July 12, 2017

More than twenty Heads of State met in Hamburg last week at the 2017 G20 Summit to discuss a range of issues including trade policy and financial regulation. While many may still question the benefits of globalization and international coordination, it is clear that the economic issues of today require an internationally coordinated approach to policymaking.

Economic nationalism and protectionism fuel uncertainty and erect barriers between providers of capital and those who need it. We see the impact in global trade, which is growing at only one-fifth of its pre-crisis pace. Lenders are sending much less capital to emerging markets; and both cross-border bank lending and foreign direct investment remain subdued compared to pre-crisis levels. This is weighing on growth in emerging markets – and will ultimately be a headwind for the global economy. We see it at a national level as well: bank lending even in developed economies has been lackluster, with many households and small businesses still having difficulty accessing finance in the aftermath of the 2008 crisis.

The scope of these issues cannot be narrowed to one nation or area of the world. Solving them will require cooperation and coordination among both national and international bodies, notably on financial regulation. Regulatory fragmentation – a genuine risk in the current environment- will only leave capital stranded, cross-border flows curtailed, and global financial institutions burdened with heavy compliance costs- hindering their ability to support world trade and economic activity.

In fact, a key moment of global cooperation came in the aftermath of the 2008 financial crisis when world leaders gathered in Pittsburgh on September 2009 for the second G20 Summit that year. This marked a key moment in international cooperation where many countries collectively embraced policies to support the international economy's recovery and lay the foundation for strong, sustainable global growth. These agreements established a framework that improved the effectiveness of stability measures across the globe.

With nationalist tailwinds blowing in many countries, world leaders are faced with another inflection point that could determine the stability of the global economy moving forward. This year's summit provided these leaders with the opportunity to provide harmonized global solutions to global problems.

To combat fragmentation, policymakers need to find ways to ensure that the benefits of integration are broadly shared. Pursuing policies that support investment, capital formation and development of human capital will definitely help. These policies can include addressing education, technical and other skills gaps for young and displaced workers, as well as facilitating redeployment of displaced workers. Building a supportive policy framework for entrepreneurship and risk-taking will be essential, given that small businesses are key drivers of innovation, job creation and productivity in the economy.

More broadly, we must preserve the gains reaped from global integration in recent decades. The post-war architecture of democratic capitalism, trade, multilateralism and international cooperation via standard setting bodies such as WTO, Basel, G20 -- as imperfect as it may be -- has yielded breathtaking innovations and a twentyfold rise in GDP per capita, as well as dramatic improvements in living standards. These gains have spread to emerging markets in recent decades.

In an era of populism and backlash against globalization, it is more important than ever that regulations help foster economic growth that will benefit the broadest possible spectrum of society. As Heads of State gather to assess progress on the G20 agenda, the importance of a global approach to policymaking should be front and center.