Move on, Washington Consensus. Make room for the Cornwall Consensus.
The former is the name often used as a shorthand for a set of principles that have guided international economic policy for much of the past three decades – based on free markets, globalization, trade liberalization and deregulation.
While he has been credited with raising living standards and reducing poverty, he has been criticized for putting growth before resilience, leaving the global economy vulnerable to economic crises. The COVID-19 pandemic has exposed some of the most serious cracks in the foundations of the Washington Consensus.
The Cornwall Consensus is, in fact, an emerging response to these shortcomings. Named after the location of the Group of Seven leaders meeting last June where the idea was born, the Cornwall Consensus calls for a more active role of governments, in cooperation, to protect the global economy and address the main risks to stability, including health. and environmental risks.
The name was coined by the G7 Expert Panel on Economic Resilience, a group of influential economic policy experts (including the former Senior Deputy Governor of the Bank of Canada, Carolyn Wilkins) appointed by leaders of the G7 to advise them on strategies to better protect the world economy against future crises. . The panel released its final report last week – a document that constitutes a first game plan for a new approach to global economic stewardship.
“We are advocating for a radical change in global economic governance,” panel chairman Mark Sedwill, former UK civil servant, wrote in the report. “This means more effective collective mechanisms to identify and manage emerging risks, to better cooperate within global institutions, to collectively respond to economic risks or coercion, and to ensure that national policies aimed at protecting national economic security are not deployed against allies. “
Many of the report’s key recommendations are not particularly sweeping. Its calls for cooperation on vaccine distribution, future global health guarantees, and carbon pricing and trading mechanisms, for example, which are already pillars of any discussion of postpandemic global economic policy.
Other recommendations take the discussion forward in important new directions. It calls for policy coordination to secure supply chains, including working together on simulations and contingency plans to maintain âcritical supply chainsâ during crises. He calls for a special emphasis on the security of critical minerals, semiconductors and digital data, which Lord Sedwill calls “the petroleum, steel and electricity of the 21st century economy”.
Taken as a whole, the goal is very different from the more traditional conversation we might hear about restoring and revitalizing growth in the wake of a major global economic shock. It is telling that the starting point for this whole exercise is written in the name of the panel – âeconomic resilienceâ rather than, say, âeconomic prosperityâ – although the two certainly go hand in hand.
It should be obvious – but far too often overlooked – that the biggest threat to a sustainably stronger and healthier post-pandemic global economy is another serious setback. A big part of the âbuild back betterâ concept really needs to be a toughened security system, to deal with the threats that lurk around the next corner.
âMarket forces and government stimulus can generate growth relatively quickly, but will not necessarily make the investments necessary to build resilience to shocks that threaten livelihoods in the future,â Wilkins said in a statement. email interview.
âThe Washington Consensus emphasized market forces, based on the belief in the invisible hand of the market to deliver what citizens value. The Cornwall Consensus emphasizes the power of state and public-private partnerships to create vibrant, resilient and sustainable economies that benefit everyone.
To be sure, coordinated progress has been made internationally after the 2008-09 financial crisis to better protect the global banking and financial system from risks. These reforms present a model of what can be done together to strengthen the resilience of the global economy.
But in recent years, multilateral cooperation has faced growing skepticism and repeated threats. Growing dissatisfaction with the consequences of market globalization – on employment, on the environment, on the increasingly unequal distribution of wealth – has led opponents to try to go back, to erect barriers to free trade, to close borders.
The Cornwall Consensus is not much more than a concept at this point, but it is an attempt to find another way – not destructively backwards, but forward. And it has reached quite powerful ears: G7 leaders collectively preside over 40% of global GDP. It will now be up to these leaders to decide how far it goes.
There is no doubt that we need something. Not necessarily to completely replace the Washington Consensus, but to fill the troubling gaps in the existing framework – through which too many people have slipped and too many risks have not been brought under control.
âIf we are to overcome the major challenges facing the global economy today – the pandemic, economic fragility, rising income inequalities, climate change – we cannot use an old orthodoxy that has failed to meet these challenges, âMs. Wilkins said.
Your time is precious. Receive the Top Business Headlines newsletter delivered to your inbox in the morning or evening. register today.