Remarks delivered for the session entitled “The G20 as an engine for reform – successes and ongoing challenges – In conversation with Gabriela Ramos” at the International Organisation of Employers’ Presidents’ Forum “Leadership in Changing Times” on 18 June 2019 in Geneva, Switzerland.
Colleagues, ladies and gentlemen,
Today we have heard a lot different forms of leadership in changing times. In this context, I would like to focus on one of the world’s leading global fora – the Group of 20 – reflecting on some of its landmark success before turning to its current challenges.
To start, I want to take you back to the G20’s birth as a leaders’ forum in the aftermath of the 2008-9 global financial crisis. This was the pivotal moment where the actions of G-20 leaders helped to turn the crisis around – by boosting consumer and business confidence to prevent broader contamination of the crisis, and by supporting the first stages of economic recovery through their co-ordination of a massive USD500bn stimulus package.
Other successes followed, with G20 leaders committing to a standstill on trade protectionism. They also set in motion a complete overhaul of financial markets regulatory framework and supported requirements for banks and other financial institutions to hold more capital.
Since those early days, the G20 has also made great strides in its agenda to promote a more level playing field by enhancing international tax co‑operation, eliminating tax fraud and reducing tax avoidance globally. Over time, this has become a truly great achievement for the G20. Through the Global Forum on Transparency and Exchange of Information (EOI) for Tax Purposes, hosted by the OECD, governments around the world have identified over EUR 95 billion in additional revenue through voluntary compliance mechanisms and other offshore investigations. And it has been good news for developing countries too. Through this work, tax avoidance and aggressive tax planning is being gradually and systematically tackled through the OECD/G20 BEPS Action Plan, which is now addressing the critical issue of the tax challenges arising from the digitalisation of the economy.
At the 2014 Australian G20 Summit in Brisbane, the OECD put forward the economic case for promoting women’s participation in the labour force be a key condition for stronger and more inclusive growth. This resulted in the G20 Brisbane Goal to reduce the gender gap in labour market participation rates by 25% by 2025, through the integration of 100 million more women into the labour force.
But by far the G20’s biggest success to date has been the trust that brought all these countries together in the first place to define common solutions to their common challenges – with the clear understanding that they could not “go solo”. In other words, G20 leaders recognised the fundamental interconnected-ness of the global economy in terms of GVCs and technologies, and the need to act together to ensure recovery while preventing the imbalances that led to the GFC in the first place. Furthermore, the G20 also provided the badly needed political momentum behind landmark agreements such as the climate Paris Agreement and the global goals for sustainable development, while also delivering in Bali on the last WTO –sponsored global agreement, i.e. the agreement on trade facilitation.
So where are we now? Despite all these achievements, we nevertheless find ourselves at a critical juncture. The world economy has entered yet another period of deceleration. Global GDP growth has slowed abruptly over the past year, going from close to 4% down to 3%. Our simulations show that renewed trade tensions between the US and China could end up shaving more than 0.6% from global GDP over the next two to three years.
Decelerating investment growth during the post-crisis period has dampened the pace of convergence in per capita GDP between emerging market and developing economies, and advanced economies (other than China), and has slowed capital accumulation. Continued weak investment growth will make filling large investment gaps in EMDEs more challenging.
Meanwhile, new trade-restrictive measures are on the rise through tariff increases, import bans and export duties, adding to policy uncertainty and adversely affected business investment. Amongst the G20 economies for which current data are available, annual fixed investment growth has halved (from around 5% in 2017 to 2 1/2 % at the end of 2018). Productivity growth is low, even in the context of the digital transformation. And there are increasing divergences on trade, on migration, and on many other issues.
Also, renewed risks are building up in the system, i.e the very same ones that led to the 2008-2009 crisis. Public sector and private sector debt is growing. Between 2007 and 2018, outstanding central government debt for the OECD area doubled and the debt-to-GDP ratio rose from 49.5% to 72.6%. Over the same period, the global stock of non-financial corporate bonds has almost doubled in real terms, at close to USD 13 trillion. The systemic risks are clear.
Today, we are living in a world with a potentially explosive conjunction of toxic “-isms”: protectionism, populism, nationalism, parochialism. They are themselves the symptoms of anxieties of people for their jobs, for the future of their children, and vis-à-vis technological change, digitalisation and globalisation more generally. Those perceptions are not groundless as documented in our recent Broken Elevator and Squeezed Middle Class reports. The middle classes are squeezed and shrinking and the share of wages in GDP keeps falling. Fourteen percent (14%) of jobs today are at high risk of being automated, while a further 32% could face substantial changes in content and 65% of children today will do jobs that have not yet been invented. But instead of fuelling innovation and new opportunities, these fears are instead leading to distrust and fractious politics and, down the line, to misguided policies that will only make things worse. All in all, a vicious circle.
Against this background, the G20 has been less effective in recent times, starting with de-escalating trade tensions and tackling global excess capacities in certain industries. But perhaps the worst news of all is that the backlash against globalisation and multilateralism has resulted in countries having different readings of the global challenges at stake and less commitment to working together. Climate is a case in point. We all know that the ambition needs to be scaled up, but if we are not reading from the same page it becomes impossible to have common solutions.
In this new reality, it is clear that the G20’s collective ambition to tackle our most pressing challenges is in danger of weakening, just when it is needed most. If we want this situation to be reversed, we need to continue relying on facts. But we also need to change the traditional growth paradigm and put people at the centre. In a context of increased inequalities, we need to look towards equity and sustainability. We cannot continue just relying on GDP and GDP per capita as the only metric to measure success. These traditional measures are part of the story but not the whole, as our OECD wellbeing measures, inclusive growth and taxation work show. Fairness and equity are not the concepts favoured by more orthodox schools of economics over the past 30 years. But in this new world, this is what more equitable, inclusive, sustainable economies need to look like.
For business, there is a key role to play here in tacking inequalities. This is the reason why, at the OECD, we are building the Business for Inclusive Growth (B4IG) Initiative to bring governments, business and investors around a common agenda for inclusive growth, and I call on all of those here today to join these efforts. This is also the reason why we are still working to ensure full G20 country adhesion to or endorsement for our instruments and tools (such as the OECD’s MNE guidelines) that help to ensure a level playing field for business, promote responsible business conduct, and fight corruption – and due to the G20’s current lack of unity we are still not there.
Where to next for the G20? At the end of this month, leaders will meet in Osaka, with a fresh opportunity to prove what collective action can achieve where there is co-operation not confrontation and some good political will. Much is at stake. Let’s hope they succeed.
 OECD Economic Outlook (May 2019)