Group of 20 host Tony Abbott went to great lengths to keep one topic -- climate change -- off the agenda at this weekend's confab in Brisbane. There's little mystery why: While the world hails China and the U.S. for moving forward on curbing carbon emissions, Australia is backsliding by scrapping a tax on carbon and resisting pressure to expand the use of renewables.
Abbott's justification? The need for growth. In fact, Australia's prime minister wants the rest of the G-20 also to pledge to grow by an additional 2 percent or more over five years.
The goal sounds unobjectionable, until one considers how much trouble arbitrary growth targets are already causing China. The mainland government's annual pledge to generate a fixed expansion in gross domestic product -- 7.5 percent this year -- is also the biggest roadblock to clearing its air and eventually reducing emissions. Pressure to meet that arbitrary target leads local officials to ignore anti-pollution directives. It could prompt additional stimulus, a second wind for investment in smokestack industries and even more smog. China may be considering a reduction in next year's target; it shouldn't set one at all.
Neither should the broader G-20. This indiscriminate emphasis on a specific data point encourages short-term policy behavior. In the quest for higher growth at the lowest political cost, governments from Washington to Tokyo have abdicated their responsibility to unelected central bankers. The reliance on monetary easing to prop up growth is clearly dangerous. Too much liquidity chasing too little demand for credit and too few productive investments can only lead to fresh bubbles in a world already filled with them.
The consequences are worryingly unpredictable. Chinese officials like Vice Finance Minister Zhu Guangyao have begun to warn that “divergence” in monetary policies -- ultra-loose ones among developed economies, tighter conditions among emerging ones -- could have unforeseen effects. “It will create new risks and uncertainties for the global economy,” Zhu told Bloomberg News yesterday, calling the global financial environment “uneven and brittle.”
Ceding control to central banks relieves political leaders of the pressure to make more difficult changes -- the kind that will sustain growth in the long run and broaden its benefits. The only way China can make good on its climate targets, for example, is by rebalancing the economy way from heavy industry. That requires a level of political will Xi has yet to display. In Japan, where the central bank's aggressive easing efforts are winning plaudits, "the market is yet to be impressed by the pace of the revitalization plan" that Prime Minister Shinzo Abe has put forward, says Credit Suisse's Daisuke Takato.
The same goes for India, where central banker Raghuram Rajan has acted boldly, while new Prime Minister Narendra Modi moves slowly on broader structural reforms. In Australia, Abbott's team is cutting spending despite a modest budget deficit ($42.4 billion last fiscal year) that most other G-20 members would kill for. Abbott's policies are putting the onus for supporting growth on the Reserve Bank of Australia.
Fact is, the G-20 will struggle to meet current growth hopes, let alone elevated ones. Rather than obsessing over a nonsense target, Abbott should be focused on making investments at home that will raise productivity and fuel innovation. Infrastructure upgrades are needed to boost competitiveness. So is more money for education and training.
And now that China and the U.S. are racing ahead on climate change, Abbott should rethink Australia's green policies ahead of next year's climate summit. Part of that effort must involve moving beyond a mining-dependent economy. With China's latitude to use coal set to decline along with its carbon footprint, falling demand for Australia's underground treasures will force the issue anyway.
Australia's growth might be slower in the long run, but it'll be healthier. That's the goal Abbott should have set for himself, and his fellow leaders.
This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.
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