Annual lists 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995

Ottawa, January 24, 2001
2001-009

Notes for an address by the Honourable Paul Martin, to the Royal Institute of International Affairs

Related document: 

• G-20 The Ideal Forum to Tackle Problems Associated with Globalization, says Finance Minister in London (News Release 2001-008).

London, UK
January 24, 2001

Delivered text is official version.

Introduction

Mr. Chairman, ladies and gentlemen.

The G-20 is a group of countries which includes among its members the UK, the United States, Canada, India, China and Russia. Nineteen nations in all, despite its name. Together, its members account for 66 per cent of the world's population, 88 per cent of the world's economy and almost 60 per cent of the world's poor. It was created a year and a half ago in the wake of the Asian crisis. Since then we have met twice as ministers and governors. Our officials have also met on numerous occasions. Today I want to report on the work of the G-20 and our priorities for the year ahead.

I am particularly delighted to have the opportunity to do so in such an influential forum as this. Since shortly after the end of the First World War, the Royal Institute of International Affairs has helped to raise the level of debate and inquiry regarding international issues. Throughout periods of internationalism and isolationism, protectionism and free trade, the Great Depression and great expansions, the institute, through Chatham House, has provided a forum for articulating and promoting new thinking on global issues.

Globalization: The Economic, Human and Political Challenges

Once again, the world is in need of new approaches to international cooperation. Globalization, combined with ever-accelerating technological change, has become the defining issue of our era. It has created an environment in which change is always around the corner, and a new corner is always in sight. By providing new access to markets, to capital and to ideas, it has put in the hands of many the tools of sustained economic growth. It has increased the rewards for skilled labour. It has enhanced mobility. It has made the world a smaller place, in which it is possible to know and understand each other better. In short, increasing economic integration is the foundation of our current prosperity, and the best route out of poverty for those who do not share in that prosperity.

But – and herein lies the rub – the same dynamism that generates growth also plants the seeds of instability. At the same time that economic integration and technological advances have spawned enormous wealth, they have given rise to new problems and new challenges.

The Asian experience of the past decade provides one of the clearest illustrations of the global economy's promise and pitfalls. On the one hand, the vigorous growth witnessed on that continent would not have been possible without inflows of capital from abroad. On the other, weak domestic financial systems and excessive reliance on short-term borrowings from abroad left many countries vulnerable to a sudden reversal of confidence and tragic social disruption.

Furthermore, worse still, the benefits of globalization have yet to reach millions of people. In Africa, for example, per capita income has not only failed to keep pace with the world as a whole, it has fallen further behind, with devastating impact.

It is apparent from these examples that the economic challenges of globalization entail deep human challenges as well – as we have just seen, the need to ensure that globalization does not impoverish the very middle classes it has helped to create or leave millions marginalized.

However, the solution is not to turn our backs on international economic integration. For globalization is the best way open to us to promote progress in the nations that need it most. The solution lies in using the evolution of globalization to go beyond the opening of markets to address directly the root causes of poverty. Indeed, by doing so, we provide the best response to those who would seemingly ascribe all the ills of the modern world to economic integration.

Poverty, environmental degradation, the spread of disease and the disintegration of social and cultural institutions – these economic and social challenges are difficult enough to resolve in their own right. In combination with globalization, they have given rise to a new political issue – "globalization angst," or the sense of instability generated by rapid change and the fear that no one is in charge. To address this problem, the global community must build the policy frameworks that allow markets to create wealth, but we must as well simultaneously address the darker side of globalization by building the social infrastructure that will ensure that wealth is shared equitably and widely.

The G-20: A Cross-Section of National Economies

Achieving these human and political goals is made all the more difficult by one of the defining characteristics of globalization: the fact that many of the problems that arise from it cannot be resolved by any single government alone. The increasing irrelevance of geographic distance, the mobility of capital, the speed and volume of modern communications, the mass movement of people – all of these forces are combining to alter the traditional exercise of sovereignty by a single state acting in isolation.

In 1999 the international community took a major step toward dealing with these challenges by creating the G-20. Rather than a rigid hierarchy with an agenda driven by a permanent secretariat, the G-20 is an informal, face-to-face body driven directly by the experience of sovereign governments. Like the G-7, it is a network of national capitals rather than a bricks-and-mortar edifice.

But in important ways the G-20 also goes beyond the framework of the G-7. What makes it unique is the fact that it brings together a cross-section of national economies at different stages of economic maturity, thereby providing the diversity needed to address the wide range of human needs.

The breadth of its membership is crucial, for we have learned a fundamental truth about policies to promote development: they will work only if the developing countries and emerging markets help shape them, because inclusiveness lies at the heart of legitimacy and effectiveness. And the G-20 is inclusive. Nations at all phases of development are at the G-20 table – and no one side of it is dictating to another.

Transgovernmentalism: National Governments Cooperating to Address International Problems

The G-20 is a recognition of how much the world has changed since Bretton Woods. Let there be no doubt: the purpose of the G-20 is to complement the institutions that were created more than a half-century ago.  The International Monetary Fund (IMF) and the World Bank remain at the heart of global economic development and stability. Indeed, under the strong leadership of Gordon Brown, the IMF's International Monetary and Financial Committee is working effectively to ensure that the Fund is responding to the challenges of globalization, a role essential to the global community.

But at the same time, it is important to recognize the natural limits to what can be achieved by the international institutions acting alone. The IMF, for example, can recommend policies. It can hold out financial assistance as an incentive to get governments to accept its advice. And it can withhold its financial support if that advice is not taken. But it is national governments that exercise the sovereign right to implement those policies, and who must answer to their populations for the consequences.

There is, as we all know, a fundamental tension between the need for coordinated international action on the one hand, and the exercise of national sovereignty on the other. In response to this dichotomy, we have seen the emergence of two parallel trends. One is the creation of supranational institutions, epitomized by the Bretton Woods sisters. The other is what Harvard professor Anne-Marie Slaughter has described as "transgovernmentalism" – networks of sovereign governments able to respond to international crises and deal with global issues. Agile and accountable, these networks have an important role to play in today's system of global governance.

The G-20 is a prime example of this. Because it brings together finance ministers and central bank governors, the G-20 closely reflects the fiscal and monetary capacities of national governments and the realities of national economies. This provides a practical link between the objectives of international development and the national institutions that are crucial to bringing them to reality.

Accountability: The Crucial Element of Legitimacy

The G-20 also reflects another vital element of "transgovernmentalism." Only governments bear the political imprimatur that is bestowed by political accountability. Neither multinational corporations nor international bureaucracies are a substitute. Addressing the most complex challenges posed by globalization requires the direct accountability carried by the representatives of sovereign nations. Citizens must be able to hold someone to account.

The Immediate Need: Financial Stability

For instance, these characteristics have already demonstrated their value in furthering the G-20 mandate of enhancing financial stability, and laying the foundation for sustained development and well-being.

Financial stability requires analysis of the policy and structural weaknesses that make countries vulnerable to financial crises. The G-20 countries agreed to undergo such a review, committing to the World Bank-IMF Financial Sector Assessment Program, which will recommend corrective actions.

Financial stability requires concrete measures to reduce the risk of financial crisis. Thus, the G-20 has reached agreement on a package of measures aimed at the careful management of external liabilities, including avoiding excessive reliance on short-term debt, currency mismatches and the bunching of external debt payments.

Financial stability requires implementation of the standards and codes that define the legal and supervisory "infrastructure" underlying a well-functioning economy. At our first meeting in Berlin, we agreed that the G-20 must play a leadership role in this area. We want to make the best practices standard operating practices.

We further agreed that a well-defined framework for private sector involvement benefits both debtors and creditors by providing greater clarity as to how various claims will be treated in the event of a financial crisis.

One of the most important characteristics of all of these G-20 decisions was the way we reached them – with the full participation of the sovereign states that have the responsibility for implementing them. Accountability was crucial. And one of the most important factors making agreement possible was a common recognition that the pace of implementation must reflect each country's unique situation. Flexibility was vital.

At the same time, we all agreed that the speed with which financial markets operate makes the task of implementing these initiatives a matter of urgency. Indeed, recent developments in the international economic environment make progress more imperative than ever before. Today the prospect of a slowing U.S. economy means that many emerging markets could find their export growth slowing in the coming year. At the same time, rising interest rate spreads have meant that the emerging markets are paying more to borrow, even though interest rates are headed down. In an international environment that risks becoming markedly less benign, moving ahead on measures to reduce vulnerability is essential if we are to avoid another financial crisis.

The Montréal Consensus

Thus, dealing with the issue of financial stability is important and it will remain a priority for the G-20. But it is not our only priority.

In Montréal last October we expanded our agenda, shaping a consensus on the broader challenges posed by globalization and the policies needed to ensure that its benefits are as large and as widely shared as possible. What was striking about our discussion was the degree of consensus. One might have expected many fault lines – between north and south, between the Western world and the post-communist world, between Western and Asian values. But what we found instead was a remarkable commonality of thinking among countries from all regions and across all income levels. All agreed that the market is the foundation of a successful economy. All agreed that globalization, with all of its challenges, is the best route out of poverty for those who suffer from it. But we also agreed that globalization is an unfulfilled promise for millions of people.

• Poor countries are not being impoverished by growing trade flows, they are being excluded from them. In 1998 least developed countries represented a 0.4-per-cent share of world trade – down by half from 1980. If they had maintained their share of world trade, their export earnings alone would be more than $20 billion greater today than then – roughly twice what they receive in foreign aid.

• Poor countries are not being threatened by capital from abroad, they are being ignored by it. In 1998 sub-Saharan Africa received only 2 per cent of all net private financial flows to developing countries.

• Poor countries are not being threatened by new technologies, they are not getting the chance to share in them. The digital divide is not a new challenge to poor countries – it is the extension of a long-standing one. Africa, for example, has less than 2 per cent of the world's telephone mainlines.

For a farmer or merchant, exclusion from telecommunications means isolation from market information that determines pricing. It undercuts the ability to buy, sell or trade. It makes it impossible to plan ahead. And it cuts off the most fundamental link to the global economy.

Recognizing this kind of human challenge, we re-examined what is often referred to as the Washington Consensus – that is to say, the policy prescriptions based on market economics and fiscal discipline that emerged during the late 1980s as necessary for the development of poorer countries. This prescription did help many achieve greater prosperity. But it is not sufficient to focus solely on macroeconomic policy, or only on the structural issues that lie within the traditional responsibilities of finance ministers.

At Montréal we recognized that the economic dimension must be matched by its human and social counterparts. We recognized the need to link our efforts to promote a healthy, well-functioning economy with policies to advance the betterment of society as a whole. Thus was born the Montréal Consensus.

The Montréal Consensus seeks to unite market-based economic policies with the political and social initiatives needed to meet the challenge of development and growth. It articulates a more balanced vision of how developing countries and poor countries can share in the benefits of the global economy. What the Montréal Consensus does is to democratize the Washington Consensus. It is not enough to make globalization work for markets. It must also work for people.

The legitimacy and sustainability of globalization will ultimately stand or fall on two things:

• How well we reassure those who are threatened by it that the door will not close on them.

• And how well we assure those who have been denied opportunity that the door is open to them.

In other words, the G-20 agenda going forward is based on a clear understanding that true development ultimately requires not just productive economies, but strong and secure societies.

G-20: The Year Ahead

Based on this principle, our task in the coming year is to better understand the structural and social dimensions of economic development.

Considerable thought has been given to specific aspects of this issue by academics, non-governmental organizations, other members of civil society, international financial institution staff and others. But the ministers and central bankers who sit at the G-20 table saw a need for a comprehensive assessment of the practical challenges posed by globalization and the opportunities it provides for sustained development. Furthermore, as practitioners with responsibility for national economies, we saw the need to ensure coherence in our economic and social policies.

Thus, our work going forward will be based upon a number of case studies reviewing the real world experience of selected G-20 countries. That includes those in which market reforms have begun to pay off and those in which they have been difficult to achieve; countries that have maintained economic stability and countries that have experienced economic or financial crises. Through this review, suggested by Australia, we will develop a shared insight into both the policies needed to ensure that globalization brings broad-based prosperity, and the political and governance arrangements needed to cooperatively implement them.

Let me give two examples. First, as we have already discussed, access to global capital markets can bring major benefits, but can also increase the vulnerability of countries to financial crises. By undertaking a review of experiences in this area, we can learn how countries can benefit from global capital markets without exposing themselves to heightened risk. Second, by looking at individual countries' experiences with globalization, we can come to a better understanding of any gaps or overlaps that exist in the activities of our international institutions. By looking at concrete examples of how countries have responded to the challenges of development and international economic integration, we should see how the whole family of international institutions might work together better.

Conclusion

To conclude, Mr. Chairman, let me just say that the G-20 partners have carved an ambitious agenda for themselves. We are dedicated to pursuing it. We are determined to do so with all necessary speed. We are committed to making progress toward a global economy in which all can participate and from which all can benefit.

The role the G-20 must play is at the intersection between international and national institutions. There, it ensures accountability, so that countries can benefit from economic integration without compromising their ability to respond to their citizens. There, the G-20 must play a role in ensuring that economic and social policies are in sync – building on each other rather than working at cross-purposes.

As G-20 chair, Canada is determined to work with its partners to pursue the policies that will promote growth with fairness. We are determined to develop governance arrangements that will improve the way the international economy works – and to ensure that it works for all of us.

Thank you.