting industries and adopting technologies that are in line with a country’s comparative advantage would lead to creation of more job opportunities, rising wages, particularly for lower-wage workers, and improvement in economic equality. Under such a comparative-advantage-following (CAF) strategy, workers would have more access to training and on-the-job learning opportunities, which in turn helps to advance human capital accumulation. Unlike the CAD strategy, the CAF strategy has the additional advantage of not requiring Governments to distort product and factor markets in order to support otherwise non-viable firms. Without the distortions, small and medium-sized enterprises have greater chances to develop. Another advantage of the CAF strategy is that it generally does not entail preferential loans, trade barriers, currency intervention, and other policy measures that are needed for supporting uncompetitive firms. Adoption of such a strategy therefore results in more favourable external balance and fiscal conditions, and hence better macroeconomic stability.

This chapter further notes that Governments of developing countries that seek to implement the CAF strategy must seek to remove constraints that impede the emergence of industries for which a country has latent comparative advantage. This includes improving the hard and soft infrastructures needed for firms’ technological upgrading in a market economy. The authors proposed that the United Nations system could introduce an Inclusive Catch-up Initiative composed of two major components: (i) a Knowledge Initiative that focuses on facilitating the cross-country exchange of experiences concerning sustaining industrialization; and (ii) a Coordination Initiative that supports technology transfer, which can be facilitated by a technology bank operated by the United Nations.

Chapter IV: Sustainable financing for (an owned) sustainable development: time for Africa to give the driver’s seat to domestic resource mobilization

In this chapter, Cristina Duarte calls for a much-needed shift in the sustainable development paradigm in Africa. Emphasizing that sustainable financing is a prerequisite for sustainable development, chapter IV draws attention to three important financing issues.

First, it calls for a stronger emphasis on flow variables (such as the debt servicing cost-to-export revenue ratio) rather than stock variables (such as the debt-to-GDP ratio) in assessing the debt situation of a country. Second, policymakers should make significant investments in development institutions that aim to facilitate fair and better integration of their countries into regional and global value chains. This could improve domestic value added and access to technologies and resources, as well as diversify economic activities, thereby helping to maximize impacts of SDG investments and minimizing associated risks. Third, there should be a rethinking of the role of private sectors in society, which should go beyond private financing and also include participation in the process of reducing any risks surrounding SDG financing and investment. As part of the “de-risking” efforts, Governments should adopt integrated national financing frameworks that are linked to Planning-Programming-Budgeting-Evaluation Systems. Such frameworks enable policymakers to look at the whole range of financing sources and non-financial means of implementation that are at a country’s disposal and to devise a comprehensive financing strategy that is compatible with sustainable development objectives.

The chapter stresses that achieving sustainable financing would demand African policymakers to give the “driver’s seat” to domestic resource mobilization rather than equating development with the business of poverty management and relying on external financing for poverty reduction. The chapter also calls for a different type of multilateralism, noting that people’s trust in the multilateral system is eroding since it has failed to deliver inclusive and sustainable growth in recent decades. Restoring trust would require acknowledging the emergence of a new international economic order and building a new global collective and accountable political leadership.

Chapter V: Decoupling: a key to achieving Sustainable Development Goals

This chapter, by Izabella Teixeira and her colleagues Yi-Ann Chen and Victor Valido, points out the insufficient focus on the environment in the pursuit of economic and social development, despite the substantial linkages between natural resources and socioeconomic and geopolitical processes at different levels. While the SDG framework recognizes the links between economic, social and environmental dimensions of development, actual SDG progress shows that the focus on the environment remains inadequate. Historically, improvement in labour productivity has outpaced improvement in the efficiency of natural resources use, creating substantial environmental pressures for countries. For sustainable development to become a reality, natural resource management must be an integral part of any country’s socioeconomic development plans.

Highlighting the rapid increase in consumption of natural resources in the past decades, the chapter notes that this trend has been dominated by upper-middle-income countries and, to some extent, lower-middle-income countries. This reflects the build-up of infrastructures in these countries and the relocation of natural resource-intensive production from more efficient countries to less efficient ones. The latter implies an outsourcing of production-related environmental impacts to middle-income countries.

Without immediate and concerted actions to curb natural resources use, business-as-usual behaviours would mean global natural resources use could more than double by 2060. It would lead to significant increases in carbon emissions. Water distribution would face uncertainty, and food security would be threatened. In this view, the chapter calls for strategies for decoupling economic activities from resource use and environmental impacts. Guided by the principles of policy coordination and integration, decoupling can be achieved through resource efficiency improvements and sustainable consumption and production that require a transition from linear to circular flows of resource use.

Chapter V urges that specific elements of decoupling strategies should include, among others, promoting the adoption of innovation and sustainable technologies that improve natural resource use efficiency. This should be complemented by increases in resource extraction taxation to avoid the so-called rebound effect (i.e., increased consumption induced from a cost reduction associated with material efficiency improvement). Global carbon levies are also needed, and the revenues collected should be shared equally among households and Governments. Also, policies aimed at climate mitigation and energy sustainability should be made consistent with goals associated with land use and food systems. Moreover, behavioural changes—such as shifting to plant protein-based diets and diminishing food waste—are crucial. A key area that the United Nations can support is the continued work with Governments in monitoring progress towards decoupling, which requires refining data collection mechanisms at all levels.

Chapter VI: Production structures for sustainable development: learning how to shape them from the bottom up

The chapter by Kori Udovički calls for a more systematic, extensive study of different countries’ production structures that will contribute greatly to the achievement of the SDGs. Noting that development research on structural transformation remains overly focused on inapplicable theoretical work and ideological differences, this chapter argues for the generation of experiential and actionable knowledge on how to successfully enable structural transformation, with implications for growth, employment, inequalities and the environment. It stresses that accumulation of productive capabilities and the process of structural change are path dependent, which underscores the need for Governments to better understand the evolution of product structure.

The chapter makes an important observation that a regional or small national economy, even one with excellent institutions, can hit a “dead end” in terms of advancing production structures before it reaches the frontier of an industry. Governments play an important role in encouraging and making what the author terms “out investments”—that is, open-ended investments with uncertain returns, but important for enabling a country to continue structural transformation even when hitting a dead end.

The chapter uses the example of Serbia to demonstrate the range of complex decisions that policymakers would need to make in their pursuit of sustained growth and the generation of decent jobs through structural transformation. These include investment choices concerning products and technologies—which require careful assessment of synergies and tradeoffs among industries, as well as interactions between foreign direct investment and small and medium-sized enterprises—and the direction of the production structure’s evolution. Private sectors possess much of the information required for making these decisions, and policymakers need to further analyse the information with a focus on understanding externalities between sectors and how to expand longer-term development opportunities. This analytical process can benefit greatly from examining the experiences of other countries with comparable income levels and production structures. In a similar spirit as the Knowledge Initiative proposed in chapter III by Lin and Liu, this chapter recommends a networked, coordinated, and bottom-up research programme that the United Nations is best-positioned to undertake, which can help to substantially reduce individual countries’ costs of collecting and adequately processing the wealth of useful information available.

Chapter VII: Equality, democracy and sustainable development

This chapter, by Alicia Bárcena, centers on equality and its interaction with structural change and productivity growth, illustrated with the experience of Latin America and the Caribbean. Through carefully explaining the interlinkages between economic and political equalities and how they are conducive to innovation and productivity growth, the author makes the important point that there is no fundamental trade-off between economic efficiency and equality.

The chapter argues that there is a two-way causal relationship between production structure and income distribution. It contends that an economy that features significant concentration in a small number of low-tech sectors—the international competitiveness of which relies on cheap low-skilled labour or natural resources—is likely to experience higher income inequality than an economy that competes based on technological advances and knowledge. The reason behind the higher inequality is multifold, but can be largely attributed to the weak bargaining power of a predominately low-skilled labour force, and the tendency for rents to accrue to a small group of natural resource owners and large firms entrenched in global value chains. To transform such an unfavourable production structure, the author argues that one cannot rely on market forces alone, and a necessary mix of industrial policy and macroeconomic policies—which include a variety of context-specific countercyclical and macroprudential policies—would be needed.

On the other hand, the level of equality has implications for the trajectory of an economy’s production structure. High inequality erodes trust and the spirit of cooperation within an economy, which limits the possibility of creating industrial and macroeconomic policies that are compatible with structural change. Advantaged groups, who have oversized influence in a highly unequal society, would favour producing private goods, rather than financing public goods that can create opportunities and capabilities for most of the population, thereby dimming the prospect of structural change.

This chapter makes the case that national efforts to improve equality and promote structural change—both of which are crucial for the achievement of sustainable development— should be complemented by a new multilateral governance model. The model needs to acknowledge the structural asymmetries in the global economy and the principal need of providing global public goods in the form of facilitation of technology spillovers; international labour and social protection standards; agreements over carbon emissions; and regulations for financial capital flows.

CONCLUSION

The HLAB provided a platform for the free and frank exchange of ideas among eminent experts for shaping economic processes and trends to better deliver on the SDGs. While these chapters represent “deep dives” into various areas and differ in the topics that they cover, there is a shared message that stands out: the United Nations can play an important role in addressing global challenges and advancing sustainable development. As a trusted global convener, the United Nations serves as a platform for important international agreements on matters that are relevant to all countries, such as international tax cooperation, and as a knowledge broker that facilitates the sharing of development experiences across the world, such as upgrading production structures and decoupling economic activities from resource use. In these roles, and through its technical expertise in many different areas, the United Nations is also uniquely placed to facilitate the coordinated and coherent action that will leverage the recovery from COVID-19 to into a transformative period for attaining sustainable development.