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October 6, 2011 Daily Recap Global Economic Symposium

  • The need for ‘kamikaze politicians’
  • Avoiding currency wars
  • Fiscal consolidation
  • Adapting to climate change
  • A return to tribalism?
  • Water pricing
  • Pioneering ‘smart’ electricity systems
  • Social enterprises
  • Transparency in international trade

 

KAMIKAZE POLITICIANS NEEDED’, SAYS TURKISH DEPUTY PRIME MINISTER

‘We need more kamikaze politicians. We need governments who are prepared to sacrifice their political futures for their country’s future.’ That was the call of Ali Babacan, deputy prime minister of Turkey, speaking at the Global Economic Symposium in Kiel this week.

‘The world is facing massive problems, so we should also be taking massive steps to resolve them’, he said. ‘People should not think in terms of party or national borders. We need international solidarity.’

At the same event, Hans-Paul Bürkner, CEO of Boston Consulting Group said: ‘Today’s politicians are no worse than the ones we had ten or twenty years. But the problems to be solved have become much more complex.’

Arun Maira of India’s Planning Commission said: ‘Global problems know no boundaries. We are all in the same boat and must work together in the public interest. Market believers and believers in government must come together to find a third way.’

AVOIDING CURRENCY WARS

We need a global ‘lender of last resort’, which operates multilateral swap lines for banks across national borders, agreed experts at a session of the Global Economic Symposium this week. This would institutionalize some of the actions undertaken by central banks since 2008 on a multilateral rather than a bilateral basis. This is necessary because while most central banks operate within countries, financial crises do not respect national borders.

There was also broad agreement as to the desirability of reforming the governance of global institutions, particularly the IMF. Governance should be streamlined and reformed to reflect new global realities, particularly the importance of emerging economies. But the panelists were sceptical that radical changes to the international financial system (on the order of Bretton Woods) were likely.

FISCAL CONSOLIDATION PATHS MUST BE TIGHT BUT REALISTIC

High-deficit countries have to provide a convincing consolidation strategy to regain the confidence of financial markets and citizens, agreed experts from developed and emerging countries at a session of the Global Economic Symposium this week.

The consolidation strategy should be based on medium-term fiscal benchmarks that are to be reached in the next 3–4 years. Potential benchmarks are stabilization of the debt-GDP ratio or a target for a primary budget surplus. Some frontloading of consolidation measures will be necessary to demonstrate that governments are determined to take action.

Consolidation paths should, however, not be overambitious since failing to meet the announced paths could have major negative effects on the credibility of the strategy.

Experiences from the emerging markets – the BRICs in particular – could serve as a role model for developed economies. For example, the Brazilian and Chinese banking systems have been very robust during the recent crisis. But it is also clear that emerging economies are unlikely to help significantly in solving the current debt crisis in the ‘crisis countries’.

ADAPTING TO CLIMATE CHANGE– Interview with Colin Chartres, Director General of the International Water Management Institute

What global problem keeps you awake at night?

The biggest question for me is how we’re going to feed two billion more people on the planet over the next 40 years. And that’s going to put tremendous strain not only on our water resources, but also on our ecosystem services.

Do you have a solution for these problems?

It starts with the political leadership particularly in the developing countries in terms of making things happen – but also in the developed countries in terms of making good on the promises made at places like the G-20 so that their money flows into everything from the research and development through to the practical projects on the ground.

In the short term we have to say we’ve missed the boat on carbon mitigation because of the lack of political agreement. And while mitigation has to happen over the longer term if we’re to avoid disaster, what we have to do in the immediate short term is focus on how to adapt to the changes that are already happening.

We’ve had three times more natural disasters occurring since the 1980s. We’ve got water scarcity. We’ve got this growing population. We need to start to implement projects that build resilience into the poorest and most vulnerable communities.

How could this solution be implemented?

Political leadership to understand the issue; and political leadership to make sure we do something about it by channelling funds.

There is a liability that must sit with some of the higher polluting countries. They’re the ones that need to bring in carbon taxes and other measures to mitigate. But they also need to continue with other forms of aid, for example, a global insurance fund against natural disasters – and supporting organisations working on food security and poverty reduction. The onus has to be on the rich to help the poor.

A RETURN TO TRIBALISM? – Interview with Richard Evans, former CEO of Rio Tinto Alcan

What global problem keeps you awake at night?

In short I would say the return to tribalism. The financial stresses nowadays push countries to protect their own interests and that makes them to return to tribalism. Today there is a serious potential of trade warfare and foreign policy disputes because of so many financial stresses.

Do you have a solution for this problem?

The G-20 cooperation can play an important part here. The G-7 is too restrictive to solve this problem. The solution cannot only have a political dimension, it needs an economic one too. The risks and causes need to be analysed.

How could this solution be implemented?

We need studies that are published to the right audience. The studies need to be more precise, showing for example the range of potential costs of the solutions.

PRICING AS A KEY STRATEGY TO INDUCE THE EFFICIENT USE OF WATER

Multi-tier pricing is important to induce the efficient use of water, while guaranteeing the access to water for personal and environmental purposes. This solution was reached with broad consensus by the panel on ‘Water Scarcity and Virtual Water Trade’ at the Global Economic Symposium in Kiel this week. The suggestion to price water has been put forward before. But the panelists underlined that its implementation is key to reducing water waste.

Multi-tier pricing differentiates between water as a basic right and water as a commodity. The provision with water for basic needs and personal use should be guaranteed for free (or at least at an affordable price) while water should be priced for its commercial use in agriculture and industry.

Pricing mechanisms play a key role also for the other solutions brought forward by the panel. The environmental effects of water use should be reflected in pricing mechanisms. Thus, they could also induce investment in recycling technologies and guide cropping decisions.

Moreover, accounting standards in production processes should be modified to reflect the role of water in the food supply chain. Based on a better accounting, people could be informed better about the water content of goods. In addition, the waste of water through the waste of food should be reduced.

PIONEERING SMART ELECTRICITY SYSTEMS

Standardization of communication protocols and metering equipment in electricity are the most important measures to take in pioneering ‘smart’ electricity systems, according to experts at a session of the Global Economic Symposium this week.

Uniform standards have the potential to reduce implementation costs and facilitate the provision of ‘Smart Services’. These services, such as the visualization of different electricity price levels or even direct demand management, provide extra benefit for and acceptance by the end-user.

Standards should be harmonized to some extent on the supra-national level since challenges vary greatly between countries. Taking local requirements into account supports the development of adequate business models and allows the concrete implementation of the abstract concept of Smart Electricity System.

The experts also stressed the importance of price incentives to the end-users. Price incentives can promote energy efficiency without compromising consumer autonomy and are at the same time easy to implement. Nevertheless non-monetary rewards, such as the visualization of energy and carbon savings, are a powerful extension – for example, ‘who is winning the race for being the most efficient household in town?’

FUNDING SOCIAL ENTERPRISES: OUT OF THE ASHES OF THE CRISIS?

Social enterprise is booming even though ambiguity about language remains. Hence a precondition or facilitator for all solution proposals is a standardization of language around social metrics. That was one of the conclusions of a group of experts at a session of the Global Economic Symposium this week.

For investors to fund social businesses and for governments to support their development, social impact needs to be transparently and clearly measured. Common metrics would also make it possible to tilt the tax system in favour of the social enterprise sector.

We also need to make the financial world more accessible to social entrepreneurs and make social enterprises more interested and knowing about impact investors. Finally, we need to develop an intermediate structure of banks, brokers, exchanges, venture capital firms, etc. that bring together providers and receivers of investment, just as the commercial investment market is supported by a vast array of intermediaries.

MORE TRANSPARENCY NEEDED IN INTERNATIONAL TRADE

Less complexity, greater transparency – these are essential for making world trade work more efficiently. Speaking at the Global Economic Symposium in Kiel this week, Professor Renato Flores of Brazil’s Getulio Vargas Foundation said:

‘Free trade is a blessing and therefore is the major goal. But we must be realistic: governments are under pressure to protect industry and jobs within their borders. But if you must already be protectionist, then at least a smarter: it is important to protect some parts of the economy, but without thereby retarding technical progress.’

Trade barriers are necessary if only to ensure safety, said Kunio Mikuriya, Secretary General of the World Customs Organization: ‘Previously, the customs had to collect primarily the task of taxes. Today the focus is to track down dangerous goods and to prevent its importation into the country.’

The young, internet-savvy generation has less and less understanding of limitations, warned Thomas Kipp, CEO of DHL Global Mail: ‘Harmonization and standardization are essential in light of increasing trade over the internet.’

The fourth Global Economic Symposium (GES) is being jointly hosted by the Kiel Institute for the World Economy and the Bertelsmann Stiftung, in cooperation with the German National Library of Economics (ZBW) – Leibniz Information Centre for Economics.

Further information can be found at www.global-economic-symposium.org.

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