Marina Larionova: The G20 should not make decisions without weighing their social impact
Two important reports have been presented during the Russian G20 Presidency, namely, on how the G20 is performing in meeting its commitments, and on the Civil 20 recommendations for strong, sustainable and balanced growth.
Professor Marina Larionova, Head of the International Organizations Research Institute at the National Research University Higher School of Economics (Moscow) and Co-Chair of the Civil 20, speaks on the researchers' key findings, the G20's role in overcoming the aftermath of the global economic downturn, its struggle against inequality, and on the G20 countries' progress in fulfilling their pledges.
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Question: Could you decipher on the Civil 20 research activities, please. What are the goals of backing the C20 arguments with research data?
Marina Larionova: This is not the first instance of civil society merging its efforts with academic circles. For instance, when the International Monetary Fund reform was debated in 2009, scientists took part in the discussion of approaches to its implementation back to back with businesspeople and community activists. We had a common goal: to elaborate proposals for an effective IMF reform. Each group used its own tools, and I think our teamwork resulted in a good package of proposals.
We are using similar approach now, applying a broad interpretation of the term "civil society" meaning all people who feel responsible for national and global destinies.
One of our goals was to prepare an in-depth overview of the G20's potential, achievements and failures, to raise awareness of those who are not well-informed of its work. To do this, we drew a report in December on the G20 countries' work on implementing their previous commitments. Thus our colleagues had a chance to learn the facts and conclusions on the G20's successes and pitfalls. We assigned grades to every country contingent on how consistently it worked on meeting the G20 targets in line with its decisions.
Question: Who do you mainly intend your report for - civil society representatives who took part in the Civil 20 Summit preparations or the G20 Leaders?
Marina Larionova: The report was aimed at both, I would say. I think civil society will take the greatest interest in grades allotted to the G20 countries. It is very helpful for them in terms of grasping an objective picture of the situation, starting from which they could proceed with the recommendations within their working groups. With this in place, they could avoid subjectivity and use concrete data as a foundation of their work.
Later on, we were receiving numerous requests with regard to our report, which means our work was helpful.
Question: You have prepared another report, on tackling inequality, with respective recommendations for the G20 Leaders. Why did you choose this very topic from a broad range of items on the G20 agenda?
Marina Larionova: Ensuring strong, sustainable and balanced growth is the G20's principal mission, as formulated at the Pittsburgh Summit. We cannot agree it is possible without guaranteed equality. Taking this into account, we suggested that the Civil 20 formulated its recommendations not on the particular themes, should it be climate, energy, food security or the Millennium Development Goals, but in the context of how these targets may be hit through overcoming inequality, thus attaining the main goal of strong, sustainable and balanced growth.
Question: What exactly do you understand by inequality and the optimum living standards to be attained, taking huge differences between the G20 countries into consideration?
Marina Larionova: We mean not only access to particular welfare benefits, decent work compensation, or quality education and healthcare. Such standards should also include clean air and water, and affordable energy. Many countries have problems with it, and we often tend to be ignorant of them for some reason. When assessing the basic living standards we seek to attain in our countries, we can hardly use the Gini or any other indices. We don't impose living standard yardsticks on the G20 countries - we merely call on them to agree between themselves which inequality indices should be included in the G20 accounts on balanced and sustainable development alongside such parameters as sovereign debt. Thus, measuring inequality and elaborating its criteria, as well as tools to overcome it, should become an integral part of the G20 activities.
We suggest establishing a G20 working group on equality, in which the academic circles, civil society and certainly international organizations should be represented - such, for instance, as the International Labour Organization and the World Health Organization. The group will elaborate certain indices of equality and living standards for the G20 countries to comply with after a Summit endorses them.
Question: Is it the essence of the St.Petersburg Initiative, which you will propose to the September G20 Leaders' Summit?
Marina Larionova: Absolutely. However, certainly we would not expect to see all our proposals against inequality in the G20 final decision. However, we might come to consensus on some particular points. If this is so, we will strive to promote our proposals at the next G20 Summit in Australia. As far as I know, our Australian colleagues show their interest and willingness to work on it. Hopefully, we will be making progress from summit to summit.
Question: The idea of income redistribution underlies almost all of your recommendations on overcoming inequality. This appears a wishful thinking, in a sense that in reality political leaders tend to seek support from the elites, who would hardly agree to share their wealth with the poor.
Marina Larionova: It is fair to say that the resource redistribution inevitably implies encroaching on someone's interests. However, our recommendations are not focused on resources redistribution, they are rather dealing with creating new opportunities for many people through governments' responsible macroeconomic policies which, for instance, envisage the creation of more new jobs. We are talking of responsible macroeconomic policies because mere patching of the budget holes cannot stimulate economic growth.
Just to give an example, the G20 Leaders pledged to implement the so-called macroeconomic stabilization measures at the Toronto Summit, when the crisis was at its height. Their impact can be particularly clearly viewed in Europe, where governments sought to achieve financial consolidation through cutting public expenditures. In reality, it has grown into reduced employment in the government sector, growing private taxes, and increased taxation of small and medium-sized enterprises. Major businesspeople and elites have more opportunities to protect their own interests, so the greatest burden fell on the low-income. What we see in those countries now is the growing unemployment and shrinking purchasing power, which inhibits economic growth. Even the IMF experts, who were advocating those measures in 2009, agree in their studies of 2011 and 2012 that a different policy mix is needed to save the economy.
It is certainly extremely important to support the banking system since banks for an economy are the same as the cardiovascular system for an organism. However, from our perspective it is abnormal when short-term financial deals pay off better than future-oriented investment. Moreover, national policies should make long-term investments more attractive not only to big dealers but also to wider groups of population, in order to prevent them from spending their money here and then, or keeping them at home or in foreign banks. Pension and other savings must be utilized by governments as a source of long-term investments.
Question: You are insisting that it is unacceptable to combat crises at the expense of the population and admitting, at the same time, that banks need to be supported in times of trouble. Can governments really afford the latter without the former?
Marina Larionova: Looking back at the policy of the Russian Government amidst the crisis. Despite strong pressure from the finance lobby, adjustment of pensions and other social benefits to inflation went on. The Government managed to stick to all of its welfare pledges, and that does not mean that the crisis was milder in Russia than in Europe. Obviously, alternative recipes for tackling crisis other than applied in Europe can be found.
The United States, for instance, applied monetary instruments, while also having been severely hit by the crisis. Basing on the persistent dominance of the dollar as the world's basic monetary unit, the US launched quantitative easing and emitted money to compensate for its shortage, thereby maintaining the living standards and promoting domestic demand. The US come in for criticism for that policy, though the latest statistics show that the US managed to reduce unemployment, spurred the nation's purchasing ability and restored growth - largely owing to this quantitative easing policy.
Question: Your recommendations also suggest turning to progressive taxation. Do you really believe that all of the G20 countries are prepared to introduce it? Isn't it clear that the rich can withdraw their money and channel it to the countries with milder fiscal policies?
Marina Larionova: Consensus on this issue is too good to be true - but this does not mean that we should not consider progressive taxation in principle. Many Russian experts also warn that it will lead to greater capital outflow and widespread usage of the so-called gray schemes. But we can also come up with alternative tools. A country that is not ready to introduce progressive taxation can extend its tax base, for instance, by introducing the sumptuary tax. This needs elaborating fair targets tailored every country's local circumstances. Information sharing systems, an effective tool for preventing money drain, are prescribed in the OECD recommendations, which are currently being discussed by the G20.
Question: You are making long-term recommendations, while politicians are mainly concerned with short-term results, considering short intervals between elections, the danger of falling public ratings, and so on. Are they ready to make strategic decisions, with postponed effects to be revealed many years after?
Marina Larionova: Orientation of the political leaders on their electorates is not the only reason. They are also dependent on their opponents in coalition cabinets or opposing parliamentary majorities, which really ties their hands. We know, however, that governments tend to choose long-lasting policies notwithstanding the political cycles. For example, there are upcoming elections - two weeks after the G20 Summit in Germany and a week in Australia. At the same time, all countries are experiencing pressure from each other in any international structure that they take part in, so hardly it is possible simply to step down on its commitments for a nation determined not to lose membership in this or that structure.
Question: Can we possibly regard the grades assigned to the G20 countries in your report on meeting the set targets as an instrument of mutual pressure? How is Russia doing in this respect?
Marina Larionova: Russia is doing well, being ranked number 4 or 5 among the G20 members in terms of fulfilling its obligations, though we are underperforming in curbing protectionism, which has always been our soft spot. On the whole, however, we are gradually improving our performance. Russia looks decent even compared to other G8 countries. However, if we compare the advanced and the developing countries, the advanced world meets its obligations much better due to a higher start and well-established culture of meeting international obligations, which has been developing since the 1970s. The BRICS countries at the same time have been doing better lately despite their previous negative grades.
Question: Do you think the G20 Leaders are aware of being all in one boat, or are they more inclined to pursue their own interests, contingent on their domestic political and economic circumstances?
Marina Larionova: They certainly realize that they have to follow the strategy common for all, though the goodwill for joint actions was much more evident at the first summits after the onset of the crisis. It began to shrink as the global economic tension went down. At the initial summits concise documents containing practical liabilities were endorsed. Everyone was obviously anticipating tangible results yield from joint efforts. Later on, the agenda and the resolutions were getting more and more vague.
The G20 is now coming for much criticism for its failure to become a fully-fledged forum for international cooperation. There is a number of strong points behind this logic. But hardly would anyone argue that the G20 has received universal recognition as the world's premier forum for international cooperation. Teamwork formats and working mechanisms have been created for smooth interaction between the members, which allows to compromise even on the most acute issues. It was hard to imagine in the beginning that such a diverging range of countries can actually ever manage to come up with any joint decisions. And if we look at the G20 now, needless to say it is a viable forum for economic cooperation, with consistent agenda and quite efficient decision-making and implementation mechanisms.
Evidently, there are huge differences between the G20 members, but they are all encountering the same trends and facing the same challenges. Take inequality, a burning issue for all. It is steadily increasing both in the advanced and in the developing countries, the only difference is how it is reflected in everyday life. The matters of this kind threaten political and social stability, creating challenges similar to those that flared up quite recently in North Africa. No one of the G20 Leaders would like to see the Arab Spring inspired scenarios unfolding, so they will try their best to reach compromises. Make decent allocations to improve people's life, open access to good education and healthcare, make the environment friendlier - and will surely bring numerous benefits for our economies. I have no doubts that all the G20 Leaders see it.