(fa fede solo l’intervento effettivamente pronunciato)
Four years have passed since Lehman, and yet the global economy is still at a critical juncture. Global growth is weak and uneven, though signs of stabilization are emerging. Uncertainty still rules the global markets, faced with a long-running European sovereign debt crisis, a modest recovery in the United States, affected by a political calendar impacting on the timing of key budgetary decisions, a slowdown in emerging markets in Asia and Latin America and commodity price hikes, fuelling frustration across Africa and the Middle East and risking to dampen the steady growth so far enjoyed in sub-Saharan African countries. Faced with scepticism, policy makers must confront a mounting backlash against globalisation that is mingled with widespread loss of faith in the multilateral system. In this difficult environment, it is arduous to unlock the conundrum between national politics, European policies and global issues. Feelings are running strong among public opinions in many countries, and it is not easy to put global considerations into domestic politics.
Against this background, I wish to focus on three specific themes that are – in my view – quite relevant to the discussion that you will have this afternoon: the new relationship between State and market, the road towards structural reforms in mature economies, namely in Europe – and the need for a truly cooperative action at the global level.
States and markets.
The steady relationship between States and markets has been shaken to its roots almost everywhere. On the one hand, economic fundamentals are evolving much more quickly than the collective resolve of Governments: markets move with an unprecedented speed, whereas the policy response often lags behind, as authorities desperately try to “catch up” with the volatility of financial and commodities markets. Mutual interdependences can suddenly evolve into mutual vulnerabilities, and an heightened risk of “butterfly effects” can have deep consequences for our domestic economies, as any economic downturn in the periphery can threaten our prosperity.
Nation States, in Europe and elsewhere, struggle to adapt their business and regulatory framework to an increasingly aggressive environment. Failure to adapt means ending up on the losing side of international competition: without the proper framework conditions, even potential entrepreneurs willing to start companies will not do so, bringing their business where they can find highly competitive markets, advanced physical and financial infrastructures, property rights, labour flexibility and government support for innovation, research and development.
Globalization, therefore, has not removed the need for a well-functioning State in capitalist economies; on the contrary, it has turned States into key players in the global competition.
In fact, State capitalism itself has emerged in several G20 countries as a major new challenge, taking advantage of open free markets while protecting key aspects of domestic production. It mobilizes the resources of the State, forces joint ventures between foreign and local companies to transfer knowledge, exerts control over large enterprises and subsidizes their expansion and growth overseas.
A significant State role in national economies is not new. But for a time, due to privatizations and private sector entrepreneurialism in the 1980s and 1990s, it actually receded. Today, however, state-owned enterprises and state-supported enterprises, or “National Champions,” are emerging to become serious global competitors. This trend has accelerated in the wake of the financial crisis, especially in BRICS countries.
Several states that practice various versions of state-capitalism have ambitious plans to use this model to diversify their economies and climb the value-added ladder into high technology and advanced services sectors. The significant difference between today’s efforts and those of earlier periods is that these States now possess significant financial resources to implement their plans, and need not rely heavily on external financial assistance. And, importantly, there are few accepted international disciplines which effectively ensure a level, competitive playing field between state supported firms and the private sector.
Of course, every nation will decide how involved its government should be in the economy. But for our interconnected global economy to grow together, we need to ensure that all companies compete by the same set of rules. When favoured state-supported enterprises enjoy preferential access to government resources and special protection from competition in their markets, that harms foreign competitors and local entrepreneurs alike. In Arab countries, for example, a decades-long, State-directed approach to economic management has not served national interests well and has made it difficult for private SMEs, a potentially large job creator, to prosper or to create new jobs.
Even dynamic economies such as China – perhaps the most successful current practitioners of “state capitalism” – may find that the model has its own vulnerabilities: in the long run, it will work against the interests of an expanding number of private entrepreneurs, hindering the transition from an export-driven growth model towards household consumption, which is a necessary step in order not to fall into a “middle income trap”. Indeed, this is already happening: several countries that boasted productivity, low unemployment and factories working at near-full capacity have started to slow down, due to weaker demand, and recent stresses suggest that financial channels of contagion also pose a risk.
The road to structural reforms.
Contagion must be halted for a truly global recovery to be secured: to do this, bouncing from one stage of the crisis to the next will not be sufficient. To ensure a long lasting rebound, the root causes of the four years- long crisis need to be addressed once and for all, without further delays or partial remedies based on the false assumption that time is on our side. To do so, we have to deliver on three areas: fiscal consolidation, structural reforms, financial repair.
In Europe, three million jobs have been lost since the beginning of the crisis; one thousand billion Euros of GDP have vanished. Slowly, and painfully, however, the Union has been reforming its economic system of governance, making a concerted effort to relaunch investment and employment and to restore confidence, addressing the problems in the three major areas that I just mentioned.
Key legislation has already been adopted – the Reinforced Stability and Growth Pact, the Treaty on Stability, Coordination and Governance, the “six-pack” – and more is to be adopted shortly (“two pack”), in order to create an integrated budgetary and economic policy framework. Further mechanisms, including an appropriate fiscal capacity, are likely to be explored in due time for the euro area.
We are also moving fast – considering that the EU works by consensus in these fields – towards an integrated financial framework. A banking union, based in the first place on the creation of a Single Supervisory Mechanism, is necessary to restore the eurozone’s monetary transmission mechanism, hampered by the poisonous link between sovereign debt and banks; once that is in place, the newly established European Stability Mechanism will be able to recapitalize banks directly, relieving member States’ treasuries of the burden.
Besides carrying forward these important structural reforms, aimed at completing the economic and monetary union, Europe is also determined to stimulate growth and jobs, in the context of its Europe 2020 strategy. The Compact for Growth and Jobs approved in June and reviewed in the October European Council is a blueprint for action at national and EU levels. The commitments it outlines are very ambitious and touch several areas: from the deepening of the Single Market to project Bonds, from achieving a fully functioning Digital Market to promoting research and investment, completing Free Trade Agreements with the EU’s main partners and devising and implementing a euro-wide industrial policy.
Action at the global level
Europe, as we have seen, is doing its homework. But Europe is not alone in the world. To fight the crisis we need a truly cooperative action at the global level, interlocking major economies, open and dynamic financial centres and regional fora alike. Each and every part of the world has commitments to fulfil. Bold and swift action is needed in particular by the G20 at this moment: in June, at their Summit in Los Cabos, G20 leaders committed to make a decisive turn in the crisis and to restore confidence in the global recovery.
Markets have temporarily been propped up by Central Banks; now they expect to see a common resolve, multiple players playing one game at different levels, and doing more to focus on systemic stability as a whole.
The G20 already proved its effectiveness twice: in preventing the meltdown of the international financial system, at the beginning of the crisis, and in providing critical impetus to reforms of the governance of the International Monetary Fund and the World Bank. It should now complete its transition towards a post-crisis agenda and evolve into an engine of innovation in collective action on global issues. In confronting the challenges and opportunities of globalisation, the G20 must develop the right mix of soft’ and ‘hard’ power, providing leadership not limited to financial issues, in fields such as trade, foreign direct investment, environmental challenges, climate change, food security etc..
In all these areas, the G20 must still address a conspicuous gap between expectations and outcomes.
The multilateral system has often worked in the past through unseen structural underpinnings, such as common procurement rules, common export credit rules, common accountancy standards, often worked out under OECD auspices and based on “soft” agreements, rather than “hard” treaties. New actors do not always feel bound by these unofficial rules and this is one of the reasons why multilateral action today seems to be less effective than before.
Diplomacy in the G20 countries – intended in its wider meaning – should therefore be focused on restoring a community of shared economic values, thereby preserving its capacity to set the prevailing international norms of behaviour. The example set by the OECD is paramount in this respect: what 50 years ago used to be a group of European nations, along with the United States, became the present “global network” of 34 countries, encompassing countries as different as Chile, Korea, Mexico, Turkey: we now need to focus on these “lynchpin states”, which are increasingly becoming the “swing voters” in the multilateral system.
I am really very pleased that my distinguished colleague and friend, Undersecretary Fernando Schmidt, is today here with us, because Chile belongs to those emerging economies that share our commitment to open and effective markets, a liberal environment to attract and protect foreign direct investment and a common stance for free, fair and transparent competition.
In creating such an environment, the role of the private sector will be paramount, as policy makers increasingly need to engage entrepreneurs – multinationals and small business alike – in this global standard-setting process. The initiative of Confindustria/Giovani Imprenditori to convene for the first time in July 2009 – at the high time of the Italian G8 Presidency – the G8 Young Business Summit has been a bold one. It has now evolved in the G20 Young Entrepreneurs’ Alliance, complementing effectively the B20 Business Summit as the “voice of global business” in the G20 process. In several G20 work streams, such as in the anti-corruption working group or in the B20 green growth action alliance, global business is already much involved, but should be more responsive towards stances by SMEs and young entrepreneurs.
Of course, influence and responsibility must go together. You will only be influential if you bring all your energies, enthusiasm, creativity and determination into the game. After following the passionate discussion on Europe this morning, however, I know that you will.