B20 Executive Committee

Prof. Dr. Dieter Kempf

President of the Federation of German Industries (BDI)

A Stronger Path for Growth

There is no doubt that globalization, overall, has led to a huge increase in the level of prosperity all around the world. Globalization is not a zero-sum game. The flow of ideas, goods, services, people, and finance fosters economic growth, decreases income inequality, as well as enhances inclusiveness and well-being.

Between 1990 and 2014, world trade increased about fivefold and the stocks of foreign direct investment grew roughly tenfold. Global GDP has more than tripled, putting it far ahead of global population growth: The average global income per capita has grown by nearly 240 percent since 1990. As billions of people have seen their living standards rise, global poverty has fallen by half.

The recent financial and economic crisis was a big setback. World production and global trade experienced sharp declines. Confidence in the stability of the world economic order was severely disturbed. We have made considerable progress since then. Economic growth, however, still remains shaky. Despite efforts from governments to restore the stability and resilience of financial markets, global economic growth has remained subdued. Many countries are still struggling with high unemployment rates, particularly among young people, as well as socio-economic inequality.

Parts of the population have been voicing strong opposition to trade liberalization and international investment. We need to take their worries and concerns seriously. At the same time, we should not sign up to seemingly easy solutions, which would have long-term negative consequences for all of us – business, workers, and consumers. We call on G20 members to renounce protectionist measures, may it be the introduction of new trade barriers or investment restrictions. Mercantilist policies destroy economic welfare, growth and productivity. They harm especially the poorest households, as numerous studies have shown. Improved global governance needs to ensure that trade and investment are not merely free but also rules-based and fair, especially when it comes to competition. Governments have done a lot in recent years to encourage economic growth, but not enough. Both the IMF and the OECD have rightly called for a more balanced policy mix to set a stronger path for growth and financial stability.

Governments and businesses need to strengthen their efforts to offer better education as well as lifelong learning opportunities, which can help people adapt to changing skill requirements and seize new opportunities. In addition, social policies need to assist people that temporarily find themselves without employment. The need for action is all the more evident in view of the great structural changes coming up. The transformation of the economy on a global scale requires large investments, for example in digital infrastructure, enabling us to fully harness the advantages of industry 4.0, new services, and artificial intelligence.

Together with trade, the G20 should place foreign direct investment firmly on the agenda. Foreign direct investment not only provides much needed capital for many countries, it also supports the transfer of technology, expertise, and organizational capacities between countries. It is thus a powerful driver for future-oriented and sustainable growth.

However, there are still many barriers to cross-border investment, such as the complexity and inconsistency of rules; the lack of adequate mechanisms to protect against tax-related risks; legal, regulatory, and political instability; as well as the lack of effective dispute resolution mechanisms. Tackling these impediments will be fundamental for channeling capital, particularly to less developed countries.

The world has become an uncertain place. In January 2017, the Global Economic Policy Uncertainty Index measured the highest degree of uncertainty since the start of the calculations in 2000. The index tracks 17 countries that account for two thirds of global GDP. Geopolitical risks and terrorism, rising protectionism, and Brexit make this year one of the most uncertain period in decades. Uncertainty dampens economic growth prospects. To increase inclusiveness, welfare, and growth, we need more not less international collaboration. The G20 is thus more important than ever – to build trust, to provide leadership and, most of all, to move global economic governance forward.

GOVERNMENTS AND BUSINESSES NEED TO STRENGTHEN THEIR EFFORTS TO OFFER BETTER EDUCATION AS WELL AS LIFELONG LEARNING OPPORTUNITIES, WHICH CAN HELP PEOPLE ADAPT TO CHANGING SKILL REQUIREMENTS AND SEIZE NEW OPPORTUNITIES.

Prof. Dr. Dieter Kempf, as of January 2017, is President of the Federation of German Industries (BDI), representing more than 100,000 large, medium-sized, and small firms from all branches of the processing industry, which together employ more than eight million people.