|The World Economic Forum, billed as the largest-ever brainstorming on the global agenda, drew about 700 people to Dubai in early November. Image credit: worldeconomicforum at Flickr under a Creative Commons license.|
It is striking how well the global trade system is working, even as the global financial system spirals into crisis. This is not to say that global trade is immune from the crisis, far from it. Trade finance has contracted sharply and the World Bank projects that total global trade in 2009 will decline for the first time since 1982. But what is striking is that global trade has a well-defined set of rules and an institution (the World Trade Organization) to oversee them. Global finance, on the other hand, does not have a well-defined set of rules and regulations. Until now, the system of global trade continued to work well.
Sticking with trade for the moment, there was also striking unanimity about the importance of maintaining an open trade system. There is broad agreement that the financial crisis of 1929 accelerated into a Great Depression to a large extent because the major economies of the time erected tit-for-tat trade barriers that ended up making everyone worse off. So far, we seem to be resisting that route. However, there is reason to be concerned. What has happened in the past decade is that many developing countries have lowered their actual import tariffs below their committed tariff limits in the WTO (so-called “bound tariffs”). So, there is considerable scope for many countries to raise tariffs without violating their WTO commitments. The trade working groups in Dubai agreed that it was important to speak out against any such temptation. Even better, a move now to complete the Doha trade negotiations would lock countries in to the much lower tariff levels that mostly prevail today. The progress in the Doha round discussions up to now also includes important agreements on trade facilitation and opening markets to international service trade that would strengthen logistics.
A second take-away from the meeting was the importance of not letting the short-run financial crisis overwhelm the long-run agenda. In the closing plenary session, Cheng Siwei, president of the China Association for Soft Science Studies, argued that “climate change is more important than the financial crisis.” (Watch a video interview with Siwei) More generally, long-term issues such as climate change, demographics, the aging of the global population, water scarcity, and risk of health pandemics are likely to have more impact on people than the current financial crisis, as serious as it is. There was also quite a bit of anger at how weaknesses in public regulation and corporate governance in the advanced economies had generated such an explosion of financial innovation that in the end did not make people better off, but rather created a big mess.
I interpret a lot of the specific ideas that were bandied about as an effort to redirect incentives[B/I] away from short-term profit-making, and toward innovation to address long-term challenges. For example, pricing carbon appropriately combined with smart subsidies to R&D could generate a new wave of innovation in energy-saving devices and low-carbon energy sources. Ditto for water. The health issues require a mix of well-planned public regulation and spending plus incentives for inventing new vaccines and treatments. Some participants declared that the market system is dead, whereas a clear majority felt that it needed a “fundamental reboot” to use the power of incentives to tackle global problems.
A third reaction was that China needs more representation at these global think-fests. To be sure, there was a strong group of intellectuals from China. But in every discussion I took part in, there was interest in what China was thinking and doing -- and there were not enough Chinese present to participate in all 68 groups. A separate conversation is going on in Chinese about the financial crisis, the future of the market system, and the long-term global issues. There are a few people who can participate in the Chinese discussion and in the global discourse, but not enough. Right now a large numbers of young foreigners in Beijing and other cities are studying Chinese; and many young Chinese studying abroad. So, gradually the discussion in China and the global discourse are likely to come together. But for another decade or so it is important to make a special effort to bring Chinese intellectuals into the debates about global challenges.