commentary

(Pittsburgh Post-Gazette)

September 24, 2009

G-20 Growing Pains

by Lowell H. Schwartz

Global attention is focused on Pittsburgh today as the G-20 summit of international leaders begins at the David L. Lawrence Convention Center. The increasing importance of the G-20 summits, which include developing heavyweights such as Brazil, Russia, China and India, is testimony to the growing role emerging states now play in managing the international economy. But integrating these newcomers into the global community is unlikely to be straightforward or simple.

Before 2000, when the world encountered economic difficulties, the United States turned to the other members of the Group of Seven industrialized nations: Canada, France, Germany, Italy, Japan and the United Kingdom. All had high standards of living, were stable, well-established democracies and were allies of the United States. The similarities among these states made finding consensus on economic policy a difficult but manageable task. Forging common economic policy among the huge group of disparate countries gathered in Pittsburgh is another matter.

The first challenge is that while developing countries such as India and China are growing rapidly and are increasingly important to the global economy, they remain poor. The most common measurement of an economy is its total size in nominal international dollars. By this standard China is already the world's third-largest economy, lagging only the United States and Japan. India has the 12th-largest economy, about the size of Canada's.

But those numbers don't reflect development levels or standards of living. The average person in China today makes around $6,000 a year, adjusted for the lower cost of living there. The United States reached this level of development in 1935. The average Indian earns about $3,000 a year, a level the U.S. population reached in 1873. China today has only 10 cars per 1,000 people. The United States had that many by 1913. Only 28 percent of India's population has access to flush toilets.

Even if developing nations duplicate the explosive economic growth they have seen in recent years, it is unlikely that in 20 or 30 years they will reach the standard of living currently enjoyed by residents of Europe or North America. Due to their relative poverty, the first priority of developing nation governments will remain meeting the most basic needs of their populations.

So we should expect developing nations to continue putting up stiff resistance to any global policies that would crimp their rapid growth. That means the Obama administration's high-priority efforts to limit carbon emissions to combat global warming will remain a contentious issue.

A second major challenge is that unlike the G-7 countries, which are all stable democracies, the political stability of many key developing states is questionable. Further complicating this is the fact that Russia and China remain authoritarian states and strategic rivals of the United States.

Over the long term, democratic states tend to be fairly stable, as disagreements and grievances are aired and adjudicated in a public process. Authoritarian states often appear to be stable because conflicts and difficulties are covered up by the state. Then, suddenly and often violently, these pent-up grievances erupt into protest or even revolution. These upheavals could lead to sudden changes in leadership, resentment over unequal distribution of power and wealth or political violence. For the United States, this means our prosperity is increasingly tied to states that might experience sudden and unexpected turmoil while being our strategic competitors.

Finally, poor corporate governance and the authoritarian nature of many developing countries makes gathering basic economic information about these states more difficult. All the G-7 governments have professional statistical agencies which are mostly immune from political pressure. These statistics allow policy-makers to reach informed judgments about how to steer the global economy forward.

Statistics coming out of developing nations are sometimes compromised. In some cases, this is caused by the difficulty of rapidly gathering information inside a country with poorly developed communications and infrastructure.

More troubling for global economic tinkerers are the statistics published by authoritarian countries such as Russia and China. In order to retain their political monopoly, these regimes seek to control the information their citizens receive from domestic and international sources as well as the information that flows out of their countries to the outside world. They sometimes play down bad news, such as poor economic performance, civil unrest or an outbreak of disease. This means the economic, political and social conditions of the country are likely to be manipulated or hidden by the government from their own people and the outside world. If basic facts are subject to government manipulation, it will make coordinating economic policy far more difficult.

Developing countries must be empowered to join the developed world in managing our joint economic problems. However, this should not blind us to the difficulties we face in coordinating economic policies across a broader set of countries than ever has been attempted.


Lowell Schwartz is a political scientist for the RAND Corp., a nonprofit public-policy research and analysis organization (lhs@rand.org). He is based at RAND's office in Pittsburgh.

This commentary originally appeared in Pittsburgh Post-Gazette on September 24, 2009. Commentary gives RAND researchers a platform to convey insights based on their professional expertise and often on their peer-reviewed research and analysis.