Can the G20 do “big” outcomes?
George Magnus is Senior Economic Adviser, UBS Investment Bank, and author of “The Age of Aging: How Demographics Are Changing The Global Economy And Our World”. Any opinions expressed are his own.
The election of Barack Obama as president of the United States has unleashed a welcome torrent of optimism during hard times. Aside from an especially demanding domestic policy agenda, the new president will also have his work cut out to rebuild the authority of and respect for U.S. leadership in the global community.
The G20 meeting in Washington on November 14-15, billed as the forum for rebuilding the world’s financial architecture, could not be happening at a more important time. We should be under no illusion, however, that results will occur in a week, despite the expectations. Anyway, the G20 has the more pressing issue of countering global financial instability and the global recession.
Nevertheless we – or they – need to think big and hope that new thinking from the Obama administration will be channeled precisely in the direction of global monetary reform. Part of the reason for the banking crisis, and its awful aftermath, was the untreated chaos in the global monetary system. Essentially, it was this chaos that contributed to exchange rate misalignment, the existence of unsustainably large external imbalances, and the creation of a debt mountain in advanced nations and excess savings in poorer nations.
If we are to stabilize the global economy in the longer term and be confident that periodic fires can be fought without risk of systemic failure, these issues need to be tackled now, and they can only be done so via a system of rules to which all participants can subscribe.
Although the return to financial stability and sustainable economic growth will dominate the G20 agenda, this forum may also be the appropriate one to review and implement initiatives related to other big and long-lasting changes in the world, such as demographic change and rapid aging.
Rich countries, which are now experiencing the onset of rapid aging, need to secure a high level of economic co-operation in trade, capital and exchange rate arrangements so that they can derive the economic benefits of globalization. These benefits will be important to help generate the income and resource transfer from a working-age population that is growing slowly to a rapidly expanding population of economically inactive over 60s.
In a more protectionist and nationalistic world, by contrast, stagnation beckons along with a rising incidence of poverty and unrest because of poor employment and income prospects.
Developing nations, which won’t experience the material consequences of aging for another 30 years, also need such co-operation. They need to adjust from being export machines to more balanced, sophisticated economies that meet the employment, education and prosperity aspirations of their growing, working-age populations.
If they fail, they could be faced with economic and political instability. In that event, they might well fail to fulfill the leadership role given by their economic potential
We have an opportunity to improve the way globalization works and spread the benefits through strengthened institutions. The G20 meeting, and hopefully the infectious optimism of the Obama administration, can be the start of such a process.
(Pictured above: Brazil’s President Luiz Inacio Lula da Silva (R) and Britain’s Prime Minister Gordon Brown begin a bilateral meeting, in advance of the Summit on Financial Markets and the World Economy, in Washington, November 14, 2008. REUTERS/Mike Theiler)