A lot has already been said and written about how the meeting of the Group of Twenty (G-20) leaders in Pittsburgh this month marks a fundamental shift in the balance of global economic power.
Countries such as India that have now been invited to the high table should not rush into premature celebration. The G-20 meetings are a talking shop. The main institutions that handle important levers in the world economy—the International Monetary Fund (IMF), the World Bank and the World Trade Organization—are still controlled by the countries that won World War II many decades ago.
The way power has been shared in IMF and the World Bank is dated. A European always heads the former and an American the latter. This is bound to change in the coming years, as India and China flex muscle and get more voting power as part of the much-vaunted process of IMF reform.
The more interesting challenge will be what these two countries can contribute to the ideology of the Washington twins that, for all their inevitable mistakes, have given the world a rigorous frame of reference. There is currently an ideas vacuum that needs to be filled. Alan Greenspan famously admitted in October 2008 that the intellectual edifice on which the global economy rested collapsed in the summer of 2007. He was specifically referring to the financial markets but the comment can be transferred to global institutions as well. The question is what will come up in place of the old edifice and what ideas will the new edifice be rooted in.
India and China will have to be part of the necessary process of intellectual rebuilding, even if one does not necessarily agree with Winston Churchill’s old prediction that the empires of the future will be empires of the mind.
The writer and activist Laurence Brahm has been advocating a new economic policy paradigm that he calls the Himalayan Consensus.
It is not hard to figure out that Brahm is juxtaposing this new paradigm against the Washington Consensus, the cookie cutter set of policies that were at the heart of many economic reform programmes over the past 15 years or so.
“Washington Consensus models of economic development are discredited. Developing nations seek new alternatives to the Washington Consensus. Nowhere is this feeling stronger than Asia, which had been chastised and lectured by Washington following its own regional financial crisis in 1997,” Brahm wrote in August, in the aftermath of the global financial collapse. He has been an adviser to several Asian governments and was close to the Chinese leaders who pushed through economic reforms and took China into the World Trade Organization in 2001.
The point here is not to drill deep into the layers of what constitutes the Himalayan Consensus. Statements such as these are delightfully vague: “Himalayan Consensus draws upon Asian values of compassion, alms giving, community cohesion and networking. It seeks a middle way between extremes, rejecting both economic and political fundamentalism.” But Brahm’s view that policies need to be sensitive to ground realities is a valid one.
The more intriguing idea is whether the two Himalayan powers—India and China—can nurture and contribute fresh ideas on how the world economy should be managed. What if the next IMF head is an Indian? Former IMF chief economist Simon Johnson had said in a New York Times column published in April that it is likely that the next IMF chief could be from an emerging market country such as India or Brazil. What ideas would such a person bring to the table?
IMF’s new World Economic Outlook provides some clues on how there is an attempt to reconsider some of the old shibboleths in the aftermath of the global financial crisis. The detailed commentary on whether policymakers should respond to asset price fluctuations comes many years after the Indian central bank came under fire for doing precisely this. IMF has already softened its approach to countercyclical fiscal deficits, in sharp contrast to the fiscal purity it prescribed to crisis-stricken Asian countries in 1997 even as private demand had collapsed.
A Himalayan Consensus—or at least a strong common contribution from India and China to a new policy consensus—is an alluring idea but not an easily achievable goal. There are too many differences between the two countries right now, especially when it comes to currency management and mercantalism. There is not enough coincidence of national interest as yet between Asia’s two emerging powers.
But perhaps there will be a need to build such a consensus soon, even if there continue to be differences, just as the US and Europe cooperate in these global institutions despite deep differences on many policy issues. It will be a process worth watching.
Niranjan Rajadhyaksha is managing editor of Mint. Comments are welcome at cafeeconomics@livemint.com