Balancing power

2010-11-16 00:00

WHILE I was in Taiwan and Hong Kong last week, I observed with interest the intersection between intra-regional experiences in South East Asia and the G20 Summit that President Jacob Zuma attended.

The world’s 20 most powerful economies, including troubled erstwhile mainstays of the world economy like the United States and newly emerging economic powerhouses like China and India, gathered last week in Seoul, South Korea, to reflect on the state of the global economy and to decide on measures to resolve imbalances. Basically, the meeting needed to establish a new consensus on international economic development — a major task indeed.

The Washington Consensus fashioned to promote the growth paradigm in the aftermath of World War 2 cannot be trusted any longer as it did not only breed global poverty and inequality on a large scale (Africa’s terrible experience with International Monetary Fund and World Bank economic structural programmes in the 1980s-90s is a case in point), but it also failed to prevent the worst economic crisis since the Great Depression of 1929-30.

The G20, a club started in 1999 as a gathering of finance ministers and later heads of state to thrash out economic strategies for the world, has acquired a broader and more significant role in managing the global balance of power. It is essentially about sufficient consensus between the old powers like the U.S. and Europe, on the one hand, and the new ones such as China, India and Brazil, to ensure that actions undertaken to deal with global problems enjoy broad legitimacy.

The Korea meeting was significant for two reasons.

The first is the gravity and urgency of the economic problems that the club needed to resolve before a currency war broke out, mainly between the U.S., whose dollar is the only true global currency, and China, whose Yen is thought to be undervalued, thus giving Chinese exports an unfair advantage in global trade. A few years ago this matter would have been left to the Group of Eight (U.S., United Kingdom, France, Germany, Russia, Canada, Italy and Japan), that represented only 14% of the world population, but now the G8 is dead, surpassed by the G20.

While still elitist and unrepresentative, the G20 has the advantage of putting highly industrialised countries, emerging economies and lower middle-income countries, like South Africa and Argentina, on an equal footing to set the norms for international economic development.

The second reason is the significant symbolism of the host for world power politics. From a poor former colony battered by a bruising war five decades ago, South Korea has transformed itself into a middle-income, prosperous economy by investing immensely in education and innovation, and aggressive industrial- isation. It is a self-made country whose own story disabuses economic orthodoxy, but also raises questions on whether poor countries can successfully pursue aggressive democratisation and industrialisation simultaneously.

Solutions to rekindle the global economy and to prevent another crisis can no longer be decided in Washington, London or Brussels. The weakening centres of power have been careful not to alienate the emerging powers. There is no better illustration of this than the failure of the U.S. to get the G20 to pressure China to devalue its currency in order to help rebalance global trade. Instead, attention in Seoul turned to the U.S.’s decision to pump $600 million into its economy, thus risking economies elsewhere.

The G20 statement, while it is not remarkably bold in detail, suggests that a new broad consensus now exists on international economic development. Indeed, the Washington Consensus that supported the economic orthodoxy of the past five decades was replaced with elements of the paradigms of developing countries, including the use of capital controls by countries affected by currency wars, and the centrality of development outcomes.

Even a small economy like South Africa could concretely influence the agenda. The outcomes of the Seoul Consensus will be seen in the long run, but they will certainly affirm the utility of the experiences of the likes of South Korea as a guide for the pursuit of global prosperity.

But these gradual shifts would be of no benefit to South Africa unless, like the Asian tigers, it invests heavily in education and innovation to build a knowledge-based economy. The Korean developmental state we want to replicate is a highly professional and efficient entity that helped South Korea overcome the colonial legacy of poverty.

The much-awaited national plan by Trevor Manuel should shed light on this. Otherwise, our membership of the emerging world will be tenuous, being based the altruism of others rather than on our own economic strength.

• Siphamandla Zondi is the executive director of the Institute for Global Dialogue, but writes in his personal capacity.

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