Move over, Washington Consensus. Make room for the Cornwall Consensus.
The former is the name often used as shorthand for a set of principles that have guided international economic policy for much of the past three decades – grounded in free markets, globalization, trade liberalization and deregulation.
While it has been credited with raising living standards and reducing poverty, it has been criticized for placing growth ahead of resilience, leaving the global economy vulnerable to economic crises. The COVID-19 pandemic has exposed some of the most severe cracks in the Washington Consensus foundations.
The Cornwall Consensus is, effectively, an emerging response to those shortcomings. Named for the location of last June’s Group of Seven leaders’ meeting at which the idea was born, the Cornwall Consensus advocates a more active role for governments, in co-operation, to safeguard the global economy and address key risks to stability, including health and environmental risks.
The name was coined by the G7 Panel on Economic Resilience, a group of influential economic-policy experts (including former Bank of Canada senior deputy governor Carolyn Wilkins) appointed by G7 leaders to advise them on strategies to better armour the global economy against future crises. The panel released its final report last week – a document that amounts to an initial playbook for a new approach to global economic stewardship.
“We argue for a step-change in global economic governance,” panel chairman Mark Sedwill, former head of the British civil service, wrote in the report. “That means more effective collective mechanisms to identify and manage emerging risks, to co-operate better in global institutions, to respond collectively to economic risks or coercion, and to ensure that national policies to protect national economic security are not deployed against allies.”
Many of the report’s key recommendations are not particularly radical. Its calls for co-operation on vaccine distribution, future global health safeguards, and carbon pricing and trading mechanisms, for example, which are already mainstays of any discussion on postpandemic global economic policy.
Other recommendations advance the discussion in important new directions. It urges political co-ordination on securing supply chains, including working together on simulations and contingency planning to maintain “critical supply chains” during crises. It calls for a particular focus on the security of critical minerals, semiconductors and digital data, which Lord Sedwill calls “the oil, steel and electricity of the 21st-century economy.”
Taken as a package, the focus is very different from the more traditional conversation that we might hear about restoring and revitalizing growth in the wake of a major global economic shock. It’s telling that the starting point for this entire exercise is built into the panel’s name – “economic resilience,” rather than, say, “economic prosperity” – although certainly, the two go hand in hand.
It should be obvious – but is way too often ignored – that the biggest threat to a sustainably stronger and healthier postpandemic global economy is another severe setback. A big part of the concept of “build back better” really has to be a strengthened security system, to weather whatever threats lurk around the next bend.
“Market forces and government stimulus can generate growth relatively quickly, but won’t necessarily make the investments needed to build resilience to shocks that threaten livelihoods in the future,” Ms. Wilkins said in an interview by e-mail.
“The Washington Consensus emphasized market forces, grounded in a belief in the market’s invisible hand to deliver what citizens value. The Cornwall Consensus emphasizes the power of the state and public-private partnerships to deliver vibrant, resilient and sustainable economies that benefit all.”
Certainly, there were co-ordinated strides taken internationally after the 2008-09 financial crisis to better risk-proof the global banking and financial system. Those reforms present a model of what can be done together to build more resilience into the global economy.
But in recent years, multilateral co-operation has faced rising skepticism and repeated threats. The growing dissatisfaction over the consequences of market-driven globalization – on jobs, on the environment, on the increasingly unequal distribution of wealth – has led opponents to try to turn back the clock, to erect barriers to free trade, to reclose borders.
The Cornwall Consensus is not much more than a concept at this point, but it is an attempt to find another way – not destructively backward, but forward. And it has reached some pretty powerful ears: The G7 leaders collectively preside over more than 40 per cent of global GDP. It will now be up to those leaders to decide how far it runs.
There’s no question that we need something. Not necessarily to completely replace the Washington Consensus, but to address the troubling holes in the existing framework – through which too many people slipped, and too many risks were uncontained.
“If we are going to overcome the major challenges facing the global economy today – the pandemic, economic fragility, rising income inequality, climate change – we can’t use an old orthodoxy that failed to address these challenges,” Ms. Wilkins said.
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