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Globalization, the new “Hangzhou consensus” and the Trump election

, November 9, 2016, 0 Comments


It is fashionable to mock the major world summits. It is also fashionable to blame globalization for all our ills. Lastly, it is fashionable to predict a China’s economic collapse.

Actually, the last G20 meeting in Hangzhou, China did signal the emergence of a new consensus for a more regulated globalization and able to mix different economic and political systems.

After the confrontation since the 1980s between the so-called ” Washington consensus” and that of Beijing, attacked by the same anti-globalization, civil society organizations worldwide, would the Hangzhou consensus be more acceptable and effective?

A certitude – It is the vision of a “Moderate globalization” dear to the economist Dani Rodrik, who has forged this concept to solve the contradiction between political democracy -which implies the existence of nations- and economic globalization which limit sovereignty but brings undeniable gains all its faults.

The context of the last G20 was nevertheless doubly perilous geopolitical situation since military tensions are increasing, and economically with heavy clouds increasing volatility overall class asset markets in the context of a China’s investment slowdown. Along with a bond bubble due to lax monetary policies (quantitative easing) and negative interest rates (NIRP) historically never seen before.

On all the short-term issues, the Hangzhou summit has in effect shown a clear consensus within the international community around a renewed IMF dogma through the well-known pragmatism of Madame Lagarde, who has also seduced China by installing the Renminbi prominently in its reference basket of currencies called SDR.

There remains the big question of the global economic recovery while the overall GDP slows in 2016 around a trend itself rather depressed with the fears of the famous “secular stagnation” launched a few years ago by famous economists like Larry Summers, former US Treasury Secretary.

On this fundamental issue, the Beijing authorities have hit hard. They waved a kind of Chinese slogan which certainly masked their responsibilities in the global deflation and threat of de-globalization, but that proved enough fertile to have been taken on many occasions in the 48 points final communiqué of the G20. The famous 4 are Innovative, Invigorated, Interconnected and Inclusive.

In a nutshell, how to stimulate a strong and sustainable global growth. As rightly wrote the former chief economist of the OECD Development Centre, Helmut Reisen – Who Could disagree? But serious action?   Well, precisely, the surprise of the summit is the abundance of references to revive the medium and long term investment programs around the world with environmental concern in particular and with the aim of integrating billion people not yet emerged in developing countries. This concern Africa specially with a strong reference to an ambitious industrialization program explicitly mentioned in the final statement, while many African leaders were present in Hangzhou, at the invitation of Beijing authorities precisely.

For sure, we could also recognize the traditional formula for innovation, though very dear to the OECD for many years under the label of “structural policies “, mainly oriented towards ” freeing supply ” and ” increased productivity “. But we know that such policies do not address the mass underemployment issue, as it is rising everywhere on the planet. But this is where the Chinese added a component on the demand side with a strong collective effort to stimulate the global demand, especially in developing countries. And the consensus starts to make sense, just like the Yin and Yang!

Lastly, the Hangzhou Summit consecrated a new north-south consensus for a better governance of the world economy through the rediscovery of the essential role of Governments and international or regional institutions. As a proof, the strong consensus against corruption, tax havens or questionable practices in the nanosecond financial markets (high-frequency trading in particular). It is not sure that the recent Trump election will change the deal!