The Rt. Hon. Paul Martin
Moderator: GWENYTH BURROWS, President, CIPA
Summary by Gavin McGown, CIPA Youth Scholarship Recipient
CIPA President Gwen Burrows wishes us good morning, and bemoans her lack of the Couch bell.
Thanks speakers and delegates for ongoing conversation “that’s dynamic and keeps on building.”
“Paul will speak for 25 minutes, 30 minutes – however long he wishes.”
Burrows introduces Martin, gives biography: business history, finance ministerium; in 1999, Martin helped to create G20 with Larry Summers.
“The impact of Mr. Martin’s global leadership cannot be understated.”
PM tenure: 2003–2006: health care; early learning child care.
“We are absolutely thrilled that he has so generously accepted our invitation to speak at Couchiching.”
Second time he’s spoken at Couch. Ten years ago during formative time for G20. His father spoke at Couch four times. At this rate…
Thanks panellists. Mentions another present: “Michael Wilson is here, and I think he’s going to need 40 minutes listening to me. So I may just go over.”
G20: Couch experience is an exchange of views, to engender discussion. Will engage in a series of questions and issues within G20 context.
Mr. Martin’s perspective is straightforward: “The interdependence of nations today requires a global steering committee.” How should that role be exercised? The G20 is a work in progress; it evolves; the questions have yet to be decided.
Three examples of evolving G20 role:
First: not every question or issue requires extensive negotiation at the leader’s table. What is important are the symbols that the leaders send.
Climate change: “Copenhagen was not a success.”
Mexico: climate-change finance – $20–30B to help developing nations to mitigate and adapt to climate change.
Oslo: meeting to set the parameters of Mexico – the G20 countries must send the signal to Mexico that they want this money to be approved.
His work in the Congo-based rainforest: the purpose of these funds is to allow countries to access further funds from natural resources.
So G20 becomes absolutely crucial.
Second: development and foreign aid. Some in G8 claim division of duties between G8 and G20. Development versus economics – “In my opinion this is nonsense.… In my opinion, development is an economic issue.”
“Fundamentally, there can be no issue that is off the table for the G20.”
What we’re seeing is the difficulty of western European nations with the transition of power.
“Korea has settled the issue of development.… It certainly has the legitimacy to do so, for Korea is one of the few nations that has made the transition from aid recipient to aid donor.”
Will Korea propose its own model for development? Different from IMF/WB position.
“It will be very interesting to see how Africa comes out of it. My own opinion is that it will come out of it well, because competition will be beneficial.”
Third: How to change the paradigm.
The G8/G7 is one of reaction to crisis. The G20 has to be able to anticipate crises, mitigate or even prevent crises from arising.
Crises are “a regular part of the cycle. So you can anticipate them.” Food security – in 2008 food crisis.
“I find it impossible for us to believe that we cannot understand that if you have a global population growing by 3 billion…as that population increases…that there is not going to be another food crisis.”
Famine in West Africa – Russia going to freeze grain exports. “It is going to wreak havoc in Africa.”
“It is certainly not beyond the wit of humanity to set in place the structural changes…that will allow countries like Africa to become self-sufficient.”
“I would really hope that the G20 begin to anticipate these crises – and indeed it will, if we put enough pressure on their governments.”
Fourth: Current financial crisis – banking crises are always the worse: a crisis of trust.
Last twenty years: two major bubbles – dot com bubble and banking crisis. The latter is a global catastrophe. The banking crisis is a crisis of confidence; cf Asian crisis.
If the answer to that crisis is greater cooperation, then it will not be a wasted opportunity; if the G20 doesn’t come to grips with these issues, it will be.
Banking issues: “Too big to fail.” if a bank is too big to fail, it’s too big. The situation is worse as a result of the crisis. Individual businesses of multi-business banks will have to be segmented; if any one of them gets into trouble, can be hived off.
Strengthen bank capital. Inadequate capital and collateral. European and US banks didn’t have enough. Basel committee has been dealing with this for a decade and has finally made its recommendations. US and European banks are now in protest. Foreign banks are saying that this will freeze lending. Basel recommendations are close to what we have in Canada.
“The G20 has to resist the pressure to weaken the Basel committee’s recommendations.”
Countries cannot afford bank upheaval over the course of the next five years. Stress tests ignored the question of sovereign debt; we can’t afford another bank crisis.
It is the essential part of the equation.
One further issue: while we all accept that a single global regulator would be unworkable, there are huge gaps in the global system. There needs to be an international country to moderate risk across borders.
“I don’t want to go into mind-numbing detail – but I’m going to.”
Body to regulate the regulators: Need an international body to prevent regulatory capture. Twofold manner: peer review by regulators; “We don’t need a fresh-faced graduate from Harvard; we need a miserable, mean, old regulator.” “I didn’t graduate in economics; that’s why I became finance minister.”
Mandatory enforcement of rules. Peer review would come across a problematic country. Publish that information – “Public shaming of a country doesn’t work. You can’t shame most of the major powers.” The software lumber issue is an example.
So you need enforcement mechanisms. Capital operates without borders. We’re going to have to have a regulatory body that operates without borders. It exists, but is understaffed and has low membership.
G20 can infuse existing international bodies with a great deal of authority.
Financial Stability Forum: at the time it was created, we argued it had to be given a staff, authority, and G20 membership. Wasn’t given any of the three. Euro-centric thing: G7 wouldn’t bring Asia in. With Financial Stability Board, Asia was brought in, but now G20 says FSB should not include other 180 IMF nations.
G20 legitimacy depends upon its ability to draw upon the wider world.
Closing: one final point: interdependence of nations on issues means that good global governance requires a global steering committee. A marker of a watershed moment would be that leaders rise above the political comfort of narrow nationalism. Cf Westphalia 1648: sovereignty of nations, definition limited to rights. “That definition has to be extended now to include duties and responsibilities of nations to each other.”
The banking crisis infringed upon the sovereignty of countries worldwide. “They failed in that duty.” Legislators are fretting over infringement upon sovereignty. The only way of protecting national sovereignty is to establish international cooperation and regulation. What if there were a failure of a Chinese or Indian bank?
Reads from his Couch speech from 10 years ago: why would we build an international banking system without the protections of our national systems?
Sits down to great applause.