- Date 20 April 2017
By Wolfgang Schäuble
When the financial community gathers for its traditional meetings this weekend in Washington, inclusive growth will be the talk of the town. That economic growth must benefit more people than before has emerged as the answer to rising populism and disappointment with elites.
As a politician from the country with the lowest inequality among large industrial nations, it has always been clear to me that we must prevent societies from growing too far apart. This is now a concern for economic elites as well.
While there is increasing agreement on the goal, there are, as usual, differences on how to get there. I believe we should prioritize enhancing resilience. This is the ability to withstand shocks and to recover from adversity and unforeseen events, and it applies not just to individuals but to countries as well.
Strengthening resilience is a global challenge. And it isn´t just a concern for economists. Economic, financial, social and political aspects are interlinked. Citizens and companies enjoy better and safer job opportunities and a more conducive business climate when they live in a sustainable environment. Growing confidence and prosperity provide strong foundations against protectionism, populism and nationalism.
Resilience, therefore, is essential to bolstering our free and open market economies for the benefit of all.
Germany, as the current president of the G-20, has made resilience one of its main objectives. At the meeting of G-20 finance ministers and central-bank governors last month in Baden-Baden, we agreed on a set of „resilience principles.“ Now it´s up to each member to work up its own specific agenda.
The timing for this is good. The global economic outlook is brighter. Growth prospects in many advanced and emerging economies have improved. There is no need to deliberate further fiscal or monetary stimuli. We can now start tackling all the unresolved issues on our way to sustainable, longterm growth, to improve the fundamentals that deliver better opportunities for all.
Increased spending now would achieve the opposite result. Only structural reforms would unlock the potential for innovation and the efficiency gains of competition, locally and globally. Let´s not put them on the back burner again.
To achieve financial resilience, we must tackle the unresolved debt overhang. Public and private debt around the globe is too high and progress on debt reduction is too slow. High debt is mirrored by asset-price bubbles that pose increasing systemic risks.
In many advanced economies, public indebtedness is the most pressing issue. In some emerging markets, private debt is the main problem. Some countries have both. National governments must implement country-specific measures to tackle these risks. Deleveraging will enhance resilience everywhere.
For monetary resilience, it´s important to realize that monetary policy has reached its limits. In many countries, fiscal consolidation and reform efforts have slowed down. In turn, monetary policy has taken on too much of the burden of dealing with too-high debt and structural shortcomings. Negative side effects continue to grow so long as ultraloose policies persist. Monetary normalization should not be unduly delayed.
Social resilience may be the trickiest of all. There are some core ingredients that would help us succeed.
Sound public finances would allow a political system to cope with unforeseen events. This means concentrating on core services that enhance people´s opportunities and their ability to deal with change. Good infrastructure, strong public education systems and adaptable labor-market institutions would also help bring people into work and to provide opportunities.
We also need a tax system where everyone pays their fair share. This requires international cooperation. Our work against large corporations taking advantage of tax havens is one example of this.
With sound public finances and fair taxation, you don´t need another social-welfare debate on more redistribution. In most Western countries, we already have a heavy burden of welfare spending that undermines productive spending and the government´s ability to support social resilience.
People want opportunities and participation, not alms. A political system that enhances opportunities is the best precondition to achieve sustainable growth for all in the long run.