After the Meltdown

A Private Roundtable on a New U.S. International Economic Policy

Executive Summary

Session I: Setting development assistance priorities

Session II: Setting trade liberalization priorities

Session III: Widening participation in the gains from economic integration

Session IV: International Financial Architecture

Participants

Photos from the event.

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Executive summary

The Center for American Progress convened a high-level meeting of domestic and international policymakers and thinkers on international economic policy on December 11, 2008. Current and former multilateral institution heads were represented at the table, as well as international cabinet-level representatives, former U.S. administration officials, and heads of Washington-based think tanks, NGOs, and campaigning organizations.

Six hours of discussion on the current global economic meltdown covered the topics of development, trade, and international financial architecture during four sessions. Central to these discussions was the importance of ensuring that prosperity is widely shared in developed and emerging economies.

The Center for American Progress published a series of documents alongside a public event the following morning with Kemal Dervis, Richard Samans, and Juan Somavia, including a new report by Richard Samans, “Transitioning to a new U.S. International Economic Policy: Toward a ‘Global Deal’ to Revive and Broaden the Benefits of Growth.”

The private meeting’s key conclusions included:

• The incoming administration cannot hold trade and development in separate silos; it must consider them together.
• The size and composition of development assistance is critical in advancing living standards; multilateral and bilateral forms of assistance both have a role to play.
• The timetable for meeting the G20’s request to agree to the Doha modalities is closing and will come up against the Indian election likely in April or May.
• Decent Work must underpin widespread advancement in gains from trade.
• The current economic crisis should be used to reform the international financial architecture, and the IMF’s role should be enhanced rather than diminished.
• More work is needed on the substantive role and composition of the G20.

The Center for American Progress will be following this event with an international discussion on global governance and the role of the G20 in the spring.

Session I: Setting development assistance priorities

We do not yet know the full consequences of the current economic crisis, and it will almost certainly continue worsening, but it will undoubtedly affect President-elect Obama’s international economic policy agenda, including development.

The economic downturn is a global problem. Economic growth rates in all countries are slowing and unemployment is rising. Attendees suggested that worldwide perceptions of globalization—which is generally viewed favorably during times of economic growth—have started to decline. This shift in opinion is partly due to the negative repercussions of the subprime crisis around the world, where blame is perceived to lie with the United States.

The least-developed countries have not felt the initial wave of the economic downturn, but will be hit if the United States and other developed countries are unable to provide official development assistance. That said, development assistance should not be viewed purely as a bilateral exchange; it should include multilateral assistance, public-private partnerships, trade policies, and the work of philanthropic foundations. The world’s nations can restore economic global leadership by maintaining strong global institutions and pushing for robust macroeconomic policies.

Attendees agreed that the United States has a crucial role to play in terms of global leadership, but it will have to balance short- and long-term goals, and domestic and international pressures. A key focus will have to be global development.

The “smart power” debate has strengthened development by positioning it within a broader national security context. President-elect Obama has pledged to double foreign assistance, but he must also consider the question of why we engage in foreign assistance. Attendees suggested that the U.S. Agency for International Development is weaker now than it has ever been and U.S. development efforts are undermined because they are spread out over 20 government agencies. Foreign aid legislation was written in 1961 during the Kennedy administration and has not been updated since. U.S. development assistance needs to be fundamentally reconceived and reprioritized by creating a national development strategy, a new cabinet-level structure for administering aid, and 21st-century legislation to handle today’s development challenges.

Other topics of discussion included the food crisis and failure of agricultural development policies, the role of remittances, migration, social security, and the role of the Decent Work Agenda. One attendee suggested that the Millennium Development Goals will prove much more difficult to achieve in the coming years because donors have not fulfilled their development assistance commitments. And finding solutions to climate change is also critical and will require multilateral action.

The new administration will need to have a sense of responsibility not just for the domestic crisis, but also for its international implications. The United States needs to play a leadership role in addressing frustrations around global integration.

Session II: Setting trade liberalization priorities

Trade has been a key driver of global economic growth and will continue to be so in the future. Fostering trade rather than stymieing it would therefore facilitate recovery from the current economic crisis. There was considerable support, particularly from the international participants, for concluding the Doha round of trade negotiations. Brokering such a deal would offer some optimism for an otherwise bleak 2009.

Nonetheless, it is inevitable that these negotiations will be pushed back at least to the early part of 2009 since there is a lame-duck president currently in office and the president-elect must restrain himself until he formally takes office. This concerned the international participants since it is unclear whether India, with its election looming, will be able to negotiate as the spring approaches.

Appropriate policies and institutions are clearly needed to better redistribute the gains from trade both in the United States and abroad. Attendees noted that, for the domestic debate, it is not possible to have a progressive foreign policy with a regressive trade policy. There are few levers through which countries interact, and trade constitutes one such channel. Transatlantic dialogue on trade, for example, is an important strand of the relationship between the United States and Europe.

A progressive trade policy in the United States should incorporate the provision of social safety nets to a much greater extent than it does already, including a universal health care policy. Attendees agreed that a progressive trade policy should foster competitiveness through policies that cultivate innovation and technological advancement, and examine and attempt to balance worldwide savings rates.

Within an international context, trade has not benefited all countries that have opened their markets because there is not always sufficient trade capacity. Any trade adjustment assistance or aid for trade should therefore be coupled with the domestic provision of social safety nets to protect citizens from the detrimental effects that fall on certain industries. The gains from trade should also be redistributed more equitably. This is essential to maintaining global support for openness.

Trade is a piece of the global economic jigsaw puzzle; it has value as an individual piece, but it is much more important as part of the whole. Establishing a robust trade agenda alongside a parallel institution-building agenda is possible. Participants said that this would be a positive step toward re-invigorating U.S. global leadership and garnering a favorable international view of the Obama administration.

Session III: Widening participation in the gains from economic integration

The current economic crisis is also a jobs crisis. A major challenge now is for the world to agree to an agenda for more and better work and not let the short-term exigencies of the economic downturn derail these efforts.

The past mindset was that countries could grow their economies and then distribute the benefits of that growth later, but that distribution did not happen. Productivity gains have increased over the past decade, while distribution has decreased, and there is now a much wider disparity between the rich and the poor. Workers have experienced not only stagnation in their wages; many have seen their salaries decline. In short, domestic U.S. workers are not gaining from these higher levels of productivity and are dissatisfied with the effects of globalization.

The session outlined three factors that contribute to this phenomenon. First, the United States has, over the last eight years, taken an ideological approach to economic governance. This includes, for example, elevating market deregulation to a philosophy for governing the economy. Second, strong distrust has emerged between workers and multinational corporations. It is no longer the case that what is good for American companies is good for America. Policymakers need to reassess how global agreements affect workers at home and play a much more proactive role in examining how companies’ dealings abroad affect growth and labor standards domestically. Third, the International Monetary Fund has created worse conditions for workers, especially in developing countries. Mandatory structural adjustments put a significant burden on governments and hurt funding for many sectors including education, training, and labor, which attendees suggested would make it difficult to maintain parallel policy agendas for labor and trade.

These three areas should not be treated as separate and divergent interests; participants agreed that policy must focus on the convergence of trade and labor policies.

The Decent Work Agenda played a strong role in the discussion, particularly its framework for dignity at work, international standards, and the provision of jobs, as well as effective social protections such as universal healthcare, continued education and training, and pensions. Last year’s May 10 agreement on trade, which attached environmental and worker protections to several pending trade accords, demonstrated that businesses were in agreement about labor and environmental rights, and most other significant issues.

Policymakers will have to take a combined approach to fighting poverty and implementing the Decent Work Agenda in order to advance the overarching objective of balancing global trade, development, and labor issues. Multilateralism and interstate policy coordination on Decent Work will be imperative in achieving this. The current crisis facing the auto industry, for example, is tied to and will affect countries all over the world. Leaders must take a multilateral, and sectoral approach to contain the crisis. Each country will also have to work with each other and afford others the flexibility and policy space needed to stabilize their own economies.

This historic crisis has produced an unprecedented opportunity. Given all the concerns and pressures around the world, arguments and infighting have now diminished. Labor and business now want to work together to fix the problems. Policymakers, labor, and business are all thinking big and are in need of a bold vision and policy that includes all the relevant parts: growth, labor, development, and trade.

Session IV: International financial architecture

Michel Camdessus, managing director of the IMF from 1987 to 2000 suggested in his after dinner address that the current crisis provided an opportunity for reform. The global financial village had been allowed to expand without any effective international regulation, he said, and policymakers should recognize the sea change that has occurred and act urgently and radically.

The IMF has highly professional staff and must remain the centerpiece of international financial architecture. It should be given greater powers of surveillance without reducing its other important responsibilities including addressing global imbalances. The United States, in particular, has an important responsibility here.

Governance arrangements are also of critical importance, but they are not yet right. The Executive Board’s membership of 25 is too large and includes over-representation from Europe and under-representation from the developing world. And Camdessus suggested changing the name of the International Monetary Fund to the “Monetary and Financial World Fund.”

The post-dinner discussion delved deeper into the mission of the IMF, which attendees suggested still suffers from a credibility problem driven by the conditionality and deflationary agenda of the 1970s and 1980s. Others suggested that the IMF should be given greater teeth and independence in relation to its surveillance work and that member countries should not be able to veto country reports. The Bank of International Settlements and the Financial Stability Forum could be better arenas for financial market regulation and oversight.

The G-20 could emerge as the de facto international leaders’ body. Although there is under-representation from the poorest countries and the most generous donors (i.e. Nordic countries), attendees saw it as the best forum for forging consensus. The G-20 could be used for cross-sectoral negotiations such as high-income countries trading off representation on the IMF board for concessions from middle-income countries on climate change.

These summaries were produced by Winny Chen, Sabina Dewan, Natalie Ondiak, and Will Straw.

List of participants

Urban Ahlin. Chairman, Swedish Parliamentary Foreign Affairs Committee
Catherine Ashton, Trade Commissioner, European Union
Charlene Barshefsky, Senior International Partner, WilmerHale, LLP
Amar Bhattacharya, Director, G-24
Karan Bhatia, Vice President and Senior Counsel for International Law and Policy, GE
Nancy Birdsall, Director, Center for Global Development
Matt Browne, Visiting Fellow, Center for American Progress
Sharan Burrow, President, International Trade Union Confederation
Michel Camdessus, former Managing Director (1987-2000), IMF
Simon Crean, Trade Minister, Australia
Kenneth Dam, Senior Fellow, Brookings Institution
Kemal Dervis, Executive Head, UNDP
Sabina Dewan, Associate Director for International Economics, CAP
Ambroise Fayolle, Executive Director for France, IMF
Helga Flores, Chief of Constituencies, Inter-American Development Bank
Claude Fontheim, Fontheim International
Ed Gresser, Director of Trade of Global Markets Project, PPI
David Lane, President and CEO, One Campaign
Trevor Manuel, Finance Minister, South Africa
Raymond Offenheiser, President, Oxfam America
PierCarlo Padoan, Deputy Secretary General, OECD
Sandra Polaski, Director of the Trade, Equity and Development Program, Carnegie
Endowment for Peace
Bill Reinsch, President, National Foreign Trade Council
Richard Samans, Senior Fellow, Center for American Progress
Barbara Shailor, Director of International Affairs, AFL-CIO
Ira Shapiro, GreenbergTraurig, LLP
Robert Shapiro, Director of Globalization Initiative, New Democratic Network
Arshi Siddiqui, Counsel, Office of Speaker Pelosi
Juan Somavia, Director-General, ILO
Gene Sperling, Senior Fellow, Center for American Progress
Thoralf Stenvold, Counsellor, Permanent Mission of Norway to the U.N.
Will Straw, Associate Director for Economic Growth, CAP
Karen Tramontano, President, Global Fairness Initiative
Sarah Rosen Wartell, Acting CEO, Center for American Progress
Christian Weller, Senior Fellow, Center for American Progress