G-20 : A POSITIVE REBALANCING / THE FINANCIAL TIMES LEX ( A MUST READ )

G20: a positive rebalancing

Published: November 11 2010 10:00
Last updated: November 11 2010 12:54

The Seoul G20 conference will presumably draw a veil of bland platitudes over the world’s ugly tensions. It will be left to France, which guides the process for the next six months, to try to unify divergent national agendas and policies. But while global imbalances are troubling, it is worth remembering that they stem from an underlying rebalancing that is almost wholly positive.


As recently as two decades ago, the world was sharply unbalanced: 20 per cent of the world’s population accounted for 60-80 per cent of the consumption of everything from steel to air transport. The rich-poor gap was narrowing only slowly. In the nine years ending in 2001, the 2.4 per cent annual growth rate of gross domestic product per person in poor countries was only a little faster than the 2.1 per cent in advanced nations, according to the International Monetary Fund.


That changed. The IMF’s World Economic Outlook shows that from 2002 to 2011, the growth rate for poor nations is set to have more than doubled to 5.9 per cent; the rich rate will have almost halved to 1.1 percent. That shift has created a crude balance: the rich (about 1bn people) now consume a little less electricity, phones and so forth than the enriching (about 6bn).


The imbalances which bedevil the G20 are adjustment pains. The shift has proceeded faster in production than in consumption – creating big debts from some rich to some poor countries. The high savings rates in poor countries and the concentration of financial excess and now fiscal deficits in developed economies are results of this. The two protagonists of the current currency war, China and the US, are now trying to speed or slow the process respectively.


The grand rebalance is good (except perhaps for the environment). But the G20 discord matters, because the rebalance still has a long way to go. The currency war, and its attendant risk of a full-blown tariff war to follow, could halt or slow the process long before it is completed. That would be bad for investors – but much worse for many billions of others.

Copyright The Financial Times Limited 2010.