By David Vines*
This was a summit at which international cooperation was relaunched. Washington is back. Britain has gone global. The sun shone on the beaches in Cornwall. And leaders from the G7 rich countries signed off on some impressive-sounding pledges.
On vaccines, the G7 communique pledged to donate one billion COVID-19 jabs over the next year to poorer countries and to speed up the development of new vaccines in light of new variants. The summit repeated a financial pledge of US$100 billion to fund an annual climate budget for the developing world. A week before the summit, the world’s finance ministers agreed on important proposals designed to ensure corporations pay their fair share of tax.
But the devil is in the detail. The promise of one billion vaccines falls far short of the 11 billion jabs that the World Health Organization says are needed to fight the virus. Despite calls from India, which joined as an observer at the summit, the G7 also refrained from supporting a waiver on vaccine intellectual property supported by New Delhi and allies including South Africa.
Poorer countries were disappointed with the US$100 billion figure to fight climate change. The figure gained totemic status after it was promised and not delivered over a decade ago. Pakistan, Nepal and Bangladesh decried the G7’s inability to raise the target this weekend. Advanced economies have also failed to realise that without global macroeconomic coordination, poorer parts of the world will be unable to afford to put a floor on the economic downturn and support lockdowns.
Furthermore, the tax policy proposals will need to survive a wider discussion at the G20 summit later this year, with a battle over exemptions already underway. Another number missing from the communique was a hard deadline to phase out coal. While leaders pledged to end coal finance by 2022, they failed to agree on an end date due to internal disputes.
Nevertheless, something else happened in Cornwall. Three decades ago, the British economist John Williamson coined the ‘Washington Consensus’ to describe a free-market approach to globalisation and development. But now the ‘Cornwall Consensus’ is in the air — the title of an advisory memo written by a committee of academics and policymakers ahead of the G7 meeting. In its words, the G7 should ‘lead on agreeing a new consensus and restore public trust in a rules-based, free, fair and open economic system. This new consensus would make sure that economic growth is green and inclusive, and makes us resilient against environmental, economic and geopolitical risks’.
On first reading the document seems both vague and grandiose, yet there are four ways in which the memo offers a snapshot of how assumptions about the world are changing.
First, political figures such as former UK prime minister Margaret Thatcher and former US president Ronald Reagan took it for granted that free-market globalisation would benefit everyone. Thirty years on, the fruits are so unevenly distributed that a whole new approach to trade-policy and domestic reform is necessary.
Second, G7 leaders now acknowledge that globalisation and free-market competition create vulnerabilities as well as efficiencies. They previously hoped that corporate incentives would lead to beneficial global exchange and drive global technical advancement, but pursuing openness is more challenging in the services sector where issues require more than tariff reductions.
Many service-sector producers are monopolistic and frequently receive government-funded support. The challenges associated with introducing competition are most severe in high-tech digital sectors, especially among Facebook, Amazon, Apple, Netflix and Google, but economies of scale and first-mover advantages in standard setting create formidable barriers to fair competition that go beyond these giants.
As a result, the battle over cooperation in the development of digital technology is a looming feature of the US–China struggle. This makes the need to develop global regulatory standards in services even more difficult.
Third, a subtle reset of the relationship between business and government is underway. In the Washington Consensus, companies were thought of as independent actors competing with one another without state involvement. Actual policy in the United States has until recently favoured a detached approach to the market, except through subsidies often obtained by means of dubious political deals. In Europe, we have seen a much more supervisory relationship between the state and the market because of the complex processes of European social democracy.
The genius of Asia’s recent rise seems to lie in practical ways of making make the state a guide and facilitator of economic policy, rather than a passive spectator (the United States) or an omnipotent overseer (Europe). Transatlantic discourse now seems to recognise this important lesson, with all the talk about ‘partnership’ between government and business.
Finally, economics is being redefined, from Biden’s White House to universities. There is now an emphasis on issues previously treated as mere ‘externalities’ — the environment, health and social factors. And in macroeconomics, there is a focus on the risk of tipping points in the global financial system, in climate or in the global health system. A macroeconomic policy designed to minimise the risk of crisis is very different from a policy focussed on fine-tuning the macro-economy through inflation targeting.
History shows that when intellectual assumptions change, the build-up of response can be slow. But then there is a sudden transformation. The Cornwall G7 Summit may have caused one such change in the weather. The ‘Cornwall Consensus’ might become the new path we end up following — so here’s hoping the sun keeps shining.
*About the author: David Vines is Emeritus Professor of Economics and Emeritus Fellow of Balliol College at Oxford University.
Source: This article was published by East Asia Forum