What is the most important high-level dialogue in international economics? The answer is not the discussion among the finance ministers of the Group of Seven high-income countries. It is the “strategic dialogue” between China and the US. This is not because the latter will produce answers, but because it asks the right question. The biggest challenge in international economic policymaking is the incorporation of China. This, to his credit, Hank Paulson, the US Treasury secretary, has recognised. But his bilateral approach will fail. The G7 should, instead, be replaced by a multilateral body that can address such issues more effectively.
To understand the challenge, we must appreciate what makes China’s impact special. Experts often describe today’s globalisation as the “second globalisation”, to distinguish it from the “first globalisation” between 1870 and 1914. In the earlier era the rising economic power was the US and the UK was by far the world’s most important exporter of capital. But China is now emerging as both the world’s most dynamic economy and its largest source of capital. This helps explain a signal feature of our era: the combination of rapid growth with low real interest rates.
by Lawrence Summers If global warming is the ultimate inconvenient truth, the most important inconvenient truth about global warming policy, argued in last month’s column, is what happens in the developing world. These countries will deliver three-quarters of the increase in global greenhouse gas emissions over the next generation, on current forecasts. Beyond the developing world’s preponderant impact on emissions, there is the additional reality that because so much of economic activity is mobile, policies that restrict emissions in some places but not everywhere may just relocate emissions not reduce them. Read more
The Asian financial crisis of 10 years ago taught two contrasting lessons: the one the majority of western economists thought the Asians should learn; and the one Asians did learn.
The western economists concluded that emerging economies should adopt flexible exchange rates and modern, well-regulated and competitive financial markets. The Asians decided to choose competitive exchange rates, export-led growth and huge accumulations of foreign currency reserves. The question is whether the Asians need to change their choice. The answer, I believe, is “yes”. Read more
The Great Wall is China’s most celebrated tourist attraction. As China’s impact on the world and its rulers’ desire to control the world’s impact on China grow, it appears as an enduring and disturbing metaphor. From the Great Wall, aimed at the “barbarians” of the Steppes, to today’s Great Firewall, aimed at free flows of information, China’s rulers have wished to keep their people separate.
Yet how far can China remain inside the world and outside it, embrace the west’s market economy, while rejecting its political ideas? Read more
What does the election of Nicolas Sarkozy mean for France, the European Union and the world? The answer will depend on whether what now emerges is a European France, a French Europe or a France set against Europe. Any of these three outcomes is possible. Only the first would be desirable. Which it will be depends on Mr Sarkozy’s true identity. Will he be an economic liberal or a populist interventionist? It is probable that he will turn out to be a mixture of the two. If so, his arrival is likely to deliver the last of the three alternatives: France against Europe.
The French agree on few things. But on one thing, they have close to a national consensus: free markets and free trade are a diabolical Anglo-Saxon plot. In a thought-provoking book on the challenge for French policymakers, Georges de Ménil, himself an American-trained liberal economist, ascribes this hostility to the legacies of Catholicism, Cartesian rationalism, revolutionary utopianism, nationalism and the dominance of the state*. Read more
Posterity will regard the economic performance we are now witnessing as a golden age. It will also know, although we do not, how long this era lasts. That will depend on decisions now taken. Such a period offers opportunities. Posterity will blame those who fail to seize them. Even the International Monetary Fund was remarkably optimistic about the robustness of underlying growth in its latest World Economic Outlook. Should such optimism make one feel more confident about the future? Probably not. Nevertheless, the IMF’s case is at least plausible: the world economy is enjoying a remarkable period of broadly shared growth. Indeed, measured at purchasing power, the world is in a period of economic expansion unmatched since the early 1970s (see chart). Most important of all, every region of the world economy is now doing well. The remainder of Martin Wolf’s column can be read here (FT.com subscribers only). Discussion from our guest economists is free.