Editor's Note: This paper is based on a symposium on new growth paradigms organized by the Growth Dialogue with the participation of 23 academics, policymakers, experts and think-tank leaders. For further information on the conference, held between April 18 and 19, 2012, please see The Growth Dialogue.
Where Are We?
The advanced economies of the world are out of money, out of growth and out of trust. That is the principal challenge now facing the global economy. The response has been a paralysis of sorts with governments both uncertain about the right course of action and also incapable of executing new policies. As a result, a “hold-the-course” approach is the prevailing order of the day. It is a pattern that is repeating itself at global, national and local levels where policy and its implementation are no longer seen as effective given the structural challenges of low and jobless growth, unfavorable demographics that drive expenditures, and a pattern of excessive public debt. There appears to be a vacuum of leadership, greater uncertainly about the sustainability of exiting growth paths, and weak political support. At the same time, citizens are expecting more from the state and the state is not delivering. Magnified at the global level, this is a cause for concern. The Bellagio Symposium was organized by the Growth Dialogue to discuss possible ways forward.
The Big Picture
Global economic management and coordination is sputtering. After coming together in a significant way in 2009, the G20 has proven itself unable to generate a political momentum to enable national governments to pursue successful economic policies. Across the board, policymakers are complaining about the exchange-rate implications of uncoordinated national monetary policies (or in the case of some emerging economies of explicit nominal exchange rate targeting). The crisis period since 2008 has been characterized by very large fluctuations of the $/Euro exchange rate, with a volatility that suggested that currencies were not reflecting underlying fundamentals. Global currency and debt markets, in turn, seemed to have lost confidence in the ability of governments to manage economies in an orderly way, and without any anchoring of expectations, volatility has continued to be high. This has heightened risk and hindered investment.
The G20 is perceived to be the only body that could re-establish greater confidence in coherent international policymaking, but its framework of strong, sustainable and balanced growth has not proven to be effective in restoring confidence.
The G20 is perceived to be the only body that could re-establish greater confidence in coherent international policymaking, but its framework of strong, sustainable and balanced growth has not proven to be effective in restoring confidence. Major issues, such as the consistency of the international monetary system with long-term, stable growth, have remained unaddressed. Equally, the ability of the G20 to deliver on global public goods and reduce global bads has been limited, with some success in fighting protectionism, but failures in dealing with global food and energy price shocks, and, in a longer-term perspective, addressing the issue of climate change.
Calls for a strengthening of international institutions are offset by a sense that the political window for closer global cooperation may well have closed and no country today is really driving change in the international system, each concentrating instead on national self-interest. One might well characterize the current global system as one akin to an “absentee landlord.” The advanced economies are under stress and the emerging economies are not yet able or willing perhaps to take up the gauntlet of helping to manage the global system. There is no global decision-making process that appears up to the task at hand of restoring short-term confidence and stability, medium-term growth, and longer-term fiscal sustainability. Global policymaking is still struggling to find a governance system that balances legitimacy and inclusion with effectiveness and action.
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