The Lowy Institute analysis 'Making the Most of the G20', which argues the G20 should be at the centre of Australia's approach to economic engagement, explores many of the themes that will be aired in this debate.
It was inevitable that maintaining relevance would become more difficult over time; nevertheless, two years on from Australia’s hosting of the 2014 Brisbane G20 summit, the G20 has largely descended into a talk-fest to which very few are listening. In 2014, Australia contributed to this erosion of authority by its embarrassing refusal to countenance a substantive debate about climate change and to champion an agenda to combat growing wealth and income inequality.
Both in 2014 and since, no political leader or nation has seized the bully pulpit and spoken clearly and persuasively about the growth challenges in the global economy. It’s been left to IMF Managing Director Christine Lagarde and central bank governors like Mark Carney to champion inclusive growth.
The recent G20 finance ministers’ meeting in Chengdu, China (the second of 2016) made some progress, with sound recommendations for financial reform and some steps in the battle against rampant multinational tax evasion. But in general, it was a triumph of rhetoric over substance, officialdom over leadership and ideology over practical economic reform. The communique — 10 sprawling pages, 35 attached reports and 19 issues for further action — said it all.
There was nothing, absolutely nothing, on jump-starting demand in the global economy. It ignored the central IMF recommendation for advanced countries uninhibited by high debt to deploy fiscal policy to lift global demand particularly through infrastructure investment (advice publicly rejected by the Australian treasurer, Scott Morrison). When the IMF takes such a position it’s the clearest signal it is concerned at the possibility of global economic disruption.
There are deep structural changes occurring in the global economy and Australia’s biggest danger remains a profound global economic slowdown.
The political gridlock evident in the G20 and the US, the rise of new political forces on the Left and Right, the replacement of moderate leaders by voices at either extreme makes me much more pessimistic about the future. I genuinely doubt the capacity for global institutions to respond as we did internationally at the height of the Great Recession in late 2008, early 2009.
The IMF has just published its sixteenth downgrade in global growth since January 2012. The current complacency for global policy-makers, including the Australian government, sends a shiver up my spine. I feel like they are determined to sleepwalk into a burning house.
As Larry Summers has so eloquently argued, developed economies have entered a period of secular stagnation where structural factors such as aging populations, profound technological change and rising inequality increase savings rates relative to investment.
Since the 1950s, income growth in the bottom ninety per cent of the income distribution in many advanced economies has trended downward. It is this squeeze on living standards and income (which has accelerated post the Great Recession) that has rendered politics surly and dysfunctional.
In recent years there should have been a more vigorous and open discussion among G20 leaders and finance ministers about the policy responses required to substantially lift global demand in a sustainable and equitable manner.
Mark my words, we will rue the day we did not use this period of ultra-low global interest rates to invest in infrastructure and put our people to work. Future generations will think us mad, and they will be right.
Australia was in an ideal position to lead this debate as economic activity shifted from west to east. In our region, economies like China and India are in the midst of profound and long-term economic transformations, and at home we have done a better job than most of mixing strong growth with social equity.
Australia’s 2014 G20 chairmanship was a missed opportunity to re-energise and redefine the G20 core mission of strengthening global growth, and we will not bring anything useful to the table while an embattled prime minister and treasurer keep parroting trickle-down economics solutions, rejected not only by the Australian people in the last election, but also by most thoughtful economic scholarship in the wake of the Global Financial Crisis.
Paradoxically, Australia is in a perfect position to spearhead the international conversation on inclusive prosperity; a discussion acknowledging that countries that grow more equally will grow more strongly. This message resonates strongly throughout the US and Europe but must be heard in the developing world if they are to avoid the mistakes of growing wealth and income concentration seen in the developed world.
The Australian experience of structural reform (inclusive prosperity through market opening reforms, sensible fiscal and monetary policy in concert with a fair industrial relations system and a strong progressive tax and transfer system) is a pathway to avoid the secular stagnation and political polarisation infecting the global economy.
Fairly sharing the benefits of growth is the leadership we ought to be showing in the G20 and to the world.
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