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G L O B A L B R I E F I N G R E P O RT CONTENTS

B20 BUSINESS SUMMIT

CONTENTS

C O V E R S T O RY LEAD FEATURE Features

Society 5.0 Updates on Japanese Business and Economy

The New Pecking Order in the World

Ana C.Rold

Chronicle of a Humanitarian Crisis Foretold

Special Report

Making the Global Financial System Work for All A Contribution by individual Members of the G20 Eminent Persons Group on Global Financial Governance, other thought-leaders and the London School of Economics and Political Science.

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Oscar Montealegre

From STEM to Security Why More Women in Science is a Foreign Policy Imperative

Branded Stories

Rebecca Turkington & Rebecca Hughes

On the Radar The Business Impact of Environmental and Social Issues

Despite Assurances, Vietnam Arrests Returned Asylum Seekers

CPA Canada

Carmen Munir Sluchanksy & Ryan Flynn

Germany Reliable and Strong Partner of the B20

G 20 must Tackle Illicit Trade to Stem the Negative Impacts on Achieving the SDGs

Dr. Stormy-Annika Mildner

TRACIT

Is a New Global Economic Storm Brewing?

Protecting the Global Economy Against Cyber Threats

Rong Qin

Global Cyber Alliance (GCA)

Davos Was All About Globalization 4.0 So What does it Mean?

Towards Greater Expectations Liveyon

Winona Roylance

Europe and China’s New Diplomatic and Economic Collision Course

Key Takeaways from the 2019 Global Talent Summit

Frank Maxwell

Global Talent Summit

Advertisers Index

Coordinating the Future of Learning Jacksón Smith 02 09 13 21 25 31 36 41

Measuring National Economic Performance Through the Lens of Well-being Becky Graham

PUBLISHER/CEO & FOUNDER Chris Atkins catkins@thecatcompanyinc.com 001-801-7835120 (ext 200) EDITOR-IN-CHIEF Ana C. Rold editors@diplomaticourier.org CREATIVE DIRECTOR Christian Gilliham christian@cgcreate.co.uk (+44) 7951 722265

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EDITOR (LSE) Erik Berglof PROGRAMME DIRECTOR (LSE) Piroska Nagy-Mohacsi SALES EXECUTIVES Ray Baker Phil Cook Anthony Leigh Jones Delano Johnson Tryrone Eastman

WELCOME MESSAGES

06 Hiroaki Nakanishi KEIDANREN CHAIRMAN

07 Prof. Dieter Kempf BDI PRESIDENT

Learning Economy CAT Company Inc Generali Global Assistance YPF CPA Canada CGcreate Schloss Elmau Global Cyber Alliance

76 Eden Roc 81 Vertiqul 87 Invest in UK 91 Global Talent Summit 94 The Ungasan Clifftop Resort 98 DSX Inc 100 Philip Morris Int.

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Global Affairs Copyright 2019 the CAT Company. All rights reserved. The B20 Publication is a product of CAT Company. No part of this publication can be reproduced without written consent of the publisher Chris Atkins and the CAT Company. All trademarks that appear in this publication are the property of the respective owners. Any and all companies featured in this publication are contacted by CAT Company to provide advertising and/or services. Every effort has been made to ensure the accuracy of information in this publication, however, CAT Company makes no warranties, express or implied in regards to the information, and disclaim all liability for any loss, damages, errors, or omissions.

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B20 BUSINESS SUMMIT

PUBLISHER’S LETTER

Chris Atkins PUBLISHER, CEO & FOUNDER CAT COMPANY, INC.

Dear Readers, I am thrilled to welcome you to the 2019 B20 Summit Magazine. It has been exactly 22 years since CAT Company produced the very first G7 Summit publication. In 1997, our work earned us the trust of the host government and since then we have been honored to be the go-to publisher and consultant for host governments of the G7 and the G20 Summits for 22 years in a row. For over two decades our company’s own history and legacy are tied to these most important of global leadership gatherings. As we reflect on the past two decades and more, I wish to express my heartfelt thanks to Japan’s B20 Host Committee for their collaboration and permission to distribute our publication at the B20 Summit this year. I also want to take this opportunity to thank a new content and editorial partner, the London School of Economics and Erik Berglof, the inaugural Director of the Institute of Global Affairs and its newly launched Global Policy Lab.

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It’s been a true privilege to work with Professor Berglof in this edition and I look forward to our continued collaboration this year and beyond. In more than two decades our company has grown and expanded exponentially. Our portfolio of publications, which also includes the leading editions for the G7 Leaders’ Summit, G20 Leaders’ Summit and B20 Summit respectively, have been recognized globally. Our company’s mission has been and continues to be to educate the global community on the most vital topics affecting our society and the agenda and leaders at the G7, G20 Leaders & B20 Summits. Through our awardwinning publications, we have created an unprecedented opportunity for private sector leaders to have a voice at these summits even when they don’t have a physical seat at the table. We look forward to the B20 Summit and G20 Leaders Summit in Japan this year; and we look forward to working with you all again in the years to come! ◆

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› Blockchain Technology Combating Illicit Finance

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› Artificial Intelligence The Miracle and the Menace

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INSIDE G20 › GCEL: SPECIAL FEATURE THE DIGITAL PATH TO SUSTAINABLE ECONOMIC PROSPERITY › The Urban 20: On City Diplomacy › The Youth 20: On the Future of Work

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G L O B A L B R I E F I N G R E P O RT MESSAGE

B20 BUSINESS SUMMIT

WELCOME

Hiroaki Nakanishi KEIDANREN CHAIRMAN

Today, digital technology is bringing major changes not only to the economy but to the foundations of society itself. Our challenge is to create a future for the globe in the midst of these changes. Last November, Keidanren published Society 5.0: Co-creating the future, a proposal that aims to share wisdom and insights and strengthen cooperation among industry, academia, and government to create a new human-centric society. It is also a declaration of intent for how Keidanren will act in the years to come. The central concept of the proposal is Society 5.0, based on the idea that human society is moving into a fifth stage. Following on from the Hunting Society, Agrarian Society, Industrial Society, and Information Society, the fifth stage will be a Creative Society, in which a combination of the digital transformation and the imagination and creativity of diverse people will make it possible to solve the problems facing society and create new values. I believe effective use

Towards the Realisation of Society 5.0 for SDGs of Internet of Things and artificial intelligence will allow all of us to harness our true human creativity and create a new society of the future using cutting-edge technology. As the B20 Tokyo Summit is approaching, our idea is that the B20 should take the lead in sharing with the world concepts that will build towards the future, and use the digital transformation to create a bright society. This was the idea behind the comprehensive proposal we drew up for Society 5.0. Society 5.0 will bring profound changes to people’s lifestyles and industry. Society 5.0 aims to use the potential of the digital transformation not only for economic growth, but for the solution of social issues and coexistence with nature.

It can also help to achieve the United Nations Sustainable Development Goals (SDGs). In our proposal, we outlined what we call “Society 5.0 for SDGs,” a specific vision for the society we should aim towards. Moving forward, Keidanren will continue to refine this proposal and will take the initiative in realising our idea, transforming the Japanese economy and society. As Chair of the upcoming B20 Tokyo Summit, I am determined to work closely with a variety of stakeholders across the world, let alone the B20 members, to maintain and strengthen a free and open international economic order, to build a data governance framework, and to make the most of disruptive innovations for the environmental issues such as climate change. Let us work together to overcome the current period of uncertainty and boldly open up the way into a new era. I hope we can look forward to your continued help and support as we work to build a brighter future together. ◆

As the B20 Tokyo Summit is approaching, our idea is that the B20 should take the lead in sharing with the world concepts that will build towards the future, and use the digital transformation to create a bright society. Hiroaki Nakanishi

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WELCOME

Prof. Dieter Kempf BDI PRESIDENT

Only Together We Will Make “Society 5.0 for SDGs” a Success Story important component is the G20 Engagement Groups. The seven Engagement Groups represent different civil society stakeholders, including but not limited to the scientific community, the private sector and trade unions, women, and young people. Meeting in parallel to the G20 work streams, they not only provide indispensable expertise to the policy-makers, they also help to build a G20 community. In times of rising protectionism, anti globalization sentiments, and increasingly aggressive rhetoric, the Engagement Groups serve as important channels of communication and exchange. The Japanese Business 20 (B20) cycle has once again demonstrated the importance of the business community in the G20. In just three and a half months, the Japanese B20 Presidency – with the help of 20 mandated business federations from the G20 countries – has elaborated on innovative recommendations under the motto “Society 5.0 for SDGs”. In its Communiqué, the B20 conducts a clear assessment of the current political environment: sustainable and inclusive development is put

at risk by rising protectionism, as well as by the lack of governments to sufficiently address climate change and limited resources. The B20 proposes several actions to the Leaders to advance Society 5.0 for SDGs. This includes ensuring a digital infrastructure, advancing international cybersecurity and creating a framework for privacy protection. Regarding international trade, the B20 calls to renounce protectionist and unilateral measures, to strengthen free and rules-based trade and to address the challenge of WTO reform. In the field of climate change, the Japanese B20 Presidency put a focus on realizing a low-carbon society. These actionable B20 recommendations, as well as the overall work and efforts of the Engagement Groups, demonstrate the importance of civil society within the G20. B20 has made its contribution to this year’s G20 process; now it is the G20’s turn to find a strong and implementable consensus on the most urgent challenges in international politics. Because only together we will make “Society 5.0 for SDGs” a success story! We thank Keidanren and the Japanese B20 Presidency for their exemplary and invaluable efforts in this year’s B20 process! We furthermore look forward to the coming G20 and B20 cycle under the Presidency of Saudi Arabia. ◆

Ever since the first meeting of the G20 heads of states and governments in 2008, the forum has faced strong criticism regarding its effectiveness and legitimacy. The increasingly difficult negotiations within the G20 and the challenging consensusfinding processes during past Summits feed into such criticism. However, the last ten years have shown that the G20 is indispensable in shaping the process of globalization and thus contributed to economic growth and prosperity. Without a doubt, consensusbuilding has become more difficult, as we witnessed during the G20 Summit in Buenos Aires. The Communiqué falls short of those of previous summits, including the G20 Summit in Hamburg in 2017. The Communiqué neither provides any concrete measures on how to implement the Paris Agreement nor sufficiently addresses the rising trade tensions; it furthermore does not offer a comprehensive digital strategy. Given the current geopolitical environment, however, it was a success in and of itself that the Leaders managed to decide on a joint Communiqué. The G20 is, moreover, so much more than merely the Summit. The many working groups allow for a continuous exchange on issues ranging from financial market regulation to trade, digitalization, health, and development to name just a few. They help to build relationships and trust. Another

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G L O B A L B R I E F I N G R E P O RT EDITORIAL

B20 BUSINESS SUMMIT

EDITOR’S LETTER

Ana C. Rold EDITOR-IN-CHIEF CAT COMPANY, INC.

Welcome to the 2019 edition of the B20 Summit publication. We are thrilled to collaborate with the London School of Economics and the Global Policy Lab to produce a publication focused on how the global business and policy leadership contribute thought leadership around some of the biggest issues facing our world. We are particularly proud to have the support of Japan’s organizing committee in distributing our publications to the attending leaders at the B20 Summit for this year’s increasingly relevant and important forum of global leaders—a testament to our longevity in the field and our team’s tireless efforts to produce a publication by the leaders for the leaders. The issues at hand are many and it is abundantly clear the G20 remains a key forum for managing the global economy beyond the 2008 economic crisis. The membership of the G20— which includes both developed and developing economies—is such that allows for greater inclusion and collaboration; more so than any other global gathering of such nature. The B20, the G20’s business mirror summit

has become an important voice and conduit; it integrates the international business community—a key partner— into the G20 process. This group of select business leaders represents the most important industries involved in solution making. From green growth to food security to employment, the task forces within the B20 have set to research solutions to seemingly intractable issues. Their cooperation with the G20 leaders is paramount to the efforts to curtail future global economic crisis. Even though the G20 was the result of the financial crisis in 2008, the institution has carried on well after the crisis. The G20 has become the venue of choice for multiple stakeholders to come together to carry on complex solutions that require collaboration on multiple levels and via multiple sectors in a flexible format. That type of work is already being carried out by the B20, which is engaging with multiple partners like the World Economic Forum and the OECD. We hope you enjoy reading the selection of articles for this edition and that you will email us with any editorial comments and thoughts. ◆

Even though the G20 was the result of the financial crisis in 2008, the institution has carried on well after the crisis. The G20 has become the venue of choice for multiple stakeholders to come together to carry on complex solutions. Ana C. Rold

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G L O B A L B R I E F I N G R E P O RT SOCIETY 5.0 F E AT U R E

Society 5.0 Updates on Japanese Business and Economy 1. Symposium:

Business and Policy Views of Changing U.S.-Japan Relations CSIS Japan Chair, Keidanren Strategic International Initiative and Keizai Koho Center (KKC, Japan Institute for Social and Economic Affairs) co-hosted a symposium to commemorate the 40th anniversary of KKC at CSIS Headquarters on November 16.

2. Society 5.0:

Co-creating the future Japan is committed to Society 5.0. It is the vision of an emerging form of society characterized as “Imagination Society” enabled by the digital transformation. On November 13, Keidanren released a proposal titled “Society 5.0 - Co-creating the future -” setting out the concept of, and drawing a concrete picture of Society 5.0 as a future society that we wish to create with the world. Change caused by digital transformation The world is now facing a great tide of change. The trend of digital transformation cannot be stopped and is drastically changing multiple aspects of society including private lives, public administration, industrial structure and employment. While new technologies could bring about merits such as higher standards of living and better convenience, they could have negative effects such as impact on employment, growing disparity and maldistribution of wealth and information. It is up to us to choose which direction to go. We must consider what kind of society we wish to create rather than trying to foresee the kind of society it will be. G20G7.COM

What Society 5.0 is Therefore, Japan will take the initiative in guiding the world to a brighter future by demonstrating an ideal concept of the next society, named as Society 5.01 .In the proposal, Keidanren has redefined Society 5.0 as “Imagination Society”. People are expected to exercise their rich imaginations to identify a variety of needs and challenges scattered throughout society and scenarios to solve them, as well as creativity to realize such solutions making use of digital technologies and data. Society 5.0 will be an Imagination Society, where digital transformation combines with the imagination and creativity of diverse people to bring about “problem solving” and “value creation” that lead us to sustainable development. It is a concept that can contribute to the achievement of the Sustainable Development Goals (SDGs) adopted by the United Nations.

What Society 5.0 brings about In Society 5.0, people will be liberated from various constraints that could not have been overcome up to Society 4.0 and will obtain the freedom to pursue diverse lifestyles and values. In short, we will make Society 5.0 a society in which anyone can create values anytime, anywhere, with security and in harmony with nature. In the report, Keidanren has described specific images of Society 5.0 picking up some of the most important areas2. Keidanren is working together with the government and other stakeholders on corporate and labor policy reform, human resource development, establishment of data policy, enhancement of research and development, governmental reform, etc. for the realization of Society 5.0. We wish to share the goal with our partners in the world and co-create the future.

G L O B A L B R I E F I N G R E P O RT SOCIETY 5.0

Society 4.0 Economies of scale

Liberation from focus on efficiency

Uniformity

Liberation from suppression of individuality

Concentration

Liberation from disparity

Vunerability

Liberation from anxiety

Society 5.0 Problem solving & value creation “A society where value is created”

Diversity “A society where anyone can exercise diverse abilities”

Decentralization

High environmental impact. Liberation from resource & Mass consumption environmental constraints of resources

“A society where anyone can get opportunities anytime, anywhere”

Resilience “A society where people can live and persue challenges in security”

Sustainability & environmental harmony “A society where humankind lives in harmony with nature”

Learn more: http://www.keidanren.or.jp/en/policy/2018/095.html

3. COP24

Realizing effective and fair global warming countermeasures under the Paris Agreement On November 13, Keidanren released a proposal titled “COP24 - Realizing effective and fair global warming countermeasures under the Paris”. COP24 negotiation “Need for ensuring effectiveness and fairness” COP24, to be held in December 2018, aims to reach agreement on the implementation guidelines for the Paris Agreement. However, negotiations are still only halfway towards agreement. From the perspective of equal footing in the international business environment, it is vital that the Paris Agreement ensure effectiveness and fairness. Agreement on key issues In order to ensure effectiveness nd fairness of the Paris Agreement, it is essential to fulfill the necessary requirements, the main ones being “all countries’ participation in the Agreement”, “common rules for all countries”, and “promotion of an appropriate PDCA cycle based upon the pledge and review approach”. In particular, “transparency” and “finance” are considered key issues that influence effectiveness and fairness of the Agreement. As for “transparency”,

rules prepared for developed countries should be commonly applied to emerging countries with sufficient capacities such as China. About “finance”, it is desirable that rules should be worked out by which each country will make fair contributions according to its capacities. Attention on non-state actors “For improved Japanese international presence” Recently, increasing attention is being paid to actions by non-state actors. During COP, their side events and other activities are highlighted, demonstrating their growing complementary role to national actions. Keidanren will take actions to raise Japan’s international presence through dissemination of information at side events during COP243. Efforts will be made to gain an understanding of contributions to avoided emissions through the Global Value Chain (GVC). In order to extend this approach globally, Keidanren has recently compiled and published a concept book “Contributing to Avoided Emissions through Global Value Chain”4. Furthermore, Keidanren will further strengthen collaboration with economic organizations of major countries at Whe B20 and thereby promote global actions to realize global warming countermeasures.

4. Joint Report of the India-Japan Business Leaders Forum Since 2007, the Japan-India Business Leaders Forum has been timed to coincide with Japan-India summit meetings and has assembled business leaders representing both countries in one place to engage in serious discussions aimed at expanding the level of bilateral economic exchange. A Joint Report summarizing the outcomes of the forum is submitted to the heads of the governments of the two countries with lobbying efforts aimed at translating those outcomes into action. In the 11th Forum held in Tokyo on October 29th, the business leaders of Japan and India discussed the three main themes: (1) Maintain and strengthen the free and open international economic order and fostering economic partnerships, (2) Expand economic exchange through improvements in the business environment, (3) Achieve inclusive growth through strengthened cooperation in strategically important fields, and put together the Joint Report summarizing the outcomes of their discussions. 1. Maintaining and strengthening the free and open international economic order and fostering conomic partnerships As concerns mount over the spread of anti-globalization and protectionist sentiment worldwide, it is vital that steps be taken to maintain and strengthen the free and open international economic order that has sustained global stability and prosperity, and move forward with the development of a trade and investment climate that facilitates free, cross-border flows of goods, services, capital, people, technology, data, and other resources. From these perspectives, business leaders from Japan and India acknowledged the need to swiftly conclude a comprehensive, high-level agreement on the Regional Comprehensive Economic Partnership (RCEP) that is currently being negotiated. → TOKYO_JAPAN

G L O B A L B R I E F I N G R E P O RT SOCIETY 5.0

Japanese and Indian industries collaborated on a joint report and presented it to Prime Minister Abe and Prime Minister Modi on October 29th

→ 2. Expanding economic exchange through improvements to the business environment Business leaders from Japan and India strongly commended the implementation of the Goods and Services Tax (GST) by India in July last year. On the other hand, Japan’s business leaders call on the Government of India to continue working to streamline and speed up the GST system and related procedures; promote tax system reorganization and rationalization; assure international consistency of the tax system including revisions to the Master File requirement; ensure the free flow of data by rescinding regulations on data localization; develop and digitize general rules on administrative procedure; and ensure the transparency and fulfillment of administrative contracts.

3. Achieving inclusive growth through strengthened cooperation in strategically important fields To achieve the Sustainable Development Goals (SDGs), the private sector is needed to exercise its ingenuity and strengths in innovation. From this perspective, efforts to further strengthen initiatives by both countries -Society 5.0 in Japan, and national initiatives in India such as Digital India and Startup India- and pursue cooperation that reciprocally complements their competitive positions will enable Japan and India to

collaborate and lead in the creation of innovations that are aimed at achieving inclusive growth. ◆ Joint Report: http://www.keidanren.or.jp/en/ policy/2018/093.html Annexure: http://www.keidanren.or.jp/en/policy/ 2018/093_annexure.pdf 1 The 5th stage of human society following Hunting, Agrarian, Industrial and Information Societies. It was officially presented for the first time in the 5th Science and Technology Basic Plan in January 2016. 2 Smart cities, energy, disaster response, healthcare, agriculture, logistics, manufacturing and services, finance and public services 3 Keidanren’s side event at COP24 will be held at 13:15-14:45 on 12 December. 4 http://www.keidanren.or.jp/en/policy/index07.html

The world is now facing a great tide of change. The trend of digital transformation cannot be stopped and is drastically changing multiple aspects of society including private lives, public administration, industrial structure and employment. While new technologies could bring about merits such as higher standards of living and better convenience, they could have negative effects such as impact on employment, growing disparity and maldistribution of wealth and information. G20G7.COM

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In 2017,

at the start of the school year in Russia, President Vladimir Putin famously declared that “whoever becomes the leader in this [artificial intelligence] sphere will become the ruler of the world.” It wasn’t an over the top declaration. In fact, if we pay attention to the investments and policies of superpowers and emerging powers alike, the evidence is there that we have entered a new geopolitical kind of struggle, the kind that will play out both in the physical and the digital realm.

The world’s superpowers have entered a new geopolitical kind of struggle, the kind that will play out both in the physical and the digital realm. By Ana C. Rold

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Who is emerging as a winner or loser of this new race? This question was the focus of a recent panel I participated in at the annual World Web Forum, whose theme this year was “Master or Servant”. The panel featured perspectives by experts from China, the United States, Japan, and the European Union who debated the new digital battles for dominance in AI. Despite some argument on which battles we can even have (will social media destroy our minds and can we even do anything about it?) the consensus was that there is an undeniable power-play between the U.S. and China when it comes to AI. And other countries are following suit, hoping for their strategic advantage. But unlike the race to land first on the moon, the one for AI dominance is much more complex. Who will emerge victorious in this— now literal—arms race? First, here is the graphic truth. Seventy-six of the world’s top AI startups were American born in 2018; only six were Chinese. But that’s about the only area America has an edge in this contest. As reported by Signal: “China has greater access to important types of data and is investing heavily to catch up elsewhere.” China in the spotlight In 2017, the government of China put out its plan to lead the world in Artificial Intelligence by 2030. According to Eric Schmidt “it’s pretty simple. By 2020, they will have caught up. By 2025, they will be better than us. By 2030, they will dominate the industries of AI.” And the numbers don’t lie, says Peter Diamandis: “PricewaterhouseCoopers recently projected AI’s deployment will add $15.7 trillion to the global GDP →

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→ by 2030, with China taking home $7 trillion of that total, dwarfing North America’s $3.7 trillion in gains.” It’s common to read about China and the U.S. as being in competition. What started with the “Tariff Wars” has moved to the digital realm. President Trump’s recent executive order laid out a bold vision for how to make America number one in artificial intelligence, a move aimed at China’s rise in this competition and perhaps the beginning of a response. However, critics say it’s light where it matters.

Everything except money The “American AI Initiative” has arrived two years after the Chinese plan, and later than several other countries (18 countries—from India to Australia— have launched national AI strategies in the past couple of years). This is important. Half the countries that declared AI initiatives have committed new funding, China has committed tens of billions of dollars, but the U.S. has yet to allocate specific funds. Indeed, the U.S. has put out plenty of research and reports, but so far it has only asked federal agencies to prioritize existing funds towards AI projects; it has not committed new funds. The critics are unanimous: the U.S. is prioritizing but not exactly funding AI, and that’s the real national emergency. An AI arms race It won’t be long before the AI race becomes an actual arms race. A new report from the Center for New American Security details the views of Chinese leadership vis-à-vis AI, and they are not limited to the economic realm. The report gives an insider’s view of China’s AI strategy as it pertains to its military ambitions. The key takeaway: military use of AI (and other technologies) is central to China’s overall AI strategy.

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Chinese leaders don’t want to depend on Western technology anymore and see AI as a way to catch up with rival nations. In the United States, the Department of Defense has been investing on “intelligent machines” since the 1960s and that funding played a key role in establishing what we now know as Artificial Intelligence. Now, the Pentagon is calling for fast adoption of AI in all aspects of the U.S. military. A day after the announcement of the “American AI Initiative” by the White House, DOD announced its own unclassified version of its AI strategy. At a news briefing on the day of the launch, Dana Deasy, DOD’s Chief Information Officer said: “Russian and Chinese investments in military AI technology heighten the need for U.S. forces to use more AI, too. We must adopt AI to maintain our strategic position and prevail on future battlefields.” What about the rest of the world? Governments worldwide have responded to the economic and military promises of AI through new national strategies to drive growth and competitiveness. A November 2018 report by Canadian-based CIFAR surveyed the current landscape and found that 18 nations have released AI strategies, of which nine are fully funded and outline specific policies, and nine are guiding documents that present objectives guiding future policies. Not all of the world’s nations can afford the luxury to invest in AI and enter the race, but according to Yuval Noah Harari they can’t afford not to. In a recent editorial, the author of “21 Lessons for the 21st Century” said “all countries, regardless of whether they are tech superpowers or not, will feel the effects of the AI revolution.”

G L O B A L B R I E F I N G R E P O RT A RT I F I C I A L I N T E L L I G E N C E

It won’t be long before the AI race becomes an actual arms race. A new report from the Center for New American Security details the views of Chinese leadership vis-à-vis AI, and they are not limited to the economic realm.

Beyond the future economic and future military objectives surrounding AI, there is an even more important dimension: the future of life itself. According to Harari “The combination of AI and biotechnology will be critical for any future attempts to redesign bodies, brains, and minds. Elites in the United States and China who have access to those technologies could determine the course of evolution or everyone, according to their particular values and interests.” Will diplomacy prevail? Humanity survived the Cold War and its flirtation with mutually assured destruction (MAD) through good old-fashioned (track one and track two) diplomacy. Indeed, while the AI race has both economic and military dimensions, the future of our society will depend on cooperation and diplomacy. At least, this was the sentiment at the inaugural U.S.-China AI Tech Summit in Half Moon Bay last summer. The organizers, led by Silicon Valley-based AI Alliance, a non-profit that convenes tech executives and policymakers in the global AI community to cooperate on initiatives. The plan is for many more of these forums and summits in the coming year. “Ultimately, no single meeting can address the gravity and scope of the challenges we face,” said Helen Liang, Managing Partner of FoundersX Ventures and the Co-President of the AI Alliance in her opening remarks. But this sort of gathering can build bridges of understanding between the world’s AI superpowers. From healthcare to transportation, the dimensions of AI are limitless and the opportunities for collaboration on all these sectors are the “soft” diplomacy we need. The alternative: a full blow AI war, is the kind of dystopian future no one will survive from. ◆

About the author ANA C. ROLD is the Editor-in-Chief of Diplomatic Courier magazine as well as the B20, G20, and G7 Summit publications. She teaches political science courses at Northeastern University and is the Host of The World in 2050– A Forum About Our Future. To engage with her on this article follow her on Twitter @ACRold. TOKYO_JAPAN

G L O B A L B R I E F I N G R E P O RT VENEZUELA CRISIS F E AT U R E

Chronicle of a Humanitarian Crisis Foretold Venezuela is crying for help, gasping for its last breath before it collapses entirely and becomes an unquestionable failed state. By Oscar Montealegre

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GLOBAL POLICY LAB VENEZUELA CRISIS

Venezuela

is no longer being led by politicians. Sadly, the country is now being governed by thugs, criminals, and narcos; a cesspool of corruption and violence disguised as a benevolent socialist revolution. The socialist experiment designed by Mr. Maduro’s predecessor, Hugo Chavez, has led to one of the worst catastrophes in Latin American history. Venezuela is crying for help, gasping for its last breath before it collapses entirely and becomes an unquestionable failed state. Since 2014, the UN has documented that at least 2.3 million have fled Venezuela in search of a better life. Whether these people should be classified as migrants or refugees is a discussion in itself. A migrant chooses to move and a refugee is forced to move. One could argue that in Venezuela’s

case there is a mixture of both, painting the issue less black and white. As of November 2018, between 2.4 million and 4 million Venezuelans were documented to live abroad. According to estimates, 5,000 people continue to abandon Venezuela every day. By applying simple math, it is feasible to project that within a year an additional 1.8 million Venezuelans will migrate abroad, pushing the exodus total between 4.2 million and 5.8 million Venezuelans fleeing the oppressive Maduro regime. Let’s put these numbers into context. Syria, since 2013, has witnessed an exodus of approximately 6.3 million people due to war and oppression from the Assad regime and the Muslim extremist group Daesh. Moreover, the Syrian diaspora is often considered the worst man-made disaster since World War II. →

As of November 2018, between 2.4 million and 4 million Venezuelans were documented to live abroad.

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G L O B A L B R I E F I N G R E P O RT VENEZUELA CRISIS

→ Sadly, and shocking at the same time, Venezuela is not too far from that troubling distinction. In fact, the exodus in Venezuela has probably surpassed similar diaspora in Afghanistan and South Sudan—since 2013 and beyond. So how bad is it in Venezuela? Reports from journalists document that certain cities are essentially zombie towns, resembling the hit TV series The Walking Dead, where shattered people walk along the streets malnourished, sick, yearning in any possible manner to find food, basic medicine, antibiotics, toilet paper, diapers—much less basic human rights such as safety, security, and freedom of speech. This is what happens when an economy is in total chaos, destroyed by the naiveté of a controlled economy, price controls, and the nationalization of private industries (raw socialism) and its poisonous venom against free markets, individual liberty, and the dignified pursuit of happiness and freedom. Assessing Venezuela should no longer be a foreign policy issue of conservative or liberal ideology. It is time the crisis is be seen through the lens of what is right or wrong. The U.S. administration and other Latin American and European countries are reluctant to let Venezuela free fall into a 20th century version of Cuba Lite. Permitting Venezuela to survive under Maduro will exacerbate a contagion of instability not only in Latin America but also in the U.S. due to Venezuela’s insistence on providing safe havens for the drug trade cartels and narco terrorist groups such as the Colombian ELN. But before we hear resistance from those claiming that we should respect Venezuela’s sovereignty coupled with the shallow argument that the Venezuelan crisis, diaspora, and precarious instability must be solved by Venezuelans themselves, imagine if the U.S applied the same school of thought during World War I and World War II. In this instance, isolationism isn’t the answer; as the proverb so wisely states no man or woman is an island…well the same philosophy can be applied to nation states.

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Permitting Venezuela to survive under Maduro will exacerbate a contagion of instability not only in Latin America but also in the U.S. due to Venezuela’s insistence on providing safe havens for the drug trade cartels and narco terrorist groups such as the Colombian ELN.

The stakes are high in Venezuela. A country that once believed in democracy has morphed into a repressive regime. A country that was considered one of the top 10 richest countries in the 1950s, an example of stability and opportunity in Latin America is now mired with inflation exceeding 1.7 million (per The Economist), a GDP that has been sliced and diced by half (50%) in a rapid fashion, a country that was once the 20th happiest country as recent as 2013 (according to the World Happiness Report) is now experiencing a total annihilation of health care services where babies are deprived of basic nourishment and the child mortality rate has skyrocketed to alarming figures. For what is worth, these days Venezuela ranks 102nd on that same happiness report (2018). Amazingly, there is a glimmer of hope in Venezuela. The alternative shaped in the National Assembly leader, Mr. Guaido, is the answer for Venezuela’s short-term future. Several Latin American countries, the majority of Western Europe, and the U.S. are on the side of democracy and free and fair elections by declaring Mr. Guaido as the legitimate leader of Venezuela until new free and fair elections are held. This is the right course of action, not just for the sake of politics, but for compassion and humanity in Venezuela. Just a few days ago, the illegitimate Venezuelan President Mr. Maduro blocked the much-needed humanitarian aid such as food and medicine from entering the borders of Venezuela. In response to this horrid gesture, U.S. Senator Marco Rubio described the Maduro regime not as a government but a criminal enterprise. Senator Rubio is correct. It is now clear that Venezuela is no longer being led by politicians. Sadly, the country is now being governed by thugs, criminals, and narcos. ◆

About the author OSCAR MONTEALEGRE is a senior financial analyst based in California, United States. He is also a senior financial correspondent with Diplomatic Courier magazine.

G L O B A L B R I E F I N G R E P O RT C PA C A N A D A B R A N D E D S T O RY

On The Radar

The Business Impact of Environmental and Social Issues Societal, technological and geopolitical change, the impacts of climate change and the interconnectedness of these issues present risks and opportunities to companies that must be understood and managed. This piece pinpoints three key trends with environmental and social implications that are already impacting businesses and capital markets.

Evolving View of the Responsibility of Business in Society Institutional investors, employees, customers, communities and governments increasingly look to corporations to: ◆ integrate societal issues into corporate thinking and ◆ take responsibility for the impacts of their operations on society1. Corporations must ask relevant questions they may not have previously considered. For example: ◆ How do urbanization and demographics, energy costs, and availability of agricultural land, create business risks and/ or opportunities? ◆ How do disease, poverty and/or illiteracy impact a company’s workforce and productivity in supply chains? ◆ What are the business risks and opportunities associated with: ● How a company’s products affect people’s lives ● How a large infrastructure project impacts communities ● How extractive companies work with local indigenous communities ● How resource limits influence decisions?

The interdependence of society, economy, the natural environment and related inherent resource limits is becoming clearer, along with the implications of this for business. It takes time to appreciate the environmental and social risks and opportunities related to megatrends. So, too, the social and environmental impacts of some business decisions and operations can take time to develop and become apparent. That is why a longer-term mindset in C-suites and boardrooms is required. An focus on short-term results can both create and exacerbate negative environmental and societal outcomes. The landscape of environmental and social risks important to business is depicted in the World Economic Forum’s annual Global Risks Report3. Some of these issues may be important to all companies and some may be more or less important to particular industries. What is key is that companies navigate both the environmental and social mega-trends, and the industry and company specific issues to the benefit of their investors and other stakeholders4. Costco: “Do the right thing. It is a philosophy embedded in our culture… members of our leadership team and beyond realize the key to long-term

To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society. Companies must benefit all of their stakeholders, including shareholders, employees, customers and the communities in which they operate2. Larry Fink, CEO of BlackRock G20G7.COM

success is not high margins; rather it is how you treat, engage, and include people: our members, our employees and our suppliers alike.5” Costco’s first sustainability principle is: “For Costco to thrive, the world needs to thrive. We are committed to doing our part to help.6”

Increasing Investor Interest in Responsible Investing Institutional investors are becoming more sophisticated in the integration of environmental, social and governance (ESG) issues into their investment decision-making (also referred to as responsible investing). This movement is growing globally.

Responsible investing in the United States grew to $12 trillion in assets under management in 2018, an increase of 38% in the past two years7. In Canada, there were over $2 trillion in responsible investment assets under management, an increase of 41.6% in two years. This represents over half of Canada’s investment industry8. As well, impact investing (a subset of responsible investing that seeks a social and/or environmental benefit in addition to financial gain), while still in its infancy in Canada9, marks a growing trend. Importantly, investors are committed to measuring and managing impact10– a trend that may affect corporate reporting.

Institutional investors are looking for reliable, comparable ESG information that will enhance their investment analysis, engagement and voting decisions. Currently institutional investors purchase selected ESG data from third parties because corporate disclosures are not always providing the evolving ESG metrics and information capital markets are seeking. →

“Risks and opportunities for long-term capital differ fundamentally from those for short-term capital. Metrics also differ: short-term metrics tend to be more accessible and reliable, but they often do not capture disruptive changes in economies or markets. These long-term disruptive changes include climate change, cybersecurity, demographics, and many other factors12.” Excerpt 2018 Summit on Focusing Capital on the Long Term

Risks can come from financial as well as non-financial factors, and that’s why analysis of ESG [environmental, social and governance] factors is integrated in our processes11. Ontario Teachers’ Pension Plan TOKYO_JAPAN

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likely to support and trust company responses. “The real difference between shareholder activists and nonfinancial stakeholders can be seen in the power of social media to shape the discussion. Non-financial stakeholders concerned with environment, social and local issues can often gather more online support for their concerns than activist shareholder can gather for theirs.19” CPA Canada Stakeholder Engagement Briefing

→ Three noteworthy developments in reporting about ESG issues include: ◆ asset owners, asset managers and companies have begun to report on climate-related matters as recommended by the Task Force on Climate-related Financial Disclosures (TCFD)13 ◆ increasingly, corporations are presenting their responses to the UN Sustainable Development Goals (SDGs) in their sustainability reports14 ◆ companies (and investors) are using the standards for identifying financially material environmental and social issues by industry sector provided by the Sustainability Accounting Standards Board (SASB)15.

The Contribution of Stakeholder Engagement to Long Term Value Knowing how environmental and social issues impact stakeholders16 and understanding stakeholders’ expectations17 of companies can contribute valuable insights for identifying strategic opportunities and risks and creating long-term value. It can also help to build trust, brand reputation and resilience. “Effective engagement with nonshareholder stakeholders is equally vital to sustain the long-term G20G7.COM

interests of an organization and to ensure that a board discharges its management oversight responsibilities.18” CPA Canada Stakeholder Engagement Briefing. Transparency and engagement are key to developing and retaining trust with stakeholders. In today’s market, attention to social media is particularly important. Information posted on social media can be misleading or even deceptive with often little time to fact-check and respond. More engaged stakeholders are more

Responding Strategically Successful companies and boards are adept at handling the interconnectedness and complexity of the business issues related to environmental and social matters. They challenge their existing models. They bring together diverse stakeholders with different points of view. They take the time to develop, adapt and test innovative approaches and behaviours. And they dialogue and report strategically with investors and other stakeholders. Boards and executives that recognize and monitor trends such as those outlined in this publication will be better equipped to provide effective oversight of how their companies are dealing with environmental and social issues. And importantly, their companies will be better positioned to create long-term, sustainable value. ◆

For more On the Radar articles please see CPACanada/OntheRadar 1 Based on a global survey of 11,000 business and human resource leaders, as well as interviews with executives from some leading organizations, a 2018 Deloitte study noted that organizations are increasingly judged on their impact on society. Deloitte Insights. 2018 Deloitte Global Human Capital Trends. The rise of the social enterprise. 2 'Larry Fink. A sense of purpose. Blackrock. January 2018. 3 http://www3.weforum.org/docs/WEF_GRR18_Report.pdf 4 Some companies are beginning to prepare scenario plans to understand better the potential impact of megatrends and issues on future business strategies, operations and results. 5 Annual Report 2017. Costco Wholesale Corporation. CEO Letter to Shareholders. 6 https://www.costco.com/sustainability-introduction.html 7 Report on US Sustainable, Responsible and Impact Investing Trends 2018. US SIF. October 2018. Page 1. 8 2018 Canadian Responsible Investment Trends Report. Responsible Investment Association. October 2018. Page 6. 9 According to the 2018 Annual Impact Investor Survey, capital invested in 2017 exceeded US$35.5 billion with growth of 8% expected in 2018. 10 Global Impact Investing Network. Annual Impact Investor Survey 2018. Page XIII 11 https://www.otpp.com/investments/responsible-investing/our-principled-approach 12 Summit 2018 Focusing Capital on the Long Term. FCLTGlobal. New York. 28 February 2018. Page 20. 13 https://www.cpacanada.ca/en/business-and-accounting-resources/financial-and-non-financial-reporting/ mdanda-and-other-financial-reporting/publications/tcfd-overview 14 http://www.undp.org/content/undp/en/home/sustainable-development-goals.html 15 https://materiality.sasb.org 16 Stakeholder categories include capital providers, customers, employees, suppliers, communities, Indigenous Peoples, and governments. Non-governmental organizations can also impact companies and stakeholders. 17 For example, millennial or Generation Z talent want to work for companies that make a positive impact in society. 2018 Deloitte Millennial Survey. Page 2. 18 CPA Canada. Director Briefing – Stakeholder Engagement. Andrew J. MacDougall, LLB and Josh Pekarshky. 2018. Page 1. 19 IBID. page 4.

Helping businesses navigate climate change

Chartered Professional Accountants (CPAs) can help your organization make more informed decisions — and increase resilience — in the face of climate change. How? By identifying climate-related risks and opportunities. By estimating financial impacts and performing scenario analyses. By advising on long-term business performance. Need a strategic response to climate change? Enlist a CPA. FIND OUT MORE AT cpacanada.ca/ClimateChange 17-0683

G L O B A L B R I E F I N G R E P O RT WOMEN IN STEM

From STEM to Security: Why More Women in Science is a Foreign Policy Imperative Some of today’s most persistent global challenges —from nuclear policy to climate change—require diverse input from the STEM community. By Rebecca Turkington & Rebecca Hughes

Although

global gender gaps in education and labor force participation have narrowed significantly in recent years, some discrepancies have refused to budge. Women’s participation in science, technology, engineering, and mathematics (STEM) remains stubbornly low around the world. Globally, women represent only 35 percent of higher education STEM students, and hold barely 5 percent of leadership positions in the tech industry. Research shows that increasing the numbers of women in STEM fields can drive growth in economies around the world, and is likely to make technological innovation more inclusive and responsive. Yet, one area where women’s participation has not received significant attention is at the juncture of STEM and foreign policy. Some of today’s most persistent global challenges—from nuclear policy to climate change— require diverse input from the STEM community. In honor of International Day of Women and Girls in Science we highlight women and girls working at intersection of policy and science to advance a more stable and peaceful world.

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Nuclear Policy Women have always played an important role in promoting peace, security, and stability, and the field of nuclear security is no different. One path-breaking woman is Shirley Ann Jackson, who completed her doctorate in particle physics in 1973; the first African-American woman to earn a PhD from the Massachusetts Institute of Technology. She served as the chair of the Nuclear Regulatory Commission, and spearheaded the formation of the International Nuclear Regulators Association. In 2016, she became the first African-American woman to be awarded the National Medal of Science. During the Iran nuclear negotiations Federica Mogherini, the EU’s chief diplomat, Helga Schmid, Mogherini’s deputy, Wendy Sherman, a top U.S. State Department official, and Catherine Ashton, the previous EU foreign policy chief, were unable to shake hands with their Iranian interlocutors. Nevertheless, their political acumen, technical knowledge, and diligence secured the Joint Comprehensive Action Plan. Since its inception, women have contributed to the field of nuclear science. Dr. Lise Meitner, a Jewish Austrian physicist, helped discover and explain nuclear fission. Meitner

recognized the explosive potential of this process and was invited to work on the Manhattan Project. She refused, declaring, “I will have nothing to do with a bomb!” Global Health Security Infectious disease has been part of America’s foreign policy agenda for decades, and each new epidemic highlights the growing importance of global health security. One of the foremost experts on this global challenge is science journalist Laurie Garrett. Winner of journalism’s three most prestigious prizes—the Peabody, Polk and Pulitzer—Garrett writes on the intersections of security and infectious disease, bioterrorism and public health. Dr. Sara Davies, a researcher on health diplomacy and global health governance, brings a gender lens to understanding disease outbreak and management, noting that women face a disproportionate burden during complex health emergencies like Ebola and Zika. Women are also leading on the policy front. Dr. Margaret Chan oversaw global efforts to address the spread of disease for more than a decade as the Director-General of the World Health Organization. She was appointed to the role after her success in Hong Kong battling outbreaks of the H5N1

G L O B A L B R I E F I N G R E P O RT WOMEN IN STEM

Advancing women’s participation in STEM to ensure a new generation of female scientists follows in the footsteps of these pioneers is a national security and moral imperative. virus and SARS. And on the ground, women are often the invisible frontline against the spread of disease. During the Ebola crisis in West Africa, women’s traditional roles caring for the sick and preparing bodies for burial put them at great risk, but also meant they represented the vanguard of community response. Climate Change Climate change is inarguably one of the biggest issues facing world leaders, and women and girls around the world are leveraging their knowledge and skills to address it. In 2015, Christiana Figueres, the former UN climate chief, was tasked with developing an international response to global warming. The result was the Paris Climate Agreement, a landmark accord that nearly every nation in the world signed. Developed and developing nations alike committed to reducing carbon emissions in order to avert the worst effects of climate change. Adults aren’t the only ones working to save planet. In 2018, then-fifteen year-old Greta Thunberg launched a solitary picket outside the Swedish parliament building in Stockholm, demanding radical and immediate action on climate change. Her act of civil disobedience helped inspire the mass student protest

movement that is sweeping across Europe. The movement is led almost entirely by teenage girls, and highlights not only the urgent need to address climate change but also the powerful organizing potential of young women. Technology Artificial intelligence (AI) is transforming foreign and security policy in ways unforeseen even five years ago. As weapons become increasingly autonomous, women are leading efforts to build global consensus about how AI will shape war. Mary Wareham, global coordinator of the candidly-named “Campaign to Stop Killer Robots,” has worked for decades advocating to curtail the use of weapons that threaten civilians. She now leads a coalition of 93 NGOs across 53 countries striving to create a binding global compact that ensures “meaningful human control” over autonomous weapons systems. Women have been at the forefront of innovation in the defense sector since the very beginnings of computer technology. Dr. Grace Hopper—a naval officer, mathematician, and one of the first three computer programmers in history—pioneered word-based programming languages, opening up the world of coding to a wider

community of users. Another critical innovator in defense technology was actress Hedy Lamarr, who patented a system of ‘frequency hopping’ to guide torpedoes while preventing radio interception in 1942. Though not used by the Navy in WWII, her idea later provided the basis for the technology undergirding Wifi, GPS and Bluetooth. The Way Forward The women highlighted here represent only a small fraction of those who have worked at the juncture of science and foreign policy, but global statistics tell a worrying story. In the United States and much of the world, both the STEM and foreign policy communities remain overwhelming white and male. This lack of diversity ultimately limits these communities’ ability to innovate and weakens global response to the most critical challenges of our times. When women have the educational and leadership opportunities to pursue careers in STEM, they have influenced the development of policies, programs, and inventions that have changed our world. We cannot afford to leave the talent and contributions of half the world’s population on the table. Advancing women’s participation in STEM to ensure a new generation of female scientists follows in the footsteps of these pioneers is a national security and moral imperative. ◆

About the authors REBECCA TURKINGTON is assistant director of the women and foreign policy program at the Council on Foreign Relations (CFR). REBECCA HUGHES is research associate with the women and foreign policy program at CFR. TOKYO_JAPAN

G L O B A L B R I E F I N G R E P O RT T R A C I T. O R G B R A N D E D S T O RY

G20 must Tackle Illicit Trade to Stem the Negative Impacts on Achieving the SDGs By Louis Bonnier, Director of Programs, Transnational Alliance to Combat Illicit Trade

he escalating illicit economy is a major impediment to global economic and social development. From smuggling, counterfeiting and tax evasion, to the illegal sale and possession of goods, services, humans and wildlife, governments are losing billions in tax revenues, consumers are exposed to unregulated, unsafe products and society is witness to a steady unraveling of peace, security and rule-of-law. Illicit trade has a particularly debilitating effect on legitimate business and the business stakeholders represented in the B20. Unfair competition from shady operators side-stepping regulations erodes opportunities for growth, local productivity and employment. At the same time, business incurs higher costs due to reputational damage and rising supply chain compliance, security and insurance costs. In addition to distorting markets and draining public revenues, illicit trade undermines society’s efforts to achieve the United Nations’ Sustainable Development Goals (SDGs) with negative impacts on consumers, workers and the environment.

Impact of illicit trade on sustainable development In their Buenos Aires Declaration “Building consensus for fair and sustainable development”, Leaders of the Group of 20 (G20) in 2018 reaffirmed their commitment to leading the transformation towards sustainable development and supporting the 2030 Agenda for Sustainable Development. The G20 also reiterated commitments to curb several illicit trade issues, pledging actions to eradicate human trafficking, address illicit financial flows, support intellectual property rights (IPR) protection, and to lead by example in the fight against corruption.

While the G20’s support for the 2030 Agenda and its pledges to address illicit trade are praiseworthy, the interdependence of these two issues has not been fully recognized. Illicit trade – in all its forms – undermines the G20’s collective effort to achieve the 2030 Agenda for Sustainable Development and the 17 SDGs. The Osaka G20 Summit presents an important opportunity for Leaders to collectively elevate priority attention to illicit trade as a prerequisite to achieve the 2030 Agenda for Sustainable Development. Without concurrent efforts to combat illicit trade—and address associated

corruption and organized crime—the global community will not be able to achieve the overarching sustainable development goals to end poverty, protect the planet, and ensure that all people enjoy peace and prosperity. G20 economies struggling to combat illicit trade Results from the recent Global Illicit Trade Environment Index1 show a large disparity among G20 economies in their structural capability to effectively address illicit trade threats. While the G20 as a collective group scores 67 out of 100, seven points above the global average, this score hides large discrepancies among the member countries. Out of 84 economies ranked in the Index, only eight G20 countries are among the top 20. These include: United Kingdom, which is ranked 2, followed by United States ranked 3. Australia is 5; Germany is 10; Japan is 14; Canada is 15; South Korea is 17 and France is ranked 19. The leadership, economic power and advanced governance available throughout the G20 would suggest a greater concentration of higher scores near the top of the Index. Nonetheless, 12 G20 members fall considerably outside the top 20: Italy is ranked 37; Argentina is 38; Turkey is 40; South Africa is 42; China is 44; India is 49; Saudi Arabia is 50; Mexico is 51; Brazil is 59; Russia is 62 and Indonesia is ranked 68. (see Table 1) Of these, South Africa, China, India, Saudi Arabia, Mexico, Brazil, Russia and Indonesia fall into the bottom half of the Index rankings. Notably, this list includes all the BRICS countries. Findings from the Index demonstrate that while some G20 economies have established policies, legislation, action plans and initiatives to combat illicit

trade, others lag considerably, on some or all these dimensions. Given the size and importance of the G20 – a mix of the world’s largest advanced and emerging economies that represents two-thirds of the world’s population and 85% of global GDP – it is concerning that so many of its members are underperforming on addressing illicit trade. Now is the time for the G20 to assert its leadership and press for implementation and enforcement of all its standing declarations against illicit trade. The role of the B20 Business has a vital role to play in tackling illicit trade, as well as achieving the SDGs. In addition to its functions in promoting clean international trade, business is a source of finance and investment, a driver of employment and economic growth, and a key actor in bridging the innovation and technology gaps necessary to meet the SDGs. The B20 Tokyo Summit, held under the overarching theme “Society 5.0 for SDGs”, is a timely opportunity for the business community to emphasize how illicit trade is a malignant threat to many of the world’s most valued industries and a significant impediment to the attainment of the SDGs. Addressing illicit trade is a crosspolicy, cross-border, responsibility with impacts across the B20’s agenda. Last year, B20 Argentina took some steps to address illicit trade by calling on the G20 to “support the efforts by the OECD and the World Customs Organization [to raise] Customs’ awareness on illicit trade and its links to breaches in integrity.”2 Addressing integrity in Customs sits at the nexus of business priorities on trade facilitation and

combatting illicit trade. Ineffective and inefficient customs can negatively impact the benefits of international trade, trust in government, as well as sound economic and public sector reforms. Each year the B20 has a fresh opportunity to help G20 Leaders establish priorities and press for progress on the global economic agenda. Greater attention must be given to addressing illicit trade, especially given the drain on economic activity and the G20’s overriding objective to drive growth and employment. Notably, the World Economic Forum estimated the value of illicit trade and transnational criminal activities at 8% to 15% of global GDP in 2014. With estimations of various illicit activities running upward of $3 trillion, these figures rival the GDP of some of the world’s largest economies. For these reasons, we encourage all stakeholders in the G20 forum to address the following issues: →

To inform the policy response to illicit trade, TRACIT commissioned the Economist Intelligence Unit (EIU) to produce the Global Illicit Trade Environment Index. The index is a measure of the extent to which economies enable (or inhibit) illicit trade through their policies and initiatives to combat illicit trade. The Index is built around four main categories - government policy, supply and demand, transparency and trade, and the customs environment - each of which comprises a number of indicators.

Each year the B20 has a fresh opportunity to help G20 Leaders establish priorities and press for progress on the global economic agenda. Greater attention must be given to addressing illicit trade, especially given the drain on economic activity and the G20’s overriding objective to drive growth and employment. TOKYO_JAPAN

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TABLE 1:

G20 Country Rank and Scores from the Global Illicit Trade Environment Index G7 BRICS

→ Illicit trade’s impact on global trade The UN’s 2030 Agenda for Sustainable Development recognizes that international trade is an engine for inclusive economic growth and poverty reduction and will, therefore, be an important means to achieve the SDGs. G20 economies represent a significant share of world gross product and trade flows and have benefited greatly from this economic activity. However, this potential is significantly compromised by illicit forms of trade that crowd out legitimate economic actors. Consequently, illegal trade must be addressed within the rules governing legal trade. The World Trade Organization’s (WTO) trade agenda should raise global awareness of the significant trade distortions presented by illicit trade, especially given the WTO’s explicit mission to support international trade. Moreover, while regulations addressing illicit trade have been expanding at the national level, little has been done to harmonize these at the international level. With the backing of G20 Leaders, the WTO should address the relationship between illicit trade and current WTO rules, evaluate the gaps and promote new, collective instruments or rule changes to stop illegal trade. Illicit trade’s impact on food security The eradication of food fraud and the elimination of illegal pesticides are also prerequisites for the UN SDGs. Healthy agricultural trade is crucial to achieving several of the SDGs, especially in developing and emerging economies where agriculture constitutes a large portion of GDP and contributes towards eradicating hunger and poverty. In addition, it boosts intra-continental trade, investments, and rapid industrialization, thereby creating more jobs, security and overall economic prosperity. Conversely, illegal agri-food trade has a direct negative impact on ensuring fair, safe and sustainable food, as well as a well-functioning farm and global food trade system. From a business perspective, a single instance of food fraud can irreversibly destroy a brand, cause lasting industry-wide losses, decrease market share, close off export markets and even damage trust in public institutions. Pesticides G20G7.COM

Global Rank

Economy

Score/100

2 3 5 10 14 15 17 19 37 38 40 42 44

United Kingdom United States Australia Germany Japan Canada South Korea France Italy Argentina Turkey South Africa China

85 83 81 79 78 77 75 74 64 64 62 62 61

49 50 51 59 62 68

India Saudi Arabia Mexico Brazil Russia Indonesia

59 59 59 51 49 45

and agrichemicals are an integral part of conventional agriculture, helping to maximize crop quantity and quality by reducing the pests and diseases that cause damage. However, the proliferation of illicit pesticides generates a number of serious economic, health and social impacts that undermines sustainable development, agricultural markets, farmers and national food security. Illicit trade’s impact on e-commerce Policies that help safeguard a clean environment for digital business are critical to ensure consumer trust and protection against fraud. Illegal goods available through social media networks and e-commerce platforms distort marketplace competition for a wide range of sectors, heighten risks to public health and safety, and deprive governments of substantial tax revenues. The OECD reports that counterfeiting and piracy in international trade alone has grown from $250 billion annually in 2008 to more than $461 billion in 2013, an increase of more than 80% in less than 5 years and representing more than 2.5% of world trade. International cooperation on IPRs enforcement, including information and data sharing, should be a priority of G20 Leaders. Specifically, the G20 should create a G20 Study Group on IP Protection, which would seek the views of G20 governments on areas

for collaboration on IPR enforcement, including the sharing of best practices and discussions on common policies to protect consumers from harm. TRACIT Companies, governments and nongovernmental organizations are showing increasing awareness of the problem of illicit trade. Addressing illicit trade is a long-term challenge requiring sustained collaboration between governments and private sector partners. Business can contribute by continuing to develop technical solutions that protect the integrity of the supply chain, and share intelligence, data, resources and measures that effectively control illicit activity. And business is willing to work with partners to convene stakeholders; improve awareness; expand the knowledge base; and energize the global dialogue. Governments, however, need to improve regulatory structures; set deterrent penalties, rationalize tax policies; strengthen capacity for more effective enforcement; and educate consumers. This is a matter of urgency and G20 efforts to fight illicit trade should be considered investments that pay tangible dividends to economic development and global security. The Transnational Alliance to Combat Illicit Trade (www.TRACIT.org) is responding to this challenge by leading business engagement with national governments and intergovernmental organizations to ensure that private sector experience is properly integrated into rules and regulations that will govern illicit trade. TRACIT represents companies and organizations that have a shared commitment to combatting illicit trade and ensuring the integrity of supply chains. Addressing illegal trade – whether that be smuggling of alcohol, illegal logging, counterfeit pesticides or petroleum theft and trafficking in persons – presents common challenges for a growing number of industries and governments. ◆ 1 Based on a global survey of 11,000 business and human resource leaders, as well as interviews with executives https://www.tracit.org/featured-project-global-illicit-trade-index.html 2 B20 Argentina (2018). Integrity and Compliance Taskforce Policy Paper, page 9. Available at https://b20argentina.info/ Content/Images/documents/20180918_210524-B20A%20 IC%20Policy%20Paper.pdf

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G L O B A L B R I E F I N G R E P O RT HUMAN RIGHTS

Despite Assurances, Vietnam Arrests Returned Asylum Seekers Human rights advocates argue that Vietnamese asylum seekers are not provided international protections when they are returned to Vietnam. By Carmen Munir Sluchanksy & Ryan Flynn

It was a stormy

June night in 2016 when Van Huynh loaded a fishing skiff with rice, spices, meat, and fish—provisions that were supposed to be enough to last for a month at sea. Thunderstorms and large waves worried Huynh but her husband, Kiet Nguyen, was undaunted as he prepared the boat that would take them, their two children, and 13 other asylum seekers out into the vast ocean with little more to guide them than the slim hope they would make it to the shores of Australia and a better, freer life. “We wanted to leave Vietnam because our country has no human rights,” Huynh said. “We have no freedom here.” The trip did not go as planned. The provisions ran out and they were forced to forage for food on islands along the way. The boat also started taking on water. On the 21st day they were stopped by Australian authorities and detained. Huynh feared that she would be returned to Vietnam and sent to jail. However, Australian officials assured her they would be fine; agreements were in place with Vietnam to ensure they would not be arrested. “The Vietnamese government did not keep their promise to Australia,” Huynh said. “They detained and interrogated us and sentenced my husband to three years in prison.” →

It has become a familiar refrain: Australia intercepts asylum seekers at sea, asks a few questions on their claim, then sends them packing with a pledge that they won’t be punished. But reports show that many are, indeed, arrested and prosecuted upon their return. TOKYO_JAPAN

G L O B A L B R I E F I N G R E P O RT ASYLUM SEEKERS

→ Huynh’s sentence was suspended, she says, because of their two children. It has become a familiar refrain: Australia intercepts asylum seekers at sea, asks a few questions on their claim, then sends them packing with a pledge that they won’t be punished. But reports show that many are, indeed, arrested and prosecuted upon their return. “Australia claimed that it sought guarantees from Vietnam that no one returned would be prosecuted for actions to depart the country, but then said nothing publicly when Vietnam went back on that promise,” said Phil Robertson, Deputy Director for Human Rights Watch’s Asia Division. “In fact, we suspect that Australia is giving a wink and nod for Vietnam to do whatever it can to stop boat departures but, again, any such discussions are hidden by a wall of secrecy in both Canberra and Hanoi.” In the most recent case, a boat with 17 Vietnamese asylum seekers ran aground near the mouth of the Daintree river in August and the passengers fled into the crocodileinfested mangrove to escape. After being picked up by authorities in Queensland, they were transferred to the Christmas Island detention center before being sent back to Vietnam in September. No one has heard from them since and attempts to track them down have proven fruitless. Vietnamese journalists and government officials have refused to answer even basic questions about their fate. The Vietnamese Ministry of Foreign Affairs, the Vietnamese embassy in Australia, and the Australian Office of Home Affairs have all declined to respond to repeated requests for information. Home Affairs even declined to answer whether they were attempting to track them at all. In fact, monitoring the fate of returnees seems to be outside of the purview of anyone in the international community.

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When contacted, United Nations agencies responded that they could not help. The International Organization for Migration office in Hanoi responded they were “not in a position to assist.” This is despite, in 2016, being funded by the Australian government to run a public information campaign in Vietnam to curb irregular migration to Australia. Similarly, a spokesperson for the Office of the United Nations High Commissioner for Refugees said they just didn’t know, noting Australia was doing little to cooperate with the office. “Despite repeated requests that on-water assessments be shared with UNHCR in its supervisory capacity under the 1951 Refugee Convention, these documents have not been made available as a matter of course,” Caroline Gluck, UNHCR Senior Regional Public Information Officer, said via email. In 2016, the Office of Home Affairs signed a Memorandum of Understanding (MOU) with Vietnam, saying that Australia would return Vietnamese nationals and Vietnam would take them back. They also claimed that Vietnam agreed that they would not face arrest upon their return. But the agreement has repeatedly been broken. Human rights advocates argue that, without a system in place for monitoring what happens to asylum seekers once they are returned, the Vietnamese government’s assurances are worth little. Last year, in response to a question by Australia Senator Nick McKim, immigration minister Michael Pezzullo admitted that no such system exists. “As far as we know there has been no monitoring of anyone that Australia has returned to their country of origin,” Senator McKim, a Green Party member, said. “The Australian government’s record of returning people to face persecution in their home countries is refoulment, pure and simple. It’s a flagrant abuse of human rights, and we know that people have been arrested and punished in their home countries after being forced or induced to return.” As of yet, the Ministry of Home Affairs has not provided a response. When reports have surfaced that returnees were arrested, Canberra and

Hanoi have placed the blame on human traffickers. In a statement released after the latest asylum attempt in September, Home Secretary Peter Dutton said, “The arrival of a people smuggling boat from Vietnam in late August is a reminder that the threat of people smuggling hasn’t gone away.” However, human rights lawyers and advocates point out that the very act of leaving Vietnam “without permission” is illegal. The Vietnamese Criminal Code openly provides for penalties of up to five years in prison for anyone who “organizes illegal emigration,” effectively putting many of the asylum seekers in danger of imprisonment once they return. Advocates are increasingly concerned for the welfare of the 17 asylum seekers returned in September and believe that the secrecy is not a bug but a feature. “It’s not just the organizers who are facing prosecution, the reality is they

GLOBAL POLICY LAB ASYLUM SEEKERS

The Vietnamese Criminal Code openly provides for penalties of up to five years in prison for anyone who “organizes illegal emigration,” effectively putting many of the asylum seekers in danger of imprisonment once they return.

all are,” says Elaine Pearson, Australia Director at Human Rights Watch, noting that outlawing emigration violates international law. However, “It’s in both Vietnam and Australia’s interest to flout international law” in this case. Human rights lawyer Hoi Trinh calls the “human trafficking” argument specious. “When people talk about people smugglers, it paints this picture of people who do it for money,” says Trinh who works with Vietnam VOICE, an organization that works on behalf of Vietnamese refugees around the world. “But really these so-called smugglers are usually people living in the same village, friends and supporters who organize these trips because, if you don’t have that support, how can you get out of Vietnam? If you don’t have money, how can you get a boat?” Trinh argues that, while human trafficking exists, those trying to get to Australia are not human traffickers.

He also disputes Dutton’s assertion that those making the trip are “economic refugees” (or “Armani refugees” as the Home Minister has derisively called them). “There’s no such thing as an economic refugee,” Trinh says. “You’re either a refugee or you are not. All asylum seekers have the right to apply for asylum and if they don’t get status, they are not refugees. But none of them are even getting a chance to apply and be heard. Legally, a refugee is defined as someone who has a well-founded fear of persecution. How can you find out if they have a well-founded fear until you hear them and adjudicate their case?” Hyunh believes that the 17 recent returnees share the same fate as the many others who attempted to seek asylum before, including her family. “The Vietnamese government has labeled us unpatriotic,” she says. “We do not have human rights and our voices are not respected.” ◆

About the authors CARMEN MUNIR SLUCHANSKY is a freelance multimedia journalist based in Washington, DC whose work has appeared in a variety of outlets including National Geographic, NBC News, PBS, ABC News, the BBC, Asia! Magazine, The China Post and the Chicago Tribune. He previously hosted the daily international radio news show Due Diligence during which he covered national politics including major policy debates, the presidential races, and Supreme Court and appellate cases. Prior to that, he primarily reported from abroad including China, Japan, the Middle East, Haiti, Central America and Southeast Asia primarily focusing on development and human rights issues. He has also reported from the United Nations and World Trade Organization and his acclaimed documentary work on Haiti has reached millions of viewers internationally. He holds degrees from Columbia University’s Graduate School of Journalism and the Georgetown University Law. Twitter: @CMRSluchansky RYAN FLYNN is a freelance writer and editor working on issues related to governance, social justice, public finance, and immigration. Originally from Melbourne, Australia, Ryan has lived and worked in China, Cambodia, and the UK. He is now based in Washington, DC. TOKYO_JAPAN

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G L O B A L B R I E F I N G R E P O RT GLOBAL CYBER ALLIANCE (GCA) B R A N D E D S T O RY

Protecting the Global Economy Against Cyber Threats

n its latest Global Risks Report, the World Economic Forum includes cyber-attack as one of the biggest threats facing our world in 2019. Some studies estimate that cybercrime costs the global economy as much as $600 billion1. The issues have never been more complex and the need for action more critical. The Global Cyber Alliance (GCA), a nonprofit organization, is working to address these issues. Founded by the Manhattan District Attorney’s Office, the City of London Police and the Center for Internet Security, GCA is dedicated to eradicating cyber risk and improving our connected world by bringing free cybersecurity solutions to the world. GCA’s initial efforts have been focused on reducing the risk of phishing as it remains one of the biggest risks – from delivery of malware and ransomware to the gathering of sensitive data to commit fraud. In fact, multiple studies show that over 90% of breaches begin with an email. GCA has developed a platform to enable easier implementation of an existing email authentication protocol known as DMARC and has built a global service known as Quad9 that prevents access to known malicious websites. Most recently, GCA has set its sites on making these and other tools more accessible to small and mediumsized business.

Small and medium-sized business (SMBs) are some of the most vulnerable entities when it comes to cyber-attacks. Some estimates indicate that 58 percent of cyber-attacks are targeted against small businesses2. These attacks include phishing, malware, ransomware and more – all of which can have devastating financial consequences. According to the OECD3: ◆ Small businesses account for 99% of businesses globally including businesses in the EU, UK and US. ◆ Small businesses account for, on average, about 70% of jobs. ◆ Small businesses generate more than half the of the value added by most economies. Small businesses remain some of the most vulnerable to cyber-attack, because they often don’t have the resources or knowledge needed to protect themselves. Yet, small businesses are part of the supply chain for government and enterprise, they provide critical services, and provide the vast majority of jobs. The potential for harm doesn’t just stop with a business that has had a cyber event. Small businesses need operational tools and guidance that can can be implemented with relative ease to reduce their risk. Resourcing small businesses with tools to reduce their cyber risk strengthens their individual businesses and helps to reduce the third-party and supply-chain risk for

GCA’s initial efforts have been focused on reducing the risk of phishing as it remains one of the biggest risks – from delivery of malware and ransomware to the gathering of sensitive data to commit fraud. G20G7.COM

larger companies and governments. To this end GCA, in collaboration with our partners, developed the GCA Cybersecurity Toolkit for Small Business, a free, operational resource that small businesses can use to significantly reduce their cyber risk. The GCA Cybersecurity Toolkit for Small Business, sponsored by Mastercard, is aligned with the leading cybersecurity recommendations f rom the Center for Internet Security Controls (CIS), the United Kingdom’s National Cyber Security Centre (NCSC), and the Australian Cyber Security Centre (ACSC). All of the tools included in the toolkit are free and have been tested and evaluated by a team of cybersecurity experts to ensure they work and can be used by those who are not technical experts. What’s in the GCA Cybersecurity Toolkit? The toolkit is broken down into six toolboxes of basic areas of risk to be addressed. Within each toolbox are tools and reference materials to help educate and provide guidance. The goal is to make it as easy as possible for small businesses to understand the risks and select the right tools. The first version of the toolkit features more than two-dozen tools and resources that help small businesses implement best practices in the following categories: ◆ Know What You Have (inventory of devices and applications) ◆ Update Your Defenses (updates, patches and vulnerability management) ◆ Beyond Simple Passwords (passwords and two-factor authentication) ◆ Prevent Phishing and Viruses (DNS security, anti-virus and ad blockers) ◆ Protect Your Brand (email authentication and brand monitoring) ◆ Defend Against Ransomware (create backups)

Entities can follow step-by-step guidance found in the toolboxes, and users can rate the tools and provide other input that will inform future development of the toolkit to ensure it continues to meet SMBs needs. Now for a look at a few of the other projects GCA has been working on. As mentioned earlier, GCA has been working on supporting the email authentication protocol known as DMARC – which stands for Domainbased Message Authentication, Reporting and Conformance. Basically, it verifies that an email is authorized to be sent from the domain being used (the part of the email address after the “@”), preventing the type of email phishing known as direct domain spoofing, which can be extremely

difficult to detect. To that end, DMARC has an additional benefit of ensuring delivery of the sender’s email, keeping it out of the junk or spam folder. DMARC was founded by some of the most highly phished brands in 2012. Fed up and frustrated by the problem of having their email domains used for fraudulent purposes, they took action. In a collaborative effort, the DMARC protocols were developed and made available for all to use. As of this day,

the majority of consumer email is already protected by DMARC. GCA discovered, however, that despite the tremendous benefits of DMARC, there was not broad adoption by government and the private sector. We addressed this issue in two ways: 1) Creating an online tool to walk people through the implementation process supported by a library of education resources; and 2) Evangelizing DMARC to the world and encouraging broad →

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G L O B A L B R I E F I N G R E P O RT GLOBAL CYBER ALLIANCE (GCA) B R A N D E D S T O RY

→ adoption. The GCA DMARC Setup Guide, available at dmarc. globalcyberalliance.org is available in 18 languages and has been used by thousands. Since beginning work on DMARC, there has been growing international support. In June 2016, the UK government mandated that all UK government departments implement DMARC. The US government followed suit in 2017 with a similar mandate, and the Netherlands has come on board as well. The majority of large banks have implemented DMARC, and adoption campaigns are underway in a number of other sectors. Most recently, the Cybersecurity Tech Accord, a coalition of more than 80 global technology companies committed to improving cyberspace through collective action, has committed to the adoption of DMARC.

Some have questioned the return on investment of implementing DMARC, so GCA did some research into the economic benefits of DMARC. It was not easy, as there is a dearth of data available, but an approach was found in looking at just one of the problems that DMARC helps reduce: Business Email Compromise (BEC). GCA found there is in fact a significant return on investment to companies that deploy it. The report, The Economic Benefits of DMARC Adoption, released in late 2018, shows the 1,046 domains that have implemented DMARC at quarantine or reject using GCA’s DMARC Setup Guide will save an estimated $19 million to $66 million dollars by limiting BEC for the year of 2018 alone. These organizations will continue to reap that reward every year in which they maintain the deployment of DMARC. If these

Investment in cybersecurity is smart business. Whatever your status - whether a large corporation, government entity, non-governmental organization chances are your stakeholders are small businesses. G20G7.COM

1,046 domains maintain DMARC for 5 years, the cumulative savings is likely to exceed $100 million. Quad9 is the other major initiative that GCA has undertaken. Quad9 is a free, global DNS service that provides Internet security and privacy by preventing the end user from accessing malicious web domains. Built in collaboration with IBM and Packet Clearing House (PCH), Quad9 is a globally distributed service that is free for anyone to use – it takes less than a minute to set up, a quick change to the DNS settings on a computer or other device. The protection afforded is immediate. Anyone and any organization is welcome to use Quad9. Learn more about Quad, including setup information, at Quad9.net. Investment in cybersecurity is smart business. Whatever your status - whether a large corporation, government entity, non-governmental organization - chances are your stakeholders are small businesses. They may be your vendors, clients or partners. Improving your partners’ security will reduce your risk, cut your costs, and contribute to strengthening the security of our global economy. ◆ To access the DMARC Setup Guide, Cybersecurity Toolkit for Small Businesses and all of GCA’s free resources, visit us at www.globalcyberalliance.org

1 https://www.mcafee.com/enterprise/en-us/solutions/ lp/economics-cybercrime.html 2 Verizon 2018 Data Breach Investigations Report 3 https://www.oecd.org/mcm/documents/ C-MIN-2017-8-EN.pdf

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Germany: Reliable and Strong Partner of the B20 The B20 plays a vital role in the G20 providing not only firsthand knowledge and expertise but also helping to build trust and understanding. By Dr. Stormy-Annika Mildner

Few countries

are as deeply integrated into the world economy as Germany. The trade-to-GDP ratio (exports and imports of goods and services) was 86 percent in 2018. Foreign trade is one of the countryâ&#x20AC;&#x2122;s most important engines of growth, competitiveness, and employment. About one in four jobs in Germany depends directly or indirectly on exports. Germany is moreover integrated into the world economy not only through exports and imports. German companies are heavily invested globally. German direct investment G20G7.COM

abroad has increased almost sixfold to some 1.1 trillion (2016) since 1990. Through the resulting stakes in more than 37,400 companies, the German economy is responsible for 7.3 million jobs abroad (2016). On this basis, it generates a foreign turnover ( 2.8 trillion in 2016) that is more than double the value of German exports ( 1.3 trillion in 2018). The World Economic Forum has ranked Germany the most innovative country in the world, citing the tremendous speed with which Germany develops new technologies, particularly in the field

of Industry 4.0. This is a direct result of the strong international orientation of German companies. We thus know firsthand that globalization creates many opportunities â&#x20AC;&#x201C; but also vulnerabilities. The future of the German economy decisively depends on how global challenges such as cyber risks, climate change, epidemics, and geopolitical conflicts are managed. No country can master these challenges alone. The globalized world economy needs global governance. When Germany took over the G20 presidency in 2016, there was therefore no question that

G L O B A L B R I E F I N G R E P O RT GERMANY

the Federation of German Industries (BDI), the Confederation of German Employers’ Associations (BDA) and the Association of German Chambers of Commerce and Industry (DIHK) would jointly organize the B20 process. After the B20 handover to the Argentine G20 Presidency, the work of B20 Germany was by no means done. We continued our efforts by working closely together with our Argentinian partners in the B20 Troika, just as we actively and enthusiastically supported this year’s Japanese B20 process. The work of the B20 is more important than ever. Trade distortive practices – tariffs, non-tariff barriers, subsidies, theft of intellectual property rights, and forced technology transfer, to name a few – are in vogue. More and more countries are pursuing go-it-alone strategies. This is unfortunate as trade and investment are indispensable for economic growth and development worldwide. Over the last decades, they have lifted billions of people out of poverty. To ensure that everybody benefits from trade, however, we need open and rules-based markets. Thus, we are vehemently advocating the G20 to recommit to a protectionist standstill and rollback, and to advance the reform of the World Trade Organization. We need a strong WTO as guardian of fair competition. We therefore ask the G20 to work together in order to advance the organization’s rulebook to more effectively address distortions caused by state-owned enterprises and subsidies, to forge ahead with plurilateral initiatives such as on e-commerce, and to pursue a meaningful reform of the dispute settlement mechanism. Trade is not the only area in which the G20 needs to take more decisive action. Digitalization is affecting our day-to-day life. It is changing how we communicate, travel, and work. It offers immense opportunities – but, if not managed well, it can also have immense disruptive effects. To ensure that everybody has the opportunity to benefit from digitalization, the G20 should work more closely to ensure the free flow of data in order to facilitate digital trade. Furthermore, the G20 countries should strengthen their cooperation on cybersecurity within international fora as well as by collaborating on IT-

Trade is not the only area in which the G20 needs to take more decisive action. Digitalization is affecting our day-to-day life.

security-related policies and standards rather than pursuing separate national approaches. Last but not least, we would like to see the G20 more deeply to discuss the evolution of humancentric artificial intelligence, enabling the evolution of voluntary international standards. We need more international cooperation, not less! This also goes for the field of climate and energy policy. The fact that the G20 consensus on the implementation of the Paris Climate Agreement did not hold up during the G20 Hamburg Summit of 2017 because the United States exited the Accord is particularly unfortunate. The remaining G20 countries should of course reiterate their commitment to the Paris Agreement, but moreover should propose more concrete measures how the Accord can be fully implemented and how clean energy systems can be achieved. Furthermore, they should intensify the discussion on globally converging carbon pricing. In addition, G20 Leaders should also highlight the importance of the circular economy in order to achieve sustainable development. The G20 bears special responsibility as it represents some of the most important industrialized and emerging nations. The G20 stand for about 80 percent of the world GDP, but they also stand for 80 percent of the global greenhouse gas emissions. International cooperation has become more difficult; the G20 is increasingly struggling to find a meaningful consensus. However, the G20 should not be judged solely on its track record of adopting and

implementing resolutions. One of the group’s key functions is to provide a platform for informal, cross-sector and flexible exchange on the highest political level. The opportunity for global leaders to sit together at the G20 table cannot be overestimated. Constant communication supports a common problem analysis that enables the development of cooperative solutions in an atmosphere of trust, thereby facilitating the implementation of G20 resolutions. This holds true also for the B20. The B20 plays a vital role in the G20 process, providing the G20 with firsthand expertise and knowledge necessary to govern the global economy. The recommendations of the B20 matter! The reports of the International Chamber of Commerce and B20 Germany of G20 Communiqués underline the high responsiveness of the G20 to the B20 recommendations. With its networks and people-to-people dialogues, the B20 helps to strengthen the G20 community. It fosters the exchange of ideas and best practices and helps to identify common interests, building trust and understanding as well as consensus. In today’s uncertain times, this is more important than ever. Representativeness – transparency – accountability – B20 is a member-driven organization. It will only be effective if its positions are strongly based on consensus among its members. Transparency of decision-making processes and a representative membership are key. Each B20 presidency needs to ensure continuity, following up on the recommendations of previous presidencies. The B20 has a solid track record on all of these accounts. Global prosperity can only be secured through cooperation and multilateralism. Germany has been a reliable and strong partner for the G20 and B20, and we promise to continue our efforts – during the B20 Japan cycle, as well as the upcoming presidencies. ◆ About the author DR. STORMY-ANNIKA MILDNER is Head of Department External Economic Policy of the Federation of German Industries and B20 Germany Sherpa. TOKYO_JAPAN

LSE GLOBAL POLICY LAB CONTENT 46 Why Reform?

Tharman Shanmugaratnam

47 Introduction:

Engaging the B20

Erik Breglof

48 Making the Global Financial

System Work for All

50 The EPG:

Overview Proposal

52 Sustainable Infrastructure

and the Private Sector Engaging B20

Lord Nicholas Stern

54 Investing in Human Capital:

The Role of the Global Finance System

Nora Lustig

56 Taming Capital

Flow Volatility AndrĂŠs Velasco

58 How the G20 and International Financial Institutions Can Work Together to Achieve the SDGs Fabritzio Saccomani

60 Report of the G20 EPG on

Global Finance Government: What Europe Should Do with it Marek Belka

62 Why Business Should Care

About Public Finance for Development Amar Bhattacharya & Homi Kharas

64 A Public-Private Partnership

to Promoting Development Massod Ahmed & Mark Plant

66 Sustainable Infrastructure

and Development Requires Financial Innovation Torben MĂśger Pedersen & Jens Lundsgaard

68 How to Make the Global

Financial System Work Better Karolina Ekholm

70 Piloting the Country Platform

Erik Berglof & R. Lyle Peters, Jr

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Making the Global Financial System Work for All A Contribution by individual Members of the G20 Eminent Persons Group on Global Financial Governance*, other thought-leaders and the London School of Economics and Political Science. *The proposals of the 16-member EPG, submitted in Oct 2018, are being deliberated on within the G20.

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Why Reform? Tharman Shanmugaratnam Deputy Prime Minister and Coordinating Minister for Economic and Social Policies, Singapore*

We are in a new global era. It presents unprecedented challenge. But it also carries real opportunity for reforms and innovations that can enhance growth, build social inclusion, and tackle the urgent challenges in the global commons that affect us all. The G20 Eminent Persons Group of Global Financial Governance (EPG) has made specific proposals to achieve these objectives. The reforms needed are within our reach. They involve new ways of spurring development finance, and ensuring greater and more lasting development impact. There is large untapped potential for joint action by the MDBs, bilateral institutions and the private sector, to work with countries to de-risk not only individual projects but whole investment environments. There is also significant opportunity to diversify risks across countries and build a standardized, large scale asset class to attract institutional investors, who to date have had minimal participation in developing country infrastructure. We must also deepen domestic financial markets, and enable countries to benefit from capital flows and run sustainable current account deficits, where they are fundamentally needed at their stage of development, without the recurring bouts of instability that set back growth. It is critical too, that we build a more reliable global financial safety net – by ensuring an adequately-resourced global layer in the IMF, and stitching together the decentralised structure of global, regional and bilateral arrangements that have evolved over the last decade. We must also put in place a more integrated system of global risk surveillance, to avert the next crisis.

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steps to ensure today’s institutions, multilateral and bilateral, work together as a system, and leverage the full potential of markets. The recommendations within the EPG’s Report have received support from a broad range of stakeholders. Most of the reforms are achievable within a few years, with collective resolve and focused effort. The ambition is in the doing. As a key partner, the B20 will play a key role in shaping this cooperative international order - one that enables nations everywhere to meet the aspirations of their citizens, and serves the global good. ◆

At the heart of the EPG’s proposals is the need for a new, cooperative international order for a world that has changed irreversibly: one that is more multipolar and decentralised in decisions, yet more interconnected. And a world with challenges that are more pressing than we have seen in decades – especially in securing jobs, and addressing the grave threats to the environment and global health. The reforms do not require new international bodies. They require that we take bold and defined

At the heart of the EPG’s proposals is the need for a new, cooperative international order for a world that has changed irreversibly... and with challenges more pressing than in decades.

*Tharman Shanmugaratnam chaired the G20 Eminent Persons Group on Global Financial Governance which submitted its reform proposals in Oct 2018.

Tharman Shanmugaratnam is Deputy Prime Minister and Coordinating Minister for Economic and Social Policies in the Singapore Cabinet. He is also Chairman of the Monetary Authority of Singapore (MAS), Singapore’s central bank and financial regulator. Tharman chairs the Group of Thirty, an independent global council of leading economic and financial policy-makers. He earlier led the International Monetary and Financial Committee (IMFC), the key policy forum of the IMF, from 2011-2014; he was its first Asian chair. Tharman has spent his working life in public service, in roles related to education and economic policies. He served as Minister for Finance for eight years (until 2015), and as Minister for Education for five years prior to that. In addition to his current responsibilities in government, he is a board member of the Government of Singapore Investment Corporation (GIC) and chairs its Investment Strategies Committee.

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Engaging the B20 Erik Berglof Professor, Director, Institute of Global Affairs, London School of Economics and Political Science

Do we have a global financial system that works for all and are we having the critical impact required to address the global challenges to create a sustainable future for our children and grandchildren? Do our multilateral financial institutions really function as a system? Do the shareholders, and ultimately the taxpayers, get value for money? The G20 Eminent Persons Group on Global Financial Governance (EPG) was a G20 initiative under the German Presidency in 2017 to review the efficiency and effectiveness of the global financial architecture. The urgent transformation needed to achieve the UN Sustainable Development Goals in 2030 requre global investments on a scale far beyond what we have seen to date, particularly in emerging and developing economies. Much of it will have to come from the private sector, but the international financial institutions will play an important part in supporting the efforts of countries to enhance the investment climate, particularly through improved governance and human capital, and in facilitating private investment by bringing down and sometimes sharing risk. In conducting its review, the EPG engaged intensely with the private sector. After it delivered its final report, Making the Global Financial System

Work for All, to the G20 Finance Ministers and Central Bank Governors in October last year, the group also organised a series of panels at the Bali meeting of the Institute of International Finance. Yet, the EPG has never worked directly with the B20. This collection of material from the report and opinion pieces is meant to bring the messages of the EPG to the B20 delegates but also to the wider global business community. The LSE Institute of Global Affairs and its Global Policy Lab have taken on the role of facilitating this engagement. We believe strongly in the systemic approach of the EPG and plan to

contribute research and policy engagement to further develop the ideas in its final report. The Global Policy Lab was set up to support connecting policymakers and thinking environments within and across emerging economies, and ultimately to help them increase their impact on global decisionmaking. The EPG embodies the mission of our Global Policy Lab. Its 16 members include eight from advanced economies and eight from emerging economies, with the EPG Chair, Tharman Shanmugaratnam, Deputy Prime Minister of Singapore, representing the growing leadership of the emerging world. Throughout the work of the EPG, peer-to-peer exchange was critical to progress. We begin with a statement from the EPG Chair, Tharman Shanmugaratnam, and sum up the report and its proposals. Five members of the EPG will then provide their views on why the groupâ&#x20AC;&#x2122;s work is vitally important for the business community. We have also included four additional contributions from policymakers and policy thinkers close to the groupâ&#x20AC;&#x2122;s work. We hope that you will continue to engage with us and the Friends of EPG network set up to follow up on the EPG report and its proposals towards a new multilateralism. â&#x2014;&#x2020;

In conducting its review, the EPG engaged intensely with the private sector. After it delivered its final report, Making the Global Financial System Work for All, to the G20 Finance Ministers and Central Bank Governors in October last year the group also organised a series of panels at the Bali meeting of the Institute of International Finance. Yet, the EPG has never worked directly with the B20.

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Making the Global Financial System Work for All

n April 2017, the G20 Eminent Persons Group on Global Financial Governance was asked by the G20 Finance Ministers and Central Bank Governors to recommend reforms to the global financial architecture and governance of the system of International Financial Institutions (IFIs) so as to promote economic stability and sustainable growth in a new global era; and to consider how the G20 could better provide continued leadership and support for these goals. The result was the first of its kind global report titled “Making the Financial System Work for All.” At the heart of the report is the future of the open and competitive world order that has brought a large part of humanity out of poverty, raised living standards across nations, and provided the foundation for unprecedented global peace over the last 70 years. That open order remains critical to every nation’s future. But the system of international governance and cooperation that underpins it is fraying. Left on its own, there is a real risk of drift into a fragmented world, with policies in different parts of the world working at odds with rather

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than reinforcing each other, and with all nations ending up losing. We cannot return to the past. The central challenge is to create a cooperative international order for a world that has changed irreversibly: one that is more multipolar and decentralized in decisions, yet more interconnected, and with challenges ahead that are much larger and more pressing than we have seen in decades Getting national policies right is at the core of achieving inclusive societies and mutual prosperity. But international and national initiatives should reinforce each other in a way that creates a stronger future for all. An open, competitive and wellcoordinated international order will enable win-win outcomes for nations. Its weakening will lead to lose-lose outcomes, as global growth and opportunities for new jobs are eroded over time, and as financial stability and the global commons become more fragile. Equally, cooperative internationalism will survive only if it helps the broad base of nations achieve inclusive growth. The reforms that we propose in our report strengthen and add resilience

At the heart of the report is the future of the open and competitive world order that has brought a large part of humanity out of poverty, raised living standards across nations, and provided the foundation for unprecedented global peace over the last 70 years. to global financial governance for this new, cooperative international order. The present system lacks the coherence, joint capacity and effectiveness to support its most fundamental goals in global development and financial stability. It must be brought up to date with the realities of a new era. We can achieve this by implementing decisive reforms to make the system work as a system. These reforms are within our reach. They do not require new international bodies. They instead require that we take bold and defined steps to ensure that today’s institutions – global, regional and bilateral – work together as a system. They require that we build

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trust and transparency among these different institutions, and leverage their combined strengths, so that the system as a whole delivers greater and more lasting development impact and reduces the frequency and damage of crises. Our proposals build on various reforms that had been underway among the IFIs, and seek to take them further. But they also require a much greater sense of urgency and recognition among their shareholders of the need for consistency and joined-up efforts among the IFIs and all other stakeholders so we raise our whole game. We need a step change in the pace and scale of reforms to enable the growth, job opportunities and sustainability that are critically needed in the next decade. The consequences of failure will not be simply economic. We also need further reforms to avert major, systemic crises; and to make it possible for developing countries to finance sustainable current account deficits, where they are fundamentally needed at their stage of development, without the recurring bouts of instability that set back growth. As an Eminent Persons Group, our task was to provide an independent

assessment of the changes needed. We focused especially on systemwide reforms, rather than those in individual institutions. Our mandate also excluded issues to do with the capital and shareholding structures of the IFIs, which we believe are of central importance but are covered by other ongoing reviews in the G20 and the IFIs. Importantly, we were guided by the request that our proposals could be acted upon by the G20 and the IFIs in coordination with the other bodies integral to the international monetary and financial system. In this regard, besides drawing on our Groupâ&#x20AC;&#x2122;s collective experience in policy-making, our discussions benefited greatly from consultations with a broad range of national authorities, the IFIs, many other thought leaders from civil society, think tanks, academia and philanthropies, and private sector experts. These diverse interactions helped us arrive at proposals which we believe can be implemented within a reasonable time-frame, but which taken together should have a transformational impact. The ambition is in the doing.

Some of the reforms should be early wins in international coordination. Most are achievable within a few years, with focused effort. Some others go beyond current thinking. We urge that they be considered with an open mind, and developed further or adapted if necessary to enable their implementation. We have deliberated intensively as a Group, supported by our very able Secretariat under the leadership of Siddharth Tiwari. We thank the G20 for the opportunity to review these important issues. We present our report with sober awareness of the challenges facing the international community, but also with hope for the collective resolve needed to take us into this new era of cooperative internationalism, with benefits for all. â&#x2014;&#x2020;

This introduction is adapted from the report: Making the Global Financial System Work for All, published by the G20 Eminent Persons Group on Global Financial Governance. Published with permission.

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The EPG: Overview proposals

Proposal 1: Re-focus on governance capacity and human capital, as foundations for a stronger investment climate.

Proposal 2: Build effective country platforms to mobilize all development partners to unlock investments, and maximize their contributions as a group, including by convergence around core standards.

Proposal 3: Implement regional platforms to facilitate transformational crossborder investments and connectivity.

Proposal 4: Reduce and diversify risk on a systemwide basis to mobilize significantly greater private investment, including portfolio-based infrastructure financing.

Proposal 4a: Shift the basic business model of the MDBs from direct lending towards risk mitigation aimed at mobilizing private capital.

Proposal 4b: Develop system-wide political risk insurance and expand use of private reinsurance markets. Proposal

Proposal 4c: Build a developing country infrastructure asset class with the scale and diversification needed to draw in institutional investors.

Proposal 5: Right-sizeâ&#x20AC;&#x2122; capital requirements for MDBs and other investors in infrastructure, given their default experience.

Proposal 5a: Establish tailor-made capital and liquidity frameworks for the MDBs.

Proposal 5b: Review the regulatory treatment of infrastructure investment by institutional investors.

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Proposal 6: Strengthen joint capacity to tackle he challenges of the global commons.

Proposal 6a: Integrate activities in support of the global commons into the IFIs’ core programs, and coordinate them within country platforms.

Proposal 6b: Create global platforms with the UN guardian agency and the World Bank coordinating and leveraging on the key players in each of the commons.

Proposal 7: Integrate trust fund activities into MDBs’ core operations to avoid fragmentation.

Proposal 8: Plug shortfalls in data and research that hamper effective policymaking, especially in developing countries.

Proposal 9: Leverage more systematically on the ideas and operating networks of business alliances, NGOs and philanthropies.

Proposal 10: The IFI community should strengthen and accelerate efforts to help countries develop deep, resilient and inclusive domestic financial markets.

Proposal 11: TheIMF’s framework of policy guidance should enable countries to move toward the long-run goal of openness to capital flows and to better manage the risks to financial stability.

Proposal 11a: Develop evidencebased policy options to enable countries to benefit from capital flows while maintaining financial stability, and to provide assurance to the markets that measures taken are appropriate.

Proposal 11b: Develop an understanding of policy options that enable sending countries to meet domestic objectives while avoiding large adverse international spillovers.

Proposal 12:

Proposal 18:

Integrate the surveillance efforts of the IMF, FSB and BIS in a coherent global risk map, while preserving the independence of each of the three institutions’ perspectives

Incorporate non-official and contrarian views systematically for more robust risk surveillance.

A G20-led group, with representation from key non-G20 constituencies and the IFIs, should steer the reorientation of development finance over the next three years before handing the coordinating role to the IFI Heads. This should include building complementarity among all development partners, and a clear system of metrics to track impact and value for money

Proposal 13:

Proposal 19:

Build on the IMF-FSB Early Warning Exercise (EWE) to ensure policy follow-up from the global risk map.

A biennial strategic forum convened by the IMFC and DC should identify development risks before they manifest, and the required collective responses.

Proposal 12a:

Proposal 14: Stitch together the various layers of the GFSN to achieve scale and predictability.

Proposal 15: Establish a standing IMF liquidity facility to give countries timely access to temporary support during global liquidity shocks.

Proposal 15a: Use a country’s qualification for the IMF’s liquidity facility in considering the activation of RFA support.

Proposal 16: Enable the IMF to rapidly mobilize additional resources in large and severe global crises.

Proposal 20: The Executive Board of each IFI should focus on strategic priorities for the institution and advancing systemwide goals.

Proposal 21: Adopt a practical, risk-based approach to delegate greater responsibility to IFI Management, and hold them accountable for outcomes.

Proposal 22: Ensure diversity and better match the skills available to IFI Boards and Management to the shift in the business models and increased complexity of challenges.

Proposal 17: The G20 should refocus on a multiyear, strategic agenda, rationalize workstreams, and devolve more work to the IFIs.

To read more about each proposal please visit: www.globalfinancialgovernance.org

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Sustainable Infrastructure and the Private Sector Lord Nicholas Stern, CH, Kt, FBA, FRS IG Patel Professor of Economics and Government at the London School of Economics and Chair of the Grantham Research Institute on Climate Change and the Environment

The world economy will roughly double in size in the next 20 years and the worldâ&#x20AC;&#x2122;s infrastructure likely more than double in that period with, in both cases the strongest growth being in emerging markets and developing countries. At the same time, to meet the targets of the Paris agreements (COP21) on climate emissions of greenhouse gases will have to fall in those two decades by 40% or more. This means radical change in the way we invest and produce, particularly in infrastructure which is associated with around 70% of emissions. This is also the period when the world must drive towards the achievement of the Sustainable Development Goals set for 2030, most of which are dependent on the sustainability of, and access to infrastructure. It was crystal clear therefore that the infrastructure we build in the next two decades is decisive for the future of the planet and its peoples. If there is any delay in making our infrastructure sustainable we will be setting on a path towards a temperature increase of 3 degrees centigrade or more, which we have not seen on the planet for around 3 million years. This will likely transform lives and livelihoods, likely leading to many hundreds of millions of people having to move with great risk of severe and extended conflict. The climate is just one of the challenges of the global commons, but it is the most important because of the urgency and scale of unnecessary action and because it has a profound effect on the others including biodiversity, oceans and epidemics. Fortunately, there is a different and much more attractive path of

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sustainable and inclusive development available to us. Further, the world is awash with savings and there are tremendous opportunities in new and sustainable investment. The challenge is to set in place the policies that can pull through those opportunities into real projects and programmes, and to generate the right kind of finance in the right place, at the right time. This is where the multilateral banks working with the private sector are so important. And it is where the recommendations of the EPG are so relevant. First, the MDB can help create the governance, policies and human capital which together provide the investment climate, particularly for infrastructure, which can translate investment opportunities into reality. Improving the MDBs ability to do exactly this was a key recommendation of the EPG. Second, those investments are much more likely to materialise if there is in place what we call in the

EPG a strong country platform. This means a clear plan, with priorities, for investment in the country, with infrastructure at centre stage. This makes it much easier for all investors to see the opportunities, how they are related and how they support each other, and to further help investors to see where their particular strengths could be most effectively applied. Both in helping the country shape its country platform and investing in it, the MDBs can work much more effectively as a group than they have in the past. Indeed, working more effectively as a group was a key recommendation of the EPG. A strong investment climate and a clear country platform reduces risk, lowers the cost of capital and enhances investment for both private sector and other actors. There is much more the MDBs can do on the finance side to bring the right kind of finance at the right scale at the right time. The presence of the MDBs itself reduces risk because government interference becomes less likely if the MDB is a part of the story. The MDB can be a trusted convenor and put financing coalitions and syndicates together to share risk. The MDB, through its ability to take equity and offer guarantees can help take projects through the early and particularly risky stages. And the MDB can develop particular skills, for example as the EBRD has in energy efficiency, which sharpens the effectiveness of projects. The MDBs have enormous potential not only for bringing projects through but also for financing them in a way that enables the private sector to play a strong role.

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The challenge is to set in place the policies that can pull through those opportunities into real projects and programmes, and to generate the right kind of finance in the right place, at the right time. This is where the multilateral banks working with the private sector are so important. And it is where the recommendations of the EPG are so relevant.

An MDB system working more closely as a group to enhance the investment climate, develop country platforms, and manage and reduce risk could play a central role. In so doing, it could greatly enhance its private sector multipliers; the recommendation to increase these multipliers, and methods to do so were at the heart of the EPG report.

The scale of investment in the coming years—particularly in infrastructure— would be far more than public finances could manage, as was argued, for example, at the UN conference on financing for development in Addis Ababa in July 2015. It is crucial that public finance, private finance, ODA and international flows come together. An MDB system working more closely as a group to enhance the investment climate, develop country platforms, and manage and reduce risk could play a central role. In so doing, it could greatly enhance its private sector multipliers; the recommendation to increase these multipliers, and methods to do so were at the heart of the EPG report. For all these reasons, the implementation of the recommendations of the EPG report would be of immense value both to the sustainable development of the world as a whole, and to the private sector taking an expanded and central role. ◆

Lord Nicholas Stern is IG Patel Professor of Economics and Government at the London School of Economics and Chair of the Grantham Research Institute on Climate Change and the Environment. He is a member of the G20 Eminent Persons Group on Financial Systems and is President of the Royal Economic Society (2018-2019). He was President of the British Academy (July 2013 – July 2017) and elected Fellow of the Royal Society (2014). He was Chief Economist at both the World Bank, 2000-2003, and the European Bank for Reconstruction and Development (1994-1999) and was Head of the UK Government Economic Service (2003-2007). He produced the landmark Stern Review (2006) on the economics of climate change. His most recent books are “Why are We Waiting? The Logic, Urgency and Promise of Tackling Climate Change” MIT Press, 2015.) and “How Lives Change: Palanpur, India and Development Economics” (with Himanshu and Peter Lanjouw), published in August 2018 (OUP). He was knighted in 2004, made a cross-bench life peer in 2007 and appointed Companion of Honour in 2017 for services to economics, international relations and tackling climate change.

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Investing in Human Capital: The Role of the Global Financial System Nora Lustig Samuel Z. Stone Professor of Latin American Economics, Director of the Commitment to Equity Institute at Tulane University and a nonresident fellow of the Brookings Institution, Center for Global Development and the Inter-American Dialogue Human capital is a key determinant of economic and social progress. The salient importance of human capital was prominently acknowledged in Proposal 1 of Making the global financial system work for all, the report by the G20 Eminent Persons Group on Global Financial Governance, released during the IMF and World Bank Annual meetings in 2018. More precisely, the report calls for refocusing on human capital as a foundation for a stronger investment climate, building more inclusive societies, and reaching the Sustainable Development Goals (SDGs). Investing in broad-based human capital distinctly creates a three-way win-win. Human capital is key for economic growth. Human capital investments are also key for building equitable societies. And human capital is not only “capital”—that is, an input for production—but higher levels of human capital immediately translate into superior quality of life. Better health and nutrition, achieving literacy and numeracy, and access to modern sanitation services not only make people more productive but vastly improve their living conditions and well-being. Human capital improvements translate into longer, healthier, and more fruitful lives. Is the global financial system ready to support human capital investments of the type and in the scale that the world needs? For now, it is not. The required type and scale of human capital investments will only happen if financial resources, data, knowledge, coordination, leveraging, surveillance capacity, and governance in the IFIs are revamped and realigned. The EPG report recommends actions and

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re-enforcing efforts, while Proposal 7 proposes integrating trust fund activities into core operations to avoid fragmentation. ■ Better data and cutting-edge knowledge: Proposal 8 focuses on the importance of IFI’s continuing to invest in data and policyrelevant research. ■ Innovation and capillarity at the grassroots level: Proposal 9 focuses on the importance of leveraging more on the ideas and operating networks of business alliances, NGOs, and philanthropies.

Human capital improvements translate into longer, healthier, and more fruitful lives.

reforms conducive for the needed revamping and realignment of the IMF and the multilateral development banks. The international financial institutions (IFIs) are indeed in a unique position to help governments achieve the human capital/human development goals embedded in the SDGs. IFIs could provide adequate support with: ■ Better

inter-institutional coordination: Proposals 2 and 3 focus on building country and regional collaboration platforms to facilitate joint and mutually

The IFIs are also uniquely positioned in helping governments estimate how much reaching the human development goals would cost and find the mechanisms to finance these investments. In particular, the IFIs can help governments ensure tax collection is efficient and progressive and target resources where they are most needed, reduce waste and corruption in public spending, and adopt best practices in the deployment of education, health, and sanitation services. The IFIs can also provide realistic assessments of how much of the financing of investments in human capital can actually rely on improvements in domestic resource mobilization. The IMF estimates that, on average, low-income developing countries will need additional annual outlays of 14 percentage points of GDP on average in the areas of education, health, water and sanitation, roads, and electricity to achieve the SDGs. Across 49 low-income developing countries, about $520 billion a year in additional spending is needed.

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However, where will the additional needed resources come from? Boosting domestic tax revenue is an obvious option, especially for emerging economies but it will not be sufficient to meet the financing needs of most low-income developing countries. In fact, too much emphasis on domestic resource mobilization— especially in the poorer countries— could backfire: if, for instance, consumption taxes are raised, the poor may be left worse off. Moreover, borrowing may not be an option for many of these low-income countries because they are at risk or are already experiencing debt distress. Foreign assistance will have to continue playing its part, but this too will not suffice. Recognizing these limitations, the EPG report makes a central recommendation: Proposal 4, to shift the basic business model of Multilateral Development Banks from direct lending towards risk mitigation (including political risk insurance schemes) to mobilize significantly greater private equity investment. As important as finding ways to invest more and more efficiently in human capital is, it is also crucial to prevent human capital from falling. We often forget that one of the greatest costs of financial crises, natural disasters, and pandemics is the destruction of human capital, which often can never be rebuilt. Malnutrition at an early stage in life cannot be reversed by consuming more food at an older age. Adult literacy programs cannot replace not attending school or not completing primary school. Hence Proposal 6, which focuses on the importance of strengthening the joint capacity of the IFIs to tackle

and policy follow-up capacity of IMF and other central actors (Proposals 12 and 13), ensuring an adequatelyresourced and reliable global financial safety net at the earliest (Proposal 14), establishing a standing IMF liquidity facility to give countries timely access to temporary support (Proposal 15), and enabling the IMF to quickly mobilize additional resources in the face of severe global crises (Proposal 16). ◆

Malnutrition at an early stage in life cannot bereversed by consuming more food at an older age.

challenges of the global commons. Challenges include preventing and coping with environmental threats related to climate change, degradation of ecosystems, water scarcity, systemic health risks from pandemics, and the rapid spread of antimicrobial resistance. Crucially, the EPG report devotes an entire section (Section II) to recommendations that should prevent financial crises from happening in the first place and help countries manage crises at the minimum cost to their economies and people. In particular, it calls for: strengthening the risk surveillance

Nora Lustig is Samuel Z. Stone Professor of Latin American Economics and Director of the Commitment to Equity Institute (CEQ) at Tulane University. She is also a Nonresident Senior Fellow at the Brookings Institution, the Center for Global Development and the Inter-American Dialogue. Professor Lustig’s research is on economic development, inequality and social policies with emphasis on Latin America. Her most recent publication Commitment to Equity Handbook: Estimating the Impact of Fiscal Policy on Inequality and Poverty, (Brookings 2018) is a step-by-step guide to assessing the impact of taxation and social spending on inequality and poverty in developing countries. Prof. Lustig is a founding member and President Emeritus of the Latin American and Caribbean Economic Association (LACEA) and was a co-director of the World Bank’s World Development Report 2000, Attacking Poverty. She serves on the editorial board of the Journal of Economic Inequality and is a member of the Society for the Study of Economic Inequality’s Executive Council. Prof. Lustig served on the Atkinson Commission on Poverty, the High-level Group on Measuring Economic Performance and Social Progress, and the G20 Eminent Persons Group on Global Financial Governance. She received her doctorate in Economics from the University of California, Berkeley.

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Taming Capital Flow Volatility Andrés Velasco Dean of the School of Public Policy at the London School of Economics and Political Science.

“Today it is a sin to run a currentaccount deficit, and that is crazy,” lamented Singapore Deputy Prime Minister Tharman Shanmugaratman at the annual gathering of the International Monetary Fund and the World Bank in Bali in October 2018. Ministers who boasted of their balanced current accounts, while officials from deficit countries were treated like reprobates. Yet, as Tharman reminded the crowd, countries like South Korea and Singapore “grew by running currentaccount deficits at early stages of development, so we could invest ahead for growth while our savings were being built up.” Economic theory is squarely on his side. A family need not wait until it has savings equal to the value of a house before buying one. Instead, it makes sense to borrow while the parents are young and their income is still relatively low, and to repay once they are better off. The same logic applies to a developing country, which in order to escape poverty should run a deficit and borrow while still poor. In a poor country, capital – factories, infrastructure, or schools – is scarce, so the rate of return on new investment is high. It is precisely the gap between the profitability of its investment and the interest rate it pays on loans that allows a poor country to prosper. That was the strategy that allowed Singapore, South Korea, and other successful economies to grow rich. And yet deficit countries are treated like sinners, because running a deficit makes a country dependent on notoriously fickle foreign capital. Borrowing from abroad can boost

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All is well as long as foreign lenders keep lending and the country keeps investing.

a country’s growth, but also leave it vulnerable to crises. All is well as long as foreign lenders keep lending and the country keeps investing. But if lenders get cold feet, the resulting “sudden stop” in capital flows requires the country to cut back on key imports overnight, triggering a recession. Frightened lenders may then not only refuse to extend now loans, but also demand repayment of old ones. Local firms and banks then have to liquidate investments, but if there are many sellers and few buyers, asset prices can only go south, triggering bankruptcies and a full-fledged financial crisis. The pessimistic expectations of lenders are then vindicated.

That is exactly what happened to countless emerging economies over the last quarter-century. It is also what happened to Argentina in 2018: after a sudden stop in capital flows, the local currency lost half of its value and the economy lurched into recession (mercifully, a full financial crisis did not follow). No wonder current-account deficits are viewed as sinful. Understanding such risks, emerging countries often do one of two things. They run monetary and fiscal policies that are so tight that current-account deficits are impossible, or they hold large stocks of international reserves. The first strategy is equivalent to having a family forego all loans when buying its own home. The second strategy amounts to borrowing only as much as one has already saved. Neither makes much sense from the perspective of efficiency. Re-enter Tharman, who chaired a group appointed by G20 governments to propose international financial reforms (I was also a member). In a report submitted to the finance ministers and central bank governors gathered in Bali, the group argues that it should possible for countries to benefit from international capital flows without risking excessive market volatility and crises. But that requires deep changes in the local and global policy frameworks. The report begins by recognizing that emerging economies should deepen their domestic financial markets. Some financing for investment must come from local sources, just as the down payment on a home must come from a prudent family’s saving. Local loans also tend to be in domestic

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currency, so borrowers are shielded from exchange-rate risk. The report also proposes an enhanced global surveillance mechanism. The fact that some financial crises are triggered by self-fulfilling pessimism should not obscure the reality that others are caused by inadequate policies. If those mistakes are identified and corrected before it is too late, the world has a better chance of avoiding the next round of meltdowns. And because financial crises have large and costly spillovers, better surveillance means that innocent bystanders will also be safer. Most crucially, the report calls for an enhanced global financial safety net to ensure that countries are well protected against excessive capitalflow volatility and self-fulfilling financial market panics. The global financial safety net has grown since the financial crisis of a decade ago. In 2006, the report shows, 90% of available resources came from the IMF. By 2016, the Fund accounted for only one-third of those resources, with regional financial arrangements and bilateral swap agreements accounting for the rest. But regional arrangements are not found everywhere, while only a limited number of central banks has access to swap agreements. Moreover, these new financing mechanisms “have not been crisis-tested,” according to the report, they “are subject to conditions in providing countries,” and “do not cover several systemically significant” economies. Last but not least, “the system as a whole lacks the necessary coordination.” To ensure that countries have timely access to temporary support during

liquidity crunches, the various layers of global financial safety net need to be stitched together, and a new IMF standing liquidity facility should be at the core of the enhanced global safety net. And to guarantee that the facility is large enough to deal with global liquidity events such as that of 20082009, the IMF will need access to more resources, whether via market borrowing by the Fund or other means. Skeptics will point out that previous attempts at building standing liquidity facilities at the IMF have failed, because accessing them was either too cumbersome or stigmatizing. But that is no argument for failing to try again – especially in view of the mounting evidence that liquidity crunches can easily morph into solvency problems that quickly spill over national and regional boundaries. The resulting losses of employment and output cause much human suffering that could be avoided if only we had the right policies in place.

To deal with standard moral hazard objections, the new facility would require that countries pre-qualify by demonstrating sound domestic policies. And pre-qualification for IMF support would also imply access to the relevant regional financial arrangement, if any, thus helping integrate the overall system. At the Bali meeting last October, the World Bank unveiled its new Human Capital Index. Singapore and South Korea were at the very top. While emerging economies should aim to emulate these two countries’ educational and health achievements, they should also try to emulate the way Singapore and South Korea paid for all those schools and hospitals: by borrowing abroad and running external deficits whenever necessary. But that will be impossible without bold new global policies that tame harmful capital-flow volatility. The report shows how; now we need the political will to make change possible. ◆

Andrés Velasco is the Dean of the School of Public Policy at the London School of Economics and Political Science. In 2017-18 he was a member of the G20 Eminent Persons Group. During 2015-16 he co-chaired the Global Panel on the Future of the Multilateral Lending Institutions. In 2013-16 he was a member of the Global Oceans Commission. Mr. Velasco was a presidential candidate in Chile in 2013. He also was the Minister of Finance of Chile between March 2006 and March 2010. During his tenure he was recognized as Latin American Finance Minister of the Year by several international publications. His work to save Chile´s copper windfall and create a rainy-day fund was highlighted in the Financial Times, the Economist, the Wall Street Journal and Bloomberg, among many others.

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How the G20 and International Financial Institutions Can Work Together to Achieve the SDGs Fabrizio Saccomani Chairman of the Board of Directors of UniCredit

As the global economy is still in the midst of unprecedented policy uncertainty with increasing risks of a widespread slowdown of trade and economic activity, the G20 is going to examine in the coming months the proposals of the G20 Eminent Persons Group (EPG) on Global Financial Governance. The EPG Report was broadly endorsed by G20 Leaders at their Summit in Buenos Aires last December and its implementation is currently being considered by the relevant technical instances under the aegis of the G20 Japanese Presidency. The EPG proposals are considered valuable, although most of them are deemed to require a multi-year time commitment. It is understood that the Japanese Presidency will identify a limited number of proposals for early discussion and possible approval by Leaders at the Summit in Osaka at the end of June 2019. The EPG made 22 proposals covering three separate chapters of the Report: Development (9 proposals); Finance (7 proposals); Governance (6 proposals). Of these 7 are expected to be considered: 4 in the Development agenda and 3 in the field of Governance; regrettably, none of the Finance proposals have been selected. While this outcome reflects current political disagreements among G20 countries on the functions and institutions of multilateralism, it is important that development issues are put at the center of the Leadersâ&#x20AC;&#x2122; debates as soon as possible. Indeed, the main conclusion of the EPG report is that: â&#x20AC;&#x153;The magnitude of the development challenge will require greater resources than before, from

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As proposed by the EPG, a prerequisite for such gigantic mobilisation of finance is the build-up of effective country and regional platforms to identify investment priorities and to coordinate the activity of all development partners. Primary responsibility for the design and operation of such platforms would fall on Multilateral Development Banks (MDB), namely the World Bank and regional development banks.

every source - domestic savings and public revenues, and external financing from private, official and philanthropic sources. Even by conservative projections, the gap

in infrastructure financing alone is well over USD $1 trillion annually. This gap in financing must be closed to ensure the quality and scale of investments in economic and social infrastructure that will be critical in the next decade.â&#x20AC;? As proposed by the EPG, a prerequisite for such gigantic mobilisation of finance is the buildup of effective country and regional platforms to identify investment priorities and to coordinate the activity of all development partners. Primary responsibility for the design and operation of such platforms would fall on Multilateral Development Banks (MDB), namely the World Bank and regional development banks. This proposal has been endorsed by the Japanese Presidency and seems to have garnered a broad consensus among G20 members. However, official resources, both national and multilateral, are likely to fall significantly short of the targeted amounts. It is therefore crucial to adopt a comprehensive staregy to involve private investors in the process. This will not be realistically possible unless a new approch is introduced to maximize the potential of capital markets and institutional investors. The EPG recommended a fundamental shift in the basic business model of MDBs from direct lending towards risk mitigation aimed at mobilizing private capital. This goal could be achieved in several ways, which are analyzed in detail in the EPG report. For example, MDBs could offer credit enhancements to private investors by taking a first-loss piece in a synthetic securitization structure, allowing them to take a standardized

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senior debt exposure at a price that would reflect the lower risk. Moreover, MDBs could adopt the model of the Multilateral Investment Guarantee Agency (MIGA) of the World Bank to develop a system-wide political risk insurance, standardizing contracts and processes and expanding the use of private reinsurance markets. Another option would be to build a developing country infrastructure asset class by pooling investments from the MDB system into securitized assets with the scale and diversification required to attract private capital. The G20 has so far only taken note of these innovative proposals, limiting itself to endorse the suggestion of building on the MIGA risk insurance capabilities. This prudent approach may be understandable, but the G20 could also recommend that the preliminary work conducted by the EPG be completed by involving a more systematic way representatives of private banks, insurance companies, capital market intermediaries and institutional investors, as well as companies specialized in project design and execution. This broad consultation among the official and private sectors would give a fundamental contribution to the identification of the appropriate financial instruments and procedures to be submitted for approval by the G20 and the MDBs. The early activation of such consultation process would give a positive signal to global markets and public opinion that the G20 is indeed determined to promote a massive program of infrastructural investment, thus reducing policy uncertainty and downside risks or the global economy. â&#x2014;&#x2020;

Fabrizio Saccomanni has been appointed Chairman of the Board of Directors of UniCredit in April 2018 for a period of three years. He has been a member of the Board since November 2017. He is Deputy Chairman of the Italian Banking Association and member of the Board of Directors of the Institute of International Finance in Washington. Since December 2018 he is President of the Orchestra Filarmonica della Scala Association in Milan. Currently he is also Vice President of Istituto Affari Internazionali and Senior Fellow of the School of European Political Economy at LUISS Guido Carli University of Rome. He has been a member of the G20 Eminent Person Group on Global Financial Governance (2017-2018) and a Visiting Professor at the Paris School of International Affairs at SciencesPo (2016-2017) and at the London School of Economics (2015). He has been Minister of Economy and Finance in the Italian Government from April 2013 to February 2014. He was Director General and member of the Governing Council of the Bank of Italy from 2006 to 2013. In this capacity, he held positions at the European Central Bank and at the Bank of International Settlements.

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Report of the G20 EPG on Global Financial Governance What Europe Should Do with it Marek Belka Former PM and Finance Minister of Poland, Head of European Dept, IMF

2019 is another important year for Europe. The United Kingdom will most probably leave the EU and and we will all have to redefine our mutual relations within the continent and in the global community. In May 2019, election to the European Parliament will take place. Its future composition, but also the turnout at the polls in all 27 EU members may be decisive for the future of integration. Some time later, a new Commission will be formed, reflecting the ever-changing political landscape. This is a time for disscussing priorities and challenges facing Europe, even if realistically the “tyrany of status quo” will inevitably put a big pressure on us. Four major factors shaped the fortunes and misfortunes of Europe in the last decades. First, the creation of Euro - the common European currency, made the integration seem inevitable and irreversible, helped European firms to grow to a global significance but also made the economy of the continent more vulnerable to external shocks. This latter problem is generally attributed to the fact that the common currency lacks sufficiently solid institutional underpinnings. Second, globalisation benefited people of the whole world, albeit not to the same extent, and even hurt some, including in the most advanced societies. It helped pull billions out of extreme poverty (particularly in Asia, and in Latin America), but having changed relative prices of production factors depressed the incomes of commodity importers and undermined the economic security of middle-class people in many advanced countries. We can see it in less dynamic and

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What the report recommends is a cooperative approach: with the host-country authorities, with private investors, among public and private donors, among IFI’s, etc. less agile European societies. Third, the Global Financial Crisis of 2008 originated in the American financial sector, hit Europe most, and exposed its vulnerability and insufficient resilience. The crisis exacerbated the existing weaknesses in European economies and gave rise to populism. Fourth, immigration into Europe has proceeded for decades, caused by colonial past of some European countries, poverty and war in the so-called Third World and relatively liberal approach to the immigrants in most of the continent. Drammatic change occured in the recent years. The belief in multicultural and multireligious societes was replaced

by apprehension and growing animosity. This created a propitious environment for inward-looking and openly xenofobic political parties. Europe faces many challenges and must tackle them in an open and pragmatic way, not giving up on her values. Most of these challenges can be effectively tackled in a context broader than intra-European. Here enters the report, that was mandated by G20 under the G20 Presidency of Germany. The key issues covered by the report are how to achieve greater development impact, securing the benefits of interconnected financial markets and making the G20 itself and the IFI’s work as a system. The report is predominantly a call in defence of global cooperation, a call on the G20 to take initiative to make the world better and its institutions to respond to the needs of the present time in a proper way. The authors of the report explicitely invite the G20 to refocus its activities on strategic issues, suggesting that “within three years it should steer the reorientation of development finance before handing the coordination role to the IFI Heads”. The implicit and, yes, explicit focus of the report is Africa. “To bend the arc of history, we must succeed in Africa”. This is the region where progress in eliminating poverty is least obvious, where economy depends too much on the vagaries of commodity markets, where natural environment is most fragile, war is too frequent, and where climate change will have a punishing impact on the livelihoods of the people. Most importantly, Africa is still on the steepest part of the S-shaped curve of demographic development.

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Suffice to say, in the coming decades there will be almost the same number of new labor market entrants as in the whole of Asia. Africa is a close neighbour of Europe and the main source of immigration. So, the succes in mitigating Africa’s problems is of existential importance to Europe. What the report recommends is a cooperative approach: with the host-country authorities, with private investors, among public and private donors, among IFI’s, etc. Country and regional cooperation platforms should minimize duplication and waste, prevent corruption, and maximize development impact. What is thus needed is a culture of disscussion and compromise. Something that we in the EU are engaged in daily. Europeans practice it in the process of structural funds absorption, where national interests are reconciled with community considerations and more general rules. The IMF-EC-ECB troikas had to learn how to work jointly on country programs in the aftermath of 2008. The Vienna Initiative experience shows that Europeans are able to work within a very complex set of private and public institutions avoiding a temptation to dominate, instead looking for consensual solutions. So the know-how is there. European diversity is a clear strength. What about instruments? There are plenty of them in Europe. Two DG’s deal with it (International Cooperation and Development, Humanitarian Aid and Crisis Management), more than 10 billion Euro are spent by the Commission itself. EBRD and EIB with the European Development Fund provide a strong institutional infrastructure. If we add national

development agencies, we may even conclude that Europeans have too many instruments and intra-European coordination may be a problem in itself. The G20 EPG report focuses on issues that are of vital interest to Europe, it recommends a cooperative approach that conforms with our values and culture of operation. Finally, the report underlines the necessity for the IFI’s and all public and private stakeholders to work as a system. Do not allow the report to be shelved! Use the G20 as a platform to showcase European leadership for sustainable development. ◆

Marek Belka is a politician and professor of Economics, a former Prime Minister and Finance Minister of Poland, former Director of the International Monetary Fund’s (IMF) European Department and former Head of Narodowy Bank Polski (National Bank of Poland). From 1990 until 1996 Belka worked as consultant for the Ministry of Finance of the Republic of Poland and the World Bank. He served as Deputy Prime Minister and Minister of Finance in 1997 and from 2001 to 2002; and as an economic consultant of the President of the Republic of Poland in the meantime. He also served as Adviser to the three successive Prime Ministers of Albania from 1997 to 2001. Later, Belka worked as an advisor to JP Morgan for Central and Eastern Europe from 2002 to 2003. In 2003 he was responsible for economic policy in the interim Coalition Provisional Authority of Iraq.

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Business Should Care About Public FInance for Development Amar Bhattacharya Senior fellow at the Global Economy and Development Program at Brookings Institution

Homi Kharas Interim Vice President and Director of the Global Economy and Development Program The G20 Finance Ministers requested an Eminent Persons Group (EPG) to make recommendations on global financial governance. The report of this group, delivered in October 2018, argues that “we need substantially greater impact in helping countries achieve sustainable development and inclusive growth, and in managing the growing pressures in the global commons. The current pace of change will not get us there.” The EPG report outlines reforms to position multilateral institutions at the center of a “cooperative international order suited to the 21st century.” Only in a global context that is decentralized, yet resilient, can national policies align with international initiatives. Individual countries need such a system to achieve the universally-agreed set of UN Sustainable Development Goals (SDGs) by 2030. The world needs such a system if it is not to be overwhelmed by the challenges it confronts—climate change, low productivity growth and wage growth and sustainable infrastructure accessible to all. The thrust of the report’s recommendations are that a much larger scale of private investment will be needed if we are to meet the sustainable development goals and tackle the pressing global challenges confronting the world in the coming two decades, including climate change. Multilateral institutions have a unique set of strengths to help unlock investment opportunities and mitigate risks to the private sector. They can assist countries to put in place better policies, regulations, governance, logistics and human capital. They can help countries prepare sustainable, bankable projects, especially where

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some government finance is required. They can construct country platforms to bring investments to scale. They can catalyze and mobilize finance using their own resources, and by deploying new financial instruments, like firstloss guarantees and co-investment vehicles to crowd-in the private sector. The EPG report calls on international institutions to “embark on system-wide insurance and diversification of risk,

to create a large-scale [infrastructure] asset class and mobilize significantly greater private sector participation.” The scope for unlocking investments through system-wide cooperation applies across all sectors. The returns could be considerable; one study estimates that achieving the SDGs would unlock $12 trillion in new opportunities in just four economic systems—food and agriculture, cities, energy and materials, and health and well-being. Japanese leaders have understood these opportunities. Prime Minister Abe has outlined Japan’s priorities for the G20. They include: infrastructure for development; global health; climate change; and advancement of the SDGs. The recommendations in the EPG report will promote these same priorities by creating an environment where business itself can find opportunities that are profitable and that generate desirable social and environmental outcomes. The business community should care deeply about the construction of a cooperative international order that fosters a more efficient global allocation of public and private capital. But an open, interconnected world requires a modernization of international financial institutions and a strengthening of global financial systems. The EPG report provides a roadmap that would allow every country to become more prosperous by embracing smart growth, and for a new multilateralism that can deliver win-win outcomes in a multipolar and more complex world with shared opportunities and unprecedented challenges. ◆

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The returns could be considerable; one study estimates that achieving the SDGs would unlock $12 trillion in new opportunities in just four economic systems—food and agriculture, cities, energy and materials, and health and well-being.

The EPG report outlines reforms to position multilateral institutions at the center of a “cooperative international order suited to the 21st century.” Only in a global context that is decentralized, yet resilient, can national policies align with international initiatives.

Amar Bhattacharya is senior fellow at the Global Economy and Development Program at Brookings Institution. His focus areas are the global economy, development finance, global governance, and the links between climate and development. From April 2007 until September 2014 he was Director of the Group of 24, an intergovernmental group of developing country Finance Ministers and Central Bank Governors. In that capacity he led the work program of the Group, supported the deliberations of the Ministers, and was the principal point of interface with other organizations including the G20. He has therefore been an active participant in the global economic discussions and a key representative of the views of developing countries. Prior to taking up his position with the G24, Mr. Bhattacharya had a long-standing career in the World Bank. His last position was as Senior Advisor and Head of the International Policy and Partnership Group. In this capacity, he was the focal point for the Bank’s engagement with key international groupings and institutions such as the G7/G8, G20, IMF, OECD and the Commonwealth Secretariat.

Homi Kharas is the Interim Vice President and Director of the Global Economy and Development program. In that capacity, he studies policies and trends influencing developing countries, including aid to poor countries, the emergence of the middle class, and global governance and the G-20. He has served as the lead author and executive secretary of the secretariat supporting the High Level Panel, co-chaired by President Sirleaf, President Yudhoyono and Prime Minister Cameron, advising the U.N. Secretary General on the post-2015 development agenda (2012-2013). The report, “A New Global Partnership: Eradicate Poverty and Transform Economies through Sustainable Development” was presented on May 30, 2013. His most recent co-authored/edited books are The Imperative of Development (The Wolfensohn Center at Brookings, 2017), The Last Mile in Ending Extreme Poverty (Brookings Press, 2015), Getting to Scale: How to Bring Development Solutions to Millions of Poor People (Brookings Press, 2013); After the Spring: Economic Transitions in the Arab World (Oxford University Press, 2012); and Catalyzing Development: A New Vision for Aid (Brookings Press, 2011). He has published articles, book chapters and opinion pieces on global development policy, global trends, the global food crisis, international organizations, the G20, the DAC and private philanthropy.

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A Public-Private Partnership for Promoting Development Masood Ahmed President of the Center for Global Development

Mark Plant Director of Development Finance and Senior Policy Fellow at the Centre for Global Development As the B20 community convenes in Tokyo this March to consider how to build “Society 5.0”, we strongly urge them to review and support the G20 commissioned report of the Eminent Persons Group (EPG) on global financial governance. The recommendations of the report are foundational to the types of changes the Keidanren envisages as we move beyond the information society. As the EPG underscores, it is time to transform the post-World War II global financial architecture to avoid the “risk of drift into a fragmented world, with policies in different parts of the world working at odds with rather than reinforcing each other, and with all nations ending up losing.” The EPG report makes 22 concrete proposals for change. None is revolutionary, all are practical. Alone each would make some small difference in the way we work together across the globe. But taken as a package, the proposals have the potential for fundamentally shifting the governance of the financial system, and moving capital flows to those parts of the world where there are the greatest opportunities for economic advancement and the highest risks of human catastrophe if the system is left unchanged. So, what in the report is of interest to business? First, it provides a plan of action to mobilize the financing that will be needed to support development across the globe. The world has recognized that going from “billions to trillions” in development finance will require a concerted effort to mobilize private capital for development. However, bringing private investors together with viable project opportunities will

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not be easy, specially in low income countries where the institutional structures and business environment can be more challenging even as the needs are greatest. The multilateral development banks (MDBs) can play a valuable role of intermediation in this regard: they know how to do business in developing countries; they have

patient capital which can mitigate risks and leverage private capital; they can help make markets, where none existed before. But to play this catalytic role better, their business models and operations need to change, and they need to work better as a system. The first nine proposals the EPG makes are focused on how the MDBs can work better together and, with the private sector, create the business environment that brings about profitable (both privately and socially) net inward investment flows. For such inward investment to developing countries to be sustained, global financial markets must be stable, open, and transparent, with risk being broadly shared across the world. In addition, financial markets in developing countries need to mature. And countries need to have confidence in regional and global safety nets to avoid an excessively prudent build up of reserves and other mechanisms of self insurance. Recommendations 10-16 of the EPG focus on what is needed to bring about betterstructured financial markets that provide long-term patient capital needed by developing countries. The final six recommendations of the EPG focus on the role of the G20 in governing the international financial institutions (IFIs, which are the MDBs plus the IMF). While much of it may seem like bureaucratic “shop talk,” global businesses will prosper if there are consistent global rules of the game, which in turn requires global strategic direction. While regional and country markets will never disappear, the IFIs can only pull in the same direction if their shareholders set that direction.

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The multilateral development banks (MDBs) can play a valuable role of intermediation in this regard: they know how to do business in developing countries; they have patient capital which can mitigate risks and leverage private capital; and they can help make markets, where none existed before.

What can business do to support implementation of the EPG’s recommendations? ■ Be clear with the IFIs and MDBs on the changes required to scale up private investment in developing countries. Many of the first nine proposals will require extended frank conversations to realize the synergies between the MDBs and business. Active participation by the business community will be essential. ■ Lend a supportive voice to financial market and governance reforms and hold leaders accountable for enacting those reforms. ■ Continue to engage in the B20 and other public forums that support multilateralism and eschew the isolationist trends that are increasingly prominent in the global political dialogue. Moving beyond the information society will require us to think, act and cooperate in new ways. The EPG report gives a practical blueprint to start to do so. ◆

Masood Ahmed is president of the Center for Global Development. He joined the Center in January 2017, capping a 35-year career driving economic development policy initiatives relating to debt, aid effectiveness, trade, and global economic prospects at major international institutions including the IMF, World Bank, and DFID. Ahmed joined CGD from the IMF, where he served for eight years as director, Middle East and Central Asia Department, earning praise from Managing Director Christine Lagarde as a “visionary leader.” In that role, he oversaw the Fund’s operations in 32 countries, and managed relationships with key national and regional policy makers and stakeholders. In previous years, he also served as the IMF’s director of External Relations, and deputy director of the Policy Development and Review Department. From 2003-2006, Ahmed served as director general, Policy and International at the UK government’s Department for International Development (DFID). In that role, he was responsible for advising UK ministers on development issues and overseeing the UK’s relationship with international development institutions such as the World Bank.

Mark Plant is director of development finance and a senior policy fellow at CGD. He is also an adjunct professor of economics at the University of Virginia. His appointment to CGD follows a long career at the International Monetary Fund (IMF), where he was most recently the director of Human Resources. Prior to that, Plant worked extensively with African countries, culminating in his appointment as deputy director of the IMF’s African Department. He also held a range of senior positions in the Strategy, Policy and Review Department, where he had oversight of the IMF’s policies towards low-income countries, including its work on the Multilateral Debt Relief Initiative (MDRI) and the Heavily Indebted Poor Countries (HIPC) Initiative. Before joining the IMF, Plant held senior positions in the US Department of Commerce and at the General Motors Corporation. He began his career teaching economics at the University of California, Los Angeles.

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Sustainable Infrastructure and Development Requires Financial Innovation Torben Möger Pedersen CEO of Pension Denmark

Jens Lundsgaard Board member of the European Bank for Reconstruction and Development (EBRD) Preventing devastating climate change will require large scale investments in renewable energy, smarter cities, buildings, and many other assets. Part of these investments will be in advanced economies, but to effectively tackle climate change and achieve other Sustainable Development Goals, large capital flows between advanced, emerging and developing economies are needed. As estimated by the Global Commission on the Economy and Climate, a total of USD $90 trillion investments in infrastructure is needed globally over the 2015-30 period – roughly doubling past investment levels and delivering more than the world’s entire current infrastructure stock. This will hardly happen without financial innovation. Hence the G20 Eminent Persons Group on Global Financial Governance has, rightly, emphasized that significantly greater private investments could be mobilized, including by building a sustainable infrastructure asset class with sufficient scale and diversification to attract institutional investors. We would like to share Denmark’s experience on how to do so in practice. Take the case of wind energy. Wind farms have financial properties that are well suited for placing considerable pension savings while offering a relatively stable cash-flow over the 25-30 years of service life. Building on the pioneering investments made more than ten years ago, we have therefore now seen pension funds not just in Denmark but all over Europe invest in wind farms. The key enabler for this development has been an adequate distribution of risks between the producers of

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turbines, energy companies and investors. With the right incentives in place, operational efficiency has improved dramatically. Over the past year, several auctions for off-shore windfarms in Germany have been won by zero-subsidy bids as companies consider they will be able to produce electricity from wind at costs that are at par or even below the market price of electricity based on nuclear,

gas or coal-fired power plants. The first investments were characterised by institutional investors taking limited risk exposure, essentially providing financing at a guaranteed return. But as experience accumulates, investors have become more comfortable with assessing the risks and other financial properties of sustainable infrastructure – like for properties, shares, corporate bonds and other assets. Moreover, new types of market participants have emerged, such as a EUR 7 billion fund dedicated to investment in the development, construction and operation of renewable energy assets like on- and off-shore wind farms (a “club” with more than 40 institutional investors, including the EIB, and managed by Copenhagen Infrastructure Partners). All this can be replicated in emerging and developing economies – both for renewable energy and other assets related to sustainable development. A first condition is that the right regulatory environment must be put in place: to attract capital, foreign investors must be able to rely on well-defined ownership also for these types of assets. Moreover, regulations of utilities and energy markets must be transparent and stable to mitigate risks. International financial institutions would have an important role to play here since economic reforms and the rule of law are as important for sustainable development as for other investments. As more experience is gained with sustainable infrastructure assets, the natural aspiration would be that such assets could be traded with more liquidity in financial markets. Ultimately, it is only by leveraging

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the inherent abilities of the financial sector and markets to assess, pool and diversify risk that the necessary investments can be achieved. Public support can be useful to overcome first-mover disadvantages and to underpin the establishment of standardised data that can reduce uncertainty and transaction costs in financial markets. As such, the challenge is similar to that of developing financial markets in general in transition economies around Europe, where the EBRD has deep experience. In fact, Europe’s financial history is a rich source of inspiration. During the 19th century, industrialisation entailed a strong private-sector build-up of infrastructure assets financed via the exchanges in notably London and Paris. By the 1840’s railways accounted for more than a quarter of private investment in England, and in the 1850-60s, the construction of the Suez Canal was financed by stocks sold to 40,000 investors on the Paris exchange. Still today, this canal caries over 10% of the global maritime transport, giving immense CO2-savings compared to sailing south of Africa on the way from Asia to Europe. So, if financial markets could handle this asset class in the 19th century, could financial markets learn to do it again? We believe so. And profitable investments in support of the sustainable development goals can also be made outside infrastructure. Last summer, the Danish SDG Investment Fund was launched. By blending private capital from institutional investors with that of the Danish government’s Investment Fund for Developing Countries, the purpose is to spear-head commercial

With millennials making up a rising share of investors, private banks and fund managers are also increasingly interested in assets with a positive global footprint. Combining these forces, private investments and ingenuity can bring the solutions needed to avoid global climate change and to promote our global Sustainable Development Goals. ◆

As estimated by the Global Commission on the Economy and Climate, a total of USD $90 trillion investments in infrastructure is needed globally over the 2015-30 period – roughly doubling past investment levels and delivering more than the world’s entire current infrastructure stock.

investments that can promote sustainable development in locations where perceived risks would otherwise deter private investors. While more data is still needed, experience suggests that the actual risks are often more manageable than perceived by markets and many analysts.

Torben Möger Pedersen is CEO of PensionDanmark – a position he has held since the organization was established in 1992. Torben Möger Pedersen holds a number of board and investment committee memberships including Arbejdernes Landsbank, University of Aalborg, Danish Insurance Association, Copenhagen Infrastructure Fund I, II, III Danish Climate Investment Fund, Danish SDG Investment Fund, Center for Pension Research (PeRCent) at Copenhagen Business School and Danish Society for Business and Education. Torben Möger Pedersen is also a member of UN’s Green Climate Fund’s Private Sector Advisory Group and World Economic Forum’s Global Agenda Council on Investments as well as part of the Steering Committee of the World Economic Forum’s Council on Investment. Jens Lundsgaard is a board member of the European Bank for Reconstruction and Development, and founder of Lundsgaard Economics & Strategy. Previously he was an economist at the OECD and served as Deputy Permanent Secretary in Denmark’s Ministry of Industry, Business and Financial Affairs.

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How to Make the Global Financial System Work Better Karolina Ekholm Professor of Economics at Stockholm University. Former State Secretary at the Swedish Ministry of Finance and former Deputy Governor of the Swedish Central Bank Todayâ&#x20AC;&#x2122;s world seems to be awash with financial capital seeking a decent return. And yet it is difficult to finance much needed investment in infrastructure, energy and education in poor countries, leading to obstacles to sustainable development. Large amounts of financial capital flows in and out of countries, often create problems for both the senders and receivers. Exchange rates become misaligned, sovereign debts unsustainable, and economies destabilized. Surely, we should be able to make the global financial system work better. Financial capital should be steered to where it could do the most good, without having as a side effect that receiving countries from time to time have to go through severe financial crises. Such crises set them back years in terms of economic growth. The Eminent Persons Group on Global Financial Governance has been tasked with coming up with ideas of how to make the global financial system work better. More specifically, they propose changes to the way international financial institutions (IFIs) work and interact with one another in order for them to become better equipped to promote sustainable growth and financial stability and deal with global threats such as global warming and pandemic diseases. Their report Making the Global Financial System Work for All takes a systemic view and focusses on where changes could make the system as a whole work better. A key recommendation of the report is to refocus the operations of IFIs from financing investment with their own resources to using those

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resources to mobilize private capital. The investments needed to achieve sustainable and inclusive development in poor areas of the world are simply too substantial to be financed solely from official sources. The report suggests ways that the IFIs can become more effective in stimulating private investment by reducing and managing risk. It recommends, for example, the creation of new asset classes for private investors by pooling and diversifying risks across the development finance system. The report also emphasizes that risk-mitigating tools should be used to stimulate private investment in low-income countries not only in middle-income countries), which, which tends to be the case today. The report does not propose to revolutionize the global financial system. It rather suggests ways to tweak the system in new directions. This is a strength by making the

reportâ&#x20AC;&#x2122;s recommendations viable. But it is perhaps also a weakness by stopping short of proposing reforms that could fundamentally change the way global financial markets are being governed. To me it seems as if the chosen balance between viability and rather than radical change is roughly the appropriate one in the area of development finance. The proposals for how IFIs can cooperate better among themselves and with other development partners, for how they can mobilize private capital and focus on managing and reducing risks all seem doable. At the same time, they have the potential to truly improve the development impact. Personally, however, I would have wished for a somewhat more radical approach regarding reforms for global financial resilience. A recurrent problem is the disruption that international capital flows can lead to for open economies. One of the recommendations in the report is that the International Monetary Fundâ&#x20AC;&#x2122;s framework for policy guidance should enable countries to move towards open capital flows and at the same time manage financial stability. However, it is not at all clear how this could be done. Maybe open capital flows simply come at a relatively high price in terms of risks to the financial stability. How should then the benefits and costs of this openness be judged? There is ample evidence that foreign direct investment brings significant economic benefits, particularly by providing recipient countries with much needed technological knowledge and knowhow. But what are the benefits of

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The proposals for how IFIs can cooperate better among themselves and with other development partners, for how they can mobilize private capital and focus on managing and reducing risks all seem doable. At the same time, they have the potential to truly improve the development impact.

short-term flows of portfolio investment? This seems to be an especially pertinent question after the experiences during the global financial crisis, when markets that were considered highly liquid suddenly dried up, wreaking havoc on the system. Maybe short-term flows of portfolio investment need to be governed in a fundamentally different way than today. Here, I wish the Eminent Persons Group had provided more guidance by stating their own view on the issue. Still, my hope is that the recommendations in the Eminent Persons Groupâ&#x20AC;&#x2122;s report are met with broad support and that steps are taken to implement them. The stakeholders of the IFIs, which are mainly governments around the world, need to focus on what is in their common interest in spite of the fact that they also have many diverging interests. The report

The report suggests ways that the IFIs can become more effective in stimulating private investment by reducing and managing risk. It recommends, for example, the creation of new asset classes for private investors by pooling and diversifying risks across the development finance system.

can help them do that. Other parts of society, such as the business community and NGOs, need to put pressure on the stakeholders to take action. We deserve a better functioning global financial system and it is high time to do something about it. â&#x2014;&#x2020;

Karolina Ekholm served as state secretary at the Swedish Ministry of Finance between October 2014 and January 2019. She was Deputy Governor of Sveriges Riksbank between March 2009 and October 2014. During this time she was on leave from a position as professor at the Department of Economics, Stockholm University. She was a member of the Swedish Fiscal Policy Council from its inception in August 2007 until she was appointed Deputy Governor in 2009. Her research has primarily dealt with international trade and investment. She has published academic papers in the Journal of International Economics, Journal of the European Economic Association, European Economic Review and Economic Journal.

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GLOBAL POLICY LAB LSE

Piloting the Country Platform Erik Berglof Professor, Director, Institute of Global Affairs, London School of Economics and Political Science

R. Kyle Peters, Jr. Coordinator of the 15th Replenishment of the African Development Fund at the African Development bank Country platforms have become the first proposal to be taken forward from the report from the G20 Eminent Persons Group on Global Financial Governance (EPG). The idea applies to the EPG’s systemic approach to coordination of the global financial system to an individual country. A full-scale implementation of country platforms would be a game changer for global development, but the proposal must not be rushed through – they must emerge from within countries. Development initiatives that are not country owned and country driven almost always fail. What did the EPG have in mind? The key idea is a systemic approach the system working as a system - is needed to meet the more complex and intertwined development challenges. This can only be achieved through three important changes in the way the development community operates: 1) a more coordinated and collaborative approach among development agencies, 2) crowding in the ideas and financial capacities of the private sector, and 3) placing the country (its policies, capacities, and development needs) at the center. Only the G20 has the convening power and authority to drive these changes. Why country platforms? Platforms offer an approach that retain country leadership, enable synchronisation across ministries and agencies, encourage healthy competition among development partners and preserve the Government’s flexibility to choose specific partners for specific programs and projects. They would allow coordinated policy reforms and transparency, guaranteeing uniform access and sharing of relevant information. They need not become a

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“straight jacket on either the Government or development partners”. What are the core elements of a platform? Platforms should be inclusive of the main elements of a country’s development plans. Countries should organize and convene. A multilateral could support implementation, a role calibrated to Government demand and capacity. Platform participants should prepare joint assessments, policy reform agendas and investment plans. They

must operate according to five or six ‘globally agreed’ core principles with associated uniform processes that ensure a convergence to high standards, prevent a ‘race to the bottom’ form of competition, and aim at simplifying and ensuring uniformity to facilitate the involvement of multiple players. Finally, the platforms should aim towards integrated project preparation support and common templates and documentation. What is different? While there are many existing ‘country platforms’, the EPG’s concept differs in scale, scope, and involvement. Rwanda, for example, has developed a well-functioning donor coordination mechanism encompassing many of the key attributes of an effective country platform, but is primarily a donor coordination exercise. The National Reform Council in Ukraine, on the other hand, grew out of a need to coordinate across ministries and between the Presidency, the Governments and Parliament, and then became a coordinating device for donor-supported policy advice. But none have combined transparency, convergence to appropriately high standards, coordination to flexibly combine the IFIs’ contributions according to their comparative strengths, and the standardised approaches needed to achieve a major step-up in development impact and to attract private sector investment. How to start? The G20 has decided to support several pilot exercises. This is a good idea. A pilot, however, must start in a willing country and allow for a discovery process through which the Government defines their challenges are (Myanmar is different from Mexico).

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While we should embrace diversity, acknowledging that countries have different capacity, it is important to keep the systemic approach. At the same time, we must not overload the exercise, repeating the overbearing bureaucratic processes of Paris-AccraBusan. New communication technologies and different context can make coordination easier and less burdensome. We would suggest three ‘principles’ for the pilot. First, borrowing from regulatory policy, we suggest in each of the pilots to employ the principle of

‘comply or explain’ – when a country deviates from a standard template, it should be forced to explain the reasons. Second, official donor support for the platform should take the issue of implementation capacity seriously. Donors, especially the MDB’s, should really commit to engaging in implementation support. Finally, ensure that the platforms include the private sector and facilitate their involvement, while recognising that some discussions are more properly held with just the official sector in the room. ◆

Erik Berglof is the inaugural Director of the Institute of Global Affairs (IGA) and its newly launched Global Policy Lab at the London School of Economics and Political Science (LSE). He was a member of the Secretariat for the G20 Eminent Persons Group on Global Financial Governance. He is also a member of the World Economic Forum Global Futures Council on the Financial and Monetary Systems, Non-Resident Fellow at the Brookings Institution and the Institute for New Economic Thinking in New York, Research Fellow of the Centre for Economic Policy Research (CEPR) and Senior Fellow of the European Council for Foreign Affairs (ECFR). Prior to joining the LSE, Professor Berglof was the Chief Economist and Special Adviser to the President of the European Bank for Reconstruction and Development (EBRD) and Director of the Stockholm Institute of Transition Economics (SITE) and Professor at the Stockholm School of Economics. He was Assistant Professor at Universite Libre de Bruxelles and has held visiting positions at Harvard, Stanford and Massachusetts Institute of Technology (MIT). He has also served as Special Adviser to the Prime Minister of Sweden. In 2013 he was awarded the Leontief Medal (2013), for contributions to economic reform by the Leontief Centre, St Petersburg and honoured with “Flag flown over the Capitol” at the request of Senator Mark Warner and the US Treasury, in recognition of his contributions during the financial crisis.

R. Kyle Peters, Jr. was a Member of the Secretariat, G20 Eminent Persons Group on Global Financial Governance. Currently, he is the Coordinator of the 15th Replenishment of the African Development Fund at the African Development bank. He is also a Senior Advisor to BCG in its public sector and people and organizations practices and a senior advisor to the President of the International Fund for Agricultural Development (IFAD. He also served on the UN Reference Group—a sounding board of experts--formed by the UN Secretary General to guide the UNSG’s reform program. Previously, Kyle had three decades of experience at the World Bank. In his last position as Senior Vice President, Operations, and interim Managing Director and COO, Kyle led the World Bank’s worldwide operations. In previous roles at the World Bank, he played a key role in the World Bank’s financial and operational response to the 2008 financial crisis and was actively engaged in the 2010 IBRD capital increase, as well as the early engagements on the proposed 2018 IBRD capital increase. Over the course of his career, he has accumulated more than two decades of experience on economic and development issues, with exposure to all regions, especially East Asia and Eastern Europe. He has a BA degree from the College of William and Mary, and a Masters in economics from SUNY-Buffalo.

Platforms should be inclusive of the main elements of a country’s development plans. Countries should organize and convene. A multilateral could support implementation, a role calibrated to Government demand and capacity.

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G L O B A L B R I E F I N G R E P O RT GLOBAL ECONOMY F E AT U R E

High levels of debt, the rapid credit expansion in China, the excessive risks in financial market, and inequalities among countries pose new threats to the prosperous development of the global economy warns the IMF chief. By Rong Qin

Speaking

at the elite annual World Economic Forum meeting in January, IMF’s Managing Director Christine Lagarde warned that global economic growth is on the decline. What’s causing the IMF to cut its global growth forecast from 3.7 to 3.5 percent? Accelerating economic risks, says Lagarde, including the U.S.-China trade war, Brexit, and China’s slowing economy. Lagarde has always been acute and prospective, which can be reflected by her profile. As a lawyer specializing in anti-trust and labor in Paris, Lagarde chaired international legal powerhouse Baker & Mckenzie in 1999. After G20G7.COM

serving several ministerial positions in French government, she became the first female Financial Minister of a G7 (then a G8) country and then the first chairwoman of the IMF in 2011. During the Euro crisis, she strongly supported austerity on Greece in exchange for a rescue package. Knowing how Lagarde’s economic views are shaped, it is less surprising that she started warning about threats to the global economy since 2017, when most of the world was experiencing a strong development phase—the strongest since the financial crisis in 2008. At the time, Lagarde had already identified high levels of debt, the rapid credit expansion

in China, the excessive risks in financial market, and inequalities among countries as potential threats to the prosperous development of the global economy. After President Trump threatened to impose additional tariff on $267 billion in Chinese goods in 2018, Lagarde was alarmed that a global economic slowdown would be triggered by rising protectionism and the increasing levels of debt. And in January 2019, Lagarde launched a report about the world economic outlook in Davos, announcing that the IMF lowered its global economic growth forecast for 2019, reiterating the concerns at the World Government Summit in Dubai a month later. In both the IMF report and an interview on CNBC, Lagarde warned that the following major rising risks would further undermine the global economy: trade tensions and barriers, the slowdown of China’s economy, the spillover effect of Brexit, and overall financial tightening.

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Trade Tensions and Barriers The trade war between the United States and China will have a global impact. First, rising tariffs will directly lower trade volumes and negatively affect multinational companies located in the United States and China. After the two world largest economies tariffs on each other, the trade between them and the world trade greatly declined. IMF estimates that the world trade volume will reduce to 4% in 2019, which is 0.1% lower from the estimation in October and 1.3% lower from the 2017 volume. Additionally, in a survey conducted by AmCham Shanghai last September, 60% of the 432 American respondents believed that the tariffs would hurt their companies in China. They ranked the “loss of profits” (50.8%), the “higher production costs” (47.1%), and the “decreased demand for products” (41.8) as the top three worries. Some companies, such as GoPro Inc., announced their intention

to move its manufacturing factories out of China in December. Second, people’s estimation about trade risks has changed dramatically in the last six months, which poses a huge threat to the global economy. People’s confidence in economic liberalism has been shaken greatly. After one country embraces protectionism by building trade barriers, the security dilemma will seduce other countries to adopt “beggar-thy-neighbor” policies. The increasing uncertainty will reduce people’s confidence in trade and thus decrease global investment. In the 22nd Annual Global CEO Survey conducted by PricewaterhouseCoopers, nearly 30% of CEOs predicted a global economy decline, compared with a 5% last year. →

China’s slowdown will greatly influence the global market. China has the world’s largest market for automobiles and technology products, and it accounts for a quarter of the growth in global oil demand. TOKYO_JAPAN

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→ The Slowdown of

the Chinese Economy What matters is not only the global impact of China’s slowdown, but also what China will do to save its own economy. To support its economic expansion in the last two decades, China has relied on high levels of credit to stimulate internal demand, on its large export market by subsidizing its state-owned enterprises, and on its cheap labor force to attract manufacturing factories. However, after the trade war eroded people’s confidence in China’s economy, these factors became less effective in stimulating China’s economy. China’s internal spending will decrease as people lose confidence about their future income. The increasing production costs in China will force manufacturing industries to relocate their factories to other ASEAN countries, leading to a shortage of jobs for Chinese workers. Additionally, the already high levels of debts from both business and government, will make the lenders nervous about default risks. As a result, after China reported its lowest growth rate since 1990—6.6%, the IMF expected that China’s growth rate would deaccelerate this year to 6.2%. China’s slowdown will greatly influence the global market. China has the world’s largest market for automobiles and technology products, and it accounts for a quarter of the growth in global oil demand. A shrinking demand after the economic slowdown has already worried foreign companies for their lost revenues in China, such as Germany’s auto industry. China is a huge exporter and financial center; saving China’s economy matters greatly to the rest of the world. A report from the Council on Foreign Relations points out that, although China has not considered to depreciate its currency to gain more advantage on exports yet, it can improve China’s exports greatly and drive workers in other countries jobless if it does. On the other hand, if China continues to build up its debts to boost domestic spending, foreign lenders’ confidence will be further eroded and a capital flight from Asia is expected. G20G7.COM

The spilled effects of Brexit Uncertainty rises as London no longer functions as the European financial center and globalization will be further weakened. Brexit has created massive uncertainty, which will hurt the UK economy. Since global banks and institutions have used London to connect to the EU, after Brexit London stands to lose a huge amount of economic activity. According to Brussels-based economic think tank bruegel, London will lose 10,000 banking jobs and 20,000 roles in

financial services, with $2.1 trillion of assets potentially being moved out of the UK due to the Brexit. During an interview, Lagarde predicted that even the mildest scenario would add difficulties to the currency system, making transactions and transportation less smooth and inconvenient. Brexit negative outcomes will spill over to the EU and the rest of the world. A Forbes report predicts that, as some global companies plan to relocate their bases from London to other EU countries to maintain their transactions with the

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EU, the future financial center in Europe will be more diffused. Compared to the business in a concentrated financial center such as London, the new dispersed economic activities in the EU will be less efficient, less productive, and less predictable. For example, UK companies have no idea how they would trade with Europe in the future. Such uncertainty will reduce the economic activity in the EU, and will hurt the global economy due to the interconnectedness. Additionally, Brexit is a strong signal in support

of protectionism, which means people’s confidence in globalization will be further weakened.

Financial Tightening Growing debts in both private and public sectors increase the financial instability. The Federal Fund Rate has steadily increased from 0.1% in 2014 to 2.4% this January. Functioning not only as the borrowing rate between banks, the Fed fund rate also forms the basis for the banks to lend to the private sector. While an expansionary monetary policy will decrease the Fed fund rate to encourage more economic activity, the current rising interest rate indicates an opposite intention. The piling-up of debt makes people more vulnerable under a rising interest rate. As the global debt ballooned from $84 trillion in 2000, to $173 trillion during the 2008 financial crisis, and to $250 trillion in 2018, the rapidly increasing debt makes everyone nervous. To cool down the economy, the U.S. government chose the financial tightening—raising the interest rate, selling securities, reducing the monetary supply, and thus raising the value of dollars. However, it is more difficult for emerging economies to repay their debts, not only because they need to repay in the more expensive dollar but also because the rising interest rate increases the debt. However, to be fair, all the risks above do not indicate an inevitable global recession but rather “the risk of a decline in global growth has certainly increased,” as stated by Lagarde. Lagarde believes there is still policy room to prepare for future uncertainties, by making domestic economies more resilient and inclusive and by increasing international collaboration. First, economies should strive to become more resilient. Since the market changes dramatically every day with increased volatility, future monetary policies should depend closely on data, and the exchange rate should respond quickly to shocks. Second, countries should strive to be more inclusive and become ready for the digital revolution. The digital revolution is greatly changing our society, especially in the ways of

“Beggarthyneighbor” policies harm the common good and only effective international cooperation is able to solve the shared problems economies are facing.

employment, productivity, and education, which will hurt the current workforce. National policies must strive to decrease the potential harm to people by helping workers replaced by automation to reskill and by creating opportunities for women and young people. Third, all economies should strive to increase collaboration. “Beggar-thyneighbor” policies harm the common good and only effective international cooperation is able to solve the shared problems economies are facing. We are in a significant moment in history, facing more uncertainties and risks than ever. And if we are to learn from the past history suggests that this is our chance to create some unexpected development by establishing a new multilateral pact for everyone. ◆ About the author RONG QIN is a contributor with Diplomatic Courier in Washington, DC. TOKYO_JAPAN

G L O B A L B R I E F I N G R E P O RT G L O B A L I Z AT I O N 4 . 0 F E AT U R E

Davos Was All About Globali Characterized by the major global changes brought on by technologies such as artificial intelligence, robotics and the Internet of Things combined with a rapidly fluctuating global economy, social inequality and political tensions both at the international level and between political leaders and citizens, Globalization 4.0 gives a lot of promise to the idea of a newly transformed world free of inequality and poverty. By Winona Roylance

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G L O B A L B R I E F I N G R E P O RT G L O B A L I Z AT I O N 4 . 0

zation 4.0 So What Does It Mean?

With digital

technologies continuously disrupting business, government, academia and society both on a national and massively global scale, the advent of Globalization 4.0—a term coined by this year’s World Economic Forum to signal the coming shift in globalized structures—may be upon us. Characterized by the major global changes brought on by technologies such as artificial intelligence, robotics and the Internet of Things combined with a rapidly fluctuating global economy, social inequality and political tensions both at the international level and between political leaders and citizens, Globalization 4.0 gives a lot of promise to the idea of a newly transformed world free of inequality and poverty— but first, several major obstacles, often fueled by the same hectic energy that drives the progress of these digital technologies, must be overcome; not only in order to begin working towards a more positive future, but more importantly to prevent the destabilization of the world as we know it. First, the Fourth Industrial Revolution and its digital technologies have not only transformed virtually every industry across the board, but has done so on a global scale the likes of which has never before been seen. In fact, it is the massive scope, systemwide impact and increasing velocity of the Fourth Industrial Revolution that makes it so impactful—and potentially catastrophic. While technologies such as artificial intelligence and robotics have brought unprecedented advancements in nearly every industry, this same technology is also threatening to displace billions of workers in the very near future, and the question remains as to what kind of legislation— if any at all—should be put into place to prepare for this displacement of people and wealth that would undoubtedly upheave our current global social and economic structure. At the same time, as we are attempting to grab a hold of the increasingly disruptive nature of the Fourth Industrial Revolution, rising rates in inequality also threaten the progress we’ve made in terms of equal distribution of wealth in the past few decades. With reports showing one percent of the world’s richest → TOKYO_JAPAN

G L O B A L B R I E F I N G R E P O RT G L O B A L I Z AT I O N 4 . 0

→ bringing in eighty-two percent of all wealth last year, this inequality in distribution of wealth will undoubtedly increase to socially catastrophic levels if no solutions are found soon. The problem isn’t only that the wealthy are becoming wealthier—studies show that extreme poverty, such as in sub-Saharan Africa, has also been increasing, and with other areas demonstrating similar trends, the Sustainable Development Goal of ending poverty before 2030 appears to be farther away than ever. It is absolutely imperative that governments begin working more closely together to rewrite our current global structures of finance, trade, wages and taxation on an international level. However, with nations recently beginning to turn a resentful eye towards the global structures that have fueled many of today’s problems, several countries have begun adopting a reactionary approach to globalization by taking a more protectionist approach in international matters and electing nationalist leaders. This is, of course, extremely concerning for a number of reasons, most of which have to do with the fact that future projections reveal the world will continue to trend towards more globalized structures as technologies such as the internet and artificial intelligence continue to permeate every industry. It is crucial that cooperation both across nations and between national leaders and their citizens be increased rather than ignored in these times of global uncertainty, and that political good will is kept a priority moving forward. Indeed, the World Economic Forum’s Global Risks Report reveals that the three biggest global risks likely to happen in 2019—extreme weather events, failure of climate-change mitigation and adaptation, and major natural disasters—are not risks brought on by globalization at all, but rather matters that will require international effort to ensure the safety of everyone affected. Similarly, in terms of business, the Allianz 2019 Risk Barometer indicates that the biggest threat to businesses is interruptions caused by issues such as tariffs and trade disputes, as well as recent changes in legislation and regulation such as Great Britain’s exit from the European G20G7.COM

It is crucial that cooperation both across nations and between national leaders and their citizens be increased rather than ignored in these times of global uncertainty, and that political good will is kept a priority moving forward.

Union. With a looming global recession projected to occur in 2020 or even as early as late 2019, it is imperative that world leaders continue to work towards cooperation in times of international crises, and that the international business landscape continue to work towards globalization—not against it.

However, while trade may be shifting towards a more closed model, the goods and services that are being traded are seeing a radical change. In fact, a recent report from the McKinsey Global Institute indicates that while it is true that trade is becoming concentrated within regions and that a smaller share of goods is being traded across borders, that which is being traded is changing drastically, with the services trade growing sixty percent faster than the goods trade in the last year. With services such as telecom, IT, business services and intellectual property charges as the most popular services being traded in recent years, this technology-oriented shift in services demonstrates that while physical trade borders may be closable, the more intangible services—many of which do not require the user to be in the same physical location as the service itself—cannot be contained to a single location, and must therefore be regulated from a more globalized perspective. Ultimately, we are in a time of unprecedented change, which is not going to slow down. With the Fourth Industrial Revolution coinciding with increasing political tensions, a changing economic landscape and social unrest, many of today’s problems may appear to be caused by our rapidly globalizing world. However, it can also be said that most of today’s greatest achievements—be it in technology, medicine, political movements, social change or increased environmental awareness—are also due to the cooperation between nations and institutions that only globalization could bring about. As we enter the world of Globalization 4.0 it is important to understand how cooperation and solidarity—not isolationism—will be essential to the future success of mankind, and that in order to accomplish this, we will need to tear down traditional structures and redesign nearly all processes and institutions from the ground up. If done successfully, we may very well enter a new era of peace and prosperity. ◆

About the author WINONA ROYLANCE is a Senior Editor and Contributor to Diplomatic Courier magazine in Washington, DC.

G L O B A L B R I E F I N G R E P O RT LIVEYON B R A N D E D S T O RY LEAD FEATURE

Towards Greater Expectations Transforming Medicine. Transforming Lives. Transforming the World with Liveyon.

he founder of Liveyon, John W. Kosolchareon can probably pinpoint to the actual moment he became passionate and determined to be involved in delving more into regenerative medicine. When Liveyon first opened its doors in 2016, John with his world class team of scientists have immersed themselves in finding avenues of self-healing of the human body through regenerative medicine. The potential scope of therapies using regenerative medicine isn’t really that surprising. Scientists have been researching and experimenting on this subject for decades now. The nature of the treatment is no doubt attractive to anyone who is looking to enhance their quality of life, particularly having suffered from continued pain from degenerative diseases, sports injuries or osteoarthritis. The form of treatment is fairly easy and painless with minimal downtime.

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Thus, it is natural that anyone would want to try a therapy that provides a new age treatment along with concentrating on patient convenience. For those not so proficient in the knowledge of regenerative medicine, the concept of this new age science is built on the foundation of the human body’s individual capability to make things healthy for itself. To many, this form of treatment is also referred to as stem cell therapy. As Dr. Ernesto Gutierrez, Chief Operating Officer at Liveyon says, “There’s enough research in the field of regenerative medicine and stem cell therapy to establish that human bodies have the ability to self-heal. Everything depends on how well the healing process may be controlled through optimal conditions for the body to proceed towards this self-healing.”

The Building Blocks of Life Stem cells are the building blocks of our blood and immune system. These stem cells have the potential to multiply into different categories of cells in order to restore damaged areas in the associated tissues and organs. Stem cells are found in numerous parts of the human body like bone marrow, blood, embryos, muscle, hair follicles, foetal tissue, baby teeth and fat. But not all stem cells can be used in clinical procedures. Studies have shown that umbilical cord blood is the richest source of stem cells that can be effectively used in therapeutic applications. Upon obtaining maternal informed consent, the cord blood is collected right after child birth. The umbilical cord is clamped and cut and then the cord blood is collected via venepuncture into a sterile cord blood collection bag. Post collection, the cord blood is transferred to Liveyon’s cGMP, ISO-certified laboratory for processing. Stem cells are concentrated and extracted from the cord blood using validated proprietary methods and are then cryopreserved in a manner so that they remain intact and viable for years without undergoing any decay or aging.

Regenerative Medicine is the New Ray of Hope You may be questioning if there are any benefits of stem cell therapy and organic regeneration at all? Bringing in a new ray of hope, stem cell therapy may be able to: ◆ detoxify our organs and blood system and improve cellular activities ◆ tone our muscles and improve the strength of our osseous system. Research studies have shown various muscle-related diseases and conditions may be treated with stem cells. ◆ repair our body tissues and give birth to a new self. Liveyon is able to offer you a product that has been derived from umbilical cord blood that contains the most valuable source of stem cells. These cells are best for tissue repair, immune system modulation and reduction in inflammation. “These cells are hard and fast workers,” says John W. Kosolchareon, Founder and Chief Executive Officer of Liveyon. Next Gen Therapy It is important to commercialize the use of stem cells for rapid development of biomedical research and improve public health through awareness. There are some important reasons why the commercialization of this gen next therapy is a necessary step that carries sustainable impact for future generations. ◆ Commercialization supports the development of innovative technologies and academic property for specific stem cell research, amplifying their significance in the therapeutic market. ◆ It directs at arousing economic progression as well as enriching public health. ◆ It promotes for grants or funds to be employed in clinical research to create more commercially viable services and products in the market. ◆ It is undeniably important for the translation of public knowledge.

FDA commissioner, Scott Gottlieb MD, stated: “We support sound, scientific research and regulation of cell-based regenerative medicine, and the FDA has advanced a comprehensive policy framework to promote the approval of regenerative medicine products.1” The New England Journal of Medicine has recently published a special report by Gottlieb, co-authored by Peter Marks, MD, PhD, Director of the FDA’s Center for Biologics Evaluation and Research, that defined definite strategies to encourage and aid in the development of stem cell therapies and other regenerative medicine products that have been proven to be safe and effective. In the report, the author wrote, “An increasing number of safe and effective therapies are becoming available on the basis of the findings of well-designed clinical trials. It is critical to focus on efforts to facilitate the development of such therapies, rather than propagating products with dubious clinical efficacy and possible risks.2” A substantial part of the medical community too is now open to adapting to this gen next stem cell therapy due to its rising demand amongst patients. And due to its numerous medical benefits, medical companies and research institutes want to bring its clinical applications from the bench to the bedside. A Better Life with Better Science An experienced team of researchers and scientists at Liveyon, through a number of trials, have been able to establish that improvement in the quality of life is possible with regenerative medicine. While there are other routes of treatments available in the field of regenerative medicine, Liveyon provides therapies that are a notch above other players in the market. The process of treatment is noninvasive and is performed with the help of a simple, non-surgical injection that is administered into the affected joint area. As soon as the umbilical cord blood stem cells are injected in to the patient’s body, it acts as a catalyst to jumpstart the process of balancing the chemical environment instantly

Liveyon is able to offer you a product that has been derived from umbilical cord blood that contains the most valuable source of stem cells. through a series of reactions. Acting as a stimulant, the appropriate growth factors and proteins initiate the nourishment and regeneration of cells. Patients typically see positive outcomes between 10 and 12 weeks. Eventually the patients will be able to increase their quotient of activity levels further to match their physical capabilities. As Dr. Gutierrez states, “Before beginning treatment, we emphasize the importance of educating patients on the advantages of regenerative medicine as well as its limitations. While every patient is different, most experience a significant reduction in pain that will allow them to be active once again.” A pioneer in the space of regenerative medicine, Liveyon has taken its flagship product and incorporated advancements in stem cell technology to make the self-healing process of the body – superior, effective, unfailing, cleaner and pure! With an array of new stem cell products, at the heart of it is “The Pure Series”, a product that has been developed in Liveyon’s cGMP laboratory over the last two years which aims to bring the ‘Pure Feeling of Healing’ within everybody’s reach. With a long-term vision in place, Liveyon’s goal is to work towards establishing stem cell therapy not just as an alternative form of medical treatment but as a medically accepted, FDA approved offering which can be availed by every individual. With Liveyon’s Pure Series®, it is going to bring about that much needed evolution in science and set the ball rolling in the right direction. ◆

1. Distinguishing ‘Stem Cell Hype’ From Hope in Knee Osteoarthritis - Healio Rheumatology, July 2018 2. Distinguishing ‘Stem Cell Hype’ From Hope in Knee Osteoarthritis - Healio Rheumatology, July 2018

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Europe and China’s New Diplomat The EU’s announced intention to ban Huawei 5G technology is symptomatic of the winds of change blowing through Europe, and its bad news for China. By Frank Maxwell

The EU’s

announced intention to ban Huawei 5G technology is symptomatic of the winds of change blowing through Europe, and its bad news for China. Beijing is no longer welcomed with open arms as it used to be. Indeed, countries like Italy have taken concrete steps to ban the Chinese company from bidding in Rome’s planned 5G roll-out, prompting instant threats of retaliation in trade and upending joint research projects. But rather than complaining and threatening its international trading partners—the EU is Beijing’s biggest— Chinese policy-makers may want to take a step back and try to understand why it is met with increasing dissatisfaction. Europe’s pullback follows hot on the heels of Washington’s own moves to curb the influence of the Middle Kingdom and its firms, even urging Europeans to “link arms” against the far eastern threat. But tech is not the only sector where skepticism on both sides of the Atlantic about China has been growing. The country’s heavy industries and its overcapacities in steel and aluminum have been criticized

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ic and Economic Collision Course by both Washington and Brussels for years, leading the U.S. to impose sanctions on Chinese steel and aluminum imports in March last year. For the U.S. and the EU, Beijing’s use of market distorting policies to prop up its domestic industries has been a painful thorn on the side, as has been the lip service of Chinese officials to ending the resultant excessive capacities. For steel, organizations like Greenpeace criticized in 2017 that China’s capacity cuts look impressive on paper, but belie the fact that 36.5 million tons were added in 2016 alone. Beijing stepped up its efforts in late 2017, which resulted in a mild reduction in steel production. However, the same cannot be said for aluminum. China is the largest aluminum producer in the world and the glut is not likely to end any time soon. In 2016, China’s leaders vowed to curb the massive aluminum overproduction flooding global markets and threatening jobs in the U.S. and Europe. Yet, Chinese producers have instead worked towards expanding their capacities, helped by the billions they receive in the form of subsidies and state aid. This cost advantage has spurned resentment and has resulted in growing anti-Chinese attitudes in many quarters. So egregious is the situation that a coalition of international aluminum trade groups called for a global forum in the run up to the Hamburg G20 Summit in 2017, compelling Beijing to make good on its word to stop the metal surplus. →

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→ Two years later, not much has been done on Beijing’s part. Instead, Chinese exports of value added aluminum products (semi-fabricated) surged to new heights in 2018, as did total exports of primary aluminum and alloys, which jumped by 21 percent compared to 2017. The impact on the European and American aluminum industries has been severe. The rising production and exports are keeping global aluminum prices dangerously low—so low in fact, that 30 to 40 percent of smelters worldwide are booking losses. Just last year, two smelters in Spain were forced to close due to their inability to compete with cheaper Chinese products. The reason behind the continued failure of the Chinese government to get its aluminum sector under control relates to the Communist Party’s fear of domestic instability and the need to provide for economic growth. Unfortunately, in 2018 Chinese

domestic demand for the metal faced a slowdown and domestic smelters have sought to offload their excess product overseas. As it happened, the American sanctions on Russian aluminum producer Rusal presented a golden opportunity to do so at a time when European buyers shied away from the company, and Chinese producers gladly rushed in to pick up the slack. This was good for Beijing, because it provided policy-planners with an excuse to be lenient about production. But it also highlights the inherent contradictions in China’s “supply-side structural reform (SSSR)” drive that supposedly underpins the attempts to curb overcapacities. On one hand, China has earnestly sought to shut down uneconomical and outdated factories, though mostly in the private rather than in the SOE sector, which is at the core of the overcapacity problem. On the other hand, that capacity-scuttling campaign was offset immediately

Between blocking Huawei and changing political focus across the EU—reflected in German Chancellor Merkel’s highly symbolic visit to Japan—it does seem like Europe is about to end its “naivety” regarding China.

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by another large stimulus package to patch up the economic damages wrought by the trade war with the U.S., thereby significantly undermining the campaign’s impact. Hence, the shutdowns were not deep enough to halt the decline in global material prices. Experts now anticipate that China will actually increase its production capacity in 2019 by 3 million tons. In the past, China was able to get away with not heeding its own promises due to its role as an indispensable trading partner for many countries. However, now that the economy is slowing down and China’s economic policy is leaving tangible negative impacts on the economies of its partners, the tide is slowly turning against Beijing. U.S. President Trump’s anti-China stance is well known. What is remarkable, however, is that European countries are beginning to de-emphasize the Middle Kingdom as a priority as well. Germany is the most notable country to rethink its approach with China. In an unprecedented move, the country’s largest industry association, the Federation of German Industries (BDI), published a policy paper in January that more explicitly than ever before singled out the Chinese statecontrolled economic system as a threat to Germany’s—and Europe’s—global competitiveness. Mentioning statesubsidized overcapacity, forced technology transfers, and lack of reciprocity, the BDI demands that Brussels and Berlin set up a modern, coherent long-term industrial policy to support the continent’s indigenous industrial base, or risk critically diminished competitiveness. Between blocking Huawei and changing political focus across the EU—reflected in German Chancellor Merkel’s highly symbolic visit to Japan—it does seem like Europe is about to end its “naivety” regarding China. Such dramatic rethinking does not bode well for Beijing, where President Xi would be well advised to carefully consider the meaning of these changing tides, learn the lessons, and adapt its industrial policies. Otherwise, though China is an undisputable global power, it risks being a highly unpopular one. ◆

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Key Takeaways from the 2019 Global Talent Summit By Hannah Bergstrom

hange is constant and everything inconvenient will change,” declared Chris Luebkeman, Global Director of Arup Foresight at last year’s Global Talent Summit. How we prepare for that change will hinge in whether we are asking the right questions. We ended last year’s summit with more questions than answers. Now in its sixth year, GTS set out to convene cross-sector educators, experts, and public officials from around the world to answer the tough questions about the future of education. This year’s theme sought to answer where will we be in 30 years, and how can we prepare younger generations for the future? Here are the key takeaways.

The future workforce needs purpose For Generation Z, figuring out the motivations of top talent will be key in recruiting and retaining them. Global Entrepreneurial Leaders Institute (GELI) founder Annabella Peng drew attention to unique research GELI had conducted, which has found that Gen Z is dedicated to serious social causes, not mere fame or money. The employer on the panel agreed: any corporation that wants to retain top talent from this generation must invest in not only training, but in empowering employees to find meaning in their careers, said adidas Digital IT VP Sebastian Drews. Empowering employees to find a greater sense of purpose is essential to recruiting and retaining top talent from this coming-of-age generation.

Education has never been more expensive or more worthless Globally, more is being invested in education than ever before, and yet G20G7.COM

we’re seeing less and less results. Education is ripe for disruption, and yet it hasn’t happened because key stakeholders haven’t had a source of quality, consistent educational data. But tools that use data to help fuel feedback on human capital investment exist and will help lead the charge. New technologies such as AI and blockchain will be key in this effort.

Data will change the face of education Data can help us organize, quantify, and discern the quality of education. According to Learning Economy CEO Chris Purifoy, Learning Economy will provide real-time feedback on investment in education, in a way that will influence important decisions in policy. Data will become fuel for changing the global economy, and can create a commodity based on this fuel.

Education is the new gold standard Traditionally, education has been the domain of philanthropy. But Oceanic Partners CEO Tim Sullivan believes it’s time for investors to get in and see the returns they desire. What then, can make investment in education profitable and purposeful? Data is the new oil, and educational data can power growth in educational innovation. Quality educational data will become a real opportunity for investment in education to provide a serious return, which could change the face of human capital investment. Just like a trillion-dollar economy is backed on the inherent value of gold, it may be possible to back an economy on the inherent value education and see massive economic growth.

The need for reskilling may perpetuate inequality According to Angelika Reich, partner at McKinsey & Company, as much as 14 percent of the global workforce will change industries in the next ten years. With the rise of automation, newer jobs will require more intensive training, leaving behind many of those who don’t have access to training. Automation will not eliminate jobs entirely; instead, more jobs that require emotional intelligence and soft skills will rise.

New technologies impact different economies in different ways The impacts of technological development vary from country to country. As highlighted by Tomasz Klekowski from IT Competence Council of the Polish Information

Data can help us organize, quantify, and discern the quality of education. According to Learning Economy CEO Chris Purifoy, Learning Economy will provide real-time feedback on investment in education, in a way that will influence important decisions in policy. Society, central and eastern European countries were on the receiving end of the benefits of tech development. The internet allowed global companies to move into these spaces and thrive. It’s not without downsides, however. The rise of automation puts jobs in Slovakia at a 62 percent chance for automation. Jobs in countries like New Zealand, however, only have a 32 percent chance.

The gender gap in STEM may give rise to biased AI One of the greatest challenges in diversity and inclusion in the workplace is the gender gap in STEM fields. With further developments in AI and automation technology, notes Robin Errico Chief Risk Officer and Diversity and Inclusion at EY, we’re further exacerbating the problem by potentially creating technology with implicit gender biases.

To solve the skills gap, we need to understand what skills are The modern workforce is young, with millennials being the largest group of current workers. Jacob Sherson, Founder and Director of ScienceAtHome poses a challenge: to bridge the skills gap inherent in this young workforce, we need to understand what we mean by skills. Even further, once we identify skills such as creativity or leadership, we need to ask: What is creativity? Understanding what humans can and can’t do is vital in closing the skills gap.

employers look for both hard and soft skills. And if candidates cannot display empathy, creativity, and the ability to contribute to a team, they will have a hard time finding employment. Integrating soft skills into a school curriculum starting from primary education can help mitigate this issue, which is exactly what Ji Han, Director of Curriculum and Learning at Zurich International School is working toward. Fostering soft skills, she believes students need to “learn how to learn”, which enables them to think one step ahead while approaching problems in and outside of the classroom.

Soft skills development is vital and should start from an early age Many students leave higher education, especially in STEM fields, with hard skills such as logic, problem-solving, and specialized certifications. However,

Talent is universal; opportunity is not Learning skills such as web design, coding, robotics, and engineeringbased projects are going to be a large part of school curriculums in order → TOKYO_JAPAN

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→ to prepare students to enter the modern workforce. While technology in the classroom will present incredible opportunities for certain students, it could contribute to the global skills gap—certain students will be left even further behind, and will be less prepared for the workforce. According to Manjula Dissanayake, Executive Director of Educate Lanka Foundation, “Talent is universal; opportunity is not”. Dissanayake aims to bridge access to technology and opportunity to students in Sri Lanka by involving the private sector as stakeholders in education. Encouraging collaboration between the private and education sectors could be one solution to ensure students in certain communities, cities, and countries, have better access to opportunities.

of Degreed, businesses will be able to better adapt to changes in the workforce by taking an audit of skills their employees already have, and by better understanding what skills their employees are willing to learn. Understanding people’s motivations for learning, and preparing for workplace changes now will help employers stay afloat during a time of rapid changes.

Employers must foster a growth-focused environment to retain talent Danny Laker, Lead for Innovation, AI, and Blockchain Business at Accenture, expressed the need for employers to foster an environment of learning for the people they hire by investing in the person rather than just the skillset. Most people desire to learn and grow beyond their job description instead of staying stagnant in their career. When employers support their employees’ individual passions and interests, it will encourage an environment of growth, collaboration, and constant learning in the workplace.

Video games and learning can work better together Game-based learning will be one of the key changes in the way students are educated in the 21st century. Robert Sumner, Professor at ETH Zurich and Associate Director of Disney Research and Janet Rafner, Director of ScienceAtHome at Aarhus University, both believe in the power of game-based learning to enhance logical and problem-solving skills. Gamification allows students of all ages to learn both hard skills and soft skills in a way that is fun, engaging, and accessible. Sumner pointed to the increasing need for students to be involved in computer science from a young age, as skills learned in this discipline will span a variety of fields such as medicine and architecture. Additionally, Rafner explained that game-based learning could be a way for typically underrepresented populations to become involved in computer science, as it has the potential to be more accessible.

Learning happens beyond and outside of school The way that we learn, and our motivations for learning are shifting. Students and employees are often learning skills outside of their school or place of work—through videos, apps, forums, and more. G20G7.COM

The workforce as we know it is currently and will continue to change dramatically. Employers will be faced with automating certain jobs, retraining for certain skills, and creating new positions altogether. Employees who do not adapt to changes and learn new skills will be left behind. According to Kelly Palmer, Chief Learning Officer

Blockchain and Artificial Intelligence will usher in a wave of changes in education, learning, and the workforce. Jacksón Smith, Chief Technology Officer of Learning Economy, spoke about the potential for these technologies to augment our lives and personalize the way we learn and work.

Blockchain and AI will help map the future of education Blockchain and Artificial Intelligence will usher in a wave of changes in education, learning, and the workforce. Jacksón Smith, Chief Technology Officer of Learning Economy, spoke about the potential for these technologies to augment our lives and personalize the way we learn and work. Technology is constantly being updated to best serve our needs. According to Smith, the invention of the computer provided us the ability to store information, and the internet allowed us to transfer information. Now, AI has the ability to process and organize information, and blockchain has the ability to transfer value. These abilities will augment our educations and jobs, allowing us to personalize the way we learn. ◆ The seventh edition of the Global Talent Summit will take place the first quarter of 2020. You can continue the conversation year-round by signing up for our forums and discussions at www.globaltalentsummit.org

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Coordinating the Future of Learning Key takeaways from the annual MIT Solve Challenge on how to solve some of the world’s greatest challenges in the transformation of work and the future of learning. By Jacksón Smith

Imagine

giving every teacher in the world a day back in their time—what would they do? Priya Lakhani, CEO of Century Tech and thirty-five year old mother, posed this question to a room filled shoulderto-shoulder in New York for the MIT Solve Challenge, a yearly collaboration to coordinate between the public, private, nonprofit, and academic sectors to reward creative and compelling initiatives for solving some of the world’s greatest challenges in sustainable development: looming climate change, equitable access to healthcare, the transformation of work, and the future of learning. I sat, notebook poised, imbibing the swirling energy of pioneers like Priya whose company uses AI and data mining to allow any educator in the world to learn the unique learning fingerprint of each of their students. Her software saves time by alleviating the administrative overhead of identifying which curriculum is engaging for which students— empowering teachers to quickly understand precisely where students are lagging and offer real-time supplementary lessons, which adapt to the learners so they never fall behind. “Teachers are an incredible workforce,” Priya told me, “Because they don’t spend that [extra] day going to the pub or going to the bar. They actually spend that time making better, timely targeted interventions for the children. And that has, as you can imagine, a huge impact on children’s outcomes.” Alongside Priya, 15 finalists from around the world pitched their ideas for positive disruption in education. Ultimately, judges narrowed this group of EdTech teams down to eight: including UK-based Century Tech; Nairobi-based Eneza Education, which connects schools and students to G20G7.COM

relevant, affordable courses over SMS; Brazilian-based Livox, which enables millions of non-verbal disabled people to communicate and learn; and Ghanabased Practical Education Network, which trains and supports West African teachers through hands-on science courses regardless of resource constraints. Winners unlocked access to $1 million in Solver funding—and a surprise $150,000 anonymous donation during the closing ceremony—to accelerate and grow their projects for maximum impact for more students and teachers around the globe. Each of their founders leveraged their entrepreneurial persistence to pierce the familiar air of status-quo cynicism and insist that everyone—no matter class, race, geography, or age—ought to have access to personal, creative, and world-class learning experiences. And technology, wielded like a surgeon’s scalpel, is bringing that world to reality. I side-barred with Sara Monteabaro, MIT’s Senior Learning Community Officer, to understand the toughest challenges facing education. According to her, there are four big bucket problems that emerge year after year: refugee education, preparing youth for the workforce of the future, female empowerment, and twenty-first century skills development. “This r,” she said. “We are looking at these issues from the perspective of teachers and educators.” To solve these problems, the convening cultivated a simple, yet profound ethos: crucial innovation comes from everywhere. “We know that there are innovators on the far corners of the Earth,” Sara’s passion gave life to her words. “It’s really our responsibility to tap into that ingenuity and talent. Open innovation extends beyond those

Absent coordinating devices like MIT Solve, the impact of these brilliant, worldchanging minds and their solutions are often limited, if not outright suffocated from lack of support. on the MIT campus who have an MIT ID card. We had a finalist who just pitched today—it was his first time ever leaving Uganda.” Absent coordinating devices like MIT Solve, the impact of these brilliant, world-changing minds and their solutions are often limited, if not outright suffocated from lack of support. “The Solve model” Sara explained, “uses open innovation to drive the

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exchange of knowledge between communities where these big global challenges are impacting people the most and then bring that knowledge back to the MIT campus, making sure that we’re providing the resources that only MIT has to offer to those innovators.” MIT Solve thus presents a compelling model for convening innovators and rewarding their impact on the problems that matter to all of us—so what’s next? “We have high hopes,” Sara’s eyes lit up. “We would love to see Solve have a presence on all six, if not seven, continents around the world, to continue our challenges year after year with input from our community, and to have an anchor at home for our Solver alums to stay connected with our partners, members, other alumni, and potential applicants.” As MIT Solve continues to coordinate around sustainable development, Sara raised an important challenge moving

forward: communication. “For me, what I always struggle with” she said, “is how do we bring this sort of new age thinking about problem solving and leveraging new age technology to areas around the world who are still using 18th century learning models and have no concept of blockchain, hey have no concept of AI, they have no concept of machine learning—how do we bring awareness, how do we build that capacity from a teacher level, how do we disseminate that to students?” It’s a difficult problem to solve—even if you’ve built a better mousetrap for teaching students, it’s not always easy to convince people to change their behavior. “Changing the world means getting everyone else to change too,” Priya said, contemplating the pace of technology. “And that’s challenging. But it’s crazy that one of the most important sectors of the world, education, doesn’t benefit from it.” Blockchain, in particular, did not

seem to make a presence at the competition. “We had a blockchain prize this year,” Sara said. “But none of our finalists were eligible for it because none of them incorporated blockchain. It was a little surprising to me because from where we stand at MIT, blockchain has changed everything.” Whether it’s a dearth of understanding, pre-regulation markets, or lack of standardization, one thing is clear: there is a gap between what MIT knows and what is translated to the innovators that are the prime candidates for the Solve network. Because of this, Sara urged the larger Solve community and its network partners to work with them in figuring out how to bridge the gap between these new, advanced technologies and to the innovators generating solutions. “Something’s not quite connecting,” she said. Despite difficulties in communicating blockchain, MIT Solve is committed to identifying, championing, and scaling the changemakers in society who are disrupting old models and leveraging new tools to really impact lives. Among other things, that means bolstering their support program for Solver teams, tracking their progress, and potentially building out new funds for them long-term. For Priya, that means she will be spending the next year working closely with the Solve community to scale her intelligent learning program. Our conversation finished on a powerful note. “We’re up for the challenge,” she said. “We’re game. Because it’s worth it—if you look at this system today and you’ve got kids, you know how important this is. Every parent writes to me and says, ‘I want that.’” If Priya’s software really can save teachers a day every week, that’s good for all of our children. Now, with further support from MIT Solve, she can save even more days for many more teachers—making the future of learning that much brighter. ◆

About the author JACKSON SMITH is the Chief Technology Officer and Co-Founder of the Learning Economy and a Senior Correspondent and Editor with the Diplomatic Courier. TOKYO_JAPAN

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Measuring National Economic Performance Through the Lens of Well-being For years now, we are seeing a global paradigm shift from a hardline focus on economic well-being to prioritizing economic policy frameworks and metrics focused on societal well-being. By Becky Graham

What is

the most important number of your lives? This question was posed to heads of state and the brightest minds in academia during a discussion titled More Than GDP at the 2019 World Economic Forum. Given the members of the group, one would expect them to tout an economic growth narrative—with statistics reporting GDP growth year over year. But this wasn’t the case. The responses were much more personal and varied between dates of historical significance to statistics on gender equality, and educational attainment, while others placed value on welfare and well-being. “GDP isn’t our driving force,” answered New Zealand Prime Minister Jacinda Ardern who was among the panelists. She explained that most world leaders, regardless of where they are on the political spectrum, can be distilled down into increasing the well-being of their people. She isn’t alone. For years now there has been a global paradigm shift from a hardline focus on economic wellbeing to prioritizing economic policy frameworks and metrics focused on G20G7.COM

societal well-being. What does this mean exactly? To explain this, let us first understand what GDP is and isn’t. What GDP is. The modern concept GDP is hailed as one of “the greatest inventions of the 20th century”. Developed post the Great Depression by prize winning economist Simon Kuznet, the Gross Domestic Product measures the monetary value of final goods and services—that is, those that are bought by the final consumer—produced in a country in a given period of time (for example, in a quarter of a year). Or to put it simply, GDP measures the size of the economy and how it’s performing. Now, what GDP isn’t. GPD isn’t a measure of welfare, or in this case temperature reading on societal wellbeing. In fact, GDP actually increases with rising inequality in healthcare and education, and reconciles environmental degradation as valuable. Worst of all, GDP is a direct beneficiary of world wars and political unrest. Today GPD isn’t the measurement by which citizens evaluate their country’s respective economic progress. According to a WEF Inclusive

Development Index, citizens consider economic progress as a multidimensional improvement in living standards, including increasing income, economic security, employment opportunities, and quality of life. Globalization has dethroned GDP, rendering it too narrow a measurement. Perhaps dethroned is too strong a word; however, globalization has granted citizens and world leaders unprecedented access to data and analytics. Armed with this information and likely a smart-phone, today citizens amplify their voice through digital platforms, demanding action that directly affects their families, wallets, and overall quality of life. Governments who choose to lead with GDP and turn a blind eye to the values and welfare of the commonwealth likely risk losing their citizens trust, and this will have national economic consequences of vast proportions. It’s time to reevaluate and to redesign global economic growth models. And quickly. According to the 2018 Global Trust Barometer published by PR powerhouse Edelman Communications, public confidence in institutions such

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Governments who choose to lead with GDP and turn a blind eye to the values and welfare of the commonwealth likely risk losing their citizens trust, and this will have national economic consequences of vast proportions.

as government and big business remains at an all-time low. In fact, they also report a continued increase of distrust.

Alternatives to GDP The path forward for government and policymakers isn’t straightforward. Since, the United Nations launched the Human Development Index in 1990 (which measures such factors as education, gender equality, and health) there’s been at least a half a dozen indices titled “How’s Life?”, “How Happy is our Population?” and “What Matters Most to People Around the World”, in addition to a plethora of others focused on well-being aspects such as health, education, peace, and prosperity. While they all have slightly differing objectives and world views—and audiences for that matter—perhaps the most relevant index or well-being lens for the current state of the world was launched by the World Economic Forum approximately two years ago. Known as the Inclusive Development Index (IDI), it examines advanced and emerging economies against a backdrop of nine indicators broken into three categories: growth and development; inclusion; intergenerational sustainability,

and equity. These indicators as noted by the architects of this framework, highlight a country’s unexploited potential to simultaneously increase economic growth and inclusion. One example of such is the United States. In IDI’s 2018 Index, the United States received an overall ranking of 3 out of 29 among the G7 countries. When measured against the backdrop of the indicators, the U.S. ranks 10th out of the 29 advanced economies on Growth and Development (which measure GDP, healthy life expectancy, and productivity) but 26th on Intergenerational Equity and Sustainability and 28th on Inclusion. Put simply, U.S. policymakers need to focus on reducing poverty. Currently, U.S. poverty stands at 16.3 percent— the second highest among developed economies. Parallel to poverty, income inequality takes the top-ranking spot in its category. U.S. metrics, as well as others can be actionable and produce economic gains as highlighted in IDI’s 2018 report. When socioeconomic issues were addressed, overall rankings improved. Rankings also saw a steady growth in the development sub category.

Turning Theory into Action Turning theory into action is critical for the mass adoption of this new formula by economic policymakers. However, to do so will certainly require governments, economists, and journalists alike to rethink a century’s worth of economic theory in exchange for progress. That transition will be difficult to make for some leaders, however, New Zealand Prime Minister Jacinda Ardern is certainly embracing the challenge. Ardern (at age 37 is the youngest prime minister of her country) charged the treasury to produce a “well-being budget” for 2019. The budget was built around four metrics: natural, capital, social, and financial. It was inspired by The Living Standard Framework, a paper that predates Ardern and consults institutions on policy trades offs that are likely to affect the well-being of their people. New Zealand isn’t alone in their pursuit. The United Arab Emirates is following alongside, boldly taking their citizen’s happiness in their charge. In February 2016, the UAE Government created the post of Minister of State for Happiness and appointed Her Excellency Ohood bint Khalfan Al Roumi as the Minister. Her main responsibility was to harmonize all government plans, programs, and policies to achieve a happier society. In the years ahead, research coming out of pioneering governments like New Zealand and UAE will produce unique insights to inform policy on new growth models, allowing progressive governments to amplify well-being and creating new paths to a more comprehensive understanding of the GDP. The cost governments and leaders face by remaining apathetic to new and changing economic models could prove internally disastrous and greatly risk them getting left behind. ◆

About the author BECKY GRAHAM is the founder and president of GenYize, a social enterprise focused on developing workforce capabilities through dynamic learning ecosystems in the age of digital change. TOKYO_JAPAN

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