“Before you’ve finished your breakfast this morning, you’ll have relied on half the world.” — Martin Luther King, Jr.
The Davos to Seattle Award for Best Crisis-Themed Song goes to The Destroyers for their tune ‘Where has the money gone?’ The Destroyers are ‘a 15-headed conflagration of instrumentalists, vocalists and composers, specialising in turbo-folk mélanges of Gypsy, Balkan, Klesmer and beat poetry.’
The latest G20 summit seems to have gone off as well as could be expected – and perhaps a little better. Markets are up today.
It’s always hard to know how much was decided in advance, but damn near all of it would be a pretty good guess. The final communiqué is now available and it’s clear to see that the expanding role of the G20 itself is the most significant outcome, on the face of it, at least. More on that later. Interesting as well to see Nicholas Sarkozy continues to speak in quite progressive terms about banking reform and the decline of (what he would call) the Anglo-Saxon economic model (‘le laisser-faire, c’est fini’). Together with Angela Merkel, he’s been leading Europe’s push for firmer regulation and bonus caps. In comparison to these right-wing leaders, Gordon Brown (leading a social democratic party) has been dragging his feet somewhat on the caps, though seems to have relented in the end. However, The Economist believes that the outcome was a ‘fudge’:
Going into the summit they [France and Germany] had pushed hard for firm numerical limits on bonuses as a proportion of revenues or capital. The language of the communiqué, however, was closer to the Americans’ position.
Other key outcomes of the meeting included a declaration of intent to reform IMF voting structures by 2011. Any change will be at the expense of European board members, who will have to give up at least 5% of their voting weight, in part to China. Blake Hounshell is:
interested to see if Geithner’s ideas for reforming the IMF gain any traction. The micro story is a technocratic one, but the macro story could be yet another sign that China is being welcomed into the inner circles of global power. The scuttlebutt is that the Treasury secretary hopes to persuade China to sign on to his priorities on capital requirements and other reforms in exchange for getting a larger share of control of the fund. Anyone know the Chinese word for “bribery”?
The Fund is also getting another funding boost of $500bn. The IMF’s twin – the World Bank – was also discussed and noises (though no committments) have been made about small voting changes there too. More details will be available in the run-up to the Bank’s spring meeting next year.
Broader questions about banking regulations got a good deal of attention, though nothing firm came out of the meeting. However, it is important to note that since the London Summit, G20 leaders haven’t taken the easy route and gone quiet on the subject. This is presumably partly due to the domestic political benefits of looking tough on bankers. Somewhat surprisingly, though, the G20 does seem to be serious about real united reform and progress on tax havens has been substantive. The idea of ‘living wills’ for too-big-to-fail institutions has also been addressed in order to set up special regulatory regimes for systemically crucial firms.
On fiscal stimulus, politicians seem to be taking the necessity of working in concert more seriously. The EU fears that the US will ‘turn off’ its stimulus too early, perhaps fostering a much-feared ‘double-dip’ recession. However, the Group pledged not to pull pack on countercyclical policies just yet. The FT heralded ‘a striking area of consensus, given the arguments about stimulus that raged ahead of the previous G20 heads of government meeting in London in April.’
Outside, the protests apparently lacked focus, which is no real surprise. This is the danger of setting yourself up as ‘The Movement’. It’s not meant to be a secret society. On the other hand, Pittsburgh did witness what seems to be the first public use in a democratic country of the sonic blast cannon.
The really interesting point, as mentioned above, is the ascendance of the Group itself. Pittsburgh, in its own words, ‘designated the G-20 to be the premier forum for our international economic cooperation’. This is a body that theoretically represents 90% of world economy and 2/3 of its population. Summits will take place in Canada and South Korea next year and – in theory at least – annually thereafter. Brookings has a paper out on this (but I’d skip straight to the bottom of page four if I were you). Martin Wolf writes (FT leaflet) that ‘for the first time since the industrial revolution, economic power is no longer concentrated in western hands.’ One would have expected Wolf to be more sceptical of the idea that de jure power will translate to anything meaningful. Paul Collier certainly is:
In a world that needs collective action but is composed of 194 governments, the overarching problem is free-riding. The burden of global leadership inevitably will fall on those few governments that are manifestly too big to free-ride. There will be only five such governments: America, China, India, Japan and the 27-in-one European Union. Over the next decade each of these governments will realise that it can be a deal-breaker: if it tries to free-ride, the other four will refuse to step up to their responsibilities. These five will be the G5, the group that runs the world.
As Wolf acknowledges:
The whole point of the G20 is to allow the world’s most important leaders to have a proper discussion about the world’s most difficult problems. But with 29 people, plus support staff, in the conference room, it will be very difficult to break through the formalities. One diplomat involved in the planning for Pittsburgh points out that if everybody around the table insisted on making a three-minute opening statement, it would take an hour and a half before the discussion could even begin.
Marc Weisbrot has suggested that the move from the G8 to the G20 is not as significant as has been made out, since the G20 lacks any (formal) power of enforcement. For Weisbrot, the G20 issue distracts from the structural iniquities of power at the IMF, World Bank and WTO.
The G20 is not a permanent body, nor does it have a headquarters or secretariat. This might help it in terms of flexibility – in global governance, there’s actually something to be said for ad hoc decision making (what wonks call variable geometry – but it won’t do much for equality between rich and poor countries. There’s also a danger that as ‘the premier forum’, the G20 starts to feel entitled to make decisions affecting non-members without consultation. Before this becomes too gloomy, though, it’s worth saying that 20 voices are better than 8 in democratic terms, so at least this is a move in the right direction, more or less.
From the scene, Paul Mason wrote that ‘bit by bit the world is moving from an order based on treaty and formal sanction to one based on consensus, horse-trading and the diffusion of power’, adding that ‘here inside the Pittsburgh G20 Summit it feels like being there at the birth of a postmodernist medieval empire.’ Has Mason been reading Hedley Bull? Either way, I suspect he’s right.
According to IMF calculations, emerging economies will account for 100 per cent of the growth in world output in the three-year period 2008-10. And even assuming that the US and European economies return to their long-term growth paths from 2011 onwards, the IMF expects emerging markets to account for 70 per cent of global growth for the following five years.
– Anatole Kaletsky, writing in yesterday’s Times.
Marc Weisbrot of the Center for Economic and Policy Research has written an op-ed on the IMF’s increased funding and possibilities of reform. At the core of his argument is the belief that the Fund simply hasn’t changed since the bad old days so excoriated by the likes of Stiglitz and Sachs:
in spite of the depth of the world recession, the Fund is too willing to sacrifice employment, and increase poverty, in pursuit of other goals. A country can always reduce a trade deficit by shrinking its economy, since that causes households and businesses to import less. The main purpose of IMF lending in the current crisis should be to enable low- and middle-income countries to do more of what the rich countries are doing: adopt stimulus packages that counter the downturn.
It’s not often that an article comes along with that you can agree with without reservation or qualification, but I think that this might be one of them. In the meantime, The Economist worries that all the attention the IMF is getting runs the risk of sidelining the World Bank. Over at the Bank, Shanta Devarajan insists that ‘even though it is the least integrated with the global economy, Africa may be the worst hit region by the global economic crisis’, due to falling private capital investment inflows, falling remittances, falling commodity prices and falling foreign aid. Owen Barder addresses this last point when he notes that while Wednesday’s Budget didn’t cut aid, it didn’t raise it either. Duncan Green is right to suggest that with Britain’s fiscal condition the way it is, this demonstrates the Prime Minister’s genuine (and somewhat exceptional) commitment to international development.
Across the pond, Simon Johnson argues that the current financial crisis is a similar one to those that plagued middle-income countries in the 1990s:
In each of those cases, global investors, afraid that the country or its financial sector wouldn’t be able to pay off mountainous debt, suddenly stopped lending. And in each case, that fear became self-fulfilling, as banks that couldn’t roll over their debt did, in fact, become unable to pay. Just as in emerging-market crises, the weakness in the [U.S.] banking system has quickly rippled out into the rest of the economy, causing a severe economic contraction and hardship for millions of people.
It’s been widely observed that the US (and other western countries) are now engaging in the very economic recovery strategies denied to the likes of Argentina, Malaysia, Thailand and South Korea. (See Marc Weisbrot’s article for more on this – even now, El Salvador’s agreement with the IMF prevents it from using expansionary fiscal policy.) But for Johnson the financial sector has learnt little from the crisis:
there’s a deeper and more disturbing similarity: elite business interests—financiers, in the case of the U.S.—played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse. More alarming, they are now using their influence to prevent precisely the sorts of reforms that are needed, and fast, to pull the economy out of its nosedive.
Plus ça change, plus c’est la même chose.
The IMF’s latest biannual World Economic Outlook has been (partially) published online. (Hat tip: Paul Mason.) As far as recovery goes, the Fund finds that:
expansionary fiscal policy seems particularly effective in shortening recessions associated with financial crises and boosting recoveries. However, its effectiveness is a decreasing function of the level of public debt.
That is to say, the more indebted the country, the less powerful Keynesian stimuli are likely to be. According to the IMF, the massive debts now held by leading economies mean that ‘the current recession is likely to be unusually long and severe and the recovery sluggish.’ For the record, the UK’s government debt is now 49% of GDP. Both historically and comparatively, this is huge.
The New York Times has been talking in quasi-serious tones about Britain seeking an IMF loan, alongside countries such as Ukraine, Berlarus, Serbia, El Salvador and Armenia.
Wednesday is Budget Day.
Children are a demographic not normally associated with financial problems. That said, as far as vulnerable sections of the population go, they rank pretty high. The BBC has asked children around the world how the financial crisis has affected them, as well as what they think of the G20 summit and it actually makes pretty interesting reading. Video here. The Cruncharama map is best, though I wish I’d had the vision to trademark that name…
It’s good to see that the environment gets plenty of attention from these kids and that they’re thinking beyond their own households. There’s some pretty sound political analysis going on, too. A student from Bassam Schools in Ad Dammam, Saudi Arabia said of the G20 that ‘it is not a matter of money but a matter of time.’
Also, kudos to the Beeb for running decent world news for children at all. After all, everyone knows that Newsround is the only place for intelligible current affairs coverage.
Photo by BBPANTONE, via Flickr (Creative Commons).
I don’t care if it isn’t a real word. Apocalypticism is what’s going on here. I’ve been reading the latest issue of Prospect magazine and this month’s cover story is entitled ‘After Capitalism’. I understand that this is hyperbole and that it might seem like I’m attacking a straw man, but I shudder to think how people in years to come-people who aren’t yet alive-are going to look back on this. We’re going to look very silly indeed. One financial crisis (granted, we don’t yet know how serious it will be) and we (or the mainstream media, at least) react as if the entire system has collapsed, or should. Have I not been paying attention properly? Is this the final, inevitable rise of the proletariat and I just didn’t notice?
Prospect is not alone in this. The Daily Telegraph, The Times, The Independent, The Guardian – in fact, just about all of Fleet Street have been at it. Even the Davos delegates joined in, while the normally sober FT declared that this is a matter of survival.
There is an important distinction to be made between a crisis of capitalism (or capitalism being in a state of crisis) and a discrete crisis occurring within capitalism. There is no doubt that we are experiencing a systemic crisis, but capitalism isn’t just a system. At the risk of sounding overdramatic, capitalism is an idea and no-one really thinks that the idea itself is at risk.
Shrill alarmism might sell newspapers, but as well as reinforcing fear, it does a disservice to intellectual fidelity. Or to put it another way, what we have here is a classic case of Chicken Licken syndrome.
I must have missed this one first time around:
I always lived very frugally. I flew around in a private jet, I had a boat, but I always lived very frugally
– Allen Stanford
H/T: Outside the Beltway
First, here’s the final communiqué and here’s the BBC’s Q&A on what’s been agreed. Their ‘at a glance’ summary is here.
Aside from the recovery measures—the quality of which I do not intend to speculate upon—the success of the summit shows that a larger grouping such as the G20 can be effective. Hopefully this should encourage further substantive reform of the IFIs and a greater momentum towards a more truly equitable form of global governance. There will be a review of the IMF’s voting structure in 2011 and DSK stated yesterday that ‘he believed that the G20 was shaping up as the board of governors for the world economy, and said he favoured an even bigger grouping to give more representation to poor countries.’ This may turn out to be one of the more lasting and significant legacies of the London Summit.
If you want a laugh, check out the BBC’s vox populi on the summit. Oh, and it’s always nice to see Berlusconi getting told off, too.
Photo by Downing Street, via Flickr (Creative Commons, Crown copyright).
P.S. According to Kabir Chibber:
The G20 summit could go down as the turning point when the distinction between the developing and developed world, already blurry, ends for good.
Many of the developing nations – China, Brazil, India among them – came to the summit in London with a list of demands to make a more multilateral world.
Unlike the past, this time they actually got most of them.
This prompted Brazilian President Luiz Inacio Lula da Silva, whom US President Barack Obama called the world’s most popular politician, to say that the richer nations had finally negotiated with emerging countries on “equal terms”.
The London Summit
Alex Evans at Global Dashboard is reporting on the current state of negotiations at the summit and all-round good egg Adam Groves interviews Mr Billy Bragg in the City of London. While just about every respectable politician in the world is sounding off about the importance of avoiding protectionism (with their fingers crossed), a contrarian Noreena Hertz in The Times calls for protectionism. Though, on that note, prospects for Doha are predictably bleak.
The crisis and the developing world
Jeremy Seabrook thinks Gandhi had the right idea (he really didn’t).The FT has a nice supplement on the the financial crisis in Africa and the UK is boosting foreign aid (a bit).
Global governance
There’s some big academic thinking from Saskia Sassen at oD about a world economy powered by finance. Stiglitz et al. at the UN are arguing for the G20 to be replaced by a Global Economic Council, while the Sec-Gen is afraid of total meltdown. On the subject of disaster, we should apparently be expecting a ‘”perfect storm” of food energy and water shortages’ sometime before 2030. More broadly, Timothy Garton Ash highlights the G2 (US and China) in the light of the EU’s failure to work cohesively. The New Statesman, on similar lines, believes that ‘no-one rules the world’ and CEPR welcomes us to a truly multi-polar state of affairs.
I have an op-ed at the International Affairs Forum entitled ‘What the world needs from the London Summit: moving beyond half-measures’.
The International Affairs Forum is run by the Center for International Relations, a nonprofit, tax exempt (501(c)3) organization based in the Washington, D.C. area unaffiliated with any group or ideology. It is devoted to the independent exchange of international affairs, intelligence and economics views and information.
Check out what the FT might be looking like in 2020, according to… well, hard to say actually, but they follow in the tradition of The Yes Men.
See the full pdf edition for more.
According to The Times’ Red Box blog, the Prime Minister will have a total of 4 hours and 35 minutes (aside from all the mealtimes) to spend on rectifying the global financial crisis and reforming the world’s economic architecture when the G20 summit takes place a week today. Gulp. It sort of reminds me of that line about doing six impossible things before breakfast…
Of course, much has been decided already, but if that’s the case, you’ve got to wonder whether a publicity stunt is worth all the cost, especially as policing alone is expected to cost £7.2 million.
Speaking of the British government and cost, I feel compelled to share this, from The Spectator:
To comprehend the scale of the sickening task awaiting George Osborne if he becomes chancellor, consider the following. If he were to raise VAT to 25 per cent, double corporation tax, close the Foreign Office, cancel all international aid, disband the army and the police, release all prisoners, close every school and abolish unemployment benefit he would still be unable to close the gulf between what the UK government spends and what it raises in taxes.
Double gulp.
Yesterday I attended the ESRC World Economy & Finance Research Programme workshop on the financial crisis, macro-adjustment and poverty. This was the first time I’ve attended an academic conflagration of this kind and I enjoyed it greatly, especially the free food.
The best thing about an event like this is the interdisciplinary nature of the discussion – the event was attended by economists, ‘politics people’ (as they called themselves), development professionals and lawyers. (For interdisciplinary, read political scientists scholars like myself laughing at economists with all their silly models…) It’s also a bit embarrassing to hear middle aged academics refer to ‘the poor people’. Something about that turn of phrase just makes me cringe.
I was particularly interested to hear from a member of IMF staff in attendance. I should make it very clear that he was speaking in a personal capacity and was not representing IMF views or policy. Once he got into algebraic equations I became a bit lost. I could understand what he was trying to do – to explain the rationale behind conditionality decisions – but surely this kind of methodology, which included an attempt to operationalise the degree to which governments care about the views of their citizens on a scale of one-to-ten is going to yield a somewhat rigid and reductionist explanation (see comment above re. silly models). Over the course of the day I came to the opinion that the role of the politics department is to constantly remind the economics department than life just isn’t that simple. Of course, there’s a place for both approaches. However, when the speaker began to invoke pi I could no longer cope. How could pi possibly have a bearing on this? It’s beyond me. I’m trying to find out from a mathematician friend, who may be able to shed some light.
Another point that bothered me – and which I was going to chase up, but was beaten to it – was the suggestion that special interest groups ‘distort’ governments’ economic policies. This is a perfect example of what’s wrong with the IMF’s mindset – the assumption that there exists some kind of ideal, neutral, objectively correct policy positon, from which everything else is a deviation.
Anyway, despite calls – which even I considered somewhat alarming – for the nationalisation of the entire financial sector, I had a very informative and thought provoking day.
(Well, if she ever really went away.) Yes, sales of the book once reported to be second only to The Bible in Americans’ reading habits is once again in the news. Ayn Rand’s Atlas Shrugged is a fictionalised defence of free market (fundamentalist) capitalism. I’ve heard rumours that the book’s Amazon sales ranking correlates very well to the peaks and troughs of the Dow Jones in recent months… It has also been noticed that as the financial crisis grows, the pattern of banking bailouts of increased calls for protectionism and regulation strongly reflect the plot of Rand’s book. They have a point, and in the novel, things didn’t end well – society largely collapsed, except for the select few market ideologues who – as I recall – set up some kind of capitalist utopia out in the mountains. It’s a thought-provoking book and well worth a read (if you can get through the 100 page philosophical monologue ¾ of the way through. Just try not to take it too seriously and become some kind of zealot objectivist emotionless automaton. It does happen to people.
The British Government has predicted that what is now being called the ‘Great Recession’ will leave 90 million more people in poverty. It is also being assumed that the financial crisis will set back progress towards the MDGs by at least three years. Indeed, Ashley Seager writes that:
The Global Monitoring Report from Unesco estimates the 390 million poorest Africans will see their income drop by around 20% – far more than in the developed world.
The global financial crisis has seen a fall in commodity prices as well as a drop in investment flows to poorer countries. The report’s authors – Kevin Watkins and Patrick Montjourides – estimate this will cost sub-Saharan Africa’s poorest people $18bn (£12.8bn), or $46 per person
[...]
The report says aid budgets in rich nations are being squeezed because they are expressed as a share of GDP, which is contracting. It estimates the EU’s commitment to provide 0.56% of GDP in aid by 2010 will actually mean a drop of $4.6bn.
Yet at the same time, the prime minister yesterday reaffirmed Britain’s commitment to the target that 0.7% of GNI be earmarked for development aid, which was agreed to at Gleneagles in 2005. The Secretary of State for International Development said that ‘we must continue our unwavering support for the MDGs. This must be the focus of the G20 summit’. On that, we may be forgiven some cynicism. Meanwhile, Global Dashboard provocatively questions the 0.7% shibboleth.
P.S. Further to my post linking to the ‘why aid is to blame’ interview with Dambisa Moyo, Humphrey Mulemba is articulating the counterargument.
The people at the Global Call to Action Against Poverty are ‘inviting 50 influential and knowledgeable bloggers from around the world to join us at the London ExCel centre with the G20 leaders and the world’s press.’ More details here.
So if there are any fans of this blog out there, I would humbly say that I’d appreciate any nominations. You can nominate From Davos to Seattle to attend the London Summit by clicking here – just fill out the short form. Thanks.
P.S. I’m currently working on an extended article on what the world needs from the G20 – I’ll link to it on the blog when it’s finished.
Ha-Joon Chang has an article in the latest issue of Prospect magazine, taking the unorthodox position that protectionism is in fact exactly what the global economy needs now:
The reality is that free trade has never worked very well, especially for developing countries, but it is going to malfunction even more in the coming years. Rather than trying to nurse this ailing sacred cow back to health, we should slaughter it—and concentrate our energy on designing a new system of international trade that pragmatically mixes free trade and protectionism.
Dr Chang has long argued that developed countries achieved their economic dominance through economic nationalism, along with a range of policies that are now denied to today’s developing world. I’ve just started to read his seminal book Kicking Away the Ladder, so expect more from me on this topic in the future.
Apparently, a ’summer of rage’ is being predicted for the UK. Mass protests are expected. The combination of the G20 summit and the likelihood of more ‘wildcat’ industrial strikes, as well as general anger at the financial industry as a whole seems to be causing concern at the highest levels. According to The Guardian:
Britain’s most senior police officer with responsibility for public order raised the spectre of a return of the riots of the 1980s, with people who have lost their jobs, homes or savings becoming “footsoldiers” in a wave of potentially violent mass protests.
Apparently, ‘known activists’ are mobilising. Of course, it is well known that civil strife (as well as crime) is more common in summertime. That said, my gut instinct is that all this is being exaggerated a bit. Mark Easton’s talk of attempts to ‘destroy capitalism’ is overblown. Naturally, there will always be an active minority trying to do just that. It takes a lot to get the British to protest at all; only the Iraq War has seen real public mobilisation in recent years. I can see middle England letting off some steam about the economy, but calling for the end of capitalism itself? Things haven’t got so bad as to provoke the English to advocate revolution. Of course, if the summer should also see some allied political controversy emerge, that would be an explosive combination. It’s times like that can see governments fall. Either way, interesting times.
(Hat tip: my mother.) Photo by Roger Lancefield, via Flickr (Creative Commons).
P.S. The above notwithstanding, I’ve noticed that I’m also getting a few hits via searches for ‘economic collapse martial law’. A little disturbing…
EDIT: The Prospect blog is reporting on a Prospect/YouGov poll that suggests that ‘37 per cent… of people across Britain thinking unrest is certain or likely this year’.
Some of you will have read my previous post on One’s campaign to ensure African representation at the G20 meeting in April. Well, mission successful. In the end, Downing Street acted before the petition could be delivered, so it was converted into a thank you note! According to the One blog, ‘32,319 ONE members around the world, including 1,104 in the UK, signed that thank you message.’
The London Summit’s official website reports that invitations have been sent to ‘the Chair of The New Partnership for Africa’s Development (NEPAD), the Chair of the Association of South East Asian Nations (ASEAN) and the President of the EU Commission are also invited. The Chairman of the African Union Commission will also attend.’
There’s also an interesting interview on the site with Lord Malloch-Brown, Foreign Office Minister for Africa, Asia and the United Nations (a suspiciously large portfolio?). One thing that strikes me is how comfortable he seems with articulating the desires and interests of Africa. Speaking on behalf of an entire continent seems to come a little too easily to the minister.
