Complacency a risk to reform

People have placed high hopes on the outcomes of the Third Plenum of the 18th Communist Party of China Central Committee, which was widely expected to be at least as significant as, if not more, than the earlier Third Plenums of 1978 and 1993. But the experience with global economic reforms shows that the leadership must be wary of complacency.

Following the Asian Financial Crisis of 1997 and 1998 there were calls for the reform of the international financial system to promote stability. A large number of global economic reforms were proposed for crisis prevention and crisis resolution.

However, with the faster than expected recovery of Asian countries after the crisis, complacency set in and these reforms were abandoned. This complacency partially set the stage for the global economic crisis of 2008 and 2009, when once again, a large number of reform policies were announced. Have they been implemented and has the world become a safer place? Not really, for several reasons.

The first is complacency, yet again. Five years ago, credit markets were frozen, international trade had fallen off the cliff, and the global economy was headed toward a great depression similar to the one experienced in the 1930s. There was an acute sense of urgency; the major economic powers agreed to coordinate monetary and fiscal policies. Policy coordination efforts were successful and instead of a global depression the world experienced the "great recession".

Now financial markets no longer pose an immediate systemic threat to the global economy. The global economy is also showing signs of recovery although it is far from healthy, operating well below capacity with millions unemployed in the west. Policy coordination is still very much required, but it is difficult to attain. The G20, which had made substantial progress in global economic reforms during its first three summits - that is, until the Pittsburgh summit - is now headed toward obsolescence.