The global pandemic we see playing out across the world, and the financial, economic and social crisis that follows, have already pushed our national capacities to the limit. No two crises are the same. But there are lessons from the past.
As someone who sat around the Group of 20 leaders’ table in London in April 2009 — the Summit that prevented the GFC from becoming a global depression — co-ordinated global policies are essential to transition any crisis towards recovery. Because of the entrenched interdependence of global public health, supply chains and financial markets, no single national response will work. Global action is not an optional extra. It’s fundamental to national recovery.
Yet today the gaping lack of American political leadership in co-ordinating a global response to this public health and economic emergency is transparent to all. That was not the case in 2008-9. That’s why other states, including Australia, must step up to the plate.
Saudi Arabia’s decision, at India’s and Korea’s urging, to convene a virtual summit of G20 leaders on Tuesday is a critical in getting countries representing 90 per cent of the global economy around one table — including China and the US. The Group of Seven represents only 40 per cent of the global economy and only a small proportion of countries affected by the Covid-19 virus.
With borders slamming shut around the world, at a minimum the G20 must agree that the free movement of critical medical supplies and personnel will not be affected. It must ensure production of test kits, personal protective equipment and ventilators can be ramped up and distributed to those most in need. Tariffs must also be immediately removed from these supplies. Such barriers are sheer madness. And G20 countries must fund global efforts to develop a vaccine to prevent this too becoming yet another nationalist race.
Second, there must be a co-ordinated approach to fiscal, monetary and trade policy. The London consensus in 2009 was to act in unison to stimulate all our economies to get back to growth. National macroeconomic strategies developed in isolation can also lead to dangerous downstream imbalances. And with countries rushing to get trillions of dollars out the door in stimulus, it’s important to avoid premature exit strategies that could result in double-dip recessions.
Moreover, medium-term stimulus measures must help the world along its medium-term transition to a carbon-neutral economy. This can become an opportunity for a profound renewable energy transformation in solar infrastructure.
Furthermore, any retreat from international development assistance will create other problems as people go on the march in search of safe(r) havens. We’ve seen that play before and it ends badly for everybody.
Third, the actions by central banks in the past week have been essential. Thank God most of them have statutory independence. Thank God also for the G20’s 2009 decision to establish the Financial Stability Board. The FSB, together with the Basel Committee on Banking Supervision, has been working overtime to prevent an economic crisis from mutating into another full-blown financial crisis. The decisions to unfreeze the US Treasuries market to restore liquidity have helped maintain the essential plumbing of the entire global financial system. Other decisions will need to be taken in the days ahead to support the liquidity requirements of companies fighting to stay afloat. But no free gifts to big firms. Any bail out should take the form of public equity so the taxpayer is ultimately repaid.
Finally, a key lesson of the Great Depression and the GFC, apart from the essential role of public investment in demand-side stimulus, was not to kill global trade through an epidemic of protectionism. It’s what turned the Wall Street Crash of 1929 into the Great Depression and another World War. A G20 resolution on freezing protectionist measures now is essential.
Global governance has been ridiculed by the Trump Administration — just as Morrison routinely attacks “globalism”. All part of the conservative political playbook. But unless we use the machinery of global governance now to arrest this rapidly unfolding public health and economic disaster, the result will be global anarchy. In 2009, by creating and fully deploying the G20, we stepped back from the nationalist abyss. In 2020 we must do the same.
This opinion article was first published in the Sydney Morning Herald and The Age on 23 March 2020.