The G20's Growth Focus is Working
In the world of international economic policy-making, it can often feel as if 1995 Nobel economics laureate Robert Lucas was on to something when he famously said 'once you start thinking about growth, it's hard to think about anything else'. The collective search for policies that promote growth and deliver better living standards and employment outcomes remains the core focus of the G20.
In 2015, Turkey indicated that the G20's central growth narrative will focus on inclusive and robust growth, through a special emphasis on the three 'i's of inclusiveness, implementation, and investment. As I point out in the latest G20 Monitor, Turkey's efforts are widely supported, and they can be the basis for real outcomes at the Leaders' summit in Antalya in November.
But the G20 needs to demonstrate that it is 'doing' as well as 'talking', so the delivery of the growth strategies that leaders endorsed in Brisbane 2014 is crucial to G20 credibility. Turkish Prime Minister Ahmet Davutoğlu has stated that 'Turkey will spare no effort in fulfilling its critical responsibilities, to steer the platform so that we achieve our ambitious targets.'
All well and good, except for the evidence base. According to IMF and OECD modelling, by the end of 2015 we should see 0.5% of additional GDP across the G20 as a result of these growth strategies (see graph):
But this is inconsistent with recent forecasts by the IMF, OECD, and World Bank, which remain at odds with the G20 success story about lifting growth (it is not clear whether this is because the IMF, OECD and World Bank have not yet factored the G20 measures into their forecasts, or if they have done so and the effect was 0; either way, they should explain their reasoning).
Glass-half-empty types such as Leon Berkelmans suggest that the G20's efforts to achieve 2% of additional growth by 2018 were fraught from the beginning, as they rely on domestic actions. The G20 is an informal, consensus-driven body and lacks the enforcement mechanisms to guarantee that members will comply with their commitments. Some even cite Goodhart's law to question the wisdom of setting a target.
I have a different take. As Mike Callaghan has outlined, historical examples of significant international economic policy cooperation are thin on the ground, and when they have occurred, such as in the case of the 1987 Louvre accord, it has generally been in response to a crisis. Outside a crisis, it has been difficult for countries in different economic situations to agree on the best collective path, to acknowledge the damaging impact of their policies on other countries, or to accept the costs of cooperative action.
So the growth plan unveiled by G20 leaders in Brisbane was exceptional in establishing substantial reform goals in a non-crisis setting. It shifted focus toward structural reforms that raise the collective productive potential of G20 economies, and represents a significant accomplishment in collective macroeconomic policy thinking.
The real measure of success for the Brisbane G20 plan is not in the headline growth figure, but in the 1000–plus structural policies that countries have pledged, which are a large step up from similar G20 exercises. The IMF and OECD say these commitments are of high quality; they are clear and they are concrete.
But I place a strong caveat: now that the commitments have been made, it is up to domestic constituencies to hold leaders to account.
G20 countries have submitted to a peer review and an IMF assessment, to be delivered to leaders in November 2015. This is an improvement on previous G20 accountability processes. Turkey's emphasis on implementation should be commended. Yet, as John Kirton and Julia Kulik highlight, it is national constituencies to which political leaders are most responsive. So a greater focus needs to be place on engaging citizenry in this debate. A recent piece by Lenore Taylor highlighted the challenges Australia has found in implementing its G20 commitments. But this was a rare column, and it points to the dearth of public discussion of what national leaders have pledged before their G20 peers to do.
Photo courtesy of Turkey G20 2015.
Tristram Sainsbury is a Research Fellow in the G20 Studies Centre at the Lowy Institute.