COVER STORY • Global Governance at a Crossroads – a Roadmap Towards the G20 Summit in Osaka • 4

Interview with Amar Bhattacharya, Senior Fellow at the Global Economy and Development
Program at the Brookings Institution

Quality of Infrastructure Will
Be Enhanced with Better
Globalization Under the G20

By Japan SPOTLIGHT
The needs of developing countries will have to be taken into account by the G20 nations not only for
their own interests but also for global economic growth, as the major sources of world growth are now to
be found in developing countries. Building infrastructure will be critical in meeting the basic needs for
economic development in these countries. But infrastructure must also meet new demands such as those
imposed by the environment, economic inclusiveness, digitalization and the aging of societies. Given theconditions of global governance at this moment, how can the G20 achieve this task of providing highquality infrastructure around the world? Amar Bhattacharya, a senior fellow at the Brookings Institution,offered us his views.
(Interviewed on Feb. 15, 2019)

Introduction
JS: Could you please briefly

introduce yourself, youracademic background and yourwork at the Brookings Institution?

Bhattacharya: I am a senior fellow at the
Global Economy and Development Programat the Brookings Institution. My field andmain topics of research are global
governance, development finance, climate,and sustainable infrastructure. I waspreviously director of the Group of 24, anintergovernmental group of developing
country finance ministers and central bankgovernors, for seven years, and prior to that
I was at the World Bank and served as
senior advisor to the president of the bankon global governance.

G20 also has a number of engagement
groups. These are not official, but voluntarygroups that are associated with both G20
countries and non-G20 participants. One ofthese is called the “B20” (B is for business),
and the T20 comprising think-tanks (suchas the Japan Economic Foundation) thatorganize around policy issues. Then there isa Women’s 20, a Youth 20, and manydifferent engagement groups that all provide
inputs and thoughts into the G20. In the T20
various task forces prepare policy papers
which are provided as input, and not justlimited to the current year’s agenda. We try
to look to the future and identify issues thatdeserve attention, even if they are not on
this year’s agenda. We are not bound by theAmar Bhattacharya
political positions of our countries, and try
to collaborate with people from all sets ofcountries as the objective of the T20 is to foster understanding.

T20 Think-tanks
JS: Turning to global governance, could you explain

about the T20 – the preparatory process for the G20 –and your assessment of it so far?

Bhattacharya: The work of the G20 is primarily done through what
we call the finance ministers track – finance ministers and central
bank governors – on economic and financial issues, and also underthe “Sherpa track” which reports directly to world leaders. There arealso ad hoc meetings among energy ministers or labor ministers. The
https://www.jef.or.jp/journal/

JS: Would the involvement of think-tanks be

conducive to enriching and leading the discussionsof the G20 towards more evidence-based and moretheory-based outcomes?

Bhattacharya: This is particularly important now as we facechallenges to multilateralism. There are also many global challenges
that require collective global action and so the T20 can be objective
and evidence-based, and suggest solutions to counter some of thenegative effects of globalization and identify transitions that have to
be managed. The T20 is a good place to have serious discussions
Japan SPOTLIGHT • May / June 201917

COVER STORY 4

without politics being the mainstay.

Crucial Role of G20
JS: Looking at the world economy today, we see

increasing weight on developing countries. To
revitalize the global economy, it will be necessary to
encourage the growth of developing countries. How
do you see the role of the G20 in this regard?

Bhattacharya: Something like 70% of global growth comes fromemerging markets and developing countries. They are the realengines of the global economy and will become even stronger. This isa positive development because in some advanced countries
population growth is slowing and there is aging, so there is lessinvestment. There is a disconnect between the pool of savings that acountry like Japan has and the opportunities for investment andgrowth and other parts of the world especially in emerging markets
and developing countries. From the perspective of growth, you need
to be able to have these countries “in the tent” and to find better ways
to support growth, through investments in infrastructure, forexample. We are in a very interconnected world and instability canquickly spread across borders, so stability in emerging markets isvery important. This means they have to be part of the system and thediscussions around financial stability. The third aspect that isextremely important is the challenges to the global commons.
Already, China’s greenhouse gas emissions are twice those of theUnited States – meaning you can’t tackle climate change without
China or without India, so having these countries as part of thesystem is very important. Global challenges like oceans, climatechange, biodiversity – all of these require working with the larger
developing countries, and the G20 is the largest and most practicalway of engaging with these emerging economies. The G20 provides aforum to come together in a pragmatic way to discuss theseimportant issues.
JS: The G20 countries are not necessarily like-minded,and so presumably a process is required forachieving compromise in the consensus-making
process?

Bhattacharya: Let me be somewhat provocative. I was Sherpa for theWorld Bank in its engagement with the G7 and G20 and have watched
18 Japan SPOTLIGHT • May / June 2019

both processes very closely. It was very popular to say that the G7 is
like-minded, but today this is not true. There are differences between
the G7 as there are in the G20 – fundamental differences. Politicalorientation in the G7 is similar in the sense they are mostly liberal
democracies, but even in that aspect there is more and more tension,and even more so for policy issues where there are huge differences.
There are some issues on which some G7 countries and someemerging markets are of one view and issues where other G7 andG20 countries are of another view.
For example, a big issue after the 2008 financial crisis was theapproach on fiscal policy. After the crisis there was a huge fiscal
stimulus led by the US and the United Kingdom, supported byemerging markets including China. The big fiscal stimulus camefrom Japan, the US and to a lesser extent from Europe. By 2009,
several of the G7 countries did not want fiscal stimulus; Europe
didn’t even want an expansionary monetary policy. Japan was
pushing for both expansionary monetary policy and fiscal policy, theUS was pushing for expansionary monetary and fiscal policy, while
in Europe most countries were somewhat skeptical, and while many
were supporting expansionary monetary policy (with the exception ofGermany), on fiscal policy there was quite a lot of resistance fromthe UK, Germany and other countries. In the G20 countries it was nota question of the G20 vs G7 – we emerging markets were arguing for
fiscal stimulus while European countries were not. Rather than
thinking in terms of like-mindedness, one could say that the social
capital in the G7 was such that it was possible to have good
discussions and come up with common agreements. I would argue
that we have reached the same level of social capital formation in theG20. There are differences but these have been in the G20 and theG7 – if you look at climate change, in the last two years it has been
G6 minus one. In the G20 it was G19 minus one. The idea of likemindedness – which I have heard over and over again – reallydoesn’t hold water in today’s world, and it is more the case thatcertain countries have commonalities and views, and the alliances
are now shifting.
We live in world of variable geometry – people align on different
issues depending on their positions. Surplus countries versus deficit
countries, oil importers versus exporters, fiscal expansion countries
versus anti-expansion countries, and so on. Views and interests aremuch more variable now, and so in the G20 we cannot identify anorth-south divide as you might have expected.
If you look at the structures – G7, G20, BRICS – these are all
variable geometry. There is more diversity among the BRICS thanCOVER STORY 4

there is in the G20; the BRICS are big countries with domesticoriented agendas, but arguably they came together almost because
they were excluded from the G7 despite being such important
countries. Today, they have recognized that diversity is a good basis
for dialogue, and for commonality of action. Whether it is the BRICS,
the G7 or the G20, the main thing is to find common purpose, tocommit to a better globalization, to aspire to support development in
the poorest countries. As think-tanks, we need to bring the pressing
global challenges to the attention of all these groups as well as
provide ideas and suggestions for common solutions, and then holdcountries to account.

Better Globalization
JS: We think of better globalization as the concept of

pursuing consistency between globalization anddomestic reform, including compensation for the
possible losers in globalization. Would this be an
accurate description?

Bhattacharya: When I was a student at Princeton, I met a professor
named Kemal Derviş who wrote a book called A Better Globalization(2005). In that, he basically said that better globalization is first of all
rooted in better governance. It must be truly multilateral andinclusive. The second pillar of better globalization is that it must take
into account the interests of all, not just between countries but withincountries. Globalization in the last 50 years has not done that, and in
the US and Europe there are too many losers. Third, it must produce
measurable outcomes, which is the evidence-based part. A lot of what
we do is based on theory – trade is going to be good for all people,
etc. – but we don’t really evaluate whether it has produced thosebenefits, and what some of the true costs have been. Betterglobalization to me is rooted in better governance, inclusivity andmeasurable results, if we want the common person to support it.

Infrastructure Discussion in T20 Process
JS: You are a member of the infrastructure task force

in the T20 process. Is enhancing global growthpotential the main goal of infrastructure investment?

Bhattacharya: One way to look at infrastructure is that it makes allother forms of capital more productive. If you invest in infrastructure,

it increases the returns to other physical capital. It makes humancapital more productive because of the access to education andhealth. It also makes social capital more productive, and natural
capital productive. Infrastructure is a foundation not just for growth in
the narrow sense, but for human development and environmental
protection. It is particularly important now because the infrastructureof the past was not as sustainable as it could have been, in that it led
to the destruction of a lot of natural capital such as ecosystems,
biodiversity, etc. But it has also led to unsustainable additions ofcarbon. For example, 60% of carbon emissions come from thebuilding and use of infrastructure. While infrastructure is critical for
growth, if you have bad infrastructure it can leave you with bad debt,
it does not produce good outcomes and it can destroy theenvironment. That is why Japan has been putting emphasis this year
on quality infrastructure. Infrastructure investment must attain quality
and sustainability if it is to produce positive outcomes and not leave anegative impact.
JS: As you already mentioned, under the G7/G20

process, quality of infrastructure has become a very
important issue. Is it unusual for the G20 or G7 tohighlight infrastructure?

Bhattacharya: There are two challenges in this respect: one is that wehave huge needs for infrastructure in most countries. Even in the US
we have huge needs for infrastructure, and we are not achieving
those needs. On the other side, much of the infrastructure that we arebuilding is not as good quality as it could be, so both of thesechallenges need to be addressed together. We have to be able to scale
up investments, and ensure that the infrastructure investments are
better than they were in the past. The good news is that actually today
we have many more options to deliver on quality infrastructure
because of technological improvements, and because of
improvements in policies and institutions. We have launched a global
partnership around quality and sustainable infrastructure and so theemphasis by Japan is very timely, and allows us to highlight whatneeds to be done and then to push on that agenda. There is now very
good cooperation among the multilateral development banks, theOECD, the global infrastructure hub, and think-tanks – we are all
working in defining this agenda. Before criticizing other nations suchas China, each nation needs to look at itself and what it needs to do.
American infrastructure is in many respects lacking in quality, so thisis a worldwide challenge.
Japan SPOTLIGHT • May / June 201919

COVER STORY 4

JS: Turning to the digital economy, with FinTech andthe digitalization of financial services, would someinfrastructure be necessary to achieve innovationand inclusiveness of economic growth?

Bhattacharya: The digitalization of the economy is raising manycross-cutting issues. At one level, it’s the way in which we organize
and it affects the future of work, because we are changing the natureof work. In the first wave of automation it was machines doing
repetitive tasks and physical tasks, and the replacement in assemblylines by robots. Today we are in the second phase of machines
replacing brains, and in some cases machines can do things better.
An example of this is face recognition where machines have left
humans far behind. The whole world of artificial intelligence (AI) andthe digital economy has tremendous possibilities but also
tremendous uncertainties. Because the changes are so fast, the G20
should remain very engaged in terms of both understanding thenature of the changes but also in terms of the rules of the game. Not
just the G20, but also the United Nations; we are fast approaching aperiod of autonomous weaponry, which will open up all kinds ofissues. Some of the reasons for pushing AI are very reasonable – in acountry like Japan, machines might be able to provide a better qualityof care for old people.
The digital economy is here to stay, and the challenge will be how
to achieve the level of education and skills to be able to keep up with
it. There are huge internal issues also. My country, India, is one of
the leaders of the digital economy, but most people have noknowledge of it or access to it. We have the largest number ofcomputer engineers, but also the largest number of people who arecomputer illiterate, so it can be inclusive and exclusive at the sametime. These issues warrant tremendous attention, and it is why G20
countries are placing so much importance on the digital economy,both for the opportunities and the challenges it presents. We need toensure the infrastructure to participate in the digital economy, andthen to think about the application of the digital economy in various
sectors, of which FinTech is only one example. In the case of
FinTech, the digital economy is a disruptive source, but it also has
many positive elements, such as improving access and reducing thecost of financial transactions. But it also poses challenges because it
is taking finance out of its traditional domain. The most difficult
challenge is to show that the digital economy does not really have
major disruptions in terms of employment and inclusion in bothadvanced and developing countries.
20 Japan SPOTLIGHT • May / June 2019

JS: To achieve inclusiveness in the digital economy inparticular, as there are aging populations all over theworld, we need to avoid a digital divide. Perhaps
education will be very important to achieve this goal.
In that sense, infrastructure should include“software” for education.

Bhattacharya: Absolutely. When we think about infrastructure, weshould not just think about physical infrastructure but also the softer
aspects. In the digital realm, the educational aspect is essential.
Everybody today in modern society needs to be digitally literate, andwhat I find very striking as someone from a poor country is the extent
to which people become digitally savvy. There are farmers in India
doing futures transactions on their cell phones, and people are able touse search algorithms. Younger people especially learn very quickly,
but in an aging society many people are excluded from the digitalworld and will require a certain amount of education so that they canat least use computers. These are manageable sums, not hugeamounts of money. If you can offer computer classes to people whoare aging, you can even offer these online.
I don’t think computers will replace movie script writers because
there is too much creativity involved, but they will replace architects,
for example. We will see a huge amount of changes, and these haveto be monitored at the global and national levels, and responded toaccordingly as there could be a major impact on jobs in the next
15-20 years.
JS: Big data could become one of the major

infrastructures for developing countries to achieverobust economic growth. Currently, there do notseem to be any rules preventing the abusive use ofdata. There is a movement in certain nations to create
new rules, and if national rules are created there may
be a need for the international harmonization of theserules. Infrastructure discussion could be expanded tothat kind of aspect of regulatory reform in the digital
economy.

Bhattacharya: This debate is already underway, and will intensify. The
big fight that is taking place is, does the data belong to the person
who is generating the data? Does it belong to Google or is it my data?
This discussion is currently happening in individual countries, andwithin the EU, but once there are some domestic laws in an individualCOVER STORY 4

country then we can proceed to the next step – international
harmonization of those laws.

Peer Pressure – Key to Better Globalization?
JS: In achieving such better globalization,international peer pressure will be very important.
Exchanging information on infrastructure or
regulations or educational issues will be very
important in creating such pressure. Would you
concur that the G20 would be a good starting point tocreate this kind of peer pressure?

Bhattacharya: In some cases it is important, but not only peerpressure, but also peer learning. Infrastructure is one of the more
complex decision-making processes because we are building
something for future generations that is decided by short-term
policies and decision-making structures. Infrastructure produces
positive and negative externalities which play out over the long term,
and because of this, the financing of infrastructure is a big challenge.
It makes decisions a very complex business, and we are trying hard
to identify examples of best practice that we can learn from. Japan
has a very good history of infrastructure, but some of the most recent
innovations for management and digitalization are happening in the
UK. In spatial planning, one of the leaders happens to be Spain – so
we can all learn from each other, and it is one of our objectives toaccelerate this process.
On another front, we need to use benchmarking as a way toensure the quality of investments. I have no problem with the Beltand Road Initiative, but I want to be sure that the investments are ofhigh quality. We need to be transparent about the investments we aremaking and to be able to assess value for money. China is making
investments in Africa, and the US is making a lot of private-sector
power projects; I don’t know what the value for money of thoseprojects is, I just know that the cost of delivered power is way too
high, whether it is from the US or Chinese projects. When it comesto peer pressure, it has to be evidenced-based and benchmarked.
We are embarking on a project to try and understand the results ofinvestment in Africa’s energy. China has done major hydro power
projects – what did they cost, what is the delivered cost of power?
Peer pressure is part of it but it must be based on transparency andbenchmarks, otherwise you are in the world of perception.

Achieving Better Financing for Infrastructure
JS: Financing is very important for infrastructure

projects. What do you think would be the possible
compromises among different financing institutions?

Bhattacharya: When it comes to financing for infrastructure, themajor impediment is not finance but the funding of infrastructure.
Where will the revenues for the project come from? Will it come fromuser charges, or government revenue? Will it come from spillover
taxes?
Because infrastructure is very long-term, we need finance to beable to take these high upfront capital costs and have them paid overa long period of time. In emerging markets and developing countries,
risks are quite high, especially early-stage risk, so we are looking toinstitutions to be arbiters and to do the risk mitigation. There is nocompetition between the Asian Development Bank and World Bankor the Asian Infrastructure Investment Bank – the scale of thefinancing needed is so large that we need all of these institutions andmore. In fact, we don’t need them only for finance, but also for thepolicy and institutional side, for scaling up projects and country
platforms for project preparation. Suppose Indonesia wants anenergy program for the next 10 years and wants much more money
coming from the private sector – you could create a platform thatasks the Indonesian government to specify its investment program,to set out standardization of documentation for international anddomestic institutions. Then the multilateral development banks
should support this not one by one, but as a system. We are now
discussing this idea of country platforms in the G20 for thesecountry platforms to scale up infrastructure and ensure that it isgood quality.


Written with the cooperation of Joel Challender, who is a translator, interpreter,
researcher and writer specializing in Japanese disaster preparedness.

Japan SPOTLIGHT • May / June 201921