In a June 5 communiqué, G-20 Finance Ministers collectively recognized that,
recent events highlight the importance of sustainable public finances and the need for our countries to put in place credible, growth-friendly measures, to deliver fiscal sustainability, differentiated for and tailored to national circumstances.
The words “differentiated for and tailored to national circumstances” are a welcome relief from the more typical “harmonization” (from the EU) or “balance” (from the U.S.) that often dominates G-20 conclusions. While cooperation can be a healthy thing, we need to remember that it is competition, not cooperation, that is the primary driver of economic growth and progress.
That’s true when we are talking about competition among firms, and equally true when we are talking about competition among countries. Indeed, we have laws to restrain too much “cooperation” among competing firms, and we shouldn’t be too quick to embrace harmonization among countries’ policies and regulations.
Although past performance may not guarantee future outcomes, it serves as the best available guide. Over the past decades, policies that promote economic freedom have fueled unprecedented economic growth around the globe. Although there have been ups and downs from 1980 to 2008, the world economy achieved real GDP expansion by around 145 percent over the period, lifting hundreds of millions of people out of poverty!
A key driver of this economic growth and prosperity has been a healthy competition among countries to create the best possible policy economic environment. Many economies have recognized the importance of freer trade, reducing barriers to conducting business, responsible spending, and cutting taxes while emphasizing greater transparency and accountability. The powerful forces of economic freedom have indeed fostered the spirit of entrepreneurship and competitive innovation that creates more jobs, spreading the benefits of a economic dynamism around the globe. There is another benefit of such competition, too: A diverse world economy has more flexibility and resilience to withstand any challenges that come along!
If President Obama and other leaders of the G20 are genuinely serious about restoring economic growth during the upcoming Toronto summit, they should seize the summit as a renewal of their commitment to economic freedom and promote a diverse policy mix that encourages competition. We don’t need one world economic policy. If that’s the goal of some of the leaders, we should hope this session of the G-20, like so many of its predecessors, provides little more than the usual photo op.