Navigating in Dense Fog: Transatlantic Economic Relations
A
lthough British Airways is an industry leader carrying 33 million passengers worldwide last year, navigating it in the dense fog of current economic instability is still a challenge. Martin Broughton, Chairman of British Airways and President of the Confederation of British Industry, discussed current challenges at The Fletcher School ahead of the April 2009 G20 summit. According to Broughton, transatlantic relations (Europe and North America) may be the North Star for this kind of economic navigation.
Broughton opened his remarks by describing today’s world economy. In the G20 summit meetings context, many journalists and experts emphasize the importance of the emerging economic powers. Broughton argued that this creates a misleading impression of their role in the world economy. The transatlantic economy accounts for 45 percent of world GDP, 23 percent of global exports, and 30 percent of global imports.
However, these numbers do not represent the whole picture. The same group of countries is the destination of 61 percent and the origin for 74 percent of the world’s foreign direct investment. In other words, the most developed countries invest primarily in each other’s economies. US foreign direct investment into all BRIC economies between 2000 and 2007 was two times smaller than its investments in Spain, Italy, Sweden and Ireland. Additional trade statistics further reduce the role of BRIC countries. For example, sales of US affiliates in Europe are approximately five times greater than the US exports to Europe. US affiliate sales to China in 2006 ($112 bn) are comparable to the US affiliate sales to Belgium in the same year ($106 bn). Therefore, Transatlantic relations remain the most important part of the world economy and despite the G20's domination of global markets, it is mainly up to North America and Europe to lead the world out of the world crisis.
Broughton then described what, in his view, the G20 leaders should discuss at the April summit in London paying special attention to trade promotion and tackling poverty. With regard to trade promotion, the chairman mentioned preventing protectionism as a key component. Despite a commitment from leaders at the 2008 G20 summit to refrain from protectionist measures, the great majority actually resorted to them to some extent. Some nations raised the tariffs, others promoted national products (e.g., the US with its “Buy American” program), but the impact is the same: protectionism may result in hundreds of billions of dollars of economic losses globally.
Turning his attention to the poor, Broughton lamented that poverty is not discussed enough in the context of the current economic crisis. Five hundred million people moved from poverty to better economic circumstances in the last 15 years. Now there is a risk that at least one fifth of them may go back. Broughton called for the G20 to address this issue in a serious manner. Even if the prescribed measures are duly undertaken by the G20, they probably do not guarantee a safe post-crisis landing. Broughton warned that there is no easy solution to the global financial crisis. His recommendations can only give the pilots of the world economy better chances to end the flight successfully. But the outcome is still in the fog.
Aleksey Dolinskiy F09