International Economic Cooperation Gut-Check
Posted by David Shorr
Thought I'd take a break from all the recent FOREIGN POLICY DEBATE 2012!! fun and shift gears to some relatively apolitical policy issues. Today, a belated response to Dan Drezner's "How are they doing?" question about cooperation among the major economic powers. Dan's post was prompted by the recent Spring meetings of the IMF and World Bank -- particularly the conjunction of an ongoing split over how to ward off a double-dip recession together with a pledge to beef up IMF coffers with an added $400 billion for the proverbial rainy day. For Drezner this good news / bad news serves as a Rorschach Test of optimism or pessimism about economic global governance more broadly, and he identifies a number of experts he considers as falling into the two camps.
It's a perennial and important question for every effort at multilateral cooperation: what is a reasonable measuring stick for success or failure? At the heart of the matter is the inherent tension between the difficulty and political sensitivity of the problems on the agenda -- fiscal discipline and job growth, in this case -- versus the urgent need for resolution and action.
Dan gives part of the answer in reference to the infusion of $400B into the IMF. When governmental leaders resort to more modest measures, we have to distinguish between steps that do actually help and those that merely fudge the issue. Keeping sight of the essential political / policy dispute is also important. As Dan points out, the major economies' political leaders disagree over how to promote growth -- a split that became clear at the Toronto G-20 summit in June 2010, when President Obama's appeal to go slow on fiscal consolidation was rebuffed by Cameron, Merkel, and Harper.
There is a similar struggle in this year's election debate. How many times have we heard complaints about Washington dysfunctionality and "they can't get their act together and agree on a solution." That's because -- thank you Paul Krugman for your weekly reminder -- there's a basic disagreement over government's role in promoting economic growth. The same debt-before-jobs austerity caucus has successfully held back any further budgetary stimulus that would help protect the recovery, but there's an interesting question about whether the winds are starting to shift. What we do know is that impatience with Eurozone leaders has been growing louder within G-20 meetings.
The other useful lens to determine multilateral success or failure is to look for incremental progress on the hard stuff. In other words, can major international challenges be broken down into bite-sized pieces? For my frequent collaborator Alan Alexandroff, whom Drezner puts in the optimists' camp, you can see a lot of this slow and steady slog in the lower-level technical work that takes place between G-20 summits (below the iceberg's tip, as he says). And while Ted Truman of the Peterson Institute gets classified as a pessimist, his recent ForeignPolicy.com column on the lost momentum for IMF governance reform offers a very practical incremental suggestion for how to proceed.
The G-20's signature agenda is its framework "strong, sustainable and balanced growth" (SSBG), a major element of which is to ensure that no economy is too dependent on either exports or consumer demand. The rebalancing of China's export-oriented economy was considered off the table for many years until the SSBG framework was launched in 2009. This involves a major structural shift for China and scores a very high degree of difficulty in terms of tracking G-20 success or failure. From what administration officials tell me, though, what they like most about the G-20 summits is the chance they offer to steadily drag China along in rebalancing their economy and boosting their domestic consumer demand.