Tuesday, October 18, 2011
Asia’s Challenge Is to Rebuild the Global Economic Order in a Generation
We live in troubled times. The Dow has taken several multi-hundred point hits as fears rise and fall on Europe’s debt crisis.
The rising debt crisis has left many seriously doubting the United States’ ability to provide global economic leadership. And the news about the global economy’s slowing down is not good.
Over the long term, no other forum but the G-20 can continue to represent the shifting locus of economic power away from the developed economies of the West and to the emerging economies of Asia — and no other is likely to emerge.
Even in the short term, following the G-20’s successful collective response to the 2008 global financial crisis, the world will look to the group again to deal with the renewed threat of a global recession. And with all the domestic constraints that Europe and the United States currently face over a third round of quantitative easing and further stimulus, the G-20 is bound to focus on the role of Asia.
We should strive for two things in thinking about Asia’s role in the G-20. First, handling the short-term problems of global demand and the anxieties about a double-dip recession. Second, and of equal importance, addressing the question of how to rebuild the global economic order in one generation.
A generation might seem a very leisurely pace of change, but it will take time for both the West and the East to adjust to new economic realities. And pretending otherwise will rule out real opportunities for shaping the G-20 into the longstanding forum it deserves to become. It must learn from the Asian experience of steady, even if often slow, economic cooperation.
Let’s consider two approaches to addressing these two priorities. First, on the immediate question of sustaining global demand, it now seems clear that the G-20 has been able to repeat the success it had in dealing with the 2008 crisis in the much difficult task of rebalancing the global economy. That success put the G-20 in a somewhat more complacent mood than it can afford. It may also have placed its Asian members in what the Asian Development Bank has called the role of “a passive onlooker in the debate on global rule-making and a reluctant follower of the rules.” This has to change. The world cannot afford the G-20 to lose credibility.
Substantially increasing and advancing investments in productive infrastructure is one way of boosting global demand. The report of the G-20 High-Level Panel on Infrastructure on ways to boost and improve infrastructure investments in low-income economies will be timely. This report should catalyze an effort by the Asian G-20 members at the 2011 Cannes Summit to address financial and other policy constraints in order to generate accelerated investment in economic infrastructure.
Developing economies such as India will need serious policy reforms, including better governance, better land acquisition policies and overall improvements to the investment climate. Falling prey to narrow domestic political interests and bureaucratic gridlock will mean passing up on a historical opportunity for many Asian countries.
Second, when it comes to the future of the G-20 and its role in bringing about a new economic order, much will depend on whether the organization remains effective over the long haul. Can the G-20 be as effective over a generation as it has been in generating the short-term, collective response to the threat of global recession and of competitive devaluations or protectionism?
Much will depend on how the emerging newcomers, including India, take up their responsibilities to shepherd the G20 agenda. There is a lot to lose if the G-20 descends into nothing more than the old G-7 plus others.
Asean has had considerable experience in coordinating policy responses and domestic policy choices, both those that have been successful and those that have failed. Asian members should bring this experience to the G-20. Asean’s durability and openness to change presents an opportunity for the Asian G-20 members to bring this Asean spirit to the G-20. This will equip the G-20 to be effective over the generation that will be required to rebuild the global economic order.
Adopting an explicit longer-term framework allows us to think about future developments that need to be shaped now, such as the G-3 relationship between the United States, China and India, and the shape it will be in 10 years from now. The relationship between these countries will be important in determining future G-20 behavior. India is today by far the poorest member of the G-20. But it is nonetheless the fourth biggest economy in the group, measured at purchasing power parity, and the 11th biggest measured at market exchange rates. Laying the foundations of a more cooperative relationship now will go a long way toward shaping it in productive ways for the future.
By Dr. Shekhar Shah director general of the National Council for Advanced Economic Research in New Delhi.