We’re at a critical moment in the world economy. Advanced nations are growing slowly, if at all. Emerging nations are growing rapidly. But we need emerging nations to grow even more rapidly to help pull along struggling advanced nations. And the question is will we see that?
Whether or not we actually get the kinds of policy changes we need for advanced nations to begin to grow and emerging nations to grow even more rapidly depends very much on a different kind of deficit. I’ve talked about fiscal deficits and there’s a lot of talk about fiscal deficits and that’s important. But there’s something called the trust deficit which is even more important in my mind.
What is the trust deficit? The trust deficit is the following. It’s the fact that emerging nations have not been recognized for their contributions to the global economy and don’t have the voice. The emerging nations account for 50 percent of global GDP but at the international institutions like the IMF and the World Bank they account for a very small share of the votes. So, for instance, the BRICS are 20 percent of global GDP, only eleven-and-a-half percent of the votes at the World Bank. Why does this matter? It matters because reforms, discipline policy changes that create prosperity require hard choices by leaders. And leaders need to have enough support from their electorates to get hard changes through.
Advanced nations say to developing countries, “Do as we say, not as we do” and advanced nations relegate emerging nations to an under-representative share at the key international decision making bodies. So when you have the Eurozone countries that account for 25 percent of global GDP but have 32 percent of the votes at the IMF and the World Bank, it makes it very hard for leaders in developing countries to push through these discipline policy changes.
So there is the danger of what I call reform fatigue. Actually it’s not my term. It’s a term that was coined in a survey that was done by an institution called a la Latinobarometro. A survey showed that only 18 percent of respondents in Latin American countries felt as though economic reform actually benefitted them. And this is during a period of actually relatively robust growth in Latin America.
And so it’s in that kind of a context that you have to understand that we’re sending signals, whether it be through our unwillingness to give developing countries a greater say, the Internal Monetary Fund, the World Bank or legislation with respect to foreign investment or the evidence that shows that European Union Governments systematically oppose attempts by foreign companies to buy domestic companies.
In Their Own Words is recorded in Big Think’s studio.
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