Nearly a century ago, EY’s original founders Alwin Ernst and Arthur Young were running separate US firms but shared a common goal – growth.
In 1924, both took their first steps toward internationalization, setting up alliances with UK firms. What they did not – and could not – know was that these were the first steps on a journey of global expansion, one that would eventually bring the two firms together.
These expansion initiatives came during a period of uncertainty – a time when many countries were imposing trade and exchange restrictions to protect their domestic markets. But both men recognized that to grow they needed to look beyond their home market.
Today’s world is also an uncertain one: economic growth is patchy, while income inequality is on the rise. As governments look for solutions, we’re once again seeing an increase in protectionist measures. But rather than close doors, governments should seek to unlock opportunities for more inclusive and sustainable growth, focusing on opening up markets, leveling competition and reforming and updating tax systems in recognition of the changing digital and global nature of commerce.
Era of expansion
There are clear economic benefits to our interconnected global economy. Increased global trade has reduced the cost of goods and services in developed countries, for example. People can buy more with their money, be it washing machines, airplane tickets or the latest smartphones.
Developing countries also have benefited from greater international trade and foreign direct investment. As these economies flourished, new start-up companies emerged and existing businesses expanded.
Many of the world’s largest companies are now based in developing markets, accounting for 147 of the Fortune Global 500 in 2016. Global growth has helped significantly lower poverty around the world, allowing millions of people to join the middle classes.
At the same time, the number of people living in extreme poverty declined to 836 million in 2015 from 1.9 billion in 1990, according to the United Nations. Almost half of the population in developing countries had less than $1.25 a day to live on in 1990. By 2015, this figure had declined significantly to 14%.
A wary world
But an interconnected world brings complexity, and sometimes contagion. The subprime mortgage disaster in the US rapidly evolved into the 2008 global financial crisis and subsequent economic slowdown – events from which the world has yet to fully recover.
Growing inequality, within both developed and developing countries, is an important issue today. Across the Organisation for Economic Co-operation and Development (OECD), the gap in incomes between the richest and poorest is at a 30-year high, and technological and demographic changes only threaten to further widen this divide.
In response, globalization – in particular, trade and migration – have increasingly become targets of criticism. 2016 was a year of profound change – certainly in the UK and the US, among other countries – where many voters registered their dissatisfaction with the status quo.
Free trade and open borders are under increasing challenge. The UK’s Brexit referendum abruptly interrupted the European Union’s decades-long quest toward political and economic integration, while the US decided to withdraw from the Trans-Pacific Partnership (TPP).
Recently, members of the International Monetary Fund (IMF) dropped a pledge to “resist all forms of protectionism.” In the US, many workers blame international trade for job losses, but technological disruption has played a significant – if less recognized – role.