The rapid growth of sovereign wealth funds has reinforced long-standing worries of foreign ownership and control of domestic enterprises. To be bossed around even indirectly by foreigners with money is not ideal. To be bossed around by foreign governments that need not have the transparent, money-grubbing objectives of bosses and shareholders worldwide, but rather the potentially very different objectives of governments is more disturbing. (pp.69-70)

The basic function of the finance system is to round up savings from all over and to channel them to the most productive use. The American financial system dreadfully failed in the performance of its key function, and it was that failure...that transformed the fundamentally unsustainable imbalance in America's foreign trade and debt position into a financial and economic crisis of global and historic proportion. (p.111)

Finance...had achieved the cultural dominance that so often goes hand-in-hand with economic dominance: its gigantism and ubiquity, its tonic impact on the entire economy, its fabulous success, the sheer gushing of money, its generous funding of elected politicians, its seconding of its top executives to posts throughout the regulatory apparatus of government...all cumulated to finance's full-blown capture of government and culture. (pp.112-113)

The current crisis is beginning with a worldwide reaction against what are perceived to be both the excesses and the defects of neoliberalism, the “leave it to the market and get the state's hands out” ideology...it is likely to end with governments...unafraid to use the substantial ownership stakes they will have amassed in a host of distressed national firms in finance and industry. (p.119)

Americans like to say scornfully that industrial policy is about “governments picking winners.” Picking winner industries is not that hard – even for governments...Even at the leading edge of the technological frontier, the industries that governments are tempted to promote are largely the same ones picked by the analysts and brokers at investment firms...Right now, yet again, governments and analysts alike are all picking clean tech, nanotech, and biotech. Picking “winner industries” is not the hard part; winning is.’ (pp.121-122)

State-led economic development by the developmental states of East Asia such as Japan and Korea has been a wonder of the world, cutting decades if not generations off the predicted times for their emergence as prosperous, modern economies...Now that the financial crisis has freed them from the fetters and blinders of the Washington consensus and the neoliberal ideology, the governments will attempt to deploy their market-rigging economic instruments – their money, their sovereign wealth funds, their stimulus packages, along with the various nonmonetary instruments at their disposal – to accelerate their rise to prosperity. Will they succeed? Probably not...But they will try. (pp 122-123)

Money is just one power available to those governments, especially China. There is also the power of access to, and success in, the Chinese market...Economics talks a lot about market power, but little about the power of a market if you control access to it. (pp.130-131)

...in the future, governments are likely to take a more active role intervening in their economies to affect market outcomes than they have over the past generation...And the governments that accumulate enormous pools of money in their reserves, in their sovereign wealth funds, and in the companies they directly and indirectly own or control will attempt to play an important role in the fate of not just their own economies but also those of others. (pp 144-145)

These changes in sentiment about relative economic standing are echoed in China. According to the Pew Global attitudes project, for example, while  in 2008 some 48% of Chinese polled identified the US as the world's leading economic power, compared to 21% for their own country, by 2009, 41% were picking the US and 41% were opting for China. 

This change in attitudes may well make China even less willing to listen to Western 'advice'. Yet, as David Pilling pointed out in the FT last month, probably the greater obstacle is Beijing's quite different view about China's appropriate role in the world. Where Western voters see an economic superpower, Chinese policymakers see a developing country, albeit a remarkably successful one. 

The fact that the world's second largest economy in absolute terms is still only somewhere in the middle of the global league tables when it comes to income per head is inevitably going to be a key driver of China's response to rich-country demands for China to become a more active global player.

* A cautionary note: in a sign of how perceptions (and the underlying reality) can shift quite dramatically, the accompanying report points out that fewer people in December 2009 said China was the top economic power than had named Japan as the leading economic power back in the late 1980s (58% in 1989). By the November 2009 poll, only 13% thought Japan was the leading economic power, although this was still enough to give Japan third place.

Photo by Flickr user [phil h], used under a Creative Commons license.

Some of this is specific to the particular problems facing a select group of euro-area economies and as such is bound up with the future of Europe's monetary (and fiscal) arrangements. But another big part of what's going on is the large increase in public debt and deficits that have been a byproduct of the GFC, due to financial sector rescue packages and other bailouts, fiscal stimulus programs, and recession-hit government revenues. The table below is extracted from a November 2009 IMF report and looks at the state of public finances in rich country G-20 member economies. 

Along with the eye-popping size of Japan's debt at one end of the range and Australia's much more comfortable position at the other, the table highlights the fact that the Fund expects the GFC to add on average more than 20 percentage points of GDP to rich countries' government debt burdens.

Increases in debts and deficits on this scale inevitably raise questions about governments' ability and willingness to pay. Gauging ability to pay largely involves thinking about debt sustainability issues, while willingness to pay is more about the political costs involved (lower government spending, higher taxes and voter tolerance for these things shift). Even for rich governments where the ability to pay debt is not an issue (which is most of them), the political consequences of this increase in debt are set to be a significant factor.

Photo by Flickr user warein.holgado, used under a Creative Commons license.

China's rapid growth is one reason rich countries have lost enthusiasm for further trade liberalisation, and why other developing countries have been cautious about locking in additional tariff cuts under the Doha process. China's quasi-mercantilist policy of maintaining an undervalued exchange rate has been an extremely successful development strategy. But it has imposed significant costs on the world, including by gradually eroding other countries' support for an open trading regime.

International investment offers a similar story. Once again, China has been a clear beneficiary of the existing, relatively liberal, policy environment, with huge inflows of foreign direct investment making a substantial contribution to the restructuring of the Chinese economy. But now that China is starting to become a significant source of FDI, and not just a recipient, rich countries are having second thoughts about the rules of the international investment game, to the extent of tightening controls – or at least oversight – on some capital inflows. 

Sure, some of this negative reaction can be put down to nothing more than rich country hypocrisy – one rule for you, another for me. But there is more to it than that. In particular, the high degree of state control embedded in Chinese capital outflows means that many recipient countries are understandably nervous about treating them in the same way as foreign investment by private sector players.

There's also a geopolitical element: it's not just a coincidence that the rest of the world decided to get nervous about Sovereign Wealth Funds (SWFs) once Beijing (and Moscow) announced that they were forming their own. Until then, SWFs had been a largely unremarked feature of the international financial landscape.**

So while China has certainly been a big winner from the existing international economic order, one consequence of its victory is a continuing reshaping of that order. And that's only the part of the story that involves other countries' reactions to the rise of China. 

Let's assume China continues on its economic ascent without a radical change in its current model (a big assumption, admittedly, but arguably no bigger than assuming something different). Given the quite different national economic regimes adopted by Washington and Beijing, it then seems quite reasonable to expect that an international economic status quo that is increasingly influenced by the Chinese economic model is going to end up looking different from one that has been centred on the strengths of the US model. 

We might get an international economic order that has a larger role for direct government intervention, a larger role for state-controlled economic actors, and a lower tolerance for unfettered markets than the one we have grown used to.

*One important area where Bejing is less than happy with the status quo is the central role of the US dollar.

**Large changes in the actual and forecast rate of growth of SWFs were also important factors in the increased attention paid to SWFs at this time.

Photo by Flickr user Wolfgang Staudt, used under a Creative Commons license.

Unfortunately, the case for the prosecution can respond that many economists continue to disagree over what the policy response should have been, whether it has been too large or too small, and more fundamentally still, whether a policy response was even necessary. Still, natural experiments on the order of the Great Depression and the GFC (thankfully) do not come around very often, so when they do, its reasonable to hope for another paradigm change in the economics profession.

What about the future of the financial sector in the crisis-hit economies? For the (surviving) banks, government bailouts and historically low interest rates mean that many of them have actually been doing rather well in the aftermath of the crisis, and until recently they have had to deal with  surprisingly little change in their regulatory environment. Their recent good fortune has not exactly endeared them to a public now facing looming cuts to public spending and increases in their tax bills, however, and this has left the financial sector looking politically vulnerable.

Central banks have seen public trust in their abilities decline after the crisis, although this appears to have been most pronounced in Europe. The future path of central bank credibility now depends heavily on how, and more importantly, when, they decide to exit from their current, crisis-driven policy stance. Getting their exit strategies right will be crucial not only for the health of the economies they manage, but also for their future standing.

Then there are the regulators and the politicians. The recent announcement by President Obama of a new regulatory order for US banks — described in the FT’s editorial as a ‘declaration of war on Wall Street’ — suggests that the long-anticipated political and regulatory backlash against the financial sector is now underway.

It’s too late to worry about rebuilding a role for the G7: those days are gone. Instead, 2010 will about building the credibility of the G20. The latter had a pretty good crisis, with the London Summit doing a reasonable job of showcasing international economic cooperation in the face of the GFC, and the Pittsburgh meeting locking in its new status as the world’s peak economic body. 

But the grouping is likely to be judged more harshly this year. G20 meetings are scheduled for June (Canada) and November (Korea) and observers will be looking for meaningful progress on the range of items identified at the 2009 meetings. The failure at Copenhagen at the end of last year serves as a powerful recent reminder of the difficulties involved in generating effective international cooperation.

Finally, what of the general credibility of Western economic management? In part, it will be determined by some of the issues listed above — the success or otherwise of regulatory reform of the financial sector and whether central banks get their exit strategies right. But it will also be influenced by how politicians and policymakers manage the looming challenges posed by growing debt burdens, large fiscal deficits, and disgruntled voters. The resulting interplay between politics and economics is going to be another important feature of the coming year.

Photo by Flickr user dorkula (Carrie Sloan), used under a Creative Commons license. 

Beijing's success has come at a price, however. Last year's dramatic policy response has exacerbated underlying structural problems in the economy. It's likely worsened some of the country's excess capacity problems. And rapid growth and soaring property prices have prompted fears of asset bubbles and overheating. 

As a result, the authorities are now tightening policy in an attempt to bring the juggernaut back under control. Tighten too much, and they risk choking off growth and delivering the much-feared hard landing. Tighten too little, and they risk losing macroeconomic control. Yet again, China's policymakers find themselves facing a delicate balancing task.

Photo by Flickr user HKmPUA, used under a Creative Commons license.

Several prominent economists, including Joseph Stiglitz and Fred Bergsten, suggested the days of a greenback-dominated international monetary system were over. Zhou Xiaochuan, Governor of the People's Bank of China, made his now famous suggestion for a greater role for the SDR. And, at their inaugural summit in Yekaterinburg, leaders of the four BRIC economies likewise called for a more diversified international system. 

While a dearth of compelling alternatives to the greenback means that a major international role for the US dollar is not going to disappear soon, this year is likely to see continued speculation about when that time might finally arrive. It will also bring an intensified focus on the features of our now evolving multiple-reserve currency system. 

Meanwhile, China's gradual moves to internationalize the yuan will continue to be an important link between these first two currency conundrums.

3. The current leading alternative to the dollar as candidate for global reserve currency is the euro. But the eurozone is experiencing tough times right now. 

My research trip to London last September saw virtual unanimity among my interlocutors that last year's talk of a eurozone breakup was wildly off the mark. But Greece's economic troubles are now once again providing sceptics with the a reason to doubt the long-term viability of Europe's single currency project, and prompting renewed discussion about the costs and benefits of any decision to exit from the eurozone. 

In this context, Paul DeGrauwe had an interesting piece in the Financial Times a few days ago, asking whether the ECB was repeating the policy mistakes of the 1930s by allowing the euro to become significantly overvalued. 

Of course, exchange rate issues are going to be prominent closer to home as well, with many analysts predicting that 2010 will be the year that sees a commodity-powered A$ reach parity with the greenback. 

Photo by Flickr user Holster, used under a Creative Commons license.

I'm fairly sympathetic to this judgment, since in large part it's the kind of argument I was making in a paper I wrote back in February, called 'All change or plus ca change...?', in which I suggested that the GFC was unlikely to significantly derail any of four major trends that were shaping the world economy pre-crisis: the Great Convergence, a resource-constrained world, second thoughts about the benefits globalisation, and the return of the state. 

But there are several important qualifications to make here (some of which I also made in the paper).

First, there are clearly big differences across countries. Australia got off relatively lightly in this crisis, in large part because we avoided a financial crisis. The fallout from the GFC is set to be much more profound elsewhere.

Second, it's still way too early to tell what the final consequences of the GFC will be. For example, there's a case to be made that, in part, the current crisis arose out of the global savings and investment imbalances triggered by the 1997-98 financial crisis. So we could still be feeling major aftershocks from this one in at least a decade's time.

Finally, even if the GFC has left my four big pre-crisis trends in play, I suspect it is going to turn out to have altered most of them in important ways. For example, it seems clear that the external environment within which the Great Convergence is taking place is going to look quite different to the pre-crisis status quo (think of the rise of the G20, question marks over the future status of the US dollar, the dramatic shift in monetary conditions in the rich world, the advance of murky protectionism and so on). 

And as a close corollary, it also appears that the shift in the balance of economic power that was always going to be a product of the Great Convergence has been significantly accelerated by the crisis. Similarly, the story about the return of the state now has to be adapted to take into account the big increase in fiscal burdens that has just taken place. So while I continue to believe that our post-GFC world is not going to be one of 'all change', its still going to differ from what went before.

Photo by Flickr user coda, used under a Creative Commons license.

In 2009, India is likely to be the 4th largest economy in the world, accounting for about 5% of world GDP (PPP-basis). That would be about 80% the size of the Japanese economy, 40% the size of the Chinese economy, and about a quarter the size of the US economy. So a big player, but not in China's league (let alone that of the US).

On the other hand, if you were to measure GDP at US$ rates, India would slip down the ranking to something like 12th place, with an economy around a quarter the size of Japan's, and less than 10% of the US economy (depending in part on what happens to the US$ between now and year-end).

India's huge population means it is also much poorer than the other big 3 economies. It's a whole world away from the US and Japan, but it also seriously lags China. GDP per capita in China is about $6000 using PPP rates. In India, it's about half that. India also lags China badly on other development indicators: life expectancy is 65 years versus 73 in China; infant mortality rates are 54/1000 live births versus 19 in China; the $1.25 poverty headcount ratio is 42% in India versus 16% in China.

India accounts for less than 2% of global manufacturing value added: that compares to more than 11% for China, more than 16% for Japan, and more than 23% for the US.

The Indian economy is not only smaller but less open than China's, which means its international economic influence relative to China is even smaller than the GDP rankings would imply. So in China, trade (goods and services) is equivalent to 63% of GDP, while in India the share (of much smaller GDP) is 54%. If you look only at goods trade, the gap is even larger: for China 59% of GDP, for India just 39% of GDP.

You can see the impact of this in export and import values. Last year, Chinese merchandise exports were US$1428 billion, or about 9% of the world total, making China the second largest goods exporter in the world. India's exports were US$177.5 billion, or about 1% of the world total, making India the 27th largest exporting economy, just behind Thailand. Indian exports were about 12% of China's by value.

The gap is not quite as big on the import side, but still dramatic: Chinese merchandise imports were US$1204 billion (about 7% of the world total, making China the world's third largest importer) while India's were US$293 billion (less than 2% of the total, putting India in 16th place).

What about commercial services, which pick up India's back office role? Here the gap is much smaller: China's services exports in 2008 were US$146 billion, about 4% of the world total, making China the 5th largest services exporter. India's were US$103 billion, 2.7% of the total, putting India in 9th place.

India is a significant factor in energy security and climate change: India consumed just less than 3.5% of the world’s oil last year. That makes it the world's fourth largest consumer, but well behind China (9.6%) and the US (22.5%). India was the fourth largest emitter of CO2 last year (4.5% of the global total) – although arguably only two countries — the US (20.2%) and China (21.8%) — really matter.

India now has a substantial role in the international economic architecture. It's been a major player in the WTO and the current Doha Round (if often an obstructionist one) and is of course a member of the G-20.

Finally, there's the question of economic and political models. If the Indian development model works, it says that economic growth and development is compatible with democracy. If it fails, then we are back to thinking that authoritarian regimes (China, early Korea, etc) are the way to go. I think the answer to the question of whether democracy can deliver for low income countries matters a lot – and that means India matters a lot too.

There are, of course, a range of potential objections to this suggestion. 

Some might worry that the successful bidder might be 'unsuitable' in some way. But that's largely a question of auction design: if there was a danger of a rogue state providing the winning bid, and if this was really seen as extremely undesireable, then presumably concerned countries could band together to trump its offer – which could mean even more money for the hard-up UK Government.

A second problem could arise if another government — say France — also wanted to sell its permanent seat. That could reduce the scarcity value of the offer and so the money that the UK could hope to raise. But this really argues for London moving quickly before Paris grabs the idea.

Finally, some might worry that the outright sale of the permanent seat could irrevocably damage the UK's international standing, and also tarnish the image of the Security Council. In which case, perhaps London could sacrifice some of the potential revenue and consider a two-year leasing arrangement instead.

* Presumably, there would be nothing to stop a coalition of middle powers pooling their resources and launching a joint bid. If Canberra could get a few mates together, Australia mightn't have to settle for the low-rent non-permanent seat it's currently after.

** And this would also be a more transparent process than the lobbying and back-scratching (financial and otherwise) that currently goes on to secure a successful vote for a non-permanent seat.

Photo by Flickr user David M Hepburn, used under a Creative Commons license.

The resultant wall of capital would pose a major policy challenge for emerging markets, which will want to avoid the destabilising sequence of crises associated with the big wave of private capital inflows in the 1990s.

That 1990s experience, the resilience of countries like China and India that took a relatively cautious stance towards capital account liberalisation, plus recent empirical work questioning the impact of capital flows on developing country growth, all mean that policymakers in emerging markets are likely to be more sceptical about the benefits of very large capital inflows, more aware of the risks, and hence more willing to turn to the kind of policy measures just adopted by Brazil.

 Source: The Paradox of Capital.

Finally, there is a consensus that a major impact of the GFC has been a rebalancing of economic power from the developed world toward the major emerging markets, with the rise of the G-20 the institutional counterpart of this shift. As these emerging markets become bigger players in the world economy, inevitably they will have more influence over the prevailing international policy settings. 

Given that views in Beijing, New Delhi and Brasilia on the merits of open capital accounts and the free flow of international capital have been quite different from those held by Washington over the past two decades, an important question for the world economy is, will the rise of these new economic powers trigger a significant shift in the international financial environment, or will the new powers end up adopting the same views as the old order?

 Source: IMF World Economic Outlook.

The IMF has now boosted its forecast for world growth this year by 0.3 percentage points, to a contraction of 1.1% (equivalent to a projected fall of 2.3% at market exchange rates) and has upped its forecast for 2010 by 0.6 percentage points to 3.1% (or 2.3% at market exchange rates). 

Compared to where the world economy was just several months ago, this is clearly good news. Yet overall, the new WEO does not make for a particularly happy read. This is because the Fund's prognosis for the kind of recovery now in store is quite gloomy. According to the IMF, '...the current rebound will be sluggish, credit constrained, and, for quite some time, jobless.'

Some of this pessimism comes from work the Fund has done looking at the effects on output of past financial crises (see Chapter 4 of the WEO), where it finds that typically the effects were large, negative and permanent, producing falling investment, higher unemployment and lower productivity. As a result, the Fund's medium-term projections for the world economy have global output on a much lower path than it was forecasting back in April 2007: 

Source: IMF World Economic Outlook.

The IMF also warns that policymakers now face a delicate balancing act in determining when and how to withdraw the massive fiscal and monetary stimulus they have had to deploy, since:

History suggests that both premature and/or delayed exits can be costly. For example, fiscal retrenchment and the US Federal Reserve’s doubling of reserve requirements during 1936-7 are blamed for helping to undercut a nascent recovery...premature tax hikes in 1997, along with an unfavourable external environment, were among the factors that seem to have contributed to pushing Japan into recession...some argue that the withdrawal of monetary accommodation after the bursting of the dot-com bubble was too slow, leaving easy conditions to fuel excessive risk taking and the subsequent house price boom.

This sort of gloomily optimistic view of the future is also on display in The Economist's latest survey of the world economy, which concludes:

The world economy will not...relive the 1930s. It should also avoid Japan’s lost decade of the 1990s. Instead, the future of many Western economies will look more like continental Europe in the 1980s, with large deficits, heavy public debts and stubborn unemployment.

As it notes in its opening section, the Economist's survey is something of a take on Mohamed El-Erian's increasingly popular concept of a 'New Normal' for the world economy. For some forecasters, however, the new normal may turn out to look not that different from the old. 

Finally, there are the Producerists. They would line up with the Greenspanists on the use of monetary policy to support economic activity in the real sector of the economy, but profoundly disagree on financial regulation, arguing that 'finance ought to be regulated within an inch of its life to minimize the prospects for bubbles, crashes and crises...' Adair Turner, chairman of the UK’s Financial Services Authority with his view that 'some financial activities which proliferated over the last ten years were "socially useless", and some parts of the system were swollen beyond their optimal size' could be seen as channelling producerist views.

For his part, DeLong notes that up until the start of 2007 he was a Greenspanist, arguing that while one impact of lax financial sector regulation may have been to produce near-crises in the US in 1987, 1991, 1998 and 2000, most of this financial turmoil had in fact generated little real cost to the US economy. Indeed, these bubbles may even have had positive consequences, as DeLong, taking a position similar to that advanced in 2007 by Daniel Gross, argues:

It was true some of the greedy, rash and wealthy had lost some of their money in ill-judged investments and lost some more to the even-richer card sharps of Midtown Manhattan. But had the rich who invested in the dot-com bubble decided instead to give $1 trillion to universities that promised to spend it rapidly on research into applied computing and communications technology we would have applauded — and that’s what they did during the dot-com bubble. 

And had the rich who invested in subprime mortgage securities instead given $500 billion to charities to upgrade America’s housing stock we would have applauded — and that what they did during the real estate bubble. Admittedly, charities seeking to improve America’s housing stock would have built three-story multi-unit buildings near shopping and transit rather than five bedroom houses with swimming pools hours from everywhere in the desert between Los Angeles and Albuquerque, but you cannot have everything.

Post-GFC, Delong says, he is 'undergoing an agonizing reappraisal.'

Photo by Flickr user Mal Cubed's photostream, used under a Creative Commons license.

When it comes to international financial regulation, leaders said they would ‘commit to developing by end-2010 internationally agreed rules to improve both the quantity and quality of bank capital and to discourage excess leverage’, which again is in line with the consensus on what was needed before Pittsburgh (ie, more capital, less leverage), but which still leaves plenty of room for international disagreements over just what the proposed new regime will look like. There was also the widely anticipated statement on bankers’ compensation, which refrained from endorsing specific caps on pay and bonuses and instead called for a greater focus on delivering the appropriate kinds of incentives.

Reform of IMF governance produced an agreement to ‘a shift in quota share to dynamic emerging market and developing countries of at least five percent from over-represented to under-represented countries using the current IMF quota formula as the basis to work from.’ This is a modest step in the right direction, but still leaves reform hostage to the significant over-representation of Europe. Simon Johnson has an interesting proposal in this context.

Finally, there was a promise to ‘seek an ambitious and balanced conclusion’ to the Doha round this year, which in theory should be good news, but once again past experience suggests don’t hold your breath.

Proposals to regulate bankers' pay and bonuses have grabbed a lot of attention, not least because of the growing sense of a glaring disconnect between the fortunes of the financial sector and the taxpayers who have funded its rescue. But while calls for caps on the absolute level of pay and bonuses might be attractive for punitive reasons, the more likely approach is a general agreement on trying to generate appropriate incentives for risk-taking. The cynical view on these kinds of initiatives, however, is that banks will always manage to find a way around any restrictions on pay, and that anyway, this will have little impact in preventing future crises.

Drawing a bit less public attention, but probably more important in terms of improving the safety of the financial system, is the case for increasing the amount of capital held by banks, with larger capital increases for the bigger banks in particular put forward as an attempt to deal with the 'too big' part of the 'too big to fail' problem. As many observers have pointed out, however, higher capital requirements on their own are no panacea.

Global imbalances

Just as there have been heated arguments regarding what role (if any) global imbalances played in causing the GFC, so there have been strong disagreements over whether they should be part of the discussion in Pittsburgh. Thus while the US and IMF have pressed for a focus on restoring global balance, Beijing and Berlin have taken a very different view. The big divide in opinions here means that any discussion at Pittsburgh is likely to be restricted to platitudes.

Reform of the international financial architecture

As the G20 finance ministers and central bank governors affirmed in London, there is general agreement regarding reform of international financial institutions, and in particular, that 'the voice and representation of emerging and developing economies, including the poorest, must be significantly increased to reflect changes in the world economy.' Last week it appeared that the contours of a deal were in place, but with the Europeans always expected to be the big losers from any major shift, and with Washington keen to offer up IMF reform as a quid pro quo for progress on the issue of global imbalances, it now looks like there are still major obstacles to reaching an agreement.

Staving off protectionism

While there has been no mass retreat into protectionism, G-20 leaders have nevertheless failed to live up to their promises regarding open markets, and have similarly failed to re-ignite the Doha Round, with Washington reportedly still reluctant to move ahead. One useful thing leaders could do at Pittsburgh, however, would be to take the advice of a recent Lowy Policy Brief and establish domestic transparency arrangements, since defeating protectionism begins at home.

 Photo by flickr user DMcGrew, used under a Creative Commons license.