Tom Mitchell, George Parker and Gabriel Wildau in Hangzhou – Financial Times September 5, 2016
Leaders of the world’s 20 largest economies have been warned that they must “civilise capitalism” as they seek to revive economic growth and address growing public scepticism about the benefits of free trade and globalisation.
This year’s G20 leaders summit, which concluded on Monday in the eastern Chinese city of Hangzhou, was held in the wake of British voters’ decision to leave the EU and the rise of populist political candidates on both sides of the Atlantic.
Officials present during closed-door sessions said US president Barack Obama, UK prime minister Theresa May and her Australian and Canadian counterparts emphasised the need to placate public discontent. According to the officials, Australian prime minister Malcolm Turnbull, a former Goldman Sachs banker, warned his peers of the need to “civilise capitalism”.
“Growth has been too low for too long for too few,” Christine Lagarde, managing director of the International Monetary Fund, said at the conclusion of the summit. “There was also a determination around the room to better identify the benefits of trade in order to respond to the populist backlash against globalisation.”
One G20 official said there was a high “degree of awareness” among heads of government that globalisation could be thrown into reverse. “It has taken the rise of populists across the world for them to realise this,” he said. “If we do not address the issue of fairness, [it] could endanger the global economy.”
Another person involved in the discussions said that “it was a summit where leaders have been talking a lot more about people and less about economics”.
Chinese president Xi Jinping helped set the tone of this year’s G20 meeting in a weekend address to business executives. “Development is for the people, it should be pursued by the people and its outcomes should be shared by the people,” Mr Xi said.
“This is not just a moral responsibility of the international community,” he added. “It also helps unleash immeasurable effective demand.”
The global economy is projected to expand just 3 per cent this year as its traditional engines of trade and investment sputter. G20 officials involved in drafting the event’s final communiqué said it would call for the use of “all available tools” to boost global growth.
Before the two-day meeting, the US government argued that a “public bandwagon” was growing to ditch austerity in favour of fiscal policy support.
“Maybe the Germans are not absolutely cheering for it but there is a growing awareness that ‘fiscal space’ has to be used to a much greater extent,” agreed Ángel Gurría, secretary-general of the Organisation for Economic Cooperation and Development.
China’s economy, the world’s second largest, is growing at its slowest rate in a quarter century. Chinese officials say they have room to boost fiscal spending given relatively low public sector indebtedness, but are putting more emphasis on structural “supply side reforms”.
“Following the old road of relying purely on fiscal and monetary policy leads to a dead end,” Mr Xi said on Monday, adding that his government remained committed to cut domestic steel capacity by up to 150m tonnes by 2020 while eliminating a billion tonnes of coal production.