The Lowy Institute analysis 'Making the Most of the G20', which argues the G20 should be at the centre of Australia's approach to economic engagement, explores many of the themes that will be aired in this debate.
As a small open economy in an increasingly interconnected global economy, Australia has a direct interest in the global policy agenda. In the narrowest sense, we need to be engaged in the international policy discourse because we are directly affected by the decisions that are made. Given that Australia has little choice but to abide by the rules and conventions that are agreed in international forums, it is clearly in our interest to be sitting at the table when those rules and conventions are being formulated.
Beyond pure self-interest, international engagement is an inherently and, arguably, increasingly worthwhile objective. International engagement can improve policy formulation in response to both global crises — for example, the coordinated G20 policy response to the global financial crisis — and common structural challenges, such as population ageing, structural reform, climate change and economic inequality.
Notwithstanding Australia’s small size, we have the potential to contribute to the international policy process. Indeed, in some respects, Australia’s position within global policy-making circles is unique. We are an advanced economy with strong institutional ties to the ‘traditional’ economies in North America and Europe, but we are also very closely connected to the new and emerging economic growth leaders in the Asian region. We are highly exposed to shocks and spillovers emanating from overseas, but we have developed policy and institutional frameworks that have — to date at least — allowed our economy and financial system to withstand these shocks. We are small enough to rarely be at the centre of international disputes on key issues, but large enough to contribute a dispassionate third party perspective. Taken together, these characteristics allow Australia to speak with a credible voice in global policy discussions.
But this alone is no guarantee that Australia’s voice will be heard. Consider the G20 for example. As a mid-sized economy with a small population and a slower rate of economic growth than most of its Asian neighbours, Australia is not a natural member of this group. This means that, if we are serious about the intrinsic value of international cooperation and the benefits that it can bring to those who take part, we have to work hard to ensure that our voice is not only heard but also valued by other, more powerful, members.
In practice, there are a number of ways in which the Reserve Bank tries to achieve this.
First, we pick our issues. To some degree this strategy is forced upon us by our small size, which means that we inevitably have to prioritise our use of resources more than other, larger institutions. But it can also be an effective negotiating and influencing strategy in its own right. A voice that speaks rarely — but with clear, well-considered and constructive messages — may well influence the debate and contribute to concrete outcomes more than one that is heard all of the time. Indeed, the G20 itself could be better served by adopting a simpler, more targeted and achievable agenda. It is therefore incumbent upon countries like Australia to resist the natural tendency for the broadening of the G20 agenda, including by devoting at least as much energy to discouraging bad ideas as we do to advocating good ones.
Second, the Reserve Bank places a high priority on developing its relationships with the broader Asia-Pacific region. This, plus its existing links to the central banks in North America and Europe, serves to reinforce Australia’s position as an economy with close ties to both regions. Of course, Australia’s regional engagement is very important in its own right, particularly as structural shifts in the world economy have moved the global economic centre of gravity towards the Asian region. But by investing time and effort into regional forums such as the Executives’ Meeting of East Asia and Pacific (EMEAP) central banks and the Financial Stability Board’s Regional Consultative Group (RCG) for Asia , we also become better equipped to understand and contribute to the strengthening Asian regional voice on global issues.
Third, we recognise the value of informal relationships with our international counterparts. Having a seat at the table in a formal meeting also means a place in the coffee queue during the break. This enables some valuable informal connections to be made which can, in turn, provide the foundation for developing a network of genuinely productive working relationships across a range of issues (including issues that are perhaps lower profile, but at least as important, as those being discussed in front of an audience at the G20).
Of course, international policy engagement is a two-way street — it is not only about Australia’s influence on the rest of the world, but also about the rest of the world’s influence on Australia. A number of examples of policy successes are evidence of the benefits that international engagement can bring, including the post-crisis financial reform agenda and the Base Erosion and Profit Shifting (BEPS) initiative.
There will, inevitably, also be some outcomes that we will not be able to influence as much as we would like to, no matter how hard we try. But even in situations where the outcome appears sub optimal from Australia’s perspective, there is still real value in being in the room and contributing to the discussions. By identifying the motivations and challenges facing other economies and understanding the logic behind the final outcomes, we place ourselves in a better position to set appropriate domestic policy.
Photo courtesy of ArchivesACT