This is the third edition of the OECD Business and Finance Outlook, an annual publication that presents unique data and analysis that looks at what might affect and change, both favourably and unfavourably, tomorrow’s world of business, finance and investment. Using analysis from a wide range of perspectives, this year’s edition addresses some of the forces influencing economic developments that have contributed to recent surprises in elections and referendums. The common theme of these surprises has been voter discontent with globalisation and immigration that are perceived to be causes of unemployment and/or falling living standards for substantial parts of society. This Outlook’s focus is on ways to enhance “fairness”,

The globalisation of the world economy has advanced dramatically in recent decades, even if the recent crisis slowed its pace for a while. Trade, cross-border investment and international migration have all increased strongly during the past 30 years as emerging market economies have become increasingly integrated with more advanced OECD countries. Productivity gains have been widely diffused, the variety of goods available to consumers at favourable prices has steadily risen and hundreds of millions of people have emerged from poverty.

There is a growing perception that globalisation is not working for large sections of society, in both advanced and emerging economies, and that it is driving inequality and hurting less-skilled workers. While much needs to be done with domestic policy to improve outcomes, there is also a strong need for better alignment of domestic and international policies and a more level playing field in the cross-border activities of businesses. This requires countries participating in globalised markets to commit to a common set of transparent principles that are consistent with mutually-beneficial competition, trade and international investment. But the governance of trade, international investment and competition has not advanced enough at the global level to foster better outcomes. This Outlook provides empirical evidence on how an uneven playing field can block economies of scale, misallocate resources and undermine fair competition. It also discusses global governance issues (the "rules" and "norms") in a number of policy domains.

Globalisation has become associated with difficulties for less-skilled workers, inequality and a general sense that it is not benefitting large sections of society, in both advanced and emerging economies. While there is much to be done with domestic policy to improve outcomes, there is also a strong need for better alignment of domestic and international policies and a more level playing field in the cross-border activities of businesses. This requires a commitment by countries participating in globalised markets to a common set of transparent principles that are consistent with mutuallybeneficial competition, trade and international investment. This would reduce the problems left to be dealt with by domestic policy by improving resource allocation (promoting productivity growth) and reducing the extraction of rents (that harm consumers). Major factors that make for an uneven global playing field are examined in this Outlook. Empirical evidence is provided on their importance and rules that could help to improve outcomes for trade, innovation, investment and competition are discussed.

Evidence shows that the increased participation of emerging markets in the world economy has lifted trade for all countries (rather than diverting it). At the same time, the middle class is being hollowed out in advanced countries and living standards have been affected adversely by trends in trade and technology. Insights based on micro data suggest that these two latter factors are linked, as the most productive companies sell more to foreign markets (via trade or investment) to gain scale economies and take advantage of digitalisation and innovation. Productivity growth driven in this way benefits from open access to markets for successful firms and the exit of inefficient ones. Companies that do not innovate and compete well globally see declining returns, average value added and wages for their workers. These pressures occur within industries, rather than between them. The extent of these problems would be reduced if the gains from globalisation were distributed more equally on the basis of a level playing field.

State-owned enterprises (SOEs) have become an important and, by some measures, growing part of the global corporate landscape. One reason for this is that the economic weight is shifting toward regions of the world where a large number of SOEs remain. The question is whether these SOEs operate in the global marketplace on the same terms as private enterprises, or whether their growing presence changes the competitive conditions in international trade and investment. Importantly, enterprises other than SOEs may be linked to the state, or considered to be “national champions”, thereby benefitting from the support of their national authorities. This chapter reviews the changing trends and analyses the challenges that may arise from the renewed importance of SOEs. It concludes that SOEs, on average, have lower rates of return and higher leverage than private competitors and that, by continuing to produce amid falling profitability, they may have contributed to global overcapacity in some sectors. The chapter demonstrates how existing OECD instruments, including the OECD Guidelines on Corporate Governance of State-Owned Enterprises, can contribute to address these concerns.

The globalisation of business activity is generally associated with an increase in competition, as businesses reach beyond their borders to offer goods and services to new markets, encouraging cost reductions and innovation. However, while multinational firms operate on a global scale, the competition rules that protect consumers, and economic efficiency, do not. Thus, competition policy and law enforcement requires international cooperation to match the scope of potential competition problems. This chapter describes four areas in which market distortions can be addressed with a common commitment to the promotion of competition: investigation cooperation for cross-border cartels, addressing taxation and SOE policies that interfere with competition, careful design of public interest review mechanisms for mergers, and the consideration of the impact of export cartels. The OECD instruments on international cooperation in competition law enforcement, hard-core cartels and procurement bid-rigging, can help achieve these outcomes.

There has been much progress with respect to the promotion and uptake of responsible business conduct (RBC) practices in recent years and a considerable body of evidence showing that RBC is good for businesses. While gaps remain in the implementation of RBC principles and standards, governments, companies, and other stakeholders have been developing innovative initiatives aimed at filling them. In the context of the current backlash against globalisation, this is an important element for rebuilding trust in an open, rules-based global economy.