Business Leaders Face Future at Summit

While the “G20” world leaders, assembled in Seoul’s spacious Convention and Exhibition Center, in November failed to reach a consensus on “global imbalances,” the businessmen were tackling a wide range of issues in the Sheraton-Walker Hill Hotel overlooking the Han River several miles away.

Their two-day business summit played like a chorus in the background of the contentious two-day session of global leaders at COEX . The deliberations of the business summit added luster to the atmosphere of excitement surrounding the Korean capital during the G20. In the process, the business summit and may have contributed more to global economic stability than the G20 itself, as corporate leaders talked about putting lofty goals into practice.

Peter Brabeck-Letmathe, chairman of Nestle, set the tone for the future, urging G20 leaders to “recognize the value of business input into the G20 process and, in doing so, seek to build on the Seoul Business Summit and its framework for engagement in 2011 and thereafter.” He called on the private and public sector to cooperate more effectively after South Korea’s President Lee Myung-bak urged the 120 CEO EO s at the summit to recognize “the importance of companies in revitalizing the economy after the financial crisis and in ensuring sustainable economic growth.”

The G20 Business Summit, like the G20 itself, was dedicated to resolving the many problems afflicting the global economy since the downturn of more than two years ago. “While we obviously do not represent the entirety of global business,” said the statement that emerged from the summit, “we represent a wide spectrum of views held in the business community” and are “keenly aware of the importance and benefits of open markets and a stable monetary system.” Moreover, said the statement, “As representatives of enterprises with combined total sales of over $4 trillion, headquartered in 34 countries, we are committed to playing our part to ensure that the business sector helps lead the world to a global economic recovery.”

On the basis of “a rich exchange of views,” the statement made clear, the business summit’s 12 working groups came out with recommendations that should influence commercial dealings worldwide. Most importantly, the working group on world trade suggested the G20 leaders:

“Recommit to completing the Doha Development Round (of the World Trade Organization) in 2011 and reinforce that commitment through the personal engagement of each G20 Leader;

“Roll back protectionism at least to where it was at the start of the global financial crisis and resist protectionism and trade-restrictive measures;

“Give trade finance favorable treatment under the New Capital Framework, often referred to as Basel III ;

“Put trade and investment permanently on the agenda of the G20.”

In order to guarantee turning such lofty aims into reality, the business summit urged the G20 “to establish a public-private task force” capable of providing “data and analysis on how trade and finance interact to link economies and drive global growth.” At the same time, it called for “stepping up advocacy and outreach programs to underscore the positive links between trade, job creation and economic growth.” The results of the summit appeared in summaries of the outcome of meetings among a dozen working groups that addressed just about every imaginable problem facing business interests around the world.

In that spirit, the business summit’s working group on “Foreign Direct Investment” called on governments “to avoid impediments to FDI and find ways for it to move even more freely in order for long-term flows to accelerate and continue to grow.”

The way to achieve those goals, it said, was to:

• “Broaden monitoring of changes in conditions for private investment to areas affecting all private investment and to improvements in order to stimulate further openings;
• “Work towards a Multilateral Framework for Investment reflecting all interests (host and home countries), developing a non-binding International Model Investment Treaty as an interim step;
• “Ensure a clear and enforceable legal framework; aim for principle-based FDI regulation rather than detailed rules leading to simple compliance through box ticking.
• Build a better understanding of the mainly positive impact of FDI.”Business leaders also expressed concern about problems facing small and medium enterprise (SMEs). The working group on “Funding and Nurturing Small and Medium-sized Enterprise,” noting “a multitude of impediments,” called on global leaders to:
• “Create an enabling legal, regulatory and financial framework to favor SMEs, such as rationalizing tax schedules;
• “Improve awareness of the range of financing options available;
• “Provide incentives encouraging the financial sector to lend to SMEs;
• “Improve access of SMEs and innovative ventures to capital markets;
• “Spur innovation and R&D (research and development) by establishing SME innovative technology development funds to encourage and facilitate SME access to R&D capital;
• “Promote the value of intellectual property to help SMEs assess the effectiveness of their IP IP as the basis of innovative, creative and economic activity.”

The business community, moreover, should contribute by helping to “to foster an SME community by working with SME industry associations to reduce transaction costs, improve the structure of loan applications, share best practices, work with experienced business and financial mentors, and explore alternative financing options.”

Another working group, on supporting “Economic Growth and the Implications for Financial sector Policy and Regulatory Reforms, “ came up with recommendations “to promote economic growth and ensure that a stable financial sector contributes to financing the required investments in developed and emerging markets most efficiently.”

Ways to accomplish that aim, the group said, were to:

• “Reaffirm the commitment to global capital flows and consistent global regulatory standards and take steps to deepen and broaden capital markets while highlighting the risks of financial protectionism;
• “Work with the financial services industry to develop a policy environment that supports SME financing and further establishment of credit bureaus in emerging markets;
• “Incentivize world trade through the globally consistent implementation of regulatory reform measures and infrastructure investment through development of innovative solutions;
• “Give trade finance (including export finance) favorable treatment under the new capital framework, often referred as Basel III ” – that is, rules for fiscal discipline set by the 27-member Basel Committee on Banking Supervision meeting in Basel, Switzerland, in March.”
• Another working group, this one on “Reducing Monetary and Fiscal Stimulus,” said flatly that “stimulus measures must be withdrawn to smoothly transition from government-stimulated demand to private-led growth as the recovery stabilizes.” With that view in mind, the group agreed that:
• “Monetary and fiscal stimulus helped to stabilize a global economy marked by excess supply;
• “In the long run, growth is based on private-sector investment and innovation.

Against this background, the group recommended that:

• “Monetary policy should be gradually returned to a neutral stance to prevent inefficient capital allocation and new asset bubbles;
• “Fiscal exit strategies should focus on cutting government spending and governments should avoid tax increases unless these prove unavoidable to forestall an acute fiscal crisis;
• “Exit from financial-sector support is warranted to avoid competitive distortions, signify confidence in the underlying stability of the system, and boost market confidence. Public guarantees for the issuance of financial-sector bonds should be ended first;
• “New standards for banking regulation and supervision must be sufficiently strong and responsive, while still encouraging growth and financial innovation;
• “It will be imperative to avoid a perpetuation or aggravation of the current account-financial account imbalances of the past decade.”

The business summit’s working group on “Closing the Gap in Infrastructure and Natural Resource Funding,” called for action “to overcome an estimated annual shortfall in infrastructure and natural resource (energy, water) investment of up to $600 billion. Specifically, it recommended:

• “Working groups of key government officials and business leaders should be formed to prioritize investments, define the best models for partnering with private investors and getting them involved, and assess past successes;
• “A consistent regulatory framework should be adopted. Clear and even-handed rules are important to encourage private investors to participate;”
• “Help to better quantify and reduce infrastructure project risk.
• “Private sector knowhow should be leveraged to reduce delays by using innovative project management techniques. Governments could share the asymmetric risks of projects through such measures as guaranteeing supplementary financing in the event of cancellation;
• “Government should clarify rules on sustainable development goals such as greenhouse gas mitigation, and promote transparency and predictability of energy availability through strengthened cooperation with the International Energy Forum and International Energy Agency;
• “The private sector should contribute to improve the dialogue between producing and consuming countries in the energy sector;
• “Government and the private sector should cooperate to create alternative funding mechanisms to reduce the government’s need to invest in projects and make infrastructure more attractive to private investors.”
• The working group on energy efficiency expressed the view that “improving energy efficiency is the best way to ensure energy security, limit greenhouse gas emissions, and insulate economies from the volatility of energy prices.” The group also said “larger capital investments are needed to push towards breakthrough technologies.”
• In order “to foster such commitments,” it said, G20 governments needed to:
• “Establish clear, consistent standards that better measure energy opportunities, ease knowledge transfer and give small and medium enterprises access to information they can act on;
• “Develop long-term energy policies that reflect an awareness of how legislation can radically shift demand, supply and price;
• “Provide new financing solutions to help companies make long-term investments necessary for improved energy efficiency;
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• “Support education, energy services and R&D to help society build the skills it needs to develop and adopt new technologies;
• “Continue working towards a global framework that coordinates national legislative approaches and overcomes ‘free rider’ problems.”

The working group on “Encouraging Substantial Use of Renewable and Low-carbon Energy” said that “concerted global efforts to develop and deploy renewable and low-carbon technologies” were “key to addressing concerns about economic growth, energy security and climate change.” It added that “momentous change is needed, fostered by governments and businesses in partnership” and recommended G20 governments:

• “Pursue market-based carbon pricing. A clear and steady carbon price is a prerequisite to incentivizing investment on the scale necessary to shift to renewable and low-carbon energy sources. Business prefers market-based mechanisms. If taxes are used, revenue should be recycled to support clean energy technologies.
• “Mandate regular meetings of energy-related ministers. These should aim to set aspirational targets, develop technology roadmaps and address regulatory barriers such as tariff and trade barriers and international standards.
• “Strengthen international public-private partnerships. Chief among these are promoting universal access to energy. Public funding must be provided in a way that helps to unlock further private investment in clean energy. Carbon crediting mechanisms should be streamlined and expanded.”
• The working group, to accomplish these goals, pledged to “work across the full spectrum of renewable and low-carbon energy sources to provide new engines for economic growth” and to “focus [their] expertise to speed renewable and low-carbon energy technologies from demonstration to commercial deployment.”
• The business summit’s working group on creating green jobs said G20 countries in order , “to generate green growth and jobs,” had to “adopt policies that strike a new balance between incentives and disincentives that indisputably favors green investment.” Toward that end, it said, “G20 countries should adopt policies with respect to key sectors:”
• “Buildings: Set high energy-efficiency standards and develop public-and private-sector funding mechanisms for green investments;
• “Power: Accelerate uptake of renewable and other low-carbon energies, and expand and upgrade electrical grids to guarantee priority access for green energy;
• “Industrial: Devise targeted incentives for energy efficiency in manufacturing equipment and processes;
• “Transport: Introduce fuel-efficiency standards that ratchet up over time, and reduce barriers that prevent adoption of new technologies.”
• Moreover, said the working group on green jobs, “G20 governments should promote free trade in environmental goods and services by eliminating tariff and non-tariff barriers.” This policy, it said, “will accelerate diffusion of green technologies, lower prices, encourage competition, and result in faster job creation.” G20 governments, it added, “should also abolish fossil-fuel subsidies within the shortest possible timeframe, and not more than five years.”
• The working group on “Unleashing Technology-enabled Productivity Growth” maintained that “productivity will be the primary driver of economic growth in the coming decade and the core driver for improving the economic wellbeing of our citizens.” Moreover, it added, “technology and innovation will be critical factors enabling productivity growth.” By “working together,” it said, “the G20 and business sectors should take three actions to foster productivity growth and innovation”:

• “Develop a joint commission be tween the G20, other relevant organizations such as the World Trade Organization and the business community to identify barriers to the diffusion of productivity-enhancing innovations and create a process to reduce them.
• “Create a G20 clearinghouse to identify best practices in workforce development and innovation;
• “Work with the Organization for Economic Cooperation and Development (OE CD) or other suitable international bodies in collaboration with the business community to create a task force to identify opportunities to drive public-sector productivity.”

The working group on the “Impact of Youth Unemployment” said the global economic crisis had “brought the problem of youth unemployment to the fore” and called on “governments, business, and civil society” to adopt a series of “actions to create and maintain employment leading to sustainable recovery”:

• “Create public-private academic partnerships to train youth for available jobs;
• “Create effective unemployment, welfare and social-protection systems;
• “Foster entrepreneurship;“Identify high-growth sectors by ge• ography.”
• Governments should be responsible, it said, for
• “Providing adequate incentives and policies for stakeholders to create jobs, leveraging training and internships;
• “Implementing multifaceted programs to ensure that special needs are addressed with a ‘social-protection floor’ with ‘mutual obligations’ approaches to handle benefit dependence;
• “Supporting innovation and growth with low barriers of access for entrepreneurs;”
• “Creating a baseline report on job scenarios based on economic and political transformations with standardized data to monitor progress.”
• And “enterprise should take the lead” in:
• “Leveraging local talent for on-the-job training, internships and apprenticeships in high-growth sectors;
• “Piloting and testing progressive policies to increase jobs;
• “Participating in task forces to create net new employment and working to ease entry to the workforce through self-employment;
• “Creating a ‘global resource center’ to collate data and assist governments with implementations of best practices and programs.”
• Finally, the working group on “Access to Healthcare in Developing Economies” encouraged G20 members to see the need “to change the trajectory of the private sector’s involvement with healthcare in developing economies and to have a meaningful impact on improving access to healthcare.” The way to do so would be to recognize:
• “The importance of health to economic growth, by including global health as a permanent agenda item at G20 Summits;
• “The urgent need for healthcare system strengthening in developing economies with targeted investments through novel financing mechanisms, such as the Global Fund and GA GA VI (Global Alliance for Vaccines and Immunizations) Alliance;
• “The importance for developing countries to invest a significant proportion of their annual budgets in health” while summit participants, in order to serve as a catalyst for broader global business community investment in health” should:
• “Commit voluntarily to a financial or core business competency investment in healthcare system strengthening lasting at least three years and to longer-term support if performance indicators are met;
• “Support the novel global financing public-private partnerships such as the Global Fund and GA GA VI Alliance;
• “Make a minimum investment equivalent to $1 million a year for three years.”

After having come up with all these ideas, proposals and recommendations, business leaders were clearly concerned that their words might fade into obscurity. To keep that from happening, they looked forward to “to continuing engagement with the G20 both on upcoming issues” and in ‘tracking and implementing the commitments” made in Seoul.

“We hope,” they said, that “G20 Leaders recognize the value of business input into the G20 process” and “We stand ready to work with the G20 in this process,…commitment to support the G20 in its efforts to strengthen the global economy and deepen international economic cooperation.”