Early next month, the leaders of the G20 will be meeting in London to find solutions for the many financial and economic challenges facing world society.

High on the meeting's long and ambitious agenda is how to avoid a retreat to protectionism and, possibly, to kick-start the stalled Doha trade talks. G20 meetings are an acknowledgement by the world's economic powerhouses that leading emerging markets such as China, Brazil and India have a key role to play in global governance. The G20 countries account for 90 per cent of world output, 80 per cent of trade and 65 per cent of global population.

The Obama Administration seems disposed to share global governance as long as this also entails sharing responsibilities and financial burdens.

On its part, the EU knows that this is a unique opportunity to prove that it has come of age. Nicolas Sarkozy is emboldened by the results of his initiatives in Lebanon, Georgia and Gaza. The French President keeps trumpeting his achievements and seems keen to marshal the EU. He is now talking about the need to "re-invent capitalism" so as to give it an ethical base. Indeed, President Sarkozy is hoping that the G20 meeting will lay the foundations for a new economic and financial world order. Many Europeans were starting to look up to the charismatic President as if he were their own Barack Obama. This admiration has been severely tainted by the French government's insistence that carmakers benefitting from its rescue package had to guarantee that no plants in France will be closed and to endeavour to avoid cutting jobs. Mr Sarkozy set off a firestorm when he tried to justify his government's stand, stating that "... while it is justifiable if a Renault factory is built in India so that Renault cars may be sold to the Indians... it is not justifiable if a factory of a certain producer... is built in the Czech Republic and its cars are sold in France" (Business Week, February 11). That certain producer is Peugeot Citroen. Adieu EU, single market and all. Welcome back mercantilism.

When accused of being protectionist, the French leader retorted that for him protectionism was about setting up barriers, tariffs or otherwise that would obstruct the inflow of foreign products and foreign enterprises into France. Any modern trade textbook tells us that Mr Sarkozy offers half an explanation of protectionism and in particular he makes no reference to state aid and export subsidies. Moreover, foreign direct investment is not simply in search of overseas markets.

Czech Prime Minister and current EU President Mirek Topolanek denounced protectionism as being evil and poisonous. EU leaders (summit meeting, March 1) reiterated their commitment to the single market and their determination to reject protectionism so as "to prevent a new 'iron curtain' dividing the 27 nation bloc into rich and poor halves" (The Sunday Times, March 1).

So does President Sarkozy need a crash course in economics or was he playing politics?

Germany has been insisting that each EU country formulates its own "home-made" strategy to combat the economic crisis. To boost the car industry, Germany is giving a bonus to all new buyers (irrespective of make) who trade-in their old cars. Still, Germany significantly reduced non-wage labour costs to enhance the competitiveness of its enterprises. The key question is: At what stage does an economic stimulus measure become a form of protectionism?

Paul Krugman, who recently was awarded the Nobel Prize in economics, has argued that in the present circumstances, protectionism resulting from economic stimuli structured to benefit domestic enterprises is a better option than governments doing nothing.

The economic crisis is underlining the importance of economic policy coordination at a global and regional level. After two decades of belief that there is no room for state intervention, economic policymakers are at best confused. They realise that governments are, first and foremost, accountable to their own citizens and will act in the "national interest", even though the spectre of the Great Depression hovers above.

Matters are further complicated by the fact that for many of these policy-makers free trade and globalisation have come to mean the same thing. Globalisation is a much broader phenomenon that is driven by the unhindered flow of capital across borders. While the advantages of free (but fair) trade for all the participating countries are well-documented, the benefits of current globalisation are not so evident. Free trade enables each country to specialise in goods and services it can produce most efficiently due to some form of "natural" or comparative advantage. Globalisation tends to create winners and losers across borders.

Just as physics continues to be riddled by the apparent incompatibility of general relativity theory and quantum mechanics, market economics need to reconcile the supremacy of individual as against collective action. If a society's welfare is maximised by each one of us as individuals seeking maximum "personal utility" (satisfaction, value, happiness) why shouldn't global welfare be maximised by each country seeking maximum "national benefit"? In other words, why should the "invisible" hand work at a national but not at a global level? Perhaps the G20 will enlighten us on this issue before it embarks on creating a new world economic order.

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