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Responding to Growing Anti-Globalization Sentiment

Tristram Sainsbury
G20 Studies Centre, Lowy Institute for International Policy
August 25, 2016

Paper prepared for an international workshop on "Making Global Governance More Effective and Inclusive: The G20 and The United Nations," hosted by the School of International Relations and Public Affairs of the Shanghai International Studies University (SISU), the Center for G20 Studies of SISU, and the G20 Research Group of the University of Toronto, Canada; co-hosted by the UN Association of China and the Shanghai UN Research Association; and sponsored by the Lowy Institute for International Policy of Australia and the University of Toronto's Munk School of Global Affairs' Asian Institute, Bill Graham Centre for Contemporary International History, East Asian Studies Program, David Chu Asia-Pacific Program, and the Department of Political Science, held at SISU, Shanghai, China, on August 25-26, 2016.

Globalisation is facing a curious trend. We collectively are living longer, are healthier, and are wealthier than we have ever been before, yet there is a strong sense of dissatisfaction, particularly in advanced countries, in the trends that are delivering prosperity and security.

I define globalisation here as the flows of goods, services, people, information and finance.

Why the sense of dissatisfaction? Well look at the global economy. The IMF has recently revised forecasts down for the 16th time since January 2012. Growth remains low, unemployment high, the corporate sector faces incentives to distribute earnings rather than invest, there are rising risks and unresolved inequalities.

The risks have gradually transitioned in recent years, and now include managing the ongoing risks of Brexit, US elections, trade protectionism, an attempted coup in Turkey, terror attacks, an Italian referendum and potential Italian banking crisis, ongoing uncertainties around China's economic transition, and a great upheaval in global energy markets.

The G20 in 2016 is plotting a 'steady at the wheels' course. Expect China's G20 Presidency to oversee a technical, long term agenda that delivers on the 10 areas that Foreign Minister Wang Yi foreshadowed would be delivered in April. China has long promised a variety of blueprints, action plans, guiding principles, indices, strategies, and cooperation initiatives. We have already seen this in Finance, Energy, Trade, Agriculture, and Labour Ministers meetings.

Incremental change is appropriate outside a crisis scenario, and we have already seen real progress in 2016. For example, the first two finance ministers and central bank governors meetings signalled progress on financial safety nets, climate finance, international tax, financial regulation and investment.

These changes are undeniably positive. Particularly after a poor Turkish G20 Presidency in 2015. But here is the challenge: the G20 and global governance are under attack, with growing criticism from the likes of former UK Prime Minster (and chair of the London Summit) Gordon Brown that the G20 is perceived to be ineffective.

The G20 has two longer-term goals: boosting longer term economic growth objectives, while at the same time enhancing economic resilience. The resilience agenda advances — although economic crises are not over — and FSB Chair Mark Carney has highlighted how the financial system has proven robust in weathering two bouts of financial instability so far in 2016.

But the G20's longer-term growth objectives remain elusive. Growth is not strong, sustainable or balanced. At the same time, the G20 is not seen to be addressing the challenges of globalisation, leading to dissatisfied populations.

G20 governments took on board risk when they bailed out banks with taxpayer money. They transferred this risk from the banking sector to governments, and governments have not taken the actions to resolve this risk. Longer term challenges are not being met in terms of: people (with the global response to the current refugee crisis); finance (capital flows remains a controversial issue); trade (with protectionist arguments a rising threat) and information (there are very few rules governing flows of information across borders).

These considerations are not even dealing with the returns of globalisation. The sense that the benefits of globalisation are not going to the middle class of advanced economies is giving rise to anti-globalisation sentiment. It is a global risk — populist platforms in advanced economies can reduce scope for future income gains across the world.

So what can we do? Among a large body of commentary since Brexit on globalisation, Nouriel Roubini has argued that the consequences of globalisation can be managed through policies that compensate workers for the collateral damage and costs of globalisation. There are three main areas of action:

Firstly, most of the policy response to globalisation is national in nature, and the bulk of the case needs to be made on a national basis. There is not much scope for coordination on arrangements in areas such as social safety nets, health systems, industry assistance, and education and retraining. These settings vary widely across G20 members. However, G20 leaders will continue to be under pressure at G20 summits to explain what responsible nationalism means for their country.

Secondly, the G20 needs to articulate a shared agenda on globalisation that meets what people care about. The G20 needs to tell a positive story about what it is doing on tax and climate change. Cross-border economic agenda on the digital economy, health, and refugee issues would contribute to this story.

Thirdly, the G20 needs to be stronger on norm-setting. Partly this is about being more blunt, direct and robust in official communiques, which should be targeted at the common person. G20 leaders themselves need to be more active and make the political case for defending and preserving the liberal economic order.  They can build on the case that has been made by the likes of Christine Lagarde, David Lipton and Mark Carney. Related to this, the G20 needs to be explicit in defending institutions like the IMF and WTO that underpin the economic order.

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