Opinion and Analysis
No single nation can drive global economy
Posted Wednesday, January 23 2013 at 16:33
- Today, for the first time in decades, no single economy can drive the global economy forward on its own.
- Without an agreement between the major economic powers, the world economy will consistently deliver sub-optimal results.
Four years ago world leaders, meeting in the G20 crisis session, agreed they would all work to move from recession to growth and prosperity.
They agreed to a global growth compact to be delivered by combining national growth targets with coordinated global interventions. It didn’t happen.
After the $1 trillion stimulus of 2009, fiscal consolidation became the established order of the day, and so year after year millions have continued to endure unemployment and lower living standards.
Only now are there signs that the long-overdue shift in national macro-economic policies may be taking place. The intellectual case for change is obvious. A chronic shortage of demand has developed for two reasons.
First, as the IMF announced at the end of 2012, the adverse impact of fiscal consolidation on employment and demand has been greater than many people expected.
Secondly, the effectiveness of quantitative easing has almost certainly started to wane. But why is there so little optimism when the paradigm shift sought in 2009 is finally starting to materialize?
Why do experts continue to downgrade their forecasts for 2013 and even 2014, while discussion so often drifts toward talk of a lost decade?
It is, I suggest, because while countries are today adopting national growth strategies, they have missed out on the other part of the 2009 decision — the necessity of coordinated global intervention.
And the big question is whether the momentum for growth can be sustained by national initiatives alone in the absence of global action or will instead melt away once again under the pressure of narrow, self-defeating national policies.
Yet the case for a global deal is today stronger than ever. Put simply, 10 years ago America could drive a world recovery. Perhaps 10 years from now Asian consumer spending from its rising middle class will fill this void.
But today, for the first time in decades, no single economy can drive the global economy forward on its own. Without an agreement between the major economic powers, the world economy will therefore consistently deliver sub-optimal results.
Mr Brown was Prime Minister of the United Kingdom from 2007 to 2010.