Three tasks for G20
In three weeks, the leaders of the world’s most “systemically important” countries are due to meet in Riyadh, Saudi Arabia, for the 15th summit of the G20. It used to be an important event in the geopolitical calendar where many serious financial, environmental and political problems were addressed in its summits. With the election of Donald Trump in 2016, as well as many other nationalist and populist leaders, the importance of the G20 has declined.
This year could be different. Not only could Donald Trump be a lame-duck president, but everyone else at the G20 has a massive new incentive to cooperate. The world was caught unaware by the first pandemic in a century. Initially, we saw a “Great Paralysis” as Fareed Zakaria put it so nicely. We all looked for domestic unilateral solutions to the crisis at hand, such as closing down borders and restrictions on the export of personal protective equipment (PPE), just to save the day for us.
Then starting to feel the economic impact and needed to learn how to “dance with the virus,” as Tomas Pueyo has put it, meaning that we have opened up our economies but has tried to suppress infection rates. Now, as winter sets in, we are learning that no matter how good our dance, the virus will overpower us and will overwhelm our health systems if we don’t shut down once again. The idea that we can and should be able to stay safe in our daily lives is changing. Still, government measures remain local and unilateral-- visa restrictions, border closures and quarantines, etc.
I tend to think that unilateralism is going to be the last victim of the COVID-19 pandemic. Getting out of this mess with minimum damage requires a multilateral response in terms of both public health and economic policy.
There are instances where cooperation between agents, not competition amongst them, brings better solutions to the problems at hand. With the pandemic, we have a classic collective action problem à la Mancur Olson, the author of “The Logic of Collective Action.” Finding a solution to a collective action problem at a global scale is a G20 task, if you ask me. The G20 is not an institution but a forum where leaders can meet to make institutions work. I see three problems that need to be addressed on the level of the G20 this year.
First, humanity cannot get out of this “dancing with the virus” phase without a vaccine and effective medication. Here we need cooperation, not only in finding the vaccine and medications but also in their effective distribution around the world. Why? A solution in one country is not sufficient. We already know how fast the virus can travel around the globe. There is no going back to normal unless everyone goes back to normal. That is why countries must learn to cooperate.
Second, the virus led to a rapid decline in corporate productivity due to social distancing measures. This means we have lower revenues but no decline in costs. The only way for corporate adjustment is through more digitalization and more robotization at the cost of more jobs. This means that if left to themselves, corporations will trigger rising unemployment, which, in addition to human misery, will also yield bad political outcomes. Hence, we need strong public investment programs for job creation and growth. This is easier in developed countries, harder in highly indebted developing countries, one of which I happen to live in. This is why the G20 also needs to focus more on debt relief programs and dollar liquidity provision mechanisms for highly indebted developing countries to prevent the balance of payment crises, which are only going to make the situation worse. Leaders need to think systemically rather than competitively.
Third, the world needs to be ready for a global sovereign debt restructuring mechanism. Here, cooperation among debt holders needs to be embedded in the newly structured system. Otherwise, the collective action problem among sovereign debt holders may easily derail the growth and job creation agenda, making it harder to go back to normal for all of us.
For the world to get back to normal in a more orderly fashion, the G20 needs to reinvent itself as a global mechanism to solve collective action problems. In 2008, the G20 saved the global north in a drive to rescue the global financial system by the tacit cooperation of the developing countries. Now is the time for G20 to save the south with the help of the developed countries.