As representatives of nearly 85% of the World’s economies gathered in London for the G20 summit, those gathered were already divided before the opening speech was even delivered. Gordon Brown and Barack Obama made a big show of the summit. They made it very clear in speeches running up to the summit that failure would mean a prolonged recession for the world. Implicitly stating they have things under control.
The G20 summit meeting in London came a week after a visit to New York by UK Prime Minister Gordon Brown, who has called for a ‘worldwide fiscal and monetary stimulus.’ Hours before his remarks, President Obama appealed for all countries to bear the burden of spending to stimulate the world economy.
Other European leaders, particularly French President Nicolas Sarkozy and German Chancellor Angela Merkel, wanted tougher financial regulation to be the priority of the G20, such differences only widened once the summit kicked off.
The latest statistics are exceeding even the gloomiest projections made earlier. Analysts are beginning to mention the dreaded “D” word (depression). It is accepted amongst many that the tidal wave gathering momentum will simply overwhelm the trillions of dollars allocated for stimulus spending. In this environment, the G20 in reality is more commanded by, than in command of developments. In addition to the seven wealthy industrial nations that belong to the G7, the G20 includes China, India, Indonesia, Mexico, Brazil, Argentina, Russia, Saudi Arabia, Australia, South Korea, Turkey, Italy, and South Africa.
All the talk at the summit about regulation, a green New Deal and ‘partnerships of purpose,’ mask the fact that there have really been only two approaches to dealing with the global financial crisis: massive bailouts from taxpayer’s money to stop banks and companies going bankrupt. Those institutions that are beyond repair have then been nationalised so the whole economy doesn’t sink with them. Such actions have done nothing to stem the rollercoaster that continues to hurtle through New York and London.
The G7 nations do not know whether their Keynesian interventionist methods can re-inflate the global economy, but one thing is for sure, Western governments will continue with this failed approach. The G20 summit managed to cobble together another $1 trillion (primarily from China) which will be pumped into the world economy through a variety of means.
The G20 meeting was trumpeted as a new ‘Bretton Woods.’ In July 1944, in Bretton Woods, New Hampshire, representatives of the state-managed capitalist economies designed the post war order with themselves at the centre.
The Bretton Woods Conference created new multilateral institutions and rules to manage the post war world. The G20 is recycling failed institutions: the G20 itself, the Financial Stability Forum (FSF), the Bank of International Settlements and “Basel II,” and the now 65-year-old International Monetary Fund (IMF). Some of these institutions were established by the elite Group of 7 after the 1997 Asian financial crisis to come up with a new financial architecture that would prevent a repetition of the debacle brought about by IMF policies of economic liberalisation. But instead of coming up with safeguards, all these institutions worked to remove the levers that would have protected the world from the current catastrophe.
They permanently removed capital controls, as these were bad for developing economies; short-selling and speculating on the movement of borrowed stocks, was a legitimate market operation; and derivatives – or securities that allow betting on the movements of an underlying asset – ‘perfected’ the market. The implicit recommendation of their inaction was that the best way to regulate the market was to leave it to market players, who had developed sophisticated but allegedly reliable models of ‘risk assessment.’
The G20 leaders in the final communiqué threw even more money at the failed IMF. It will receive nearly $750 billion in new cash and in almost all cases will use this for austerity measures against the third world for which it is known notoriously for. It will most likely also carry out one of the communiqué demands of naming and shaming protectionist countries.
Institutions that were part of the problem are now being asked to become the central part of the solution.
Both Britain and the US have been on the back foot for the last two weeks as they attempted to create public opinion for their global response. The problem with the UK and US positions is they are in a hole that they created, which they are now unable to climb out of. Brown and Obama are running big current account and budget deficits that limit their room for manoeuvre. They can call for a global stimulus but they do not have the cash to do it on their own. The nations that do have money and big current-account surpluses, whether in Asia or Europe, are in no mood to listen. This is the first economic crisis in decades in which political muscle and financial might are not in the West. At the Bretton Woods conference of 1944, Washington had the money that enabled it to call the shots. In the emerging-markets crisis at the end of the 1990’s the US could act as the consumer of last resort, buying goods from struggling Asian exporters. Pursuing that policy for so long helped to lead America into this predicament – this option is not viable today.
Leading Indian economist Jayati Ghosh speaking at a Guardian debate in March 2009, identified three major imbalances: the imbalance between finance and the real economy; the huge current-account deficits run up by America and Britain while Asia and oil-exporting countries amassed large surpluses; and a world economy over dependent on exploiting natural resources. To which can be added a fourth imbalance: between those right at the top of the economic pile and everyone else.
Conclusions
The G20 gathered when their own economic architecture that they designed was crumbling in front of their very eyes. Most of the G20 nations were complicit in the credit binge that caused the worst economic crisis since the great depression. Western governments stood idle when cavalier bankers excessively borrowed to lend and than spend without the need for any checks and balances. When they failed and caused the crisis they are meeting in summits to bail them out.
The G20 nations gathered in the spiritual home of finance and claimed they are trying to agree a framework to rescue the world. However they stood more divided than ever. As the world burns, the G20 nations in no way dealt with the underlying problem of rampant speculation, economic growth at all costs and reckless lending, they added mere cosmetic changes to the problem through talk about light touch regulation, stricter controls, restricting bonuses, common approaches and confirming previous pledges. Once again greed and excess which is at the heart of the problem was ignored.
The final communiqué added little to what has already been attempted by Western powers. The G20 stood divided at the beginning of the conference, at its end although they stood in agreement with what was in the communiqué, what was agreed amounted to nothing.
No amount of legislation or regulation will restrain behaviour driven by greed, individualism and living beyond ones means – core capitalist values. Throwing more money at the problem is in fact attempting to cure the disease ridden patient with the virus itself. The complete overhaul and revamp of the system is really the only salvation left, if anyone is interested in bringing to a halt this human crisis.
It is saddening Turkey, Saudi Arabia and Indonesia with illustrious histories sit amongst proud G20 members who are attempting to salvage the crumbling remnants of Capitalism. Rather than representing the alternative as they did in their respective histories they work with this corrupt capitalist system in order to salvage what remains of it.
As the conference began the Capitalists nations gathered from a position of weakness. The days have gone where such nations had the moral high ground. Their last ideal which was sold to the world is on its death bed. Now is the time for the emergence of a new system which has a history of stability and economic success – the Islamic economic system