The G20, Global Business, and Global Growth
Real Clear Politics
By Myron Brilliant
This week in Cannes, France, leaders of the G20 gather at their annual summit amidst concerns that the global economy is tipping back towards the low-growth track. The once-crowded agenda proposed by France -- including everything from food security to executive compensation -- has crystallized to deal with the financial sustainability of the mature advanced economies, particularly in the Euro zone.
What has been lost in the public discourse is that Europe and the United States are not only the epicenter of the problem – we are also the solution, with the collective economic resources to turn the world’s economies back to the growth track. Even as new data from the United Nations shows a deceleration of foreign direct investment inflows to the United States, Europe and the U.S. nonetheless accounted for nearly half of all global FDI in the second-half of 2010.
The question now is how to re-allocate sources of supply and demand to rebalance the global economy – and to make sure whatever new rules are put in place don’t increase the policy uncertainty that induces private investment paralysis but create the incentives that translate into opportunities for growth.
This challenge is not just the remit of central bankers and ministers of finance. While the public sector is critical to aligning financial structures in ways that encourage private investment and consumption, ultimately it's not government but the private sector that will pull us forward to innovate, create jobs and generate growth.
Engaging the private sector’s creative energies is going to take a change in mindset – on the part of both public sector officials and also private sector leaders. Right now, the G20 plays the role of a fire code inspector, on the lookout for the next financial structure to go up in flames. That’s necessary, entirely understandable – but not sufficient. We need the G20 to be focused on setting the broad macro-policies that will generate growth – not on the next bank or sovereign that’s going under, but how our companies are going to grow.
If that’s the focus, how will we know if the G20, with the help of the leading business organizations and their members, is on the right path? To begin, we can look for a cease fire in the rhetorical wars. Across the G20, all too many officials have fallen into a Manichean trap, as if the health of a nation’s financial infrastructure could be severed from the economic fortunes of its people. A scape-goating, blame-laying approach is punitive for everyone and productive for no one. The financial services sector pumps blood into the economy, and as any physician would tell you: if you constrict the patient’s blood vessels, the body won’t recover. G20 nations need to promulgate policies that will pump liquidity into the system.
We’ve got to see that a growing, jobs-generating economy is a two-way street -- where policies enabling finance, investment and capital allocation are essential to the individual’s kitchen-table economic experience of ample jobs, affordable housing, and opportunity for advancement.
If we can dial down the rhetoric, creative policymakers can get to work developing new ways to finance growth in a high-debt environment. The plain reality is that high debt-levels in the mature economies of the G20 won’t be going away anytime soon. We need to formulate new financial mechanisms, with reasonable policy safeguards, to spark innovation-based growth in mature economies that have accumulated substantial debt.
We also need to bring more creativity to our finance challenges, developing new markets and new instruments. What does that mean? Take a demographic trend that we don’t currently connect to macro-economic policies: People in developed nations are living longer, and saving longer – can we mobilize trillions of dollars in private savings in some better way than before the burst of the latest asset bubble to fuel growth?
New thinking means a willingness to reexamine approaches that have worked to get us where we are, but won’t be sufficient to take us forward. Take the classical free trade agenda, aimed at increasing access to each other’s markets. We’ve got to add to that traditional approach a new advocacy for jointly coordinated and mutually supportive “growth path” agendas. The IMF is already looking at the negative “spill-over” effect of the macroeconomic policies of G20 members. There must be a way to identify and promote the best positive implications, too.
Across the G20 and in relations with the developing world, we’ve done a good job of reducing global tariffs. Our new challenge is to develop new instruments for trade finance, to reduce the “trade risk” – everything from piracy on the open seas to customs hassles due to inefficient security checks – that puts kinks in the global trade supply chain, and to expand our concept of trade in tangible goods to trades in digital services and products. As a place to begin, interest is growing in the idea of a Services Plurilateral Agreement under the WTO aegis, convening a “coalition of the willing” that would liberalize trade in services beyond what was achieved in the 1995 General Agreement on Trade in Services.
None of these new developments will be possible unless the private sector steps up, and joins the macro-policy debate on how we put the mature economies on a sustained and sustainable growth path. In the session now about to start in Cannes and in those to follow, America’s businesses stand ready to help the G20 realize its shared goal of growth.
Mr. Brilliant is Senior Vice President for International Affairs at the United States Chamber of Commerce, the world's largest business federation.