Part of a Triple Crisis series leading up to the Nov. 11-12 G-20 meetings.
The G-20 aims to accelerate the global recovery through a global economic rebalancing process which, among other things, requires consumers in advanced deficit countries, such as the U.S., to cut spending and consumers in emerging surplus countries, such as China, to expand spending.
To accomplish this, the G-20 countries committed themselves to certain policies and asked the IMF to track their implementation through a “Mutual Assessment Process” (MAP). However, the MAP may take countries to a dead end for several reasons.
First, if it wants to expand consumption in China and other emerging surplus countries, the G-20 should be calling for these countries to raise wages. However, the MAP does just the opposite by calling for these countries to cut minimum wages.
The MAP also facilitates a “race to the bottom” in advanced surplus countries (e.g., Canada, France, Germany, Japan, Korea) where it calls for dismantling national wage bargaining systems, limiting collective agreements, and reducing hiring costs, unemployment insurance and non-wage labor costs (e.g., health insurance and pensions).
The MAP fails to acknowledge that countries, such as Germany, became competitive because of its wage bargaining system, not in spite of it.
Second, in the advanced deficit countries, the G-20 is calling for “growth-friendly medium-term fiscal consolidation.” But, this “recipe” can be an oxymoron, since researchers at the IMF and elsewhere have found that the impacts of fiscal consolidation are not, in general, growth-friendly, except in unique circumstances. Moreover, synchronized fiscal austerity among several advanced economies will cut demand at a time when factories around the world suffer from excess capacity.
Third, global recovery and rebalancing depends on the capacity of countries to use means, such as capital controls, to prevent speculative flows from fueling boom, bust and buy-out cycles. The more the U.S. engages in quantitative easing, which triggers capital flows to emerging market countries, the more these countries need capital controls. However, on behalf of the G-20, international institutions are encouraging the use of international investment agreements, including those that prohibit the use of capital controls (e.g., the Korean-US FTA).
Lastly, as the economies of emerging market countries boom, their reliance on a low-carbon path is vital to human survivability– not just economic progress. Yet, the MAP does not include environmental policies. Moreover, despite the fact that the G-20 countries account for about 80% of greenhouse gas emissions, leaders are not instructing their climate and trade negotiators to take bold action to limit global warming.
Citizens should urge G-20 leaders to design another roadmap to achieve a low-carbon path to global recovery and rebalancing.
Nancy Alexander is Director of the Economic Governance Program at the Heinrich Boell Foundation of North America.