BoC’s former No. 2 sets out a plan for the G20

TheGlobeandMail.com – report-on-business/economy/economy-lab/the-economists
Posted on Friday, April 8, 2011.   Kevin Carmichael, Washington

Paul Jenkins, the former No. 2 at the Bank of Canada, has emerged from retirement.

Mr. Jenkins, who resigned from the central bank last year, released a report with a co-author Thursday that calls on the Group of 20 to get serious about governing the global economy.

“The ways in which nations design and implement their economic policies is woefully inadequate to prevent economic crises or to achieve balanced, stable and sustainable global growth,” Mr. Jenkins, who is now a distinguished fellow at the Waterloo, Ont.-based Centre for International Governance Innovation, and Paola Subacchi, international economics research director at London-based Chatham House, write in the report.

This is Mr. Jenkins’s first significant public statement on policy since leaving the central bank. The work is impressive for its rigour. Mr. Jenkins and Ms. Subacchi go through previous efforts at global economic co-operation to reinforce their fear that the G20 risks irrelevancy without a concerted schedule to achieve concrete results. Their recommendations lack the kind of pop that makes for good headlines. But that is the strength of the study: Mr. Jenkins and Ms. Subacchi are legitimatley trying to help the G20 put its house in order by attcking the plumbing, rather than worrying about the colour of the paint.

Among their recommendations: a focus on developing economic models that do a better job at explaining the interdependence of the global economy.

A theme of the Chatam House-CIGI study is that G20 governments have a responsibility to create the local political conditions to allow for policies that are good for the global economy, rather than just the domestic economy. This will require solid analysis, and Mr. Jenkins and Ms. Subacchi say current economic models do a poor job at predicting how changes in domestic policies will ripple through the global system. With that analysis in place, countries should publish an “international impact assessment” with each domestic policy that could affect other countries.

The G20 also should draw up a “schedule of cooperation.” The idea is to bolster accountability. The farther the G20 moves from the crisis, the more it is starting to drift, and markers on the horizon might help keep politicians on course. Mr. Jenkins and Ms. Subacchi propose incremental steps. Within a year, the G20 should agree on the outline of what it wants to do to achieve its goal of strengthening the international monetary system. In three years, it could organize coordinated responses to volatile capital flows. Within 15 years, the G20 could set a goal to reduce the world’s dependency on the U.S. dollar as the reserve currency.

“The world is urgently in need of a more robust framework for international economic cooperation, and laying the groundwork for one should be the central task of the French G20 presidency,” Mr. Jenkins and Ms. Subacchi write.

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