The Bureau conversation discussed the spectre of a new trilemma haunting the world economy as put forward by Dani Rodrik in a recent contribution for Project Syndicate. He points to “the disturbing possibility that it may be impossible simultaneously to combat climate change, boost the middle class in advanced economies, and reduce global poverty. Under current policy trajectories, any combination of two goals appears to come at the expense of the third.”
Participants generally acknowledged the possibility of significant trade-offs between the three objectives; in particular, many participants agreed that fighting the decline of income prospects for the industrial middle classes in the advanced economies, together with well-meant but ill-conceived reshoring and green transition policies, could well result in discriminatory trade restrictions and outright protectionism, negatively affecting many developing countries. However, several other participants objected that the recent revival of industrial policies and tariff barriers should rather be viewed as a “non-naïve reciprocal” approach towards more balanced trade patterns; as such, the harmful impact on global poverty should be pretty small. It was also noted, as argued by Rodrik himself, that appropriate domestic policies for the creation of high-quality jobs in the non-traded services sectors of both advanced and developing economies will make the goal conflicts much less severe. Others cautioned, though, that the rollout of new technologies such as generative AI will drive a disruptive skill shift and could put many white-collar middle-class jobs at risk; additionally, massive financing needs stemming from investment requirements for decisive climate action and the loss of any peace dividend will arguably put an additional burden on broad segments of the population, accentuating already existing distributional tensions.
The chairman concluded that the trilemma is real but can, in principle, be addressed by co-operative multilateral and domestic policies, thus turning around seemingly zero-sum or even negative-sum economic and societal conditions. However, there appeared to be fairly broad agreement among participants that current policy trajectories run the risk to accentuate the trade-offs instead of defusing the trilemma.
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