Success of globalization rests with G20, Paul Martin says

MICHAEL VALPY | Globe and Mail | August 7, 2010

Unless the G20 can adequately deal with climate change, development assistance to poor countries, food security and the financial crisis, globalization can’t be made to work, says the G20’s inventor, former prime minister Paul Martin.

The seminal task of the G20 – the 19 countries with the world’s largest economies plus the European Union – is to send the right signals, to demonstrate the right commitments, he told the annual Couchiching Conference on public affairs on Saturday.

He said that If the G20, at its next summit in Korea this fall, doesn’t send the right signal to the forthcoming Mexico conference on climate-change finance with the result that the conference fails, the ability of the developing world to survive climate change will be very much at risk.

If it doesn’t recognize that there will be another major food crisis and take steps to ameliorate it – at a time of rising populations, food export freezes and disruptive market mechanisms – havoc will be wreaked, especially in Africa.

And if the G20 doesn’t agree to international regulation of the world’s banks, the next financial crisis may well be too big for any stimulus package to save the world’s economies.

The G20 was created arbitrarily a decade ago by Mr. Martin – at the time finance minister in Jean Chrétien’s government – and his U.S. counterpart, Lawrence Summers, to engage major new economic powers that had arrived on the world stage in recent years, such as China, India and Brazil.

Mr. Martin said it must now move beyond its gestation stage to not only react to crises but anticipate and mitigate them.

It must also give new meaning and understanding to the 1648 Peace of Westphalia, which recognized for the first time in history the principle of sovereign states.

In addition to rights of states, he said, there also must be duties of states. The impact from poorly regulated U.S. and European banks with excess leverage and inadequate capitalization and liquidity spilled across borders to harm the economies of other states – hence the need for bank regulations and monitoring that transcend national borders.

The world’s two largest banks are now Chinese, Mr. Martin told his audience. They’re now limited to China but in time will penetrate other economies.

If there is a bank failure involving them, he said, the risk is “there won't be a a stimulus package large enough to save the world’s economies.”

Economist Sylvia Ostry, for decades one of the federal government’s most senior public servants and international negotiators, suggested at the Couchiching Conference that the G20 at its next meeting appoint an eminent-person’s group from among its member states to set the organization’s agenda for the next five years.