Economic riders of the apocalypse
The G20 finance ministers and central bank governors have already met twice this year to discuss the world economic situation, writes Prince Michael of Liechtenstein.
After the February meeting in Shanghai, they released a cautiously optimistic communique congratulating themselves for “important achievements” in bolstering growth and stability. This was revised to an even more optimistic assessment of global recovery at the April 14-15 meeting in Washington.
The picture looks different if one takes a longer view, especially from the standpoint of business and trade. The G20’s achievements have been mostly in the verbal sphere, with the sole tangible result of imposing more regulations, guidelines and controls. This is the only area where the various countries seem to agree.
More government intervention and the expansion of an already oversized and inefficient regulatory framework, both national and global, can only harm innovation and trade. It fosters protectionism, regardless of the G20’s declarations to the contrary. By stalling the real engines of sustainable long-term growth – free enterprise and free trade – such measures steal prosperity from all parts of society, especially the poor.
Regulatory risk has become a huge obstacle to financing infrastructure projects, which are vital to any improvement in living standards. Irresponsible government interference in markets, usually for populist reasons, has become common in the energy industries and public utilities of many countries, to give just one example.
Perhaps aware of these difficulties, the finance ministers and central bank governors betrayed a certain uneasiness in Shanghai. In the official statement, they published a list of apocalyptic riders that could spoil the results of their good work, and for which they could take no responsibility.
To quote from the communique: “Downside risks and vulnerabilities have risen, against the backdrop of volatile capital flows, a large drop of commodity prices, escalated geopolitical tensions, the shock of a potential UK exit from the European Union and a large and increasing number of refugees in some regions. Additionally, there are growing concerns about the risk of further downward revision in global economic prospects.”
It is difficult to see how Brexit or even the refugee crisis, terrible as it is in humanitarian terms, could substantially damage the world economy. Plunging commodity prices have good as well as bad effects. And while geopolitical tensions are certainly rising, there is little evidence they have had any serious economic impact, with the exception of Western sanctions on Russia.
To an outsider, this list of uncertainties looks like excuses, scapegoats to disguise a lack of will or courage to address the real issues. Regulatory frameworks should become leaner and less susceptible to change. A flourishing economy requires a predictable legal environment, not populist activism masquerading as public policy.
Summits are being held constantly these days, at immense public cost. Their main product seems to be hot air, as words become a substitute for sound policy. Maybe the real riders of the apocalypse are those self-satisfied policy makers, so intent on their “achievements.”