What G20 Leaders Must Do To Stabilise our Economy and Fix ... - Vox

VOXResearch-based policy analysis and commentary from leading economistsin the accompanying communiqué, to make available part of its foreign currencyreserve assets towards an expanded swap facility in support of global financial stability.The weeks and months ahead will be trying times for economic policymakerseverywhere, as they try to contain the fallout for output and employment. Raisingtrade barriers against imports will be a temptation, especially when currencies fluctuateso much. But the experience with the Great Depression teaches us that this is thesurest way to magnify the costs of the crisis, and to spread it to other countries. Hencethe most serious challenge for the global trading regime at the present is to ensurethat the financial and economic crisis does not lead to a vicious cycle of protectionism,greatly exacerbating the economic downturn.So we jointly commit ourselves in public to not raising protectionist barriers inresponse to perceived threats to employment from imports. We further ask the secretariatof the World Trade Organisation to monitor and report unilateral changes intrade policy, with the purpose of "naming and shaming" G20 members that departfrom this commitment.The unfolding financial crisis has made it amply clear that we need a new regulatoryapproach to finance – both domestically and internationally. The rules that governfinancial globalisation need to be rethought to ensure that finance serves its primarygoals – allocate saving to high-return projects and enhance risk-sharing – withoutleading to instability and crises. Our discussions have revealed that there existgreat differences amongst us with respect to our respective needs and therefore withrespect to how to achieve these ends. A key challenge will be therefore to strike anappropriate balance between common international regulations, on the one hand,and space for domestic approaches that may diverge from harmonised regulations, onthe other. Recent experience has taught us that there may need to be a greater role forthe active management of international financial flows by governments.Designing the new “traffic rules” for international finance will take considerabletime and thought. We have asked our ministers of finance to establish a high-levelworking group that will convene as soon as practically feasible to seek wider input,and craft a framework for discussion among heads of governments. Despite our differenceson the details, we share a common goal: to make international finance safefor the world economy – and not the other way around.’About the authorDani Rodrik is Rafiq Hariri Professor of International Political Economy at Harvard's JohnF. Kennedy School of Government. He has published widely in the areas of economic development,international economics, and political economy and authored several books, includingHas Globalization Gone Too Far? (1997), and, most recently, One Economics, ManyRecipes: Globalization, Institutions, and Economic Growth (2007). In 2007 he was awardedthe inaugural Albert O. Hirschman Prize of the Social Sciences Research Council. He is aCEPR Research Fellow.16