The buildup to the G20 summit has been dominated by the euro’s failings. With Europe now the epicenter of the global crisis, its continued weakness will dominate the G20 discussions. Even now, uncertainties about Greece’s future – and about the real strength of Europe’s commitment to its new stability fund – has left little opportunity for a focus on the global economy as a whole.
But even if the state of the world economy has featured less than the euro in the preparatory work for the summit, the decisions world leaders will make on the global economy will dictate the mood of the coming two years. President Sarkozy has major global initiatives he will unveil to improve global food security, and may even force his plan for a global financial levy on the agenda. But there is a big choice the G20 must make. Either the world will come together and agree on a coordinated growth plan — or we will retreat into a new, more acrimonious protectionism.
Already the head of the World Trade Organization is warning of a return to protectionism, and every day we find yet another new country following Brazil, Switzerland, Indian, Korea, and Japan in introducing either new tariffs, currency controls, or capital controls. In response, the draft G20 communiqué assumes a free trade world where each continent steps up what it is doing in order to achieve sustained growth.
But a G20 that was really working would take countries far beyond the current draft communiqué – which is a set of bland statements about what each country is doing on its own to foster growth. Instead it would focus on coordinated measures under which countries would agree to support and complement each other’s contribution. If, under an agreed growth pact, China increased consumer spending and Asia opened its markets, and if this was balanced by America and Europe investing more in infrastructure, then over a three year period – as the IMF has suggested – there could be 5 percent more growth and 25-50 million more jobs, with 100 million people taken out of poverty.
A ccordinated approach is desirable because under current policies every country wants to export its way to growth and no one wants to import. But cooperation is not just an option; it is, in my view, a necessity because the world is precariously balanced between a west that consumes the most, and the rest of the world which now produces the most. For 150 years until now, Europe and America monopolized the world’s output, exports, manufacturing, investment and consumption. But in 2010 for the first time America and Europe were out-produced, out-exported, out-manufactured and out-invested by the rest of the world. Today they account for just 41 percent of output, 43 percent of manufactured goods, 47 percent of trade, and 40 percent of investment. But they account for 55 percent of consumption and, if we added other advanced economies, the figure would be 70 percent.
A better understanding between the consumer countries and the producer countries would make for more balanced and more sustainable growth. Indeed, if China was confident its export market could be sustained then it might be more willing to increase domestic consumption, and if America was confident its export markets could flourish then we would have a more confident American consumer and more private investment at home. This was what was envisaged by the April 2009 summit of the G2O and then in the detail of the growth pact agreed to at the Pittsburgh summit in autumn 2009. Unfortunately in 2010 the growth pact has descended into a dispute over currencies, with the American senate now calling China a currency manipulator. A brave attempt by Korea to break from the currency dispute and accelerate growth by putting ceilings on surpluses and deficits failed.
A return to the growth pact idea of 2009 is now the best way forward. It would take countries far beyond bland statements of what each are doing on their own to something far more fruitful, a genuine attempt to coordinate measures for shared growth. Only this heightened level of cooperation can prevent the G20 suffer as big a decline in its power as the world economy.
(Gordon Brown was prime minister of the United Kingdom from 2007 to 2010. He is currently an adviser to the World Economic Forum.)