As governments do more to coax the world economy out of recession, the danger of protectionism is becoming more real. It is emerging in ways that were unforeseen by those who founded our existing global institutions. Unfortunately, the discussion between countries on trade nowadays is very much a dialogue of the deaf, with countries spouting platitudes at one another but no enforceable and verifiable commitments agreed upon. There is an urgent need to reform global institutions — and more dramatically than envisaged by the G20 thus far.
Protectionism is not just about raising tariffs on imports; it is any government action that distorts the global production and allocation of goods, services and capital to favor domestic producers, thereby reducing overall efficiency. So, for example, government pressure on multinational banks to lend domestically, or to withdraw liquidity from foreign branches, is protectionism, as are capital injections into multinational companies with the explicit requirement that domestic jobs be preserved.
Such actions are problematic not only because they insulate inefficient forms of production, but also because foreign countries respond by adopting similar measures toward their national champions so that everyone is worse off. The number of inefficient workers protected by these measures is offset by the number of efficient workers laid off by foreign multinationals responding to political pressures in their home country.
Perhaps of greatest concern, moreover, is that the public, especially in poor countries that cannot undertake offsetting measures, will come to distrust global integration, with multinationals viewed as Trojan horses.
In addition to explicit protectionist measures, governments now plan actions that will affect others across the globe. For example, the large volume of public debt that industrial countries will issue will undoubtedly raise interest rates and affect developing country governments’ borrowing costs. There is little dialogue about how industrial country issuances can be staggered to minimize the impact on global markets, and what alternatives can be developed for countries that are shut out. If developing countries are left to their own devices, they will conclude that they should self-insure by rebuilding foreign-exchange reserves to even higher levels, a strategy that has clearly hurt global growth.
We need a moderate-sized representative group of leaders of the world’s largest economies to meet regularly to discuss such issues, informed by an impartial secretariat that will place its analyses before the group. Initially, the group should only exert peer pressure on its members to comply with international responsibilities. But, as confidence in the group’s decision-making — and in the impartiality of the secretariat — improves, members might give it some teeth, such as the ability to impose collective economic sanctions on recalcitrant members.
The UN is too large to serve this purpose, and the most obvious candidate for the group, the G20, is not representative. There is, however, a representative alternative — the International Monetary and Financial Committee (IMFC), a group of finance ministers and central bank governors that meets twice a year to advise the IMF.
While the IMFC could be shrunk (for example, if eurozone countries agree to a common seat), the real challenge is to make it a venue in which countries talk to one another rather than at one another. To meet this goal, some changes would be in order.
First, the frequency of meetings should be increased, especially in times of crisis, and the level of a few of these meetings enhanced. So, for example, two meetings a year at the head-of-government level and quarterly meetings at the finance-minister level (with more at the deputy-minister level) would provide ample time for dialogue, and thus for trust-building, and would allow the commitments made by the heads of government to be monitored.
Second, the IMF’s permanent executive board, established in an era when travel was costly and communications difficult, and consisting of mid-level government functionaries, should be abolished. Important decisions should be vetted by the IMFC and others delegated to IMF management. Current executive directors typically do not have the authority to make commitments on their countries’ behalf, so their efforts are often diverted to minutiae. And, in an attempt to preserve its turf, the board constantly attempts to keep the IMFC from discussing anything of substance.
Third, the obvious secretariat is the IMF. Unfortunately, the IMF is not regarded as being impartial, especially by countries that have been seared by its past conditionality.
The IMF has, however, become far more neutral than it is given credit for — though it could take more steps to distance itself from its past. These include abolishing any region or country’s right to appoint IMF management; allowing the IMF to borrow from markets so that it does not have to keep seeking key countries’ permission to expand; eliminating any country’s official veto power over major decisions; and having its agenda set by the IMFC rather than outside bodies.
Industrial countries should be happy that developing countries would take greater responsibility for global economic outcomes rather than simply sulking about their lack of voice and representation. Developing countries, in turn, would gain a greater voice, but would also be forced to contribute ideas (and resources) to deal with global problems.
And maybe, just maybe, we would preserve faith in globalization.
Raghuram Rajan is a professor at the University of Chicago School of Business and a former chief
economist at the IMF.
COPYRIGHT: PROJECT SYNDICATE
In a Facebook post on Wednesday last week, Chinese Nationalist Party (KMT) Taipei City Councilor Hsu Chiao-hsin (徐巧芯) wrote: “The KMT must fall for Taiwan to improve.’ Allow me to ask the question again: Is this really true?” It matters not how many times Hsu asks the question, my answer will always be the same: “Yes, the KMT must be toppled for Taiwan to improve.” In the lengthy Facebook post, titled “What were those born in the 1980s guilty of?” Hsu harked back to the idealistic aspirations of the 2014 Sunflower movement before heaping opprobrium on the Democratic Progressive Party’s (DPP)
Although China’s “reform and opening up” has become an empty slogan, Chinese President Xi Jinping (習近平) still put on a show by touring southern China to mark the 40th anniversary of the Shenzhen Special Economic Zone’s establishment. His motive was not to regain the international community’s trust, but to shore up his power in China. Externally, it was a response to diplomatic setbacks, and it even revealed his adventurist attitude of not being afraid to go to war. When former Chinese leader Deng Xiaoping (鄧小平) in 1992 conducted similar inspections, it was to suppress the “leftist wind” that was interfering with his
An increasing number of cafes and other businesses in Taiwan are keeping animals, which draw in people who are seeking the next perfect shot for their Instagram accounts. In the past these were mostly standard house pets, such as cats and dogs, which are accustomed to living indoors and being around people. However, raccoons have become popular, as well as alpacas and other “unusual” animals that require specialty care and specific environments to thrive. In late June, a customer recorded a video of the owner of a coffee shop in Taipei apparently unleashing a border collie on a raccoon, who was the star