Dr. Colin Bradford is a Nonresident Senior Fellow, Global Economy and Development, at the Brookings Institution, and a Senior Fellow at the Centre for Global Governance Innovation. A former chief economist at the U.S. Agency for International Development, Bradford focuses on global economic governance, environmental governance, and international economics and development.

Dr. Bradford is a leading figure in mobilizing professional opinion and policy attention on the importance of the G20. In the mid-1990s, he articulated the need for a post-Cold War vision for development cooperation through the International Development Goals (IDGs); he later played a pivotal role in transforming the IDGs and the Millennium Declaration goals into a single vision known today as the Millennium Development Goals. He was an adviser to the World Bank, the Inter-American Development Bank, and the Helsinki Process on the MDGs in the 2000s. Earlier, while at Yale, Dr. Bradford played a key role in the international debate on the East Asian Miracles, heightening focus on internal dynamism generating growth-led exports in Korea and other “newly industrializing countries.” Dr. Bradford has focused his professional life as an international economist on the relationship of developing countries to the world economy, serving ten years in the U.S. government, eight years in international institutions, and sixteen years in universities, teaching at Yale, American University, Georgetown and Johns Hopkins SAIS. He was a presidential appointee in the Clinton administration, where he was chief economist at USAID, a political appointee in the Carter administration, where he was head of the office of multilateral development banks in the U.S. Treasury, and a legislative assistant for U.S. Senator Lawton Chiles (D-Florida). He held senior economic policy positions in the OECD in Paris, the World Bank and the Inter-American Committee for the Alliance for Progress. He holds a B.A. in History from Yale University and a Ph.D. in Economics from Columbia University.

Transcript of Executive Breakfast:
Korea as Convener and Innovation Economy

Speaker:
Colin Bradford
Senior Fellow
The Brookings Institution and the Centre for Global Governance Innovation

Moderator
Stephen Noerper
Senior Vice President
The Korea Society

October 20, 2010

STEPHEN NOERPER:
Thank you for joining us in the Samsung Center for Intercultural Exchange and also via podcast courtesy of the Tong Yang Group. I'm Stephen Noerper, Senior Vice President of the Korea Society. We've launched an exciting season in policy, both business and public; and in the arts, and I refer you to our events-filled calendar at www.koreasociety.org.

The Korea Society business programs this year have featured Marc Noland of the Peterson Institute of International Economics, Vice-Minister Hur Kyung-Wook of Korea's Ministry of Strategy and Finance, Henry Seggerman, who's here with us today, of the Korea International Investment Fund, Scott Kalb of the Korea Investment Corporation and Bank of Korea Governor Kim Choong-Soo among several others.

A special thanks to Natalie of our program staff and to Peter of our media team for their kind facilitation and sterling efforts this morning.

This Executive Breakfast is the final in a three-part series highlighting Korea's attractiveness as a regional hub for economic dialogue, investment and innovation. This session explores bringing the world to Korea for the G20 Summit and comparative innovations.

Today we welcome back, on the line, Colin Bradford, a leading voice on the "new dynamics of summitry," and innovations for this G20 summit. Dr. Bradford is a Nonresident Senior Fellow, Global Economy and Development at the Brookings Institution, and a Senior Fellow at the Centre for Global Governance Innovation. A former chief economist at the U.S. Agency for International Development, Colin focuses on global economic governance, environmental governance and international economics and development.

Colin has been a leading figure in mobilizing professional opinion and policy attention on the importance of the G20. In the mid-1990s, he was a leader in articulating the need for a post-Cold War vision for development cooperation by developing the International Development Goals (the IDGs) and the OECD Development Assistance Committee, and in promoting the consensus around them.

In 2003 he played a pivotal role in transforming the IDGs and the Millennium Declaration Goals into a single vision, which we know today as the Millennium Development Goals. He was an adviser to the World Bank, the Inter-American Development Bank and the Helsinki Process on the MDGs in the 2000s. A bit earlier in the 1980s while at Yale, Dr. Bradford played a key role in the international debate regarding the East Asian Miracles, including Korea.

Dr. Bradford has focused his professional life as an international economist on the relationship of developing countries to the world economy, serving ten years in the U.S. government, eight [years] in international institutions and sixteen years in universities, including American University, Georgetown [University], and Johns Hopkins SAIS.

He was a presidential appointee in the Clinton administration, where he was chief economist of USAID; a political appointee in the Carter administration, where he was head of the office of multilateral development banks in the U.S. Treasury; and a legislative assistant for U.S. Senator Lawton Chiles [D-Florida]. He held senior economic policy positions in the OECD in Paris, the World Bank and the Inter-American Committee for the Alliance for Progress. He holds a B.A. in History from Yale University and a Ph.D. in Economics from our friends up the road at Columbia University.

Colin, welcome back.

COLIN BRADFORD:
Thank you, Stephen. Nice to be here. Welcome, everybody.

STEPHEN NOERPER:
Thank you. We appreciate your effort in our opening session. We're delighted to have you back for our closing session. We know that in the ensuing month, there may well have been progress, as we've moved closer to the start of the November Seoul Summit, and we'd like to invite you to explore a bit more of the innovations that you began with in the first session and other ideas in terms of comparative innovations in the region.

COLIN BRADFORD:
Well, Stephen, thank you and thanks to everybody who's there and online for your interest in Korea; and particularly the G20 Summit and the key leadership role that Korea is playing now in a very difficult moment, which I'll return to in a minute.

At the end of September we did a two-day symposium in Korea that was sponsored by the G20 Presidential Committee of Korea. Sakong Il is the chair of that. Present were the G20 Committee, along with the Korea Development Institute and Dong-A Ilbo, the oldest newspaper in Korea, which you all know better than I, I'm sure. It was a large event with 600 people there, and we brought thirty people from around the world to bring some focus to bear on some of the key issues.

I was in Korea three times in the last year: Eight days for the two-day symposium, then for a week in May, and then for a few days in November. This time I got a chance to do a little bit more than I had been able to do in the past. A Chilean friend of mine who was a part of the conference and I explored a little bit of Korea, both Seoul and beyond.

I wrote more about Korea, I think, in the eighties and nineties than I've written about any other country. Even though I hadn't spent much time there, there was a huge debate, then, about the East Asian models, as Stephen said in the introduction.

Something stunning which was said over and over again in the big G20 International Symposium, which we did at the end of September, was emphasized by other people such as Paul Martin, the former prime minister of Canada, who was there with us:

If you look back on the last fifty years, Korea has transformed itself in a way that we think no other country in history has ever done. It's palpable when you're on the ground in Seoul. It's palpable when you travel around the country and see the infrastructure investment that's necessary to integrate the market economy of South Korea. It's evident when you see the architecture.

I was out in Colorado this weekend. I picked up the newspaper and found an advertisement that basically says that the Hyundai automobile is one of the best automobiles on the road; and that if you look it up online, you will find you can get a large SUV with three tiers of seats for $28,000. If you bought the alternative Lexus or Audi or Volvo, you'd pay $48,000. And I have full confidence in the engineering and the quality of Korean products.

What you realize, as you get to know Korea more—and this is something that we actually said in the 1980s and early 1990s when we were debating all this—is that Korea had a very different approach, as you know, to dynamic development in other countries. And you see it today. You see it being debated.

In one of the Korean-English newspapers, there was a discussion about how to go about greening the economy of Korea. One of they ways they've thought to do it is the way they did it in the first place, which is to cluster economic activities in a specific geographic area so that you get synergies.

There's this old story about Korean development in the sixties, seventies and eighties being centered around steel cars and ships. There's an obvious synergy amongst those. You gain economies of scale and you gain interactive economies by strategically developing sectors that complement each other and generate positive sum outcomes from that kind of interaction.

Look at Buddhism. I bought a book about Buddhism, and it makes it very clear that, first of all, Korea has a unique way of formulating Buddhism and secondly, that uniqueness comes from its holistic approach, its ability to integrate a variety of different Buddhist traditions into a uniquely Korean one, which doesn't favor one tradition over another, but rather pulls them all together in a pluralistic way.

This is similar intellectually to the clustering idea; bringing complementary things together and making something still better out of a holistic approach rather than keeping them segmented and separated and specialized as you would do in the West.

Basically I'm trying to say that one grasps, almost gasps, at the manifestations of modernity and hypergrowth in Seoul and Korea. One realizes the stunning achievement that this country has made, and the unique views in culture and intellectual perspective that drove this dynamic development over the last fifty years. This is quite different, really, than the standard Western, Anglo-Saxon economic formulation.

And you realize how Korea can contribute in this moment of not only great financial and economic crisis, but also at this moment in the early twenty-first century when the major countries coming together in the G20 represent very diverse civilizations; not just cultures, but civilizations. Korea, it seems to me, being successful economically and having a very interesting integrative approach to culture, is uniquely placed to play a role as a convener, leader and host to the G20 Summit in Seoul.

Unfortunately, if you read the Financial Times this morning, there are two articles focusing on the fact that there is an incredible amount of dissension and conflicting views within the G20's grouping of countries about how to rebalance the global economy and how to move forward in a coordinated way, and I will discuss that. But I thought, Stephen, I'd pause for a second to see if people who know Korea much better than I, actually, have any comments or questions or discussion they want to add to what I've said initially.

STEPHEN NOERPER:
I think you've actually just hit on one of the pressing issues that's on a lot of our minds here at the table today, so maybe you could continue, because that really is a dominant theme that's emerged in the last few weeks.

COLIN BRADFORD:
Yes. For those of you who haven't seen the Financial Times, let me just read you two articles. Front page, above the fold, "India warns on damage from G20 tension." On page four, Alan Beattie, who we had in Korea with us at the international symposium that I mentioned we just organized at the end of September, and Song Jung-a writing from Korea state: "Doubts grow on prospects for G20. Unilateral actions to counter global imbalances continue to spread."

This is not news to me. On the plane on the way home, I was trying to figure the way out of this mess. I mean, the currency war has been declared between the U.S. and China. There's just a tremendous feeling [which] we've discussed with Alan Beattie of the Financial Times before. We've had conflicts in the run-up to the London Summit between the U.K. and the U.S. on the one side, and the continental Europeans on the other, about the degree to which all countries needed to engage in expansionary monetary and fiscal policy.

We had a similar conflict between G7 countries, still again, about both financial regulatory reform, expansionary policies and exit strategies in the run-up to the Toronto summit in June. Canada was saying they didn't have a financial problem, and so they were not as concerned about pushing regulatory reform as say the U.S. and the U.K. There were differences, again, about exit strategies with Merkle wanting to wind back on what little expansionary efforts they did make with again the U.S. wanting to push forward.

So although this is not the first time,[I'll say this is a little more serious. As for the Brazilians, I can't understand why Lula is pulling the finance minister and central bank president from the G20 Finance Ministers Meeting this week. The Financial Times announced this, this morning. And the Indians are sounding very pessimistic, indeed. Singh, himself, said: “I’m worried about the global situation.” Then his advisers elaborated and said: “There’s no agreement on diagnosis. We’ve lost consensus about how to tackle the situation. That’s my worry about the Seoul conference. The G20 faces serious difficulties.” That's from an Indian. So there's a problem.

As to the way around it, let me just try the numbers out on you. The thesis that I would like to put forward to the Koreans is, Look, the play you should make is to get the midsized emerging market economies to pull together in expansionary policy.

So what's the goal? The goal is to diffuse the currency war by having other countries in the G20 act in such a way that it takes the pressure off of] the U.S. and China to be the motors for growth in the world economy. Now that's difficult to do because at the very least (I haven't looked this up quite yet, but I'll do it today) my recollection is that China and the U.S. together could be as much as 40 percent of the world economy. If that's true, then it's a little bit difficult to figure out how to do it.

I don't know whether you can follow this over the phone or not. If the U.S. and China are 40 percent, and the G20 is 85 percent of the world economy, 40 percent of 85 percent is 35 percentage points. So 35 percentage points minus 85 percentage points means that the rest of the G20 is 50 percent of the world economy.

And if you roughly say of that 50 percent of the world economy, it's possible that the nine other emerging market economies, namely: India, Indonesia, Korea, Saudi Arabia, Turkey, South Africa, Brazil, Argentina and Mexico are roughly 30 percentage points of that 50 percent and the other G8 countries, the other eight advanced industrial countries are say 20 percentage points.

So if the midsized emerging market members of the G20 are 30 percent of the world economy, [and] they grew 3.3 percentage points faster than they might have otherwise by stimulating their economies, they could add 1 percentage point (3.3 x 30 percent of the world GDP), to GDP growth by stimulating. And 30 percent really isn't that far from the 40 percent that the U.S. and China represent.

The point I'm trying to get at (and I will confirm these figures today) is that the midsized economies, the non-giant economies—although you'd have a little trouble saying India or Brazil are not superpowers—but for the moment, just for the argument, let's just say that the nine emerging market economies swing quite a bit of weight if they pull together.

The good news is that they carry enough weight to offset or play a role in stimulating the world economy that is getting close to being equivalent to the U.S. and China together. The bad news is that 3.3 percentage points is a lot of expansionary, [incremental] effort in order to goose world GDP by 1 percent.

So there are some problems with the numbers that I haven't been able to [figure out] yet because I didn't have any data with me yesterday on the airplane to figure out the trade effects of this.

I think it seems plausible and certainly worth exploring whether Korea, [as] a midsized economy and probably ranking tenth or twelfth in the world in terms of GDP along with [the] eight others, could provide some real economic leadership.

I think the other thing I will say is that you wouldn't have that as the sole pillar, but it would give the G20 a huge boost because then you'd have a successful strategy. You'd have the smaller countries in the large country grouping playing a role together. Australia and Canada might join in. They're midsized economies, too. And you could get something going, perhaps, on that.

I've urged this before and I will urge it again, that the global balance problem is not going to get resolved in Seoul unless Seoul is able to communicate that to the world, and that the leaders there agree to it, including Lula, who is going out as leader.

The only thing I can figure out as to why Lula is keeping his minister and president of the central bank home from the G20 Finance Ministers Meeting this week is because he wants to make a play himself, I'm hoping, in Seoul. Otherwise, it looks nasty. I mean, the world has a problem. Singh is saying the world has got a problem. He's right. There is a problem that's evident to everybody who's watching it.

You go and you try to solve it. You don't stay home. I mean, I really don't understand this move by Brazil. I'm a big fan of Lula's, and I think he's been a terrific leader. I think it's sad he has to leave the global stage. But it's an odd move, I have to say, coming from him. He did stay home from Toronto, you remember, and I think one of the reasons he might have done that, as we may have discussed in the breakfast earlier in the fall, was the business with Iran. He didn't want to take flak from the others. So it's not quite clear to me what kind of a game he's playing, but that maybe is a diversion.

In Seoul the leaders need to unite around a reassuring message to the world that yes, there are conflicts today and yes, there are imbalances today; but we are putting in place a process within this framework of strong, sustainable and balanced growth within the G20 which is a five-year outlook.

You know how this works. The governments are meant to submit to the IMF trajectories over the next five years of how their economy would go: How fast the growth rates would be; what their fiscal deficits would look like; what their current account balances, surpluses or deficits would look like; what their capital accounts would look like in terms of accumulated reserve or accumulation and again, capital account surplus versus deficits.

And then the Fund is meant to put those all together, the nineteen countries' five-year projections together, and analyze the compatibility and consistency, what's called collective consistency of those scenarios. Of 85 percent of the world economy, do the current account deficits and surpluses add up? Do they both complement each other, and do the surpluses on current and capital accounts balance off each other? What do the growth rates look like, and where could stimulus come from, and where is contraction needed? And does the stimulus offset the contraction?

So you force a long-term view of how are we going to get to where we want to be in five years where the U.S. and China are not the lynchpins and center of the world economy. How do we get to a place where the U.S. can correct its imbalance by contracting and the Chinese can offset it by expanding?

What I'm suggesting is that play is looking very difficult to pull off and in Seoul, for sure; so somehow one has to formulate an alternative play, over the long term, in which other surplus and deficit countries both in fiscal policy, in savings investment imbalances, in trade and in capital flow, those four elements; how can those be pushed forward as you look out five years? What are the alternative ways in which those nineteen G20 countries can adjust their policies in such a way so that there is a pluralistic effort with other midsized members of that group? You take the heat off the U.S.-China situation, and you move forward over the long term to do this.

And I think the other piece I would add to that is that you've got to look beyond the macro policies. You've got to look at what the OECD is calling "structural reforms." You've got to look at things like pensions. You've got riots on the streets of France this week on pension reform. That needs to be looked at. Health care issues are drowning public budgets everywhere. There's a new way of rethinking regulation of the labor markets, financial markets and the services sector.

We've got to do more regulation in the financial sector. The OECD is suggesting in its "go growth" outlook that there should be a greater liberalization or deregulation in the services sector as one source of structural reform which could lead to higher growth, and to focus on productivity change over the long term by stimulating research and development, higher education, science and technology, and trying to boost productivity growth as the foundational element in economic growth.

So I think the G20 has work to do among the leaders, finance ministers and central bank presidents. Among the leaders, it is to shape a policy and a process within the G20 over the long term, and then give a strong and concerted commitment to that. This means agreeing to peer review [and] agreeing to adjust your policies in relation to the scenarios that are being put forward over the five years to get to where we need to get to, including the big countries like the U.S. and China.

Then and then only, secondarily (as the discussions we had with Alan Beattie in Seoul) you don't decide the message and then think you're going to drive the policy by doing the message. You get the leaders to agree to that message, and then you make a very clear message to markets and the public that we have a commitment, on the part of all the leaders, to a process over the medium term to correct these imbalances.

We have an agreement among leaders that this needs to be focused on all economic policies, not just macro policies. It needs to be focused on all the G20s, not just the U.S. and China. It's a cooperative, long-term, tedious process that takes patience, but one that we all understand we have to do; because if we don't, we have a global disaster on our hands.

Any disagreement in Seoul is not a political disaster, but an economic disaster and its leaders must be aware that they must deal with this. They can't do it alone, they can only do it together, and they actually must make a commitment to the process and make it work; not just worry about what the communiqué says. They must submit good projections.

I'm told the first round they submitted was shoddy, really sloppy, just back of the hand. I haven't looked at them. They didn't give the IMF serious data. They need to give them serious data. There needs to be meetings at the technical level to work it out, to tee it up for ministers. The ministers need to tee it up for leaders.

It looks like we wanted to go this way and pass A for domestic reasons, but now we've got international pressure that makes two things clear to us. One is that in order to have a global adjustment down the road, we have to adjust too.

Second of all, the other big lesson out of this is very clear for the economics. If everybody works together, everybody has to adjust less and take less painful adjustments. If everybody says, Screw you, I'm going to contract because I've got a debt GDP ratio that's too high. I just have to deal with it myself. I can't worry about the rest of you. This is sort of the position some countries have been taking. That maybe exaggerates it a little bit, but to say you have to contract no matter what.

The fact is that you have to contract a lot less. If other countries are expanding, and you agree to contract a little bit less than you would have, then you lessen your own dampening impact on the economy, because you know that others are stimulating it. There are multiplier effects here. And they work to multiply, to grow faster.

The danger we have now is that if everybody contracts, of course, that has multiplier effects going down, that spirals downward. That's a vicious circle going downward. What you want to try to do is have enough of the major players in the world doing expansionary policies to have multiplier effects going upwards that countervail the contractionary effects that other economies are doing necessarily to move to fiscal consolidation, which countries have to do, after all.

There's a convincing realpolitik argument here. This isn't just some kind of idealistic, utopian, Oh, we must cooperate sort of scenario. This is real economics. The fact is that you do have to do less painful adjustment if everybody else is on the same page; everybody is trying to adjust together and you use the countries with fiscal policy space, with current account surpluses, with huge reserve accumulations. This is not just China. There are OPEC countries. There are countries in the Middle East. There's Germany. There's Japan. Several countries have reserve accumulation.

So you use that space; but those countries, too, benefit from the fact that other countries don't have to contract so much because their exports will rise, and their economies will grow faster because of their contributions to stimulating global growth and softening the downturn in those countries that have to consolidate their balances.

There's a definite argument to be made here. I organized this conference and symposium in Korea with Alan Beattie and some of the other press, and one of the key things I wanted to do there was to bring out the importance of communications for leadership. The way I put it is, "You can't lead if you're not seen to lead; and you can't be seen to lead without the press."

I felt like the Financial Times had played up the conflict in the run-up to the London and the Toronto summits too much, so I took Alan to task on it and others at the Financial Times, as a matter of fact. And we ended up with a dialogue back and forth which then led to my organizing this session in Seoul and asking the Financial Times to send someone. They picked Alan to send, who was absolutely the right guy. He'd been with us in April when we had an exploratory conference on this whole set of issues for the Koreans with Rhee Chang-young, the Sherpa for the G20.

So, we ran this one down, and the journalists, to their credit, pushed back and said, Look, you don't want the tail wagging the dog here. Yes, we understand you can't lead without being seen to lead and that we play a crucial role, but we can't tell good stories to make it happen. You don't want the leaders and the people around them saying, "Look. This is the message we need to give, so let's give the message."

Thomas Mann, the domestic politics fellow at Brookings began his intervention in this session with the journalists by saying, "Why am I here?" And the reason he was there was because all of this has to do with domestic politics, and all the domestic politics is being driven by job loss in China, the U.S. and elsewhere. So the reason why you've got a tea party movement in the U.S. is because people are angry. They've lost their jobs. They've lost their pension income. They've lost their security.

So Tom Mann said, "The policies have to be credible. There's no substitute for getting the policies right. You have to do that first." And Alan said, "Don't overstretch the narrative. Don't get the message out ahead of where the real policy story is." And Paul Blustein, who is a former Washington Post guy said, "Bad news is good news. The fact is that if the press does bad news, it forces officials to generate the good news." He said that the role of journalists is to be action forces, but before, during and after summits.

All that pushback by the journalists on the critique that I made, I think, was valid. And so, the point I'm trying to get at, here, is that what you need is serious policy commitment within the G20 community. Even if they're not able to do a lot in Seoul, right now, if the Koreans can push the other G20 members and say, Look. We've got a conundrum at the moment that we can't solve now, but we can't just leave it on the table, turn our backs, leave and say, "Oh, well, there's nothing to be done."

This shows that it only can be done over time and only can be done if we all do it together, and it can only be done by taking a very comprehensive, holistic view of the situation, including structural foreign policies, productivity changes, investment in capital, all of those kind of things in addition to the macro policies. That's the only way we can do it.

We have to commit to the G20 peer review process in the framework of strong, sustainable and balanced growth over the five-year period. What we have to do is we say that in France within a year from now, we're committed to being in a better place and to having a better plan, trajectory and pathway forward than we've got at the moment. We commit ourselves to generating that, and we commit ourselves to honest exchange of views and adjustment of our own policies to make that path feasible. That's the message coming out, but it's only a message that has to be there if the leaders mean it.

STEPHEN NOERPER:
Great. Thank you. And I think with the combination of policy and business observers here in the room, you'll find a lot of agreement among those here at the table. Colin, since we have twenty minutes, could we open it up to the table and take some questions?

COLIN BRADFORD:
Please.

STEPHEN NOERPER:
Thank you.

HENRY SEGGERMAN:
You didn't mention Korea very much, so I'm not going to, either. I do want to ask you a sort of historical economics question about what exactly deleveraging is? And let me explain what I mean by my question.

Two years ago, the CDS market was estimated to be $64 trillion dollars. Lehman Brothers went bankrupt because it's book was levered 33:1. It can be assumed that the rest of the $64 trillion in CDS coverage was similarly not 33:1, but was highly, highly levered. And so, most of the economists who were commenting on the financial crisis said, Oh, now we must enter this period of deleveraging.

[In looking back], everybody started immediately talking about Japan's lost decade, at the beginning of which the Nikkei was trading at 39000 and that was completely unsustainable. Ten years later, it was trading at 12000 and really has not reflated measurably.

COLIN BRADFORD:
Reflated, not recovered.

HENRY SEGGERMAN:
Likewise the NASDAQ, which was trading at 5000 ten years ago has not gotten anywhere near that level, so that was a kind of deleveraging or deflation of mispriced assets.

So what happened in what are called the HIICS … Have you heard this term HIICS?

COLIN BRADFORD:
Highly indebted countries?

HENRY SEGGERMAN:
Highly indebted industrialized countries. The central banks and the federal reserves in these various countries bailed out all the financial institutions, including AIG, which essentially was the backbone to all of these levered assets and stimulated the economy with about a trillion dollars, promising even more in this country. In Western Europe, [the] same story.

Is what has happened over the past two years actually [been] a displacement of leverage as opposed to actual deleveraging? Are we in for a longer period of deleveraging, perhaps as long as ten years, before the displaced leverage that went from the private sector onto the taxpayer is worked through?

The reason I ask this question is because it sounds like the argument you are making is that we need more Keynesian stimulus and [along] with that, more bank stabilization maneuvers and so forth. Are we postponing the inevitable? I hate to be so gloomy, but I thought perhaps since you have a Ph.D. in economics and I don't, that you could tell me what deleveraging is.

COLIN BRADFORD:
Well, I'm not a financial economist, but I've certainly been around a lot of them over the last few years.

The whole thing that went awry here, of course, was the relationship between the financial economy and the real economy; the real economy being incomes, jobs, economic growth, GP on the one hand and the financial markets and financial institutions on the other.

And so what I would say, Henry, is that maybe it's realism rather than either pessimism or optimism. I think that the world has learned that overleveraging is really a cause of financial bubbles that you mentioned, where stock markets and housing markets and commodity markets, for that matter, get overpriced.

I mean, in a way, the speculative aspects of the financial system have meant that the dictum that market prices reflect real scarcities and are equilibrium prices are actually wrong. I mean, anybody who thinks that the real price of carbon today is the one that we've got, or that the real price of money today are the ones that we have.

It's just clear that because of the disequilibrium in the financial markets, that it's distorting prices in the real economy, and so you do have these breaks where over the last four years we've had an oil shock, an interest rate shock, a capital flow shock and now a financial market shock, so the global economy has been very unstable. I think the reason is that the financial side of the global economy has inflicted shocks on the real side.

What's the way out of this? The Basel III and all the stuff that will get discussed in Korea. I think that's another thing that Korea can do in the summit in Seoul in November is to say, Look, there's more to what the G20 is doing than just macroeconomic policy coordination. There is also a financial regulatory story that is ready to roll out as a result of the Basel work and can be affirmed by leaders.

And so I think where I share a view with you is that I think we're in for a long period now of more modest, steadier growth, because the financial system is being put in a bit of a harness, which probably is necessary. I think that the public is saying, Who is taking responsibility for this? The trouble with the Anglo-Saxon version of global capitalism is that it's a hands-off version of capitalism and we need a public hand in the story. Somebody needs to take responsibility for this.

I don't think the regulatory reforms coming out of Basel from the FSB are excessive. I'm hoping that it's sufficient, and I think it will mean, though, that there will be less room for speculation. There will be less room for big profits. There will be less growth, but it will be steadier.

And I think if you ask[ed] the public around the world in a Gallup poll, Would you rather have boom/bust, high growth/slump cycles in the future or would you rather have modest, steadier growth [in] the future, I'd be very surprised if a substantial majority of world public opinion wouldn't say, We'll take slower, steadier, thank you.

And that's a good thing. You know, people have to plan their lifetimes and [count on] their pensions. If they have to settle for lower growth rates, knowing that when they get to be seventy, they've got a certain amount of income and they can count on that, rather than having it swiped away from them by financial collapse, I think it's rational. I think that both the private sector and the public sector leaders need to take this onboard and say, Okay, we all loved it when we could play at casino capitalism.

I remember when I bought Tootsie Roll once on a Monday, sold it on Friday and I made a nice profit. Well, that's terrific, but this isn't Las Vegas. It's a great gain, but not when it generates the kind of disaster that this has generated for the global public. Somebody has to take charge of this, and I think the G20 is the group to do it.

HENRY SEGGERMAN:
Thank you.

GIOSETTA CAPRIATI:
I would like to remind you, and everybody, that it was the Italian prime minister in the G8 Summit of January, 2001 that first launched the idea of expanding the G8 Summit to the G20 Summit. In any case, my question is ...

COLIN BRADFORD:
Who was that prime minister? Was that Amata?

GIOSETTA CAPRIATI:
Silvio Berlusconi. No, my dear. Silvio Berlusconi who is still our beloved prime minister.

COLIN BRADFORD:
Yes, right.

GIOSETTA CAPRIATI:
My question is, in spite of the results of the summit, in view of all the problems that you have so cleverly outlined in such depth, how do you think having the summit in Seoul will affect Korea's position in Asia from a political point of view? Thank you.

COLIN BRADFORD:
Good question. To be honest with you, I wish Mr. Berlusconi had been as forthright about his commitment to an expanded G8 in the L'Aquila summit as he had been in 2001, as you suggest. Anyway, that's another story.

I think Korea has impressed the world, already, with its seriousness and attempts to play a leadership role on behalf of the whole world. They've done that in part by the way they've been organizing the summit. They've done it also, in part, by insisting and getting the G20 to agree to have development of developing countries be on the G20 agenda. That has already been agreed to. There's a working group doing it. The French have already said they will take it up next year and carry it forward. There's been a lot of thinking about that.

We, ourselves, at Brookings and other places have contributed to that thinking. The Koreans have reached out to developing countries to get their views, of course, and engage them in the whole process so that the G20 is not seen as doing something for the developing world, but doing something with it.

And there's been a lot of talk that this whole framework for strong, sustainable and balanced growth should include the development of developing countries as part of the grand, strategic design and the way out of the mess; but also the way out of making sure that as we get out of the mess, we're not just arranging it among the twenty but are integrating and including the rest of the world in the whole game plan.

I am sure that there is some resistance going on within Asia. I don't know this for a fact, but I can see when you have a younger, smaller member of a regional community who is suddenly a power (and there's no doubt in my mind but that Korea is a power) rising as fast as it has, and having the kind of capacity that is has on many dimensions, not just economic capacity, but leadership capacity; that their neighbors Japan and China, in particular, are thinking, Whoa, who do they think they are? Let's see what's going on.

One of the things that I've argued for a long time [and] is a real asset for the G20—and I think we touched on this at the last breakfast—a lot of people think it's a large grouping. Some people think it's too large. But it's a large grouping and the benefits of that are that you do have countries like Korea, Canada and Australia just as three examples of countries that are not large, but who act on behalf of more than themselves in the world, and who are respected because of that.

I mean the Canadians are thirty million people. It's not that many people. It's a huge land mass, but it's not that many people. So a lot of people could say, Well, why do you want Canada in the G20? Well, we wouldn't have a G20 today if it wasn't for Canada. I'm convinced of it. And the reason is that Canada, over my professional lifetime, ever since Pierre Trudeau and before that, has been a highly multilateralist country and has conducted its foreign policy on behalf of not only itself, but its neighbors, its regions in which it's involved like the Caribbean, the Commonwealth countries and so on.

So it's been known over decades as being a multilateralist country that takes into account the interests of other people. I think Korea has launched itself in exactly that same tradition, and Australia has as well. You don't have to be big to be influential, if you conduct yourself in a way that includes the interests and views and perspectives of others, and I think Korea has been doing that.

I think it's respected around the world. The Koreans I know are just wonderfully serious people. I mean it's just a delight to go there. I remarked several times that if all the G20 countries took the G20 as seriously as Korea does, we would have the G20 that we want. But not all countries are doing that, and that's the problem.

CHAE-HYUN SHIN:
Thank you for the in-depth and informative explanation this morning, and I really appreciate that. Korea has a unique position in hosting this third G20 summit as a country which has developed from a developing country into one of the eleven largest economies in the world. In addition to the basic agenda: Insuring global economic recovery; a framework for strong, sustainable and balanced growth; strengthening the international financial regulation system and lastly, modernizing the international financial institutions, the Korean government has been very active in promoting three major issues.

One is, as you pointed out during the answer to my previous colleague's question, there is the development issue. And then secondly promoting a global financial safety net which is meant for insuring a system in emerging and developing countries to ensure their self-insurance and also deal with capital flow volatility, financial fragility and prevent crisis contagion. And thirdly, Korea is also aiming at promoting the more active participation of the private sector. With this in mind, Korea is hosting the Seoul G20 Business Summit.

Having said that, I'd like to ask you a very holistic question which is, this morning's subtitle is Korea as a Convener and Innovative Economy. I'd like to ask you what kind of innovative role and approaches or initiatives do you expect the Korean government or Korea to take, taking advantage of this third summit? Thank you.

COLIN BRADFORD:
There are a number of things. The Business Summit is one. They did have a meeting with non-G20 countries on the financial regulatory issue. They are reaching out to regional summits. There is a discussion about whether to have a secretariat to help systematize the incorporation of views from the rest of the world into the G20 summits.

There are a number of other ways in which they are doing this. But the main three are the regional summits, having meetings with non-G20 countries; a secretariat to systematize incorporation of views; and setting aside time within the summits to listen to views from countries that aren't there, not just from them but have them incorporated into the agenda, so there are ways of having non-G20 countries be involved without having them sitting at the table.

STEPHEN NOERPER:
Thank you, Dr. Bradford. We look forward to welcoming you here in the New Year and getting your perspectives having been in Seoul and follow-on to the G20. We look forward to seeing you then in 2011 and we thank you very much for your continued support of this series.

[Applause]