Strategies to Restore Global Economic Stability and Growth
Public Release of Conference Report
The conference report, which was released in advance of the 2012 G20 summit, aims to enhance the current understanding of the world economy and to help identify possible short- and medium-term solutions to its growth. It summarizes the two-and-a-half day international economic conference hosted by The Chicago Council, in partnership with nine local and global institutions, on May 2-4, 2012. Download the Conference Report (PDF).
The G8 Summit that will take place in the United States May 19-20, 2012 will likely exhibit the same urgency that has attended other recent G8 and G20 meetings. Slow growth, high unemployment, foreign debt concerns, financial disarray, and mounting social unrest mean that the global economy will once again take center stage at the upcoming G8 meeting. Although a global depression may have been averted, recession in Europe and a further global slowdown are likely. Recovery remains uncertain and protracted at best. The situation has left leaders groping for a “desperate optimism,” as Christine Lagarde, managing director of the IMF, recently described it. Leaders of developed economies, struggling with their own high levels of sovereign debt, are unlikely to generate new approaches to current problems without the help of others. Emerging economies like China and Brazil - which have remained relatively immune to the ongoing crisis and may hold the key to a more stable future - are themselves put at risk by adverse conditions and are not yet in a position to drive solutions.
The 2012 May G8 Summit followed weeks later by Mexico City’s June G20 Summit, are poised to serve as a crucial juncture in the unfolding global economic crisis, one that either begins to chart a new path toward stability, or one that fails to produce the mechanisms needed to avert future turmoil.
In advance of the G8 Summit, The Chicago Council on Global Affairs, in partnership with The Federal Reserve Bank of Chicago, the Center for International Macroeconomics at Northwestern University, the Initiative on Global Markets at the University of Chicago’s Booth School of Business, The Kellogg School of Management, the Indian Council for Research on International Economic Relations (ICRIER), the Chinese National School of Development (CCER), the European Bruegel Institute, the Japan Economic Foundation, and the Brazilian Fundação Getulio Vargas will host in Chicago a two-day international conference in early May 2012. The conference will bring together senior policy practitioners, business leaders, academics, and thought leaders from select G8 and G20 countries to address key challenges confronting the global political economy including: sustained financial turmoil, renewed recessionary fears, persistent macro-imbalances, continued popular protest over damaged social compacts, and rising political populism. The conference will produce a summary report that will be released around the G8 Summit to help inform conversations at the Summit and the June 2012 G20 meeting to be held in Mexico.
- The Federal Reserve Bank of Chicago
- Northwestern University, Center for International Macroeconomics
- Northwestern University, The Kellogg School of Management
- The University of Chicago’s Booth School of Business, The Initiative on Global Markets
- The Bruegel Institute, Brussels, BELGIUM
- Indian Council for Research on International Economic Relations, New Delhi, INDIA
- Institute of Economics (IBRE) at Getulio Vargas Foundation, Rio de Janeiro, BRAZIL
- Japan Economic Foundation, Tokyo, JAPAN
- National School of Development at Peking University, Beijing, CHINA
Day 1: Searching for Strategies to Restore Global Economic Stability and Growth
5:30 pm - 8:00 pm
Welcome, Keynote, and Dinner
- Charles L. Evans, President and CEO, Federal Reserve Bank of Chicago
- “Global Imbalances are Here to Stay” with Jean-Pierre Landau, former deputy Governor, Banque de France, former Executive Director, IMF
- Mark Hoplamazian, President and CEO, Hyatt Hotels Corporation
Day 2: Searching for Strategies to Restore Global Economic Stability and Growth
8:30 am - 8:45 am
- Marshall M. Bouton, President, The Chicago Council on Global Affairs
8:45 am - 10:00 am
Taking Stock of the Current Crisis
The rapid economic deterioration of some European economies and the inability or unwillingness of others to effectively stave off crisis is testing the larger European economic experiment. If Europe unravels, it would seriously damage many if not most other economies as well. Meanwhile, U.S. housing remains depressed and challenges posed by real estate markets in emerging economies may be harbingers of future crises. This session will consider questions such as: How to best shield the global economy from Europe’s troubles? Does China’s economy have the resiliency to cope with the challenges caused by economic weakness in its top export partners? What new policy challenges will emerging markets face in this turbulent global environment?
- Austan Goolsbee, Robert P. Gwinn Professor of Economics at Booth School of Business, University of Chicago; formerly served as the Chairman of the U.S. Council of Economic Advisers
- Yang Yao, Director, China Center for Economic Research, Peking University
- Sally Blount, Dean, The Kellogg School of Management, Northwestern University
10:30 am - 12:00 pm
The Medium-Term Outlook
Even if the leading economies are able to muddle through the current crises, structural impediments remain. Existing macro-imbalances are unsustainable, as are existing tax and spending policies in the U.S. and other developed countries. Existing financial institutions and regulations are in need of restructuring to help put markets on a more secure footing. Emerging economies are expected to play a pivotal role in this restructuring process. This session will consider questions such as: Is the Euro sustainable? What role will ascendant currencies take in the diversification of the global economy? What policy actions would be appropriate to deal with persistent global imbalances? Can private demand take over from government stimulus? Can steps be taken to change the long-term unsustainable trend in U.S. government spending and tax revenues? What regulatory policies would be appropriate to protect against systemic risks while encouraging economic growth?
- Regis Bonelli, Senior Economist, Institute of Economics (IBRE), Getulio Vargas Foundation
- Jean Pisani-Ferry, President, Bruegel Institute
- Martin Eichenbaum, Ethel and John Lindgren Professor of Economics and Co-Director, Center for International Macroeconomics, Northwestern University
12:15 pm - 2:00 pm
Lunch and Keynote Address, "Policy Challenges for Emerging Market Economies" with Yaga V. “Y.V.” Reddy, Governor, Reserve Bank of India, 2003-2008
- Asha Bangalore, Senior Vice President and Economist, Northern Trust
2:15pm - 3:30 pm
Afternoon Break-Out Groups
Can Macro-Imbalances be “Rebalanced”?
- Keiichiro Kobayashi, Professor, Hitotsubashi University
The Role of International Institutions and Financial Regulation
- Stephen Pickford, Managing Director, International and Finance, HM Treasury (2007-2010)
What Happens When No Country Leads?
- Susan Schwab, U.S. Trade Representative (2006-2009), Professor, University of Maryland
Austerity versus Stimulus
- Naohiro Yashiro, Professor of Economics, International Christian University
Day 3: Searching for Strategies to Restore Global Economic Stability and Growth
8:00 am - 8:45 am
Opening Keynote, "The World Economic Scenario: A Latin American Perspective" with Jesús Silva Herzog, Ambassador to the United States (1995-1997) and Secretary of Finance, Mexico (1982-1986)
- Richard Cooper, Founder and Managing Director of the General Welfare Group
8:45 am -10:15 am
Threatened Social Compacts and Political Responses
Headlines from around the world make clear that domestic stability cannot be separated from global uncertainty. From the “Occupy” movement that has spread across major American cities to protests in Athens, Rome, and London, and massive demonstrations in Tel Aviv against housing subsidies, longstanding social compacts risk unraveling. How significant is the growing income inequality in some developed countries to maintaining political consensus? As sovereign debt mounts and governments begin to run out of the financial ammunition needed to address local concerns, what (if any) globally coordinated policies are available to assist governments faced with pressing popular demand for domestic concerns? This session will consider questions such as: How can long-standing social compacts evolve and survive in a globally-integrated economy? What types of political reform are possible in a period of slow economic growth? Is it possible to maintain political consensus during a time of economic stress?
- Ignazio Angeloni, Visiting Fellow, Bruegel Institute, Adviser, ECB Executive Board on European Financial Integration, Financial Stability and Monetary Policy
- Jeff Joerres, Chairman, CEO & President, ManpowerGroup
- Dali L. Yang, Faculty Director, University of Chicago Center in Beijing, Board member of the Paulson Institute at the University of Chicago, member of the Committee of 100
- Raghuram Rajan, Eric J. Gleacher Distinguished Service Professor of Finance at the Booth School of Business, University of Chicago
10:30 am - 12:00 pm
Are New Economic and Political Models Required?
As fiscal stimulus winds down, leaders will have fewer tools available to bolster local economies and shield populations from the pain of a sluggish economy. It remains to be seen if private demand can take over from government stimulus and whether new political and economic frameworks are required to manage political paralysis and economic stagnation. The Economist, in its January 21, 2012 headline announced “the rise of state capitalism,” and warned of risks to growth and innovation. This session will consider questions such as: Can policy makers and business leaders develop strong, coordinated responses to economic challenges? Are new social and political compacts needed in order to put the economy on a new footing and strengthen recovery? What trade-offs do new models bring in terms of innovation, free trade, and stability? What new institutional models on global governance could better manage tomorrow’s challenges?
- Barry Eichengreen, George C. Pardee and Helen Pardee Professor of Economics and Political Science, University of California Berkeley
- The Honorable Noboru Hatakeyama, Chairman and CEO, Japan Economic Foundation
- Charles L. Evans, President and CEO of the Federal Reserve Bank of Chicago
12:15 pm - 2:00 pm
Lunch and Concluding Discussion with The Honorable Henry M. Paulson, Jr., CEO, Paulson Institute, University of Chicago
In conversation with:
- Michael H. Moskow, Vice Chairman and Senior Fellow on the Global Economy, The Chicago Council on Global Affairs
- Leah Joy Zell, President and Lead Portfolio Manager, Lizard Investors LLC
Former Deputy Governor, Banque de France, and former Executive Director, IMF
The Honorable Henry M. Paulson, Jr.
CEO, Paulson Institute, University of Chicago
Yaga V. "Y.V." Reddy
Governor, Reserve Bank of India (2003-2008)
Mexican Ambassador to the United States (1995-1997), and Secretary of Finance of Mexico (1982-1986)
Visiting Fellow, Bruegel Institute
Senior Vice President and Economist, Northern Trust
Dean, The Kellogg School of Management, Northwestern University
Senior Economist, Institute of Economics (IBRE), Getulio Vargas Foundation
Marshall M. Bouton
President, The Chicago Council on Global Affairs
Ethel and John Lindgren Professor of Economics and Co-Director, Center for International Macroeconomics, Northwestern University
George C. Pardee and Helen Pardee Professor of Economics and Political Science, University of California - Berkeley
Charles L. Evans
President and CEO, Federal Reserve Bank of Chicago
Robert P. Gwinn Professor of Economics, Booth School of Business, University of Chicago
The Honorable Noboru Hatakeyama
Chairman and CEO, Japan Economic Foundation
President and CEO, Hyatt Hotels Corporation
Chairman, CEO, and President, ManpowerGroup
Professor, Hitotsubashi University
Michael H. Moskow
Vice Chairman and Senior Fellow on the Global Economy, The Chicago Council on Global Affairs
Managing Director, International and Finance, HM Treasury (2007-2010)
Director, Bruegel Institute
Eric J. Gleacher Distinguished Service Professor of Finance, Booth School of Business, University of Chicago
U.S. Trade Representative (2006-2009), and Professor, University of Maryland
Dali L. Yang
Faculty Director, University of Chicago Center in Beijing
Director, China Center for Economic Research, Peking University
Professor of Economics, International Christian University
Leah Joy Zell
President and Lead Portfolio Manager, Lizard Investors LLC
"Searching for Strategies to Restore Global Economic Stability and Growth"
The Chicago Council on Global Affairs released the full conference report on June 15, 2012, in advance of the G20 Summit in Los Cabos, Mexico. The report aims to enhance the current understanding of the world economy and to help identify possible short- and medium-term solutions to its growth. It summarizes the two-and-a-half day international economic conference hosted by The Chicago Council, in partnership with nine local and global institutions, on May 2-4, 2012.
“A Thought Toward Global Governance”
The G8 faces two fundamental problems:
1. No legitimacy due to lack of an objective standard to select members. There was, however, an objective standard between 1975 and 1994. In principle, the largest six (G6) or seven (G7) countries were always selected during that period.
2. The economic weight of emerging countries has increased. The aggregated total share of the G7’s GDP fell from 61.7 percent in 1976 to 48.3 percent in 2011.
“Joint Debt Management Policy: A Novel Strategy to Stabilize Government Bond and Foreign Exchange Markets”
Wanted: New strategies and decisive actions
There has been a plethora of documents and studies regarding the fiscal imbalances of Japan and the United States. A glimpse at these analyses gives the impression that the two countries have common difficulties in devising debt management policies despite their varying levels of public debt to GDP. This paper, therefore, suggests a new strategy for debt management policy to secure smooth and stable public financing besides traditional policy mixes (i.e., curtailments in outlays and tax hikes) to restore fiscal discipline.
“The Role of International Financial Institutions and Financial Regulation in Strengthening the World Economy”
The latest International Monetary Fund (IMF) forecasts point to a weak and fragile recovery in most advanced economies and significant downside risks for the global economy. There are renewed concerns about the eurozone and increased political uncertainty in Europe as social unrest spreads. Although most emerging markets are still experiencing healthy growth, there is a threat that yet more advanced economies will enter a double-dip recession as they face a “triangle” of interconnected problems—high fiscal debts, low growth, and financial sector weakness.
“Brazil’s New Development Model: Accomplishments, Threats, and Policy Lessons”
Brazil has embarked on a period of great optimism since the mid-2000s, with improvements in its economic performance and, consequently, its global status. Social indicators have also improved considerably, with major declines in unemployment, poverty, and inequality. A new middle class with greater access to credit has emerged, leading the boom in consumption that has caught the interest of foreign investors and attracted large capital inflows. High domestic interest rates, low levels of government debt, a budget under control, and large gains in the terms of trade have also helped attract foreign capital, with the undesirable result of an overvalued currency—which, nonetheless, helped Brazilians to feel better off.2 The country has also become a model of best practices in a number of areas, from financial regulation to conditional income transfer programs, and has become more assertive in global politics, with its international status bolstered by its active participation in the G20.
"Macroeconomic Coordination: What Has the G-20 Achieved?”
G20 macroeconomic coordination went through three successive phases. In the first phase, from the Washington summit in 2008 to Pittsburgh in 2009, the focus was on stimulating the global economy across the board. All countries were requested to contribute, to the extent permitted by the domestic fiscal situation. In the second phase, from the Toronto summit in 2010 to Cannes in 2011, the focus shifted towards a more complex set of objectives, with the aim of combining continued support for growth, budgetary consolidation, and the prevention of imbalances. In the third phase, from Cannes onwards, the focus has been on the European crisis and potential contributions to a solution from the rest of the world.
"Whither the Patterns of Development in China?”
For more than thirty years, China has weathered a variety of internal and external crises and grave challenges to maintain stability and achieve remarkable economic growth. As is known to all, China has become the world’s second largest economy and the largest exporter, with the world’s largest foreign exchange reserves. While China ranks much lower in terms of per-capita GDP because of its large population, the scale of China’s transformation in a generation’s time is astounding.
"High Capitalism and Its Alternatives"
When we rethink capitalism, we need to keep in mind that there are many varieties of capitalism: the Anglo-Saxon model, the German-Japanese model, the Nordic model, the Southern European model, the Chinese model, and many more. Even within the Anglo-Saxon model, one can easily distinguish the American model from the British model. The American model represents a version of “high capitalism,” i.e., a capitalism characterized by high innovation, high returns, high salaries, and above all, “winner takes all.” It has led to American success, but has also had large costs, including those inflicted by the current financial crisis.