 Jim O’Neil |
I believe that the advent of the G20 was one of the best global responses to the credit crisis, and President’s Bush and Obama deserve a lot of credit for their efforts to bring world leaders together to put a floor under the global crisis. Former UK Premier Brown also should be commended for his leadership efforts. Now as we approach the Seoul meeting, the challenge remains, but in this case, attention is paid to how global leaders will keep the G20 alive and useful.
The G20 is a vastly superior group, at least in theory, than the G7, as it included all the rapidly rising emerging economies, and especially the so-called BRIC countries of Brazil, Russia, India and China.
Without their involvement, any grouping is simply not optimal for the modern running of the world economy and society. That being said, in reality, the G20 includes more than 20 countries, perhaps as many as 27, and the group is probably too large and unwieldy to meet on a regular basis, and to reach sensible conclusions and to operate.
While this is not an immediate goal for Seoul, in my opinion, as the coming years unfold the G20 should be narrowed down to a smaller group once more, but this time, all European members should be included as one.
Under the European Monetary Union (EMU), given the challenges to the EMU itself, Europe’s leaders should show some initiative and there is no longer any need for them to be represented individually in these policy discussions.
After all, they have shared a common monetary policy for over a decade, and in principle, they are supposed to share a common fiscal policy framework. Perhaps a new G9, with the current G7 European members ― France, Germany and Italy ― represented solely, and then adding in the four BRICs together with the U.S., UK, Japan and Canada would be sensible.
For the immediate future, the Seoul meeting needs to be focused on sustaining global recovery, and balancing the recovery more between the generally struggling G7 countries and the more, currently, stronger cyclical rest.
At the core of this, are policies designed to ensure that stronger domestic demand in the BRIC countries, led by China persists, and with it, some clear commitment to lower current account balance of payments imbalances.
In this regard, China has a very strong role to play, and it is encouraging to see lots of the appropriate noises being made. China trying to ensure that its current account surplus stays below, let’s say 4 percent of GDP, would be a very strong message for the Seoul meeting, and allow pressure to shift away from this rather dangerous notion of currency wars.
For the world to continue to recover from the global credit crisis, it is actually important that the over-leverged and highly indebted developed countries continue to repair their balance sheets. In order for this to be conceivable, these countries will need to see their exports and investment sectors perform well.
This will require strong consumption in much of the rest of the world. While this balancing act is not easy, I think it is attainable. By adopting commitments to this general goal, led by China, we can set in motion a decade where by the end of it, the size of consumption in the emerging world will become as big as that in the United States, and millions of more people around the world, taken out of global poverty.
Jim O’Neil is managing director and head of Goldman Sachs Global Economic Research. He coined the acronym BRIC to refer to the fast growing developing economies of Brazil, Russia, India and China.
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