The global financial crisis of 2008–10 brought the Group of Twenty (G20) into being. Nearly 12 years later, what we have misleadingly called the postcrisis period has proven to be a mere pause between savage global shocks—this one the result of a global pandemic—demonstrating that international cooperation is a recurrent need. The G20 must rise urgently to the challenge as it did in the last global crisis, but even more forcefully with more lasting commitment.
A newly released PIIE Briefing sets out ten policy areas where practical near-zero cost collective actions can meaningfully speed the return of global health, physical as well as economic. Fruitful areas of cooperation range from disease control, to international trade, to financial policy.
Importantly, many of our recommendations are simply for mutually binding and beneficial changes in government behavior, whether forswearing self-defeating aggression in trade or agreeing to lean together against dollar shortages and excessive capital flows; no additional expenditure is needed, just getting past mutual distrust.
Most of our other recommended policies require only small investments, like in health innovation, or self-liquidating ones, like in central bank liquidity provision. This is the proverbial low-hanging fruit. Leaders just need the vision and will to act collectively to grab it. Collective action, and the small allocation of additional resources, primarily to the world’s poor, will be rapidly repaid.
When the world faces a common economic threat, cooperation between the governments of the most important economies is both attainable and genuinely worthwhile. G20 meetings can be more than just a formal photo-op with a barely changing communiqué on substantive policy measures. We saw this in the first two leaders’ meetings of the G20 in 2008 and 2009, where the agreements reached helped put a floor under the global economic free-fall.
The key is commonality of the threat—not that every economy is suffering in the same way and amount as the others, but that all economies need to move in the same direction at roughly the same time. That is unquestionably the case today with the COVID-19 pandemic shutting down economic activity and people’s livelihoods around the world, while increasing demand for medical expenditure and public health cooperation.
In a global economic crisis, the G20, and international economic cooperation in general, can be useful in four ways:
- Increasing domestic compliance with best practice through transparent peer pressure.
- Stopping financial panic.
- Preventing mutual economic aggression from worsening the crisis.
- Helping the world’s poor survive the crisis fallout.
All of these would be important contributions to global recovery. So far, the G20, and particularly the working group of central bankers within it, has been remarkably quick to take on the second task, stopping financial panic. Within advanced economies’ financial markets, at least, their stabilization measures have been effective. The G20 has also taken some steps toward using transparent standards to improve members’ public health management and investment, though these have been insufficient.
The latter two areas of potential gains—preventing escalation of economic aggression and helping the world’s poor—have seen more lip service than meaningful action so far, despite efforts to encourage more cooperation through the International Monetary Fund (IMF), World Trade Organization (WTO), World Bank, and World Health Organization (WHO).
Economic nationalism harms everyone, particularly the world’s poorer countries but also the vulnerable within the G20 members’ own borders. Preventing it would, therefore, significantly improve human welfare in comparison with the alternative outcome now emerging in the absence of more positive G20 action.
PRACTICAL POLICIES AND PAYOFFS DESPITE DISTRUST
Here is where the commonality of the threat from COVID-19 comes in: Making progress on collective action would be win-win in each of the four areas where international cooperation can yield benefits. A useful G20 agreement today does not involve horse-trading about which country gets a better deal, let alone having some countries put in resources now to get benefits promised in some uncertain future. All G20 economies will benefit today from cooperative action.
Too commonly, economic policymaking is depicted solely as the management of tradeoffs, given limited resources. While that is often the case for domestic policymaking, in the international sphere the opposite holds as frequently: Cooperative action raises new opportunities and prevents harms for all participants simultaneously.
Difficulty arises when the distrust born of a zero-sum mindset, which may be accurate for some other aspects of international relations or domestic interest group bargaining, prevents collective action on economic crisis response. Of course, international distrust is the name of the game today, particularly between the Trump administration and counterparts in Beijing and Western European capitals.
Some of that distrust originates in the understandable frustrations of domestic publics in the United States, European Union, and elsewhere over longstanding frictions and disappointments in the sphere of international trade. Some is the result of the Trump administration’s aggressive bilateral approach toward allies and non-allied governments alike, as well as its visceral disdain for international organizations.
Some distrust has been spawned by China’s insufficiently responsible treatment of others despite its rapid rise in the global economy—an image fed, fairly and unfairly, by the Chinese leadership’s nontransparent handling of the initial COVID-19 outbreak there.
Yet another source of distrust is both illustrated and fed by the European Union’s internal divisions, which reflect an uneasy coexistence of ambitions for integration and national or local bases for legitimacy. And some distrust is the seemingly inevitable result of countries’ fears that the virus will leave some of their own citizens with the short end of the stick when there are limits, actual or perceived, on access to medical equipment or other resources.
Despite all these sources of distrust among G20 governments, significant self-harm will result if mutual suspicion dominates countries’ actions. Put simply, in the COVID-19 pandemic, lack of international cooperation will mean that more people will die, not just in the developing world, and many more otherwise viable businesses and jobs will not survive.
Many of the actions G20 countries are taking in their own interest—such as fiscal support and disease mitigation—are necessary to avoid economic collapse and to save lives, but they are not sufficient to achieve those objectives effectively on a global scale.
However, escalating fear-based nationalist policies—like export controls on medical supplies and attempts to control vaccine or testing technologies for one’s own primary use—are not only damaging for the world but also are already backfiring in their own terms on the countries that impose them, as shown in the chapters by Chad P. Bown and Maurice Obstfeld in the Briefing.
Such reflexive or seemingly defensive exercises of distrust make it harder for those who have the misfortune of being born in the wrong place, or the wrong part of the income distribution in the rich world, to get medical assistance.
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