Beating the Global Downturn: 5 Priorities

Good news for the UK Chancellor recently, when the Ernst & Young ITEM Club predicted that Britain will buck the trend by escaping the global economic doldrums.

This respected forecaster believes strong corporate investment between now and 2019 “will ensure that the expansion of the UK’s economy is sustainable.”

George Osborne’s stock has never been higher. Following his critical role in the Conservatives’ General Election victory, the nation’s chief financial officer seems to have become its chief operating officer – and we know what job may follow that.

The ITEM Club’s projections do represent the rosiest end of the spectrum of opinion, and less optimistic voices such as the Centre for Economics & Business Research expect the UK’s growth to slow to less than two percent by 2017. I am pretty confident, however, that the Chancellor will make sure the economy revs up again before the next electoral test in 2020.

In a wider context, former US Treasury Secretary Larry Summers and the International Monetary Fund both say the global economy is facing “secular stagnation”, a long-term slump in the growth of economic output. Others, not least former Fed chairman Ben Bernanke, disagree, and place a greater emphasis on cyclical factors in explaining low interest rates and tepid growth.

I would choose a little of each. I certainly expect countries like China and India and other so-called emerging (what we call “fast-growth”) markets to bounce back over the medium- to long-term as the explosion in lower-middle- and middle-class consumers continues unabated. Not perhaps to previous levels, but still higher than mature markets.

Nonetheless, there seem to be few reasons to think that global GDP will emerge from its low single-digit real growth rate in the immediate future. We may be stuck with a slower-growth world – and all that means for employment and opportunity – for some time to come.

So what, if anything, can we do about it? One group of high-profile business leaders has a few ideas.

The B20 (Business 20) International Business Advisory Council, chaired by Coca-Cola’s Chairman and CEO, Muhtar Kent, was set up under this year’s Turkish G20 presidency to enhance dialogue between the corporate world and governments ahead of November’s Antalya Summit.

The job of the Council, which comprises a wide range of companies (including WPP), is to put forward recommendations that will support the G20’s efforts to build confidence in the global economy and, perhaps, restore those corporate animal spirits.

After wide consultation the Council’s members have identified four key areas for action with the greatest potential to boost economic growth and job creation.

1. WTO Trade Facilitation Agreement

The first priority is for governments to ratify and implement the World Trade Organization’s Trade Facilitation Agreement. The TFA would remove the unnecessary red tape and delays when moving goods across borders that add an estimated 12 percent to the global cost of trading internationally.

This is particularly important for small business growth and for entrepreneurs in developing countries. The prize is great: research suggests that implementing the TFA could increase global GDP by up to US$1 trillion and create 21 million jobs.

2. SME access to finance

The second area is improving access to finance for SMEs, which are disproportionately affected by adverse credit market conditions. Affordable finance is the lifeblood of small- and medium-sized businesses, but the flow has been severely restricted since the financial crisis.

Governments can help by removing regulatory and policy barriers to financing by commercial banks, and creating a supportive environment for alternatives like crowdfunding, peer-to-peer lending and hybrid financing instruments.

3. Opportunities for women and young people

Thirdly, we need to create more opportunities for women and young people in the labour market. The global unemployment rate stands at 5.9 percent. For young people it’s 13.1 percent. Women are also much more likely to be unemployed, under-employed or in less secure jobs. All of this has a major economic as well as social cost.

The Council is asking the G20 to commit to a comprehensive strategy to boost youth and female participation in the workforce. A key aim should be to reduce mismatches in skills, not least through better public-private collaboration on national skills strategies and education plans.

4. National infrastructure strategies

Finally, the world’s leading economies need to articulate coherent national strategies to repair and invest in their infrastructure. The worldwide spending gap on infrastructure is forecast to reach US$15-20 trillion by 2030.

Filling this gap will require unprecedented amounts of private capital, and governments will have to set out credible plans in order to attract investors. The UK has taken a step in the right direction by establishing an independent infrastructure commission under Lord Adonis.

The Council believes these four recommendations, if adopted, would encourage stronger and more sustainable growth – both within and beyond the G20 nations.

5. Public-private collaboration on SDGs

I would also add a fifth. It is everyone’s interests that the newly adopted Sustainable Development Goals (SDGs) – the UN’s ambitious targets “to end poverty, protect the planet, and ensure prosperity for all” – are a success.

At the end of September, the heads of more than 20 of the world’s leading businesses signed an open letter calling on political leaders to work with the private sector to help deliver the SDGs.

Governments alone do not have the resources to tackle the huge problems the SDGs seek to address. There are only so many levers they can pull. By working actively and constructively with business, policy-makers will find that many more levers become available to them, and a great deal more can be achieved.

A version of this article was first published in the Sunday Telegraph