Shapiro Speaks on G-20, Need for Global Economic Action

NDN’s Globalization Initiative yesterday hosted "The G-20 and Beyond: Challenges Facing the Global Economy." The event featured U.S. Rep. Adam Smith, Foreign Policy magazine Editor-in-Chief Dr. Moisés Naím, and NDN Globalization Initiative Chair Dr. Robert Shapiro. Shapiro delivered wide-ranging comments on the global Great Recession, its causes, and the global leadership necessary to combat it:

ShapiroThe world’s political leadership meets today under very unusual circumstances.  Summits of this kind generally involve the ratification of understandings or agreements worked out in some detail long before the leaders meet in the public spotlight.  This time, they convene in the midst of the worst global economic crisis in 80 years.  Not only have they not yet agreed to a set of responses; they and their advisors haven’t come to a common view of what the problem is.  Instead, much of the value of this meeting will come from President Obama, Prime Minister Brown, President Sarkozy, President Medvedev, Chancellor Merkel, and President Hu listening to each other.  They can learn how each of them sees the crisis affecting their own countries, what they understand as its causes, who or what they blame, and what they’re prepared to do.   Last weekend, German officials leaked a communiqué drafted by Gordon Brown calling for coordinated stimulus – leaked it in order to knock it off the table.  Thus far, the United States, China, and Spain are the only nations that have initiated significant stimulus, in part because other major industrial countries have such extended safety nets that there’s less political pressure to stimulate. But as global demand sinks, global stimulus is called for. Even so, it’s clear that the summit is unlikely to produce a coordinated response in this area.   

This is a real loss, because the crisis demonstrates the extraordinary degree to which globalization integrates the economic trajectories and fates of the world’s majorNaim economies.  Part of this reflects the most highly-globalized sector of all, finance, where the products created in New York – mortgage-backed securities and credit default swaps, for example – are traded furiously around the world.  It may be that the European banking system incurs as much damage as our own.  At a minimum, the steps we’ve taken to bail out our own large banking institutions have been taken, in part, to protect the major institutions of our allies.  This was particularly clear in the early takeover of Fannie Mae and Freddie Mac, after the Chinese and European governments informed the Bush Administration that their own central banks held large quantities of Fannie and Freddie paper.   

This deep integration is not limited to finance.  Under globalization, the share of everything produced in the world that’s traded across borders jumped from 18 percent in 1990 to 30 percent in 2007.  The result is that a severe economic shock like the one shaking the world today can produce the mainSmith result of protectionism – a sharp drop in global trade – without any new protectionist laws.  Compared to the year before, exports in January of this year were down over 20 percent here, down about 30 percent in Germany, France, Mexico and Britain, down 30 to 40 percent in Korea, Italy, Canada, Japan, Argentina and – here’s the big one – China, and down by more than 40 percent in Russia.  And one early result is rising unemployment in virtually every nation.

So, the world finds itself in not only a systemic crisis, but a cascading one as well:  That is, a systemic crisis that becomes more and more serious through feedback effects, and a cascading one that also spreads across sectors and countries.

Full remarks here.