COVER STORY • Global Governance at a Crossroads – a Roadmap Towards the G20 Summit in Osaka • 2

Interview with Dr. Dennis J. Snower, President of the Global Solutions Initiative, Senior Professorof Economics at the Hertie School of Governance, Berlin; Senior Research Fellow at the Blavatnik
School of Governance, Oxford University; and Non-Resident Fellow, Brookings Institution &former President of the Kiel Institute for the World EconomyRestoring Social Cohesion– a Crucial Issue for the G20
in 2019

By Japan SPOTLIGHT
Lonely elderly people in an aging society, the unemployed in the new Fourth Industrial Revolution, those
who feel left behind by globalization: all are symptomatic of growing social discontent and a lack of social
cohesion. This lack of cohesion seems to be hindering political and economic stability even amongdeveloped nations. The G20 will address this issue at its 2019 summit in light of its growing impact onworld peace and prosperity.
Japan SPOTLIGHT interviewed Dr. Dennis J. Snower, a distinguished labor economist who is presidentof the Global Solutions Initiative in Germany, a global collaborative enterprise to propose policy
responses to major global problems, addressed by the G20, the G7 and other global governance fora.
(Interviewed on Feb. 8, 2019)

Introduction

unemployment. In all of this, I have been
fortunate that my economic and theoretical
JS: Could you briefly introduce
interests basically overlap with my policy
your academic specialty, laboradvice interests. I have advised national
economics, and also the Kiel
governments (German, French, Spanish)Institute’s mission and main
but also at an international level including
activities.
the OECD, the World Bank and others.
The Kiel Institute is one of the very few
Snower: I am a specialist in labor
institutes in the world that examines the
economics and give advice to governments
global economy from a global perspective
on labor market policy, as well as on
as opposed to a national or regional one.
reforming welfare systems and how to get
From the perspective of the global publicmore incentives into the equitableinterest, how should global trade and global
distribution of opportunities. The basic idea
capital flows, global technological diffusion,is that we should move away from thebe designed? The Kiel Institute has models
redistribution of income, and insteadthat look at how the world’s environmental
redistribute economic incentives, enabling
systems are connected to the world’s
Dr. Dennis J. Snower
people to become employed and skilled. So,
economic systems in order to see how theyou take the most disadvantaged people and you give themeconomy influences climate and other aspects of our environment.
employment subsidies and training subsidies, and the longer the
We looked at the effects of offshoring and outsourcing worldwide,
duration of unemployment and the more disadvantaged they are, thehow value chains affect employment opportunities and how theyhigher these subsidies become. This has worked well in a goodchange because of digitalization. The institute also has a forecasting
number of countries, as an underlying idea.
department not only for Germany and Europe but for the world as aWith Assar Lindbeck – who was then the chairman of the Nobel
whole. Being president of the Kiel Institute gave me the opportunity
Prize Committee in Economics – I developed the insider-outsider
to look at the inter-linkages between many different domains that aretheory of unemployment, which shows under what circumstances
kept apart both in academia and politics. Climate, labor policies,
insiders whose jobs are protected in the labor market can benefit
social policies, demographic change – these are usually investigatedthemselves, but not the outsiders who are outside this job
separately but at Kiel we looked at how they interact, especially theprotection, and how this can explain the persistence ofinter-country linkages.
8 Japan SPOTLIGHT • May / June 2019https://www.jef.or.jp/journal/

COVER STORY 2

Role of Think-tanks in the G20
JS: Think-tank involvement in the G20 is a recent

development. How do you assess this involvement?

Snower: As you said, this is relatively recent. Under the German G20
presidency, we restructured the process around task forces which
produced policy briefs addressing the main issues of the G20
agenda. That proved to be very valuable to the German government,
both in terms of the recommendations that we generated but also interms of our overall narrative. We put all the recommendations under
the umbrella of what we called the “recoupling narrative”, whichbasically means that social progress in terms of people’s well-being
can become decoupled from economic progress. These sources of
discontent are not necessarily closely related to the rate of economic
growth, and therefore we recommended that the G20 should focus
entirely on trying to recouple economic prosperity with social
prosperity.
That, in fact, was very useful to the German government in thenegotiations leading up to the G20 Summit in Hamburg in 2017. At
that time, there were emerging protectionist activities, and President
Donald Trump decided to leave the Paris Agreement on climatechange, so it looked like the summit was in grave danger. The
protectionists said that they are the only ones who represent thedisadvantaged in the world, and as a result of our narrative theGerman government could say, “No, we are very concerned about
the disadvantaged and we have a lot of proposals here about how tohelp them and protectionism is not effective in this regard.”That helped change the discussion, and therefore we understandboth the recommendations and an overarching narrative. Since theGerman presidency, Argentina has followed this structure of task
forces and policy briefs related to the priority, and now of course inJapan there is another big step forward – the organization of the G20
process in Japan is extremely impressive. Many institutes are allcooperating with one another as well as with think-tanks abroad in
generating proposals that are very closely related to the JapaneseG20 priorities. Quality infrastructure, aging society, SME finance –these are all being pushed ahead under the Japanese presidency.
Although the summit will occur relatively early in the year comparedto other summits, the fact that the G20 has started its work in Japanso early meant that this has not been a problem.
JS: Would you agree that social cohesion is an inter-disciplinary issue, and as such is relevant to behandled by think-tanks?

Snower: The big challenge of our age is that we have witnessed theintegration of the global economy, and value chains have become
truly global. However, we have not witnessed a similar integration of
global society or global politics. Because societies and theirpoliticians remain fragmented, this creates tensions between our
economic interests and our social and political ones. Therefore, it is
not sufficient to look just at the economic interests because that
ignores something important in terms of social concerns and social
cohesion. The reason why we have so many protests at G20
summits is that the people on the ground understand that social
cohesion is often overlooked and that the G20 is depicted as ameeting of heads of state and technocrats to impose economic
solutions on people whose societies are fragmented. By looking atsocial fragmentation directly in connection with economic activity,
we can address the issue and make a real contribution to the G20
process.

Social Inclusion an Important Policy Goal
JS: You co-authored a book called Caring Economics.

Could you elaborate on this and the concept of social
inclusion?

Snower: Economists tend to assume that people are purely selfinterested, concerned only with their own consumption. Therefore,
economic policy provides incentives of a monetary nature and thatinduce people to follow their self-interest to take care of externalities
and other public concerns. However, this misses somethingimportant in human nature, which is the need for people both to care
for another compassionately and to affiliate or bond with one anotherin order to have a sense of belonging. When those needs are notmet, people become psychologically unbalanced and they become
unhappy. Taking those needs explicitly into account in our economic
models helps us work out how to create social contexts that generate
more of this cooperative activity. For example, we can choose at theworkplace whether we promote competition among individuals orwhether we have collaboration in teams. The same thing holds in our
school system and is very important in the health system. Therefore,
having a new approach to what motivates individuals can have very
far-reaching consequences in terms of what we do for economic
policy.
JS: This is particularly pertinent for an aging society.
Snower: Absolutely. The big challenge in aging societies is thechallenge of loneliness. Older people are left after their families have
moved away to work, or a spouse may have died, so they are left
feeling very lonely. How to address this issue, particularly in aging
Japan SPOTLIGHT • May / June 20199

COVER STORY 2

societies, becomes extremely important. Digitalization can help, andJapan is a world leader in how to connect older people to healthsystems, social services and so on through digital pathways.
However, digital technologies are not able to provide a sense of careand belonging. For that, you need other human beings. Humaninteractions to overcome loneliness require lots of time in terms ofinterpersonal interactions. The technological progress of humaninteractions does not proceed as rapidly as other areas; for example,
computers these days are millions of times more productive than 40
years ago, and we can do millions as many computations per
second, but we are not in a position where we can spend one
millionth of our time with our children and our parents and still havethe same quality of relationship. We are moving toward a society
where interpersonal interaction among different age groups and in
the caring profession will become increasingly important,
supplemented by the new digital technologies.
JS: To maintain inclusiveness of welfare, some kind ofpolicy measures would be necessary to avoid adigital divide in that context.

Snower: That is absolutely right. There are two things that elderly
people need: one is, they need more training than they have to
become socially skilled. To be able to interact well with other people
requires empathy; it requires perspective-taking, mind-reading,compassion. These things can be taught. Schools and universities
tend to train people in reading and writing and analytical skills –
cognitive aspects – but not so much in social skills. In the world of
the future, social skills will need to be taught much more.
We also need to teach digital skills that will enable us to use digitaltechnologies to promote these social interactions. Digital skills aregoing to become ever easier to acquire as time goes on because
computers are going to become much easier to handle. When I
started interacting with computers, you had to know various
computer languages, whereas nowadays you can talk to yourcomputer and it will answer. Look at how easy it has become to drivecars – 100 years ago you had to be a specialist to drive and it wasseen as the prerogative of the few. Now, virtually everybody can doit. Computers will become like this too. The challenge that we have is
to make lifelong learning and digital skills a fact of life throughout thewhole of society while understanding full well that the digital needsof old people will differ from those of young people. So, this lifelong
learning must give them the digital skills that they need – not for its
own sake, but primarily to help them interact better through these
digital technologies with other people. This will be a big source ofsocial cohesion.

10 Japan SPOTLIGHT • May / June 2019

JS: We are living in a globalized world, and so weneed to maximize the merits of globalization. At thesame time, we should minimize its demerits relating
to social discontent. There is the idea of structural
economic reform as a way to smoothen the
globalization process. One aspect involves
promoting efficiency through, for example,
competition policy. Another is achieving equal
opportunity for economic incentives. How can weachieve consistency or relevancy between these two
aspects?

Snower: Promoting efficiency can be done by internalizing theexternalities of economic activity, promoting competition policy, andproviding a better flow of information to avoid asymmetry of
information and market power resulting from that. Equality ofopportunity arises largely through redistribution of economic
incentives.
Looking at what different countries spend on training theirworkforce and lifelong learning, it is very revealing because in the
United States the percentage of expenditures per capita on this is far
lower than in Denmark or Germany or Japan, and this helps explain alot of the social discontent that you have there. However, that does
not cover all the main issues underlying the problem of social
cohesion; in addition to these economic opportunities, people have
two broad needs. One is the need for empowerment – that one can
influence one’s own future and destiny through one’s own efforts,that I can affect my fate by working hard or doing something throughmy own effort. That gives one a sense of empowerment.
Empowerment is an extremely important means for human beings,
and not always directly related to economic growth.
It is true that if people have equal opportunity then they become
equally empowered, but empowerment is broader than that.
Globalization has reduced people’s subjective empowerment because
global value chains are always adjusting, people adjust, and firms
adjust where they want to locate their activities depending on where
it is most profitable, so the people at the local level feel at the mercyof big international forces over which they have no control.
Multinational companies used to have great regard for the locality inwhich they operate, but that has become less pronounced as time
has gone on. Japan is an exception to this rule, but even in Japan
globalization has affected the way companies operate with regards totheir local workforce and local society. Globalization has clearly
promoted great wealth, especially in emerging economies, but also
has led to a sense of disempowerment in many places, which is
negative. The way to address this problem is to move away from theold concept of the welfare state to a concept of the empoweringCOVER STORY 2

state, whereby governments give people skills that will help them tomake a difference to their own lives. Let’s take one example in aging
societies: if you give old people who live in geriatric homes theopportunity to say when they want to eat, and give them a choice ofmenu, they will live longer, be healthier, and have a better immune
system, because they feel empowered. There are many ways inwhich we can empower people.
There is also a deep need that people have for social belonging
and interaction. This means that governments should also haveregard for how to strengthen local communities. People tend to livein small groups and these small groups should be strengthened, andglobalization has also affected this because people feel that theircommunities are often at the mercy of big global forces. Minimizing
the disadvantages of globalization involves not only more efficiency
and equal opportunity but also overcoming the problems of
empowerment and social estrangement that globalization causes.

Consequences of Immigration & Innovation
JS: Continuing with social cohesion, I think there are

two challenges facing society now: one isimmigration in a globalized era, and the other isinnovation in the Fourth Industrial Revolution. Bothcould affect labor markets. Could empowerment
work well to overcome these two challenges?

Snower: For immigration, the issue that economists have looked at
is how much more GDP per capita can immigrants provide? And ifthey provide significant positive returns in that regard, thenimmigration is considered good. Despite this, immigrants come fromdifferent countries and have different backgrounds, and this affects
the society in which we live and our social context. These effects areoften overlooked by economists and policymakers. The issue is not
only the economic integration of immigrants, but also what sort ofsocial integration is required so that people who live in the receiving
country don’t feel endangered. That means countries need to beclear about what they require of immigrants and also need to beclear in terms of how large the flow of immigrants is that they areable to absorb.
Japan has been a relatively closed society but is now considering
more immigration. Nowadays, I think that the issue of social
integration should be considered much more carefully. In a numberof countries, society is considered like a marketplace. If you tradewith one another and you gain from trade then everything is fine. Butsociety is not a marketplace, it is a place where people interact witheach other, and these interactions come with a lot of social
prerequisites: respect, care for one another, and deep culturallearning. This social integration part of the argument should not be
neglected.
Regarding innovation, there is another set of issues, more related
to empowerment. If innovation proceeds sufficiently rapidly, there isa big danger that people will become disempowered for the simple
reason that human skills – if everything goes well – grow at a rate ofmaybe 1.5% to 2% per annum. The skills of machines grow at therate of Moore’s law, i.e. double every two years. Even if machinelearning slows down a bit, machines will still be growing at a rate far
faster than what humans can keep up with. Policymakers will have totry to predict when the crossover point comes where machines takeover the routine jobs from human beings – because once thecrossover has taken place and machines take over those routine
jobs, there is basically no way humans can get those jobs backbecause their productivity will never grow fast enough. So, they will
have to look at different skills that are complementary to the machineskills, and those skills will largely be creative skills and social skills.

Income Equality or Economic Growth
Insufficient
JS: You mentioned that economic growth should notnecessarily be the primary goal considering theincreasing importance of social issues. However,
economic growth is still one of the most effective
ways to achieve social cohesion. As people become
wealthier, social discontent would go down and wewould see more social contentment.

Snower: Basically, there are no hard and fast rules on this issue. If
one lives in a society with a lot of social cohesion already and people
broadly feel empowered by their work, then simply promoting
economic growth is a very good thing because it will give them morepurchasing power, enable them to live healthier lives, and give themthe opportunity to partake of cultural goods. So in many respects,
people will be much better off. The problem arises when social
cohesion in a society is not very strong and people feeldisempowered. Take the American Rust Belt for example. Families
are broken, and people are laid off long-term. If you simply promoteeconomic growth, you may not solve these problems and we’ve seen
this in the US where people are left behind, and even if they are atwork and receiving salaries, they are still suffering from the lack ofsocial cohesion and disempowerment. Social prosperity must be
closely coupled with economic prosperity. If society is functioning
well, then focus on economics. But if society is not functioning well,then you need to look elsewhere in addition to economics.

Japan SPOTLIGHT • May / June 201911

COVER STORY 2

JS: In Japan, the issue of the Rust Belt in the US issometimes interpreted as a question of income
inequality. Is it the case that expanded income
inequality would always bring social dis-cohesion?

Snower: The greater the income inequality, the more likely it is thatyou will have social disintegration, for all the obvious reasons. Butthat is not the whole story. The opioid epidemic has not arisen
because people have too little money – in fact, they have too muchmoney with which they buy drugs; they are destroying themselveswith the money that they have. Self-harm is a good example of where
social prosperity becomes decoupled from economic prosperity.
Therefore, inequality is very useful to look at in societies thatfunction well. But when they don’t function well, economic inequality
is not everything. You need to be embedded in a social structure thathas sufficient stability for you to feel confident that you will besupported by family and friends.

Implications of Discussions on Social
Cohesion in G20
JS: Turning to global governance, when these social

issues are discussed at international fora such as theG7, what would be the merits of such discussions?
Anti-globalization sentiment is growing and perhaps
the G20 could be considered as one of the flag
bearers of globalization.

Snower: I think these international discussions are absolutely crucial
for the future of our world, not only with regard to social cohesion.
Through the process of globalization, we have produced lots ofglobal problems, including climate change, financial crises, andimmigration pressures. These can only be solved on a global level,and similarly for financial markets. Our challenge nowadays is tomake sure that people living in many different countries understandthat if they wish to be truly patriotic to their country, if they wish to
be a good citizen in their locality, then one of their jobs is to support
the multilateral process in order to solve global problems. If the
problems of climate change and financial crises are not addressed,then every country will be damaged. Therefore one should not see
nationalism and multilateralism as conflicting objectives, they should
be seen as complementary ones, and that will be the big job of theG20 to promote that idea.
JS: So, could these international discussions be

useful in mitigating populism, which seems to befueling protectionism?

12 Japan SPOTLIGHT • May / June 2019

Snower: What the G20 needs to do, in my opinion, is to acquire ahuman sense. The G20 needs to communicate that it is doing thesethings so that people in countries around the world can lead more
fulfilling lives. What the G20 does should be interpreted in terms ofthe needs of people on the ground. That’s what we encourage at the
Global Solutions Initiative. By doing that, it will create a lot more
understanding of multilateral processes and bring a different tone to
how it communicates with the general public. There is a big
understanding in the G20 under the Japanese presidency on thisissue and I very much look forward to seeing how it plays out.

Japan as a Model for “Caring Economics”
JS: What is your outlook for the Japanese economy?

Japan used to be quite well known for practicing the“caring economics” that you referred to.

Snower: Japan is an extraordinary country, where despite its
economic success it has not lost sight of the importance of social
interaction. The deep sense of customs and interaction that
accompany Japanese life help promote these social bonds. Thiscannot be exported as it is to other countries with different culturesand different associations; but the idea of promoting social wellbeing consciously – not only just between people but also in termsof government policy – is an important issue that other countries canlearn from.
At the same time, Japan is also in a leading role for aging societies
and how to handle the problem of people who become disconnectedfrom families and their localities. Connecting those older people withyounger people in ongoing relationships will be hard, as thepressures of work will pull them elsewhere. Machines will take overmore and more routine work, and if people do a lot of work that isroutine, that will require some very significant changes in the waythat we deal with economic challenges. It will also be an issue forsocial cohesion because most people’s work involves a lot of routine
elements, and if these routine elements start getting taken over bymachines, what will this do to social cohesion? This is a problem
that should be high on every government’s agenda.

Written with the cooperation of Joel Challender, who is a translator,
interpreter, researcher and writer specializing in Japanese disaster preparedness.