G20 china_web

Running head
→ as contracts get awarded to friends or
family, not to the most efficient and the
most competitive bidder.
Private-sourced infrastructure
investment has sometimes been more
effective in China than some governmentsourced
spending. Both India and China,
where there are huge demands for
infrastructure, need more private-sector,
private-run approaches, in addition to
government-financed ones.
Q If the stimulus is part of the solution,
what form should it take?
TB Many studies have looked at the deficit
in infrastructure investment globally. The
numbers are huge – obviously, in emerging
markets such as India and perhaps
China, but also in North America. A lot
of crumbling infrastructure needs to be
rebuilt. If there is immediate need, it will
serve the economy well in the future, as
well as giving that short-term boost.
RF Look at the Detroit-Windsor bridge and
how much truck traffic takes place between
Canada and the United States. A large
share of trade passes over that one bridge.
Even on a bilateral basis does crumbling
infrastructure play a significant role.
In the long term, we need to improve
the educational system and adequately
prepare young people for the future. We
may need to return to vocational
training as opposed to every
child going to college. It is hard
to have a one-size-fits-all
approach to fiscal stimulus
everywhere. It needs to be
country by country. One
can talk about infrastructure
spending and then leave it to
the ‘local’ level to decide how to
define infrastructure.
Q How could fiscal stimulus be
coordinated with monetary policy for
maximum effect?
2%
Added growth G20
members committed
to at the 2014
Brisbane Summit
TB Fiscal and monetary policies are
opposite sides of the same coin. The
governor of the Bank of Canada said fiscal
policy has relieved pressure on monetary
policy because the policies are working
together effectively. Mario Draghi told
European political leaders that there
are limits to what the European Central
Bank can do.
In several countries, such as Germany,
political authorities are not addressing
the task. On the structural side, these are
very difficult political issues. At Brisbane,
governments committed to add two per
cent growth to the trend line of 2013.
Implementation has been very weak.
The hope was that announcing measures
together would give some cover for
addressing politically difficult issues such
as immigration. But countries have, sadly,
become silent.
RF Timing makes a huge difference.
Some reforms have some short-term and
short-to-medium-term effects and those are
all positive. Some labour market changes,
unless accompanied by other policies on
the fiscal or tax side, particularly focused
on industries or labour market conditions,
can have short-term negative effects.
In the post-war period there was
a considerable focus on the role of
monetary authorities. Central banks need
independence from governments.
There was a long, slow battle to
break the Bank of Japan away
from the finance ministry. It
has gone backwards under
Shinzo Abe. Coordinated
fiscal and monetary policies
that are announced jointly
and draw central bank
governors and finance ministers
together to agree on policies weaken
the banks’ independence.
Central bank governors could coordinate
their own statements. That said, on the
structural and fiscal side,
we need coordination. Realistic discussions
on implementable fiscal or structural
policies can positively affect business and
consumer expectations.
We are failing to focus on the current
weak consumption effects. People are
saving more than spending, because
they lack confidence in the job markets
and outlook. We need to look at business
investment and consumer behaviour.
Q What should the G20 leaders do at
their Hangzhou Summit?
TB Bob’s point about confidence also
applies in Europe and Canada and
elsewhere, especially in the context of
the broad disenchantment with political
institutions in many countries. The lack
of credibility in institutions and political
leaders contributes to the growing rejection
of the elite. The G20 risks falling into the
same trap. It is the same people, after all.
The Brisbane Action Plan was an
attempt to be more specific. Perhaps it
could have worked had governments
been prepared to follow through, but
they have not. They will make their usual
statements, which of course are right: we
need to buttress world growth through
appropriate monetary, fiscal and structural
measures. They need short-term wins to
create credibility in their commitments,
which would instil confidence and promote
growth. It may be something about
infrastructure, perhaps building on
China’s Silk Road initiative.
RF The effectiveness of a communiqué
is inversely proportional to the number
of pages. Keep it simple, stupid. We need
something that is results oriented and
visible. Something they can point to and
say: “We did this.” They need to focus on
something they have done jointly, and
say “here is the value from it”. It can be
something very small but it needs to be
concrete. Rebuilding confidence is very
important. G20
98 G20 China: The Hangzhou Summit • September 2016 G7G20.com