At a glance: Beyond profit

Should businesses be facing up to inequality?

 

Transcript

Inequality is on the agenda for advanced economies…

In April, policymakers from around the world will gather in Washington DC to review the global economy. Even though the numbers show the recovery is underway, rising inequality in some advanced economies means the benefits of economic growth are not being felt equally.

This isn’t a new story,

Inequality has been rising for more than 20 years in advanced economies.

We think global trends can help explain why.

Our “Megatrends” framework looks at global trends that are having a major influence on the economy today; and will still be important over the next decade.

We think two Megatrends are contributing to the rise in inequality:

Technological breakthroughs,

which reduce the importance of labour in the production process; and

The shift in global economic power,

which has led to “off-shoring” of low-skilled jobs to the East.

Businesses should take note, our CEO survey suggests 75% of leaders believe their firm has a wider role to play in society. One way combat the effects of inequality is for businesses to adapt ownership structures to help employees become owners. In addition to better alignment of employer and employee interests, the data suggests it could help financial performance.

ON Finally, we focus on China this month as 2014 be its landmark year. Even though the 7.5% GDP target has been reaffirmed recent disappointing data, ranging from exports to investments suggest the growth target may be at risk.

The potential fallout from China’s decade-long credit boom is a considered a downside risk, given the strong interlinkages between banks, state corporations and local government.

Inequality is on the agenda for advanced economies…

In April, policymakers from around the world will gather in Washington DC to take stock of the global economy.  Even though the numbers show the recovery is underway, rising inequality in many advanced economies mean the benefits of economic growth are not being felt equally.

…although this isn’t a new story

Inequality has been rising for more than 20 years. We think global economic trends can help explain why.

Our “Megatrends” framework looks at global trends that are having a major influence on the economy today, and will still be important over the next decade. They permeate all areas of the economy and society.

We think two Megatrends have contributed to the rise in inequality:

  1. Technological breakthroughs, which reduce the importance of labour in the production process, whilst increasing the rewards to those with world class skills.
  2. The shift in global economic power, which has previously led to “off-shoring” of lower-skilled jobs to the East. Though as wages in the East are rising we could soon see a partial reversal of this trend.

Our CEO survey suggests that 75% of leaders believe their firm has a wider role to play in society and inequality is emerging as a key issue to address.

Is China’s growth at risk?

2014 could be a landmark year for China. Sweeping reforms agreed at the 12th  National People’s Congress affect practically all sectors. However, recent disappointing data on exports and investment suggest the reaffirmed 7.5% GDP growth target could be at risk.

The potential fallout from China’s decade-long credit boom is a major downside risk, given the strong interlinkages between banks, state corporations and local government. Further defaults and financial market volatility could slow down, or even halt, China’s reform agenda.

A “swings and roundabouts” UK budget

A continuing large structural deficit meant George Osborne didn’t have room for significant giveaways when he delivered his Budget on 19th March.  Though there were some measures that will support UK business, such as a rise in the amount of export finance available and help with energy costs, they are unlikely to have a major impact at the macroeconomic level.   

Chart of the month

Fig 1: Inequality rose in each of the G7 advanced economies between the middle of the 1980s and the late 2000s

Fig 1: Inequality rose in each of the G7 advanced economies between the middle of the 1980s and the late 2000s