World leaders must resist the urge to retreat into protectionism amid the global economic crisis, Robert M. Kimmitt, former deputy secretary of the US Treasury, said in a public lecture at the Lee Kuan Yew School of Public Policy.

“We have never had a crisis this global,” he said. “We are living in the midst of a unique moment in the global economy. We will recover, but the timing depends on our commitment to resisting protectionism and to reforming the financial architecture.”

Kimmitt addressed an audience of students, faculty, diplomats and other visitors at the school as the leaders of the G-20 countries met in London to find ways out of the global recession.

The world must prepare for a new order that is “better able to spur market opportunities and avert future crises,” according to Kimmitt. He said leaders must find a balance between prudential regulation and market discipline, reform the global financial architecture, and back up their commitment to free trade and open investment as guiding principles of a healthy global economy. These issues must be interwoven with on-going crisis management discussions and decisions.

World leaders must closely coordinate financial regulation.

Robert M. Kimmitt Former Deputy Secretary of the U.S. Treasury

Job Creation

He argued that free trade is a job creator, rather than a destroyer.

“Any politician’s first three economic priorities are jobs, jobs, and jobs,” he said. “Politicians should embrace open investment and the jobs it creates.”

 In the US, every $10 million of foreign direct investment creates 30 jobs. About 5.5 million Americans work for companies headquartered overseas. These foreign-supported workers comprise about four percent of the private work force in the US. They also account for ten percent of capital investment, 15 percent of annual research and development, and 20 percent of US exports.

Almost 40 percent of those foreign-sponsored jobs are in manufacturing, whereas less than 15 percent of the overall US economy is in manufacturing, Kimmitt said.
“These are jobs for which we should be competing and fighting and not resisting through restrictive protectionist measures,” he said.

Financial Architecture

The world’s financial architecture also needs to reform to keep pace with the challenges and opportunities of the future, Kimmitt said.  The system is still based on the conditions that existed following the 1944 Bretton-Woods conference. The World Bank and International Monetary Fund need to be restructured to reflect the current global economy, he said.

“It will require tough decisions on sensitive subjects like quota and voice,” he said. “They have a crucial role for economic development and financial stability.”
The G-20 will assume greater significance as a forum to address the crisis, Kimmitt said.

“President Obama will underscore in London tomorrow at the leader’s summit, the imperative of raising standards across the globe and encouraging a race to the top, rather than to the bottom,” he said.