At the upcoming G-7 summit in Cornwall, the major economies’ leaders have a critical opportunity to agree on a plan that not only drives a strong recovery from the COVID-19 pandemic for their own countries, but also speeds the transition to a more sustainable, inclusive and resilient global economy.
A key lesson that I trust G-7 governments have learned from COVID-19 is how exposed and vulnerable every country is to global threats, including infectious diseases, climate change and biodiversity loss. The challenges to well-being and prosperity highlighted by the pandemic are all interconnected, so we need an integrated approach to tackling them.
Rich-country leaders will understandably focus on the health of their own economies, which are showing signs of a rapid rebound. But they should recognize the need for significantly increased investment over the next decade to enable strong and sustained growth, and to respond to climate change and the loss of natural capital, including biodiversity. Countries should not repeat the mistake of the post-pandemic “Roaring ’20s” a century ago by focusing primarily on consumption.
A recent presummit report requested by the United Kingdom’s prime minister, Boris Johnson, which I led, shows that G-7 investment as a proportion of gross domestic product prior to the pandemic was at its lowest level for several decades. In some countries, such as the UK, a drop in investment after the 2008-09 global financial crisis largely explains the following decade’s sluggish economic growth.
Our report recommends that the G-7 should collectively invest an additional $1 trillion per year over the next decade to drive a sustainable and sustained recovery. While most of this increase, equivalent to 2 percent of these countries’ combined GDP, will come from the private sector, governments must set policies and expectations to encourage it.
Over the longer term as well, G-7 governments should be prepared to borrow to invest in order to boost growth and lay strong foundations for a green industrial revolution.
Weak investment will mean an anemic economy. But this does not mean that finance ministries should abandon fiscal discipline. Rather, they should ensure that public finances are directed toward high-quality investments that can create sustained growth and build tax revenues.
A commitment to sustainable public finances over this decade will foster investment as long as premature austerity does not choke off demand. Our analysis shows that investment opportunities in sustainable infrastructure and nature offer particularly attractive returns. The G-7 countries should thus accelerate the decarbonization of their economies by replacing fossil fuels with zero-emissions energy, transport, industry and agriculture.
For example, the G-7 could pledge to ensure that 80 percent of their electricity is generated from zero-emissions sources by 2030. They could adopt net-zero standards for all new buildings from 2024, and aim to install 100 public electric-vehicle charging stations for every 100,000 people by 2023.
But G-7 leaders also need to recognize that their economies will recover fully only if growth is restored in the rest of the world. That is because most of the global demand over the next decade will come from emerging markets and developing countries.
The G-7 must therefore work to mobilize finance and foster investment in these economies. Because no country will be safe from the pandemic until it is under control everywhere, the most critical and urgent need is to make up the shortfall in financial support for the COVAX program, and to promote the production and sharing of vaccines. All countries should have access to effective COVID-19 vaccines and the means to immunize their populations.
Furthermore, rich countries need to help developing economies with their external debts and access to finance through sources such as special drawing rights, the International Monetary Fund’s reserve asset. Without such assistance, the world risks suffering a lost decade of development and failing to realize many of the United Nations’ sustainable development goals.
The G-7 must also ensure that rich countries belatedly fulfill their commitment -- made in 2010 -- to mobilize $100 billion per year from public and private sources by 2020 to help developing countries tackle climate change. They should seek to raise the annual amount substantially by 2025 and increase the concessional component.
This possibility, together with additional special drawing rights, the expansion of lending by multilateral development banks, and the use of resources that previously supported fossil-fuel investments, highlights the scope to mobilize more funds for poorer countries without overburdening public finances.
The crucial UN climate change summit, COP26, in Glasgow in November risks failing if the rich world does not honor its financial commitments to developing countries and carry them forward to 2025. For this reason, the G-7 gathering in Cornwall could be a turning point, not only in the recovery from this terrible pandemic, but also in the creation of a much healthier global economy.Nicholas Stern
Nicholas Stern, a former chief economist of the World Bank (2000-03) and co-chair of the international High-Level Commission on Carbon Prices, is a professor of economics and government and chair of the Grantham Research Institute on Climate Change and the Environment at the London School of Economics and Political Science. -- Ed.(Project Syndicate)