And if the problem is truly a global matter, are not many national conversations by definition incomplete and perhaps even self-defeating?
The world’s interdependence has once again been demonstrated in recent weeks. A loose statement anywhere can sink stock markets everywhere. In a world economy driven by global, not national, flows of finance and by global, not local, sourcing of goods, what happens to the richest citizen of the richest country can instantaneously affect the poorest citizen in the poorest country.
Of course the world’s leaders have phoned each other. In fact, they appear to have done nothing but phone each other and explain their problems — with no global agenda on the table. And yet a global tragedy is what is unfolding. Unemployment for the decade to come threatens to be of such a scale that 1.25 billion of the world’s students — up to one-third — is likely to suffer a period out of work after leaving school.
The economic crisis is so deep that no single nation, however powerful, and no bilateral, triliateral or quadrilateral initative, no matter how bold, can prevent a lost decade.
To understand why global coordination alone can work, try appreciating how individual nation-by-nation decisions have been closing down growth. At the core of Washington’s debt decision last week were four “no-go” areas for policy: no more taxes, no more stimulus, no more public investment and no more cuts or increases in entitlement spending. Under these politically imposed constraints, growth from consumer spending and public investment is blocked off. With little chance of private-sector investment in a stagnant home market, America has locked itself into a low-growth cycle for years to come.
With its own four “no go” areas — no bailouts, no defaults, no more money and no devaluations — European consumer spending or public investment will not grow, and Europe has written off any public stimulus.
There is one lifeline for both continents: to export their way to growth. But if that is the policy of the United States, Germany, Britain and now the euro zone, it is also the stated policy of China, India, Brazil and the rest. And an export drive that works means that some countries will have to import more than they export. So without a grand plan, the “export or die” strategies look like a zero-sum game.
Can global leaders reconcile what appears irreconcilable? Is it possible to find a pathway to balanced, sustainable growth in a world that cannot sign a global trade agreement or a climate-change agreement (despite the fact that it would have stimulated billions of trade in renewables) and where the instincts of protectionism and nationalism are far more powerful forces than the imperative for global cooperation?
The Group of 20 set three global tasks in 2009. The first was to prevent recession from turning into depression. But the other two — a financial stability regime and a compact for growth — became paper promises. The growth compact was to be our response to the biggest economic restructuring since the Industrial Revolution. The evidence is that, for the first year in 150, the combined forces of Europe and America were being out-produced, out-manufactured, out-exported and out-invested by the rest of the world. We could foresee that by 2020 Asia would be the world’s biggest single market, accounting for 40 percent of all consumer spending, twice the size of the once-dominant American market. We could also see that no country could prosper by ignoring the consuming power of the Asian and emerging-market middle class and that no company would prosper without a bigger global footprint.
We calculated that by cooperation we could have deficit reduction in the West that did not destroy growth and that world growth could rise 3 percent and upward of 25 million jobs would be created. The potential for strong global growth lies not in the “naming and shaming” of individual nations with surpluses but in the coordination of national policies, with China agreeing to raise consumer spending and allowing its rising middle class to buy brand-name goods from abroad; India opening its markets so its poor can benefit from lower-cost imports; both countries taking millions out of poverty; and Europe — not just Germany — and America trading their way out of the downturn.
Only by creating such a virtuous growth-enhancing circle will we escape a low-growth decade. Keeping commodity prices low, fending off inflation, dealing with currency shocks, breaking the Doha impasse and setting a carbon price that stimulates jobs in renewables are all challenges that a pact has to meet and master. Confidence about the future is necessary for confidence today.
The world outlook would be transformed if Asia were confident it has a long-term market for its products, if the West were confident it could sell abroad and pay for gradually improving standards of living at home, and if the rest of the world were confident there would be strong growth to reduce unemployment and poverty.
The next step is for President Obama and French President Nicolas Sarkozy, this year’s leaders of the G-8 and the G-20, to agree with Asia that the centerpiece of November’s G-20 agenda is a “plan for global growth and jobs.”
But even before November, we face a seminal moment in global finance. The world’s ability to do more than issue communiques will be tested if, as has been revealed this week, the national policy instruments each country has chosen are not working. Then coordinated global policy action, including monetary and exchange rate cooperation, must start now to prevent a further slide and the rise of protectionism.
In 2008, coordinated global action started only when markets froze as the global payments system broke down. Now, following a loss of confidence in the safest asset — sovereign debt — can the world come together to stop a new round of asset fire sales as liquidity in markets dries up? Either we cooperate globally, reforming the plumbing of our financial system, or the way banks and quasi-banks lend to each other will render monetary action ineffective, intensifying rather than resolving the crisis.
Bismarck compared the world economy to a train that follows a consistent and steady path — and then suddenly rushes forward with irresistible force. This is an apt description of the onrush of globalization. And guiding your way out of a crash threatened by irresistible force requires leadership of unsurpassable resolve.
The writer was Britain’s chancellor of the exchequer from 1997 to 2007 and prime minister from July 2007 to May 2010. He chaired the April 2009 G-2O meeting that addressed the global financial crisis.