The G20 and the world economy
Agreeing to disagree
The global economy has many ailments and few easy remedies
AT ITS first leaders’ summit, the Group of 20’s raison d’être was clear. Held shortly after the collapse of Lehman Brothers in late 2008, the forum of big economies reassured a worried world simply by putting on a show of unity. But as the worst ravages of the financial crisis have faded, the G20 has struggled to find the same sense of purpose. This year’s summit in Hangzhou, in eastern China, which ended on September 5th, pulled leaders’ attention in many different directions.
It was preceded by another display of co-operation: America and China ratified the Paris climate-change agreement. Then work began on a long list of problems, including simmering trade disputes, overstretched central banks, corporate tax avoidance and a populist backlash in several countries against globalisation. The final communiqué ran to more 7,000 words, not counting several lengthy appendices.
This sprawl frustrated some participants, who wanted a sharper focus on growth. The IMF noted that 2016 will be the fifth straight year of global growth below 3.7%, its average for nearly two decades before the crisis. The G20 economies are likely to miss a target they set themselves in 2014, of lifting their combined output by 2% over the IMF’s then forecast for 2018.
Judging the G20’s success by growth outcomes is unfair, though, when most of its big members are holding back. America is contemplating a second interest-rate rise. Germany remains sceptical of stimulus. China is at present more intent on defusing financial risks than on ginning up GDP.
And there is a more positive reading of the G20’s spread: that it is evolving to tackle, if not quite solve, the range of problems that bedevil the global economy. Although the G20 seems unwieldy, it also has an advantage: flexibility. Lacking a permanent bureaucracy, it can switch emphasis annually, depending on which country is in the chair.
China put “innovation” at the heart of its G20 agenda. Vague as that sounds, it was sensible.
First, debating whether to rely more on fiscal or on monetary policy to promote growth only gets you so far. In the longer term, progress depends on improved productivity—getting more out of existing resources. Second, at least some of the anger directed at globalisation stems from anxiety about new technologies, such as artificial intelligence, that threaten established patterns of employment. There is no simple answer: the G20 promised to share technology with poor countries and to develop training for workers. But getting the world’s leading economies to think collectively about the downside of innovation was better than nothing.
On specific disputes, alas, little progress was made in Hangzhou. Both America and Europe pushed China to do more to curb its industrial overcapacity, especially in steel. China countered that weak global demand was as much the problem as oversupply. The proposed solution—to establish a forum to monitor global excess steel capacity—was a classic example of agreeing to disagree.
Yet the summit was also a timely reminder of why there is no substitute for such gatherings.
Days before it began the European Commission ruled that Apple had underpaid taxes in Ireland, by up to €13 billion ($14.7 billion). That has raised the prospect of a transatlantic tax war, with America hinting at retaliation. Such a conflict would undermine one of the G20’s main achievements: it was a request from the group in 2012 that led the OECD, a club of rich countries, to draft guidelines that make it harder for companies to shift profits to their favoured tax regimes. The Apple case will roll on, but in the meantime the G20 committed itself to more co-ordination on taxes. Within two years, most countries will automatically share information about taxes levied on non-residents, narrowing the scope for evasion.
To those visiting for the summit, China sought to present an image of strength. The government shut down factories, near and far, to ensure the air was clean. It blanketed Hangzhou with security. And it put on a grand evening gala, featuring a dazzling light show and ballerinas dancing on water. The substance of the meetings was much duller. But the summits will, indeed must, go on.