The G20 in a post-Brexit world
As Britain enters a period of political and economic instability, following a referendum vote that many now interpret as anti-globalisation, it is worth reflecting on what the consequences of Brexit will be for the world’s ‘economic steering committee’: the G20.
Post-war Great Britain has always been at the forefront of promoting global cooperation and multilateralism: from taking an active role in the setting up of the Bretton Woods institutions to being a member of the Group of Five – an embryo gathering which later evolved into the G7. The UK has been a prominent member of the G20 since its founding.
As Britain enters a period of political and economic instability, following a referendum vote that many now interpret as anti-globalisation, it is worth reflecting on what the consequences of Brexit will be for the world’s ‘economic steering committee’: the G20. There are indeed reasons to believe that the forum may experience rough sailing ahead.
While the British referendum had its own peculiarities, it is clearly part of a wider trend in growing discontent with globalisation. Both US presidential candidates have expressed no penchant for further trade integration, with Hillary Clinton criticising the TPP and Donald Trump stating he would renegotiate and possibly even leave NAFTA. In continental Europe, opinion polls show how the wider public in Germany and Austria is strongly opposed to TTIP.
As politics turns inward looking in several developed countries, in an effort to appease the growing opposition to globalisation and its side effects, the G20 will find it even harder to seal new binding multilateral initiatives. And indeed, the WTO has recently recorded the largest increase in trade restrictions among G20 economies since it started collecting data in 2009.
However, growing anti-globalisation sentiments are a peculiarity of some advanced economies, whereas emerging G20 members generally preserve an open stance to trade and investment. This should come as no surprise, as over the past 15 years globalisation has helped lift millions out of extreme poverty, particularly in Asia. We can therefore expect an even further acceleration in the eastward shift in economic power and leadership, as China and India will take an increasingly predominant role in the G20.
If the forum wants to preserve its legitimacy, multilateralism, and global economic integration, a strong political message should come out of the next G20 Summit in September. In Hangzhou, leaders must show that the world’s economic steering committee is not deaf to rising anti-globalisation sentiments. In doing so, it should acknowledge that unfettered globalisation might stimulate global growth but nonetheless poses both economic and political challenges.
The G20 should commission the IMF and OECD to produce wide-ranging in-depth studies on the social consequences of globalisation and the origins of anti-globalisation movements, as has been done for structural reforms over the past year.
Understanding the exact origins of discontent will help shape an effective response. At the moment, many questions remain unanswered. The exact interaction between globalisation, agglomeration effects, and robotisation must be explained in order to understand whether what is needed is more redistribution, investment in human capital, or physical and digital infrastructure to integrate depressed regions further into the global economy. In light of this research, concrete recommendations could be ready by the German G20 presidency next year.
In 2002, then UN Secretary General Kofi Annan gave a passionate speech at Yale University warning of the potential political backlash if the social, as well as economic, consequences of globalisation were left unattended. The time has come for global leaders to make sure that, over a decade later, his plea for “inclusive globalisation” is finally answered.
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