G20 china_web

Growing the global economy
Q
I would like to see a
commitment to ensuring
global demand in a
global economy that is
still short of its potential
Why does the global economy seem
to be locked into a pattern of low and
slowing growth?
A No one fully understands. Among the
factors are the hangover from the financial
crisis and hysteresis effects associated with
low levels of investment both in capital and
in research and development.
We appear to have an emerging excess
of savings over investment. Because of
rising inequality, rising desire to pay down
debt, demographic factors and increased
uncertainty, households have a growing
propensity to save.
However, businesses are less desirous
of investing because of a more slowly
growing labour force, reductions in the
price of capital goods and an ongoing
demassification of the economy. That
tendency for savings to exceed investment
makes growth sluggish, puts downward
pressure on inflation and also, because of
the supply-demand balance for funds, puts
downward pressure on real interest rates.
That’s the secular stagnation idea.
Q How has Britain’s Brexit vote to leave the
European Union harmed growth prospects?
A It has raised uncertainty in Britain,
which will reduce investment. It has also
driven down the value of the British pound,
which will suck demand towards Britain
from the rest of the world.
It has also raised uncertainty about
populist threats in other countries and
doubts about the euro area, which is the
world’s largest economy, if you think of it
as one economy. None of this can be good.
It would make a mistake to confuse
the strong stock market post-Brexit, which
reflects expectations of easier monetary
policies, with a judgement that Brexit is
not economically significant.
Q What is your concept of 'responsible
nationalism' and the new principles of
economic policy needed to counter the
challenges that low growth, Brexit and the
rise of Donald Trump bring?
A Trump represents a serious threat to
the liberal economic order. That has to
raise uncertainty and slow down business
investment across a swath of industries.
The establishment of a more integrated,
more managed global economy since the
Second World War has brought immense
benefits for people both in developing
countries and in the industrial world.
Yet there has been a recent tendency for
global integration to be pursued for its own
sake rather than for the benefit of workers
and the middle class. Too much of the
political agenda involves issues of primary
concern to multinational corporations and
their shareholders rather than the workers.
We have had more emphasis
on intellectual property relative to
cooperation in collecting corporate
taxes, more emphasis on
investment protections
and less emphasis
on environmental
protection, more
emphasis on
harmonising rules
for service providers
and less emphasis
on protecting
financial stability.
We are seeing
the price of that in
the backlash against
globalisation.
Q Are there policies most likely to return
the global economy to strong, sustainable
and balanced growth?
A I've emphasised large increase in public
investment almost everywhere where
infrastructure needs to be strengthened.
I have also emphasised greater
collaboration regarding highly mobile
capital. There is also the question
of international tax cooperation.
I think we have to pay attention to issues
relating to beggar-thy-neighbour exchange
rate policies in a world that will likely be
chronically short of demand.
My hope would be that the G20 will
provide an opportunity for strengthening
a vision that emphasises the twin pillars of
growth and fairness in the long run.
Q China has put innovation as its first
priority for the Hangzhou Summit.
What components of innovation should
be highlighted?
A I am not sure that innovation as a theme
is likely to be particularly fruitful, rather
than addressing specific issues, such as
public investment, the distribution of
returns or global cooperation on regulating
mobile capital. Focusing on the long run is
a good idea.
Q What actions can the G20 at Hangzhou
best agree on to restore growth that
benefits everyone?
A I would like to see a commitment to
ensuring adequate global demand in a
global economy that is still significantly
short of its potential.
A firmer commitment
would follow policies
to promote public
investment, assure a
continuing flow of
trade and support
getting income to
those who most need
it in order to spend it.
In a world where
inflation is not much
of a problem anywhere,
a greater focus on demand
would be very desirable.
Q Is the G20 still our best hope for getting
this kind of international cooperation?
A The G20’s efficacy goes up and down.
It made an enormous difference in 2009.
It lost its way somewhat with its
embrace of austerity and public debt
as a central problem. That reflected
misjudgements of the economic situation
more than the failures of the G20 as an
institution. Strength and weakness are
opposite sides of the same coin.
The G20 is a representative global body.
Consequently it is very heterogeneous,
including countries as different as Saudi
Arabia and Argentina, as China and the UK.
Because of that diversity, when consensus
can be found it is important.
It is not surprising that the G20 comes
to substantial consensus less frequently
than might seem ideal. That’s the price of
universality, which makes its consensus that
much more important. G20
106 G20 China: The Hangzhou Summit • September 2016 G7G20.com