Facing up to the G20’s challenges
Q:How can the G20 best support the economic recovery currently under way in some of its major members?
The single most important thing the G20 can do to sustain recovery is do a better job of containing COVID-19, preventing its spread to the maximum extent possible and pre-empting further evolutions of the virus. Without success in those things there will be very substantial breaks in interconnections in the global economy, and the threat to the emerging markets that collectively comprise nearly half of global gross domestic product will be enormous. The most important kind of global economic cooperation needed at this moment is global public health cooperation.
There is a need for very strong efforts to support developing countries and to develop and improve debt architectures. So far, because of very low interest rates and investors’ risk-on approach, there has been less interference with the flow of capital to emerging markets than expected. That is not something we can take for granted, so it is urgently important to strengthen debt architectures.
It is important for countries to act with a view to sustainability in a macroeconomic sense. I’m concerned that the United States may be headed into a situation where the inflation will exceed target levels and create problems. I would prefer more attention in the industrialised countries to the risk of overheating, given the possibility of demand shocks from very strong policy responses to COVID-19 and the inevitable supply damage.
Q: What approach to macroeconomic policy should G20 leaders at their Rome Summit best take, when should they move towards normalising monetary policy?
Today’s situation is much more differentiated across countries than it was in 2008–2009, when there was a common imperative to promote demand, support liquidity and infuse capital into financial institutions, and so a common and coordinated, agreed, collective approach was warranted. Thinking in terms of coherent, coordinated, single policy principles for all or most of the G20 members is less helpful today. For the United States, I think encouragement needs to be given to improving macroeconomic sustainability and containing inflation. That is not at all true in most of the emerging economies of the G20 and is less true in Europe or Japan. It’s appropriate that there be consideration of the strikingly low level of forward long-term real interest rates in the global economy, which suggests there may be a market expectation that after we work through COVID-19 we will return to a virulent form of secular stagnation, which would lead to important policy challenges. It may be that the low level of interest rates in the face of inflationary threats reflects expansionary monetary policies for a range of technical factors, but the possibility that it reflects secular stagnation and a general savings absorption problem cannot be excluded. It could be appropriate not to make policy commitments but to consider that possibility in the context of the G20’s deliberations.
Q: What should G20 leaders do to spur investment in infrastructure of various forms, within their own countries and in developing countries beyond?
The right buzzword is global public good, rather than infrastructure. There is a great deal about infrastructure that can be financed locally by the public sector. There’s a great deal in infrastructure that can be done simply through establishing the rule of law, through private sector contracting. The world’s capacity for collective global action and funding is not unlimited, and addressing the current pandemic, preparing defence against future pandemics and being prepared to respond to the climate change challenge by accelerating the replacement of coal, putting in electricity architectures based on renewables, electrifying forms of production now done directly by fossil fuels – all these things are essential and are of a public goods nature. I would rather see emphasis on that.
I thought the initiative of the United States in the G7 to fund infrastructure generally in a way that was a pale imitation of the Belt and Road Initiative was not well conceived. The Belt and Road Initiative is less of a threat than many imagine because many of those investments are not working out so well for either China or the countries that are the recipients. The scale that was contemplated was not large enough to matter. Insofar as there is a capacity for political energy, it is best directed at the global public good theme.
Q: How should the global community, led by the G20, mobilise tens of billions of dollars for a new Global Health Threats Fund to prevent the tens of trillions of losses that failure to do so would cost?
I was privileged with Tharman Shanmugaratnam and Ngozi Okonjo-Iweala to chair the High Level Independent Panel on financing the Global Pandemic Preparedness and Response to advise the G20. I learned a few things. One, I was reminded of just how grave these problems are. Over the next quarter century, I expect more human suffering associated with pandemics than there will be associated with climate change — and that is not to deny the harms of climate change but to highlight that coronavirus risks have been rising at 8% a year and are only a small part of total risks, given situations such as Ebola, AIDS and influenza. The potential risks are enormous.
Two, we saw both positively and negatively the difference that effective collective action can take. The fact that we have vaccines within a year rather than five years is an enormous human achievement that puts us in a far better place than we would have been without that scientific achievement. Nonetheless clearly more could have been done to address the problem sooner. Better apparatuses could exist to distribute the fruits of remarkable scientific progress to more places more effectively. And there have been huge gaps in personal protective equipment and testing capacity that we would be well off avoiding.
It’s clear, if you perform the most elementary cost-benefit analysis, that trillions have been spent – and trillions more have been lost. Lost human life cannot be priced but can be thought of having an economic consequence in the trillions of dollars. Even if an outlay of tens of billions of dollars would reduce the probability of those multitrillion dollar losses by a relatively small percentage, they would pay for themselves many times over. So having an effective fund directed at prevention and that is well governed so resources are deployed quickly and effectively is to my mind probably the highest priority facing the international community.
Q: What should the G20 leaders at Rome do to control the climate emergency we now face?
They should give impetus to the Glasgow Climate Summit and to setting ambitious long-run targets. More importantly, they should make common cause on eliminating coal and phasing out fossil fuel subsidies. That commitment was made at the 2009 Pittsburgh Summit but has not yet been lived up to. I very much hope that it will be. At the same time, they should look to substantially energize the international financial institutions, which can do much more to provide green finance. The World Bank is a very substantial underperforming asset for the global community in terms of its potential to reorient itself towards issues of sustainability, grow its scale in line with the global economy and foster public-private cooperation on green infrastructure.
Q: How should G20 members through the International Monetary Fund channel the new special drawing rights from rich countries that don’t really need them to the poor ones that do, and for what purposes?
I think it is more important that it happens than the precise modalities of how it happens. There is a bit of an illusion on the part of some that it will be substantially politically easier to reallocate SDRs than it is to vote foreign assistance allocations to meet these global public goods. I hope we will have as much success as advocates at the IMF suggest here – and I fully support all the objectives – but there has been some tendency to see SDRs as a kind of magic money for good causes. I am not sure that will work out quite as much as some hope.
Q: How can G20 processes and institutions be strengthened to meet these and other central challenges we face? For example, in the early years of G20 summit governance the G20 held two summits every year. And it did two in 2020 in virtual form for the first time – should it move back to two regularly scheduled summits a year?
I tend to leave to the foreign ministry people discussing the frequency of meetings and the shape of tables at meetings and focus my thinking on the policy outcome. I attended, for the first time in a decade, the G20 finance ministers meeting that took place in Venice in July and I have to say I was appalled. The G20 finance meeting as I remembered it had about 40 people with some back benchers. The finance minister and central bank governor of each member sat around a table that was like a quite large seminar table at my university, albeit with microphones, and had a real conversation. None of that describes what took place in Venice. I counted at one point 195 people in the room, even though five delegations – a quarter of those who should have been in attendance – weren’t able to be there in person because of COVID-19. Every imaginable international entity was present, and not a spontaneous word was said other than the chair’s reflections on it being a hot day in Venice. All interventions were read at one another. It reminded me of the United Nations or the IMF’s old interim committee at their worst. My pressures would all be in the direction of facilitating genuine dialogue and discussion.
Q: How successful do you think the G20 Rome Summit will be?
I would count myself a cautious optimist. I can’t imagine a better chair than Mario Draghi, given his experience with multilateralism, and his international and financial experience and wisdom.
Q: Are you encouraged by the approach of the Biden administration?
I am concerned about the nationalist turn in US foreign policy. That was the hallmark of the Trump administration and those were disastrous years. The Biden administration is infinitely wiser and more enlightened in its approaches than the Trump administration, but the so-called worker-centred trade policy is often intellectualised protectionism. I am concerned by the signals sent by the rather precipitous approach to the necessary withdrawal from Afghanistan, and I am concerned by the disproportion between US efforts at responding domestically to COVID-19 and to global efforts. The US move to give booster shots to its citizens reflects the fact that any government has to take first responsibility for its own citizens. But the US could and should find ways of simultaneously strengthening domestic and global COVID-19 protections. It has projected more of a grudging approach to global approaches than I think is the intent of major policymakers or that I think is appropriate for the forward defence of US interests.
Q: Are you cautiously optimistic the G20 leaders and their finance ministers and central bank governors will deliver a regime on international taxation?
This is something I have been pushing for many years. I have long not understood why intellectual property was a top-tier global economic issue and international tax cooperation was an issue at a lower tier. I think we’ve now remedied that. I’m optimistic that very good things will come of Secretary Janet Yellen’s efforts. There is still a lot of hard work left to do, and even if there is a set of agreements, there will still be very substantial tax evasion activity. But I think there is more that can be done.
