Paul Rochon, Canada’s lead negotiator at Group of 20 finance ministers’ meetings, shares something with the snowy owl: rarely do either venture outside their natural habitat.
The natural habitat for Mr. Rochon and other senior deputies who serve Prime Minister Stephen Harper and Finance Minister Jim Flaherty is safely behind the scenes. Back in the time of Jean Chrétien and Paul Martin, senior public servants were participants in the public discourse. Not these days. Mr. Harper prefers to have the politicians do the talking.
So just as bird watchers go out of their way to record significant avian sightings, it seems appropriate to make note of a public appearance by Mr. Rochon – and quote him at length.
He was in Washington Friday, participating in a seminar at the International Monetary Fund on current-account imbalances. It was a wonkish affair, attended by only the most dedicated academics, IMF officials and think tankers who spend the bulk of their time thinking about how to smooth global flows of trade and investment.
At the end of 2010, The Globe and Mail included Mr. Rochon among a group of Canadians who would make a difference in the world in 2011. (Mr. Rochon, through a Finance spokesman, declined a request for an interview for that story.) He made the list because of his central role in sorting out the mechanics of how the G20 would achieve its commitment to finally deal with global imbalances – economists’ shorthand for the massive trade deficit of the United States and the similarly dramatic trade surpluses in countries such as China and Germany.
There has been little talk of imbalances lately. That’s mostly because the G20 agenda has been swamped by the European debt crisis. At the November summit in Cannes, France, little else was discussed, despite dozens of policy commitments, including a series of specific pledges by each G20 country that would ease the threat posed by global imbalances – if implemented.
Some blame global imbalances for the global financial meltdown in 2008; Mr. Rochon isn’t one of them. “In terms of whether imbalances matter, yes, I think they do, but I think it would be a stretch to say they caused the crisis,” he said. “You have to screw a lot of things up for a long time to find ourselves in this situation that we’re in now. You’ve seen the list. You’ve got to not regulate your financial sector, run huge fiscal deficits, have a tax system that encourages debt, global imbalances and have them all come together at the same time and explode. That’s the recipe for a major, major crisis.”
Global imbalances mostly are issues of political economy. International Monetary Fund chief economist Olivier Blanchard and other researchers are spending considerable effort on measuring trade flows and explaining the economic impact of big deficits and surpluses. But left alone, most economists could easily solve the problem: stoke more household spending in China and Germany, and cut budget deficits in the United States. Doing so is a political minefield. Ending Chinese policies that benefit China because they are bad for the U.S. will fall on deaf ears in Beijing. The G20 exists to overcome short-sighted domestic political considerations by forging a co-operative approach to economic policy in an intensely globalized economy.
All the big economies that are responsible for lopsided trade flows are sitting at the G20 table, so there is no one else to blame if the threat persists. John Lipsky, the former No. 2 at the IMF, said it is “crucial” that imbalances once again become a major topic at this year’s summit in Los Cabos, Mexico. “If it doesn’t, you have to ask what the G20 is for,” he said at the seminar.
The G20’s big leap was agreeing to a process of peer review based on an agreed set of guidelines. Mr. Rochon, who co-chaired the G20 committee that came up with this framework, said the system is helping, noting the U.S.’s move toward tighter budget policies and increased talk in Beijing about loosening controls on its currency. That might have something to do with recent studies, including one by the Bank of Canada, that show global growth will be dramatically stronger if countries enact complementary economic policies.
Mr. Rochon said G20 countries no longer are “talking past each other” when it comes to policy co-ordination. He indicated the discussion is shifting to outcomes, which comes down to stable economic growth. Notably, Mr. Rochon went out of his way to try to remove the stigma attached to big trade surpluses and deficits. “We’re not saying that imbalances are wrong,” Mr. Rochon said. “Many countries, my own country, ran imbalances for something close to a century…It was the way we developed.”
This is a marked difference in rhetoric from only a few years ago, when international economic summits devolved into finger pointing and buck passing. But it’s only a beginning. Politesse must lead to policy. Mr. Rochon told the audience at the IMF that Europe’s troubles could continue to dominate the G20’s agenda, which threatens to sap whatever momentum exists to rebalance global growth.
There are other problems, Mr. Rochon said. While the G20 has agreed to guidelines, it still has disagreements over interpretation. (Asian countries should accumulate currency reserves at a slower pace, but how much slower? The U.S. should reduce its budget deficit, but when should it start, and by how much?) Mr. Rochon said the G20 is hampered by the lack of an enforcement mechanism. (The G20 will attempt “increased accountability” through more third-party evaluations by organizations such as the IMF, which Mr. Rochon acknowledges only works if everyone “agrees to play ball.”)
Mr. Rochon also wondered aloud whether the G20 was too big a group to bring about a solution quickly. “There is no small grouping of countries that have the surplus and the deficit countries in which they exist now in which you can have regular discussion about the state of the world and what should be done about it,” he said. “It’s pretty clear that if you don’t agree on the prognosis of the situation as it stands now, you will never agree on the solution.”
There’s little Mr. Rochon can do about any of these concerns. He and others like him have spent a gruelling few years creating a forum in which their political masters can have serious discussions about global economic policy. At the same time, the distress caused by the financial crisis has provided all the evidence necessary for the rationale to act. The next step is to do so.
“The stars have aligned to make some progress and we just have to go for it,” Mr. Rochon said.