Alan Oxley, Managing Director
Vanity must be an endemic condition among heads of government. Why else would they waste their time attending G20 Summits? Its original justification was to manage the Global Financial Crisis (GFC). Temporary measures were adopted, global growth stalled rather than collapsed but the necessary fundamental corrections remain unenacted. Yet there is no indication China – as G20 chair – plans to address this problem.
In this, it is simply following the lead of its predecessors. The summit has become a political version of haute couture fashion parades – all show and little substance. Take China's theme for the summit – to build an "innovative, invigorated, interconnected and inclusive world". Wordy goals for international meetings is a clear indicator there is either no agreement on what to do (as was the case in climate change conferences for over two decades) or the intent is to avoid discussing the real problems.
There is a big one. The global economy looks increasingly stuck. The deep fear is another financial crisis, but this time debt is so large even the temporary solutions used in 2008 may not be available. China's own ability to cope is increasingly under question. Its financial situation is looking increasingly ominous. The highly-respected economic consultancy Dragenomics has just released another grim warming about deepening financial risks in China's economy. The warning three years ago of a creeping financial disaster in China by the authors of "Red Capitalism" is becoming mainstream thinking. Its capacity to contribute to action to boost in global growth is rapidly diminishing. It may be the trigger for another GFC.
Beijing plainly does not intend this to be a key subject at the G20 summit. One minor upside of China in the chair is that it is unlikely to give weight to the patent desire of the media to default to contending the free market tide is turning, protectionism is increasing and the era of globalisation is fading. And a number will contend Brexit is concrete evidence. There is every chance its impact will be opposite. We will need to wait and see.
No doubt the WTO Director General will report, a he has at previous G20 summits, that growth in world trade is lagging and there is an increasing resort to protectionism. This is policy comfort food for international bodies like the World Bank, IMF and WTO. They too can avoid discussing the elephant in the room. It is likely there will have been an uptick in resort to anti-dumping. There always is during recession, but it is not a universal phenomenon. Close examination shows this is usually predominant in a handful of struggling Latin American economies – Brazil, Venezuela and Argentina.
In this race to be first to enunciate the new paradigm there is a set of facts which demonstrate the world's economy will remain open. All the major economies are locked into legally binding commitments in the WTO and major regional agreements to hold tariffs down. This is the global baseline. A rise in anti-dumping only marginally alters it. A stalled US/EU bilateral agreement (TTIP), a delayed TPP (and its passing is by no means a certainty), and further stalling in the WTO does not mean a return to higher tariffs, it simply means a delay in advancing global liberalisation in new areas – investment and services. On this, expect the G20 simply to remain silent.
The odds of another global economic train crash are shortening. Yet the EU can turn its attention to the refugee crisis in the EU and the implications of Brexit enabling it to leave unaddressed its own looming train wreck – insistence on a monetary policy that disregards the failure to address the debt problem among the key Latin states.
If we are to have another global financial crisis, the G20 body as it stands today will be unlikely to manage a rerun of the strategy used to stem the GFC. It has become unwieldy, undisciplined and distracted. It is little more than a Head of Government beauty pageant. Giving priority to second order issues is a certain sign of terminal rot.
It is time we stopped devoting resources to this endeavour and concentrated on making the case in Australia for economic reform.
Alan Oxley is principal of ITS Global and chairman of the APEC Study Centre at RMIT University
This article appeared in the Australian Financial Review