T20

Saving the World, One Proposal at a Time

Smoke rises as displaced Iraqis, who just fled their homes, wait to be transported to a refugees camp, while Iraqi forces battle with Islamic State militants, in western Mosul
Can the G20 tell them where to go now? Displaced Iraqis wait to be taken to a refugee camp. Source: Zohra Bensemra/Reuters

Peter Altmaier, who is Chancellor Angela Merkel’s chief of staff, was recently handed a special document in Berlin, while hundreds of researchers and experts from the world’s leading think tanks looked on. He obtained the document, entitled “20 Solution Proposals for the G20,” last May at the end of a two-day summit of the Think 20. Dubbed T20 for short, this group of leading research institutes and think tanks makes policy recommendations for decision-makers – including those at this weekend’s summit in Hamburg.

The T20 in Berlin was attended by institutes like the London School of Economics, Chatham House, Harvard University, the World Economic Forum, the Friedrich Ebert Foundation and the Munk School of Global Affairs, among others. And the document Mr. Altmaier recieved contained 20 detailed policy briefs. The experts’ suggestions are sensible, addressing everything from climate change and the challenges of digitalization to the refugee crisis. It makes for hopeful reading.

“We have to make the economy serve society. This is a global challenge.”

Organizers, Think 20

The main thrust of the document, which was commissioned by the German hosts of the Hamburg G20, was that politicians needed to put people first. “We have to make the economy serve society,” wrote the organizers of the T20 in an editorial this week. “This is a global challenge,” they said.

Which is all well and good. But how realistic are the policy proposals? Can they really be implemented, or are they merely the fantasies of do-gooders? And will anybody pay attention to them? The G20 can be dominated by geopolitical conflicts, like the alleged “showdown” between Ms. Merkel and US president Donald Trump; will this stop some of the smartest solutions in their tracks, before they’ve even been read?

Handelsblatt Global picked out six policy proposals most pertinent to Germany, and asked how likely they are to become reality among G20 nations.

Proposal on refugees: Mobilize the private sector to develop sustainable solutions and endorse the establishment of Made by Refugees Special Economic Zones – “MBR Zones.” Promote refugee entrepreneurship with fast-track work visas and other special visa programs.

The MBR Zones would apply to countries where refugees have settled in clusters, such as in Turkey or Lebanon, explains Matthias Lücke, a senior researcher at the Kiel Institute, who focuses on migration and integration and who co-wrote the original proposal.

“Some business owners have also become refugees and they could, under certain conditions, go back into business again,” Mr. Lücke explains. However, the individuals concerned would still need to pass certain tests and fulfill certain criteria, all of which would take time.

How realistic is it? Whether a special economic zone is useful or workable depends completely on the country, Mr. Lücke continues. And the devil, as they say, is in the details. Jordan, for example, already has something like this but it is proving challenging to make it work well. Jordan also already has a free trade agreement with the EU, which makes adding another level of special trade conditions on top of that tricky.

A plan for a special economic zone in Lebanon is in the making but has yet to come to anything.

Turkey has the best environment for making a special economic zone work, Mr. Lücke says. However, it may not be the best solution there. “The priorities for the labor market integration of, for example, Syrians in Turkey are different,” the analyst says. They include making it easier for Syrians to obtain work permits, providing more language training and sending a clear signal to the private sector that there is political support for the hiring of Syrians.

The G20 could task a body like the International Organization for Migration to look more closely at the idea of special zones. But most likely this weekend’s summit will simply end with further declarations of support for the countries where refugees first seek asylum.

Facebook
Germany and other EU countries have proved they're ready to police Internet giants like Facebook. Source: Jeff Chiu/AP

Proposal to police internet giants: Create a World Competition Network to enforce competition law in the presence of superstar digital firms.

To rein in giant Internet firms and their increasingly monopolistic hold on the world’s data, the idea of anti-trust authorities needs to be re-evaluated for the digital age. “The G20 should explore the changing nature of competition in the age of big data and algorithms,” the authors write.

How realistic? Very. It is already happening to a certain extent, albeit with limited success. Anti-trust authorities in the US have not been very successful. But there is plenty of awareness of this issue in the US, says Dalia Marin, an economics professor at Ludwig Maximilian University in Munich and one of the proposal’s authors. An Obama administration team looked at this and the Trump administration would know about that work, Ms. Marin said.

Additionally Germany – and in fact, many other EU countries – have already shown a willingness to police Internet giants like Facebook and Google. So it seems the political will is there.

A new organization, like a World Competition Network, would be able to control multi-national giants like Facebook and Google by developing “new guidelines to control market power and collusive behavior,” Ms. Marin says. The biggest challenge to making this happen in reality will be to get existing national anti-trust and competition authorities to cooperate more than they currently do, and within a legal framework yet to be established.

Inside The Oxford Street John Lewis Plc Store As It Launches Smart Home Department
A smart Samsung fridge in operation. As machines become more networked, just one machine running out-of-date software can put an entire network at risk. Source: Chris Ratcliffe/Bloomberg

Proposal on digitalization: Require Internet of Things (IoT) devices, such as TVs, refrigerators and others that are wirelessly networked, to be securely updated in a reasonable time frame. Legally require vendors and Internet service providers to offer life-long security updates.

The reason that recent so-called ransom-ware attacks, such as the infamous WannaCry virus, have been so successful, has a lot to do with IoT devices that do not run up-to-date software. But as more “things” in our homes and businesses become intelligent, this poses ever greater risks. A single machine running out-of-date software can put an entire network at risk.

How realistic? Average. “All I can say is that the business community reacted skeptically to this proposal,” says Dennis Görlich, an economist at the Kiel Institute for the World Economy. Mr. Görlich is also the managing director of the Global Economic Symposium and one of the prime organizers of the T20. “I think our current task, before anything like this will be implemented, is to raise awareness among regulators about the threat that unpatchable and insecure IoT devices pose to the entire internet. The G20 is a good forum to make commitments in this regard as it includes countries that are the major producers of IoT devices.”

18 p9 Income and Wealth-01

Proposal on inequality: Publish a periodical report that would rank countries by their performance in terms of economic equality.

How realistic? Very. “A periodical report as such will not change anything,” Mr. Görlich concedes. “But it will raise awareness about the issue with an easy-to-grasp measure. Think of PISA type rankings,” he says, referring to the OECD-run Program for International Student Assessment, which indicates how well educated 15-year-olds are in 70 countries. Politicians are paying ever more attention to the program.

“The G20 could task an international institution – such as the OECD – to do this. It’s low-hanging fruit with potentially big power,” Mr. Görlich says.

 

Proposal for reform of the global financial system:  Support the development of international standards on tax systems. Establish an expert group to identify and remove inconsistencies across financial regulatory regimes. Create a task force to examine divergent and conflicting approaches to the international monetary system.

How realistic? When it comes to tax systems, it is already happening. The BEPS – short for Base Erosion and Profit Shifting – project was approved by G20 finance ministers in 2016 and is one of the G20’s success stories. Basically, the BEPS is about preventing the evolution of tax havens and tax avoidance and countries like the US, China, Canada and EU states have all signed on. The US’ cooperation is seen as particularly significant.

This year’s G20 is likely to carry on in this direction, says Jakob Schwab, a researcher with the German Development Institute, specializing in development financing. “The next steps on the agenda regard tax certainty, where a report on measures to increase mutual trust between governments and companies, in terms of investment projects, is being compiled,” Mr. Schwab says.

In terms of talks around tax systems, Germany and the US are far closer together than they are on, say, climate change, Mr. Schwab concludes.

The G20 is well set up to create expert groups and task forces around these issues, Mr. Görlich adds, but these groups can only make recommendations. In the end, legislation remains the domain of countries, or blocs, who will make decisions in their own interests.

On the bright side, Mr. Görlich says that debating these sensitive issues at the G20 is a good thing, and “better than risking a trade war” even if there is no concrete result.

Donald Trump
Talking about decarbonization is likely to upset US President Donald Trump and his fans, particularly US coal miners. Source: Steve Helber/AP

Proposal for climate change: Adopt labor market policies to avoid negative effects due to de-carbonization, and improve skill transferability to other sectors. Use transformative sovereign wealth funds to leverage climate protection investments and support workers, regions and sectors in adjusting to structural change driven by decarbonization. Translate the “carbon dividend” – public revenues generated by carbon pricing – into reduced labor taxes for low-income households.

How realistic? The carbon dividend plan is already in effect in countries such as Switzerland and Canada. But it would be anathema to other administrations, such as Mr. Trump’s.

“The approach suggested here, to compensate and activate the losers [in the decarbonization process; that is, people like coal miners], is the right one,” Mr. Görlich suggests. “The interesting bit is that you can kill two birds with one stone: By taxing carbon you raise money and make emitting expensive. This revenue can be spent on things you will need to do anyway.”

Of course, one of the major sticking points at the G20 is Mr. Trump’s protectionism and his avowal to bring jobs back to US industries, like coal mining. Mr. Görlich describes this as “backward looking,” adding that discussions around climate change are not going to get very far at this G20. “I expect only minimal outcomes,” he concludes.

Cathrin Schaer is an editor with Handelsblatt Global.

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