National interests, global inertia prevent action - SA
The state's blueprint for recovery stresses equitable reform
April 3, 2009
By Wiseman Khuzwayo
Collective action on the economic crisis has been increasingly hamstrung by institutional and political inertia, says a discussion document taken to yesterday's Group of 20 (G20) summit in London by Finance Minister Trevor Manuel.
Despite growing economic integration, the institutions of multilateral collaboration are fragmented and ineffective, says the paper, which presents the recipe for recovery of the G20's only African member.
"As evidence of the risks mounted and it became clear that the trajectory of global growth was unsustainable, national authorities were unwilling to rise above national interest and global institutions were unable to forge a collective response," it continues.
In the decade of economic growth that preceded the crisis, global integration advanced, it says, but transient holdings of opaque financial instruments, freed from effective regulatory constraint, "generated high private rewards out of proportion to their social productivity".
This compromised the financial sector's primary function of allocating capital efficiently to support investment for real economic growth.
Savings gathered in industrious parts of the developing world were channelled into consumption and government deficits in developed nations.
Instead of being reinvested to build productivity and support human development, the vast capital flows stimulated financial excess and asset price bubbles in the rich world.
"Inequality has widened in an era of unprecedented prosperity. Stagnating wages, high levels of unemployment and poverty undermined the basis of effective demand.
"As a consequence, levels of consumption remained far too low in some parts of the world, while in others stagnating wages spurred the demand for credit to sustain consumption."
The paper presents South Africa's argument that the G20 summit should agree on a plan to restore global growth based on four pillars:
Stabilise global finance by unblocking credit and taking decisive, co-ordinated and short-term national action to restore confidence in the system.
Counter the recession by boosting domestic demand through co-ordinated fiscal and monetary policy actions.
Deploy resources to support demand and sustain investment in developing nations, to prevent deepening of the global recession and boost counter-cyclical global efforts.
Lay the foundation for sustainable recovery on the basis of a more balanced and inclusive world economy, premised on a stronger and more equitable system of global multilateralism with stronger social safety nets.
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