G20 roundup

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.

A Tobin Tax isn’t the answer, but it might be an answer

Kindred Winecoff (IPE at UNC) responded on Monday to an op-ed by Dani Rodrik, which advocated the Tobin Tax once more. This was in turn a response to the comments made by Adair Turner in last month’s Prospect and briefly discussed here at Davos to Seattle. (See also comments by the German finance minister). Kindred was sceptical, stating that:

if the tax is successful in limiting cross-national transactions (“throwing some sand in the wheels of international finance”), then the revenue from the tax will be less significant. Only if large, frequent, cross-national flows persist will the revenue come in, and if that happens then the other goal of the Tobin tax (protection from “hot money” flows) will be betrayed.

This is fair enough as far as it goes, but I’d suggest that the second goal is more important than the first. Indeed, I’d always interpreted the first goal as simply the means to achieve the second goal, rather than an end in its own right.

Additionally, I’d question what’s meant by “large” in this context. Obviously the Tobin Tax would have a minimum threshold so that it didn’t apply to the average holidaymaker at the Bureau de Change. But the limiting of large cross-national flows needn’t necessarily mean the tax would be utterly ineffective, as it would still apply to plenty of smaller (though still large in comparison to holidaymakers’) commercial transactions. It could raise significant money from such exchanges, even if the biggest “hot money” flows were limited. There’s an ideal equilibrium point to be found.

The post at IPE at UNC also argues that:

Rodrik says that a small Tobin tax would raise “hundreds of billions” worldwide. Presumably these will used on all sorts of really great projects that everyone loves (he lists “foreign aid, vaccines, green technologies, you name it”). But the vast majority of these taxes will be recouped by the countries with the biggest financial sectors (who receive the most inflows): the U.S., U.K., Germany, Japan. In essence, then, we would be taxing investors from poorer countries in order to redistribute to citizens of richer countries.

I’m willing to be corrected, but my understanding had always been that the Tobin Tax would be raised nationally, but pooled, administered and (re)distributed at a global level and then spent on projects of “net global benefit”.

So while the Tobin Tax is certainly not ‘the answer’, it might well be an answer. At the least, it has the potential to become a progressive and effective tool in global economic governance. The strange thing is that however much it might irk the city and financial institutions, the Tobin Tax is an idea that never quite seems to go away. Its simplicity and elegance, together with the fact that it’s not a tax that (directly) impacts much on the ordinary citizen make it perennially popular. One gets the feeling that however much structural power is wielded by those who stand to lose by it, every idea that manages to be both good and popular at the same time will have its time come eventually.

Boutros-Ghali: IMF reform flagging

Youssef Boutros-Ghali, chair of the IMF’s policy steering committee has spoken out against what he sees as the failure of G20 members to act on their commitments earlier this month to reform of the Fund.

Around the time of the London Summit, both the Financial Times and the Economist spoke out against reforming international financial institutions. They argued that the first concern should be dealing with the financial crisis, not dealing with ‘peripheral’ issues. As Boutros-Ghali puts it, ‘in a crisis, you want to put out the fire and not bother with plans to redecorate the living room.’ Nonetheless, he added that ‘reform needs to be done in a time of crisis’. This is the position I myself have taken.

A recent CEPR report is also far from sanguine:

the proposed quadrupling of IMF resources will have implications for many years to come, even after the world economy recovers. Although the new resources are unlikely to reverse the trend of governments avoiding, whenever possible, the Fund’s lending and influence, they will help to re-establish an unreformed IMF as a major power in economic and decision-making in low-and-middle income countries, with little or no voice for these countries in the IMF’s decisions. This could have long-term implications for growth, development, and social indicators in many countries.

The will to reform the Fund’s wildly disproportionate voting rights seems to be flagging already. This is both concerning and, if we’re honest, unsurprising. Those countries that gain from the status quo have little incentive to push for change. It is easier and more beneficial to sideline these issues of global governance while they focus solidly on domestic economic recovery. This is the kind of short-sighted attitude that has become par-for-the-course when it comes to global governance. Domestic politicians have no need to look beyond the next election and will therefore never side with long-term gain over short-term pain. The same phenomenon can  be seen in climate change negotiations or social security reform at the domestic level.

Aside from a benign world dictatorship, or politicians showing genuine leadership, both of which I think we can dismiss, perhaps it is necessary to use a system whereby unpopular or disadvantageous reforms are agreed, locked in and then ‘grandfathered’ into practice some time later, thus—to a degree—reducing the immediate disincentive for politicians to make hard decisions. Politicians do not need to worry so much about upsetting their constituents if the changes they agree are scheduled to come into force some years later. This is by no means a perfect plan – it is slow and open to abuse. But it might be one of the only ways to get around the short-termism of the politics of global governance.

On a more postivie note, Boutros-Ghali also said that:

In future, [the IMF] should vary its policy recipes… “I want an institution that is more involved not only as a global policeman but as a global witchdoctor.”

This is an encouraging confirmation of the Fund’s increasing tendency towards more heterodox economic thinking, though I’m in two minds about whether a ‘witchdoctor’ is quite what we’re looking for.

The return of the bancor? Chinese ascendancy and the global monetary system

I have an editorial at e-International Relations entitled The return of the bancor? Chinese ascendancy and the global monetary system.

Established in Nov 2007 by students from Oxford, Leicester and LSE, e-International Relations (e-IR) is an independent, student-run website for people who are interested in international politics.

The G20 at the close of play

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”.

A G20 roundup

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.

Bloggers at the G20 London Summit

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.

Africa and the G20 summit

Ngaire Woods profiles what’s on Africa’s agenda for April’s meeting. The list is fairly modest and the matter of institutional reform is eminently reasonable. The worry is the funding:

To deliver on these, obviously the IMF and World Bank will need significant resources. Food security alone will require a step increase in donor support in the light of higher food prices ( World Bank paper detailing this). The IMF and World Bank should be measuring and informing the G20 of the scale of these new needs, and seeking adequate finance to meet them.

Obviously we’ll have to wait and see. But if there was some kind of priority considering being given to this, we might have heard something more about it. It just worries me that all that seems to be going on is a lot of talking about talking. Check out this press conference with the Foreign Secretary:

Davos roundup

I’m currently mired in an attempt to reconcile postcolonialism and (neo)Gramscianism, so there will be no in-depth post-game analysis of the WEF, I’m afraid.

Here are a few links though:

• Davos finds no answers to crisis
• Lack of inspiration unites Davos delegates
• Acrimony dashes Doha hopes
• Brown: World Bank, IMF ‘out of date
• Elvis Has Left the Mountain

Photo by World Economic Forum, via Flickr (Creative Commons).

‘A seat at the table’

I’m plugging a One.org campaign again:

On April 2, leaders from 20 of the world’s largest economies, a group dubbed the G20, will gather in London to start reforming the global financial systems. A crucial first step for making sure those reforms help the world’s poorest is to give Africa a real seat at the table, by including, for example, a representative of the African Union (AU) and/or the Africa Development Bank.

Seems fair enough, doesn’t it? Sign the petition here.

World Economic Forum preview

The name of this blog comes from a quote by John J. Sweeney (see the ‘about‘ page). ‘Davos’ is in fact nothing to do with the eminent Dalek Davros (unless there’s something we’re not being told about Rupert Murdoch – compare here and here). It’s actually shorthand for the World Economic Forum (WEF), which takes place annually in Davos, Switzerland. This year’s meeting is due to begin on 28 January and given that I’m name checking it on my masthead, I think the gathering deserves some coverage.

The WEF is, depending on your point of view, a highly important summit which brings together the most powerful and brilliant minds today to discuss matters of global import, or alternatively a cliquey and incestuous get-together/vacation for businessmen and a few politicians. Of course, in reality it’s both.

At any rate, the following is how the WEF sees itself:

Exciting, no? This year, Davos is getting down with the kids and aboard the social networking/Web 2.0 bandwagon. They’ve even got Netvibes and Twitter accounts. I guess the business elites of the world are aware that they need to work on their PR, this year especially. Did I go too far in calling it bandwaggoning? Am I too cynical? I’m in two minds. On the on hand, more input and public voice is always good. On the other hand, the people who go to the WEF really aren’t going to be influenced by YouTube videos.

At the same time as this is all happening in Swiss ski resorts, the World Social Forum (WSF) is meeting in Belem, Brazil. Now, at the end of the day, I’m no more a fan of the WSF than I am of the WEF, but I feel like giving the underdog some props.

As you can see from the photo, the WSF is a somewhat different (and more modest) affair. (Though it looks like a lot more fun.) In its own words:

The World Social Forum is an open meeting place where social movements, networks, NGOs and other civil society organizations opposed to neo-liberalism and a world dominated by capital or by any form of imperialism come together to pursue their thinking, to debate ideas democratically, for formulate proposals, share their experiences freely and network for effective action.

It is from the WSF that the famous anti-/alter-globalization slogan ‘another world is possible’ hails. Of course, the way that Davos Man – a term purportedly coined by the late Samuel Huntington – claims to be all in favour of  social justice a la the WSF. But it doesn’t really wash. The WEF and the WSF are not at all about the same things. Presumably, the Davos attendees find this kind of talk a necessity of legitimation. Or to put it more cynically, a cloaking device.

All the same, I feel impelled to ask – it’s becoming a recurring theme – where is the middle ground between the market fundamentalists and the Marxists? It has been tried, to a degree, with little success. Both WEF and WSF are essential to global public debate. (See a debate between them here.) I like it that they exist. But why must we choose between the Davos branch of the Mont Pelerin Society and a bunch of crusties on holiday? (Too harsh?)

This is a big event, despite it all, if only because nothing else brings together these people like this. Last year the highlight seems to have been Bill Gates speaking on ‘creative capitalism’ (see the subsequent online conversation). Obviously the ‘frightening’ global financial crisis will be centre stage now. No doubt the environment will be discussed, though one expects it to get short shrift/lip service. The provisional programme can be downloaded here.

Photos by World Economic Forum and skasuga, via Flickr (Creative Commons).

P.S. As an ‘influential blogger’ (shome mishtake surely?), I’ve been asked by a digital media firm (on behalf on CNN) to submit a question to the participants at the WEF. I’m going to throw it open to you, dear readers – if anyone has any ideas, please post them in the comments.

Bretton Woods II

It is often said that human beings are only capable of acting when action is forced upon  them. That is, people tend to remain apathetic until a crisis occurs. Climate change is a common example – it is only in the wake of an event that affects one personally (as, say, Hurricane Katrina did for many Americans) that the gravity of a given situation or problem becomes apparent. The leaders of the advanced industrialised nations have found that the current financial crisis is affecting them very personally.

In contrast, when, in 1997 the newly industrialised economies of East Asia were suffering a crisis of their own, western governments dismissed the situation as one due to the lax fiscal policies of Asian governments. Despite contagion, Thailand was seen as very far from Washington.

This new crisis is being viewed very differently. Now that western governments have been so severely affected by instability in the financial markets, we hear that an entirely new financial system is suddenly necessary. At last, the problems of the system as it stands have been brought well and truly home in the most visceral way.

The IMF has lacked a real role for many years. Ever since Dr Mahathir bin Mohamad of Malaysia refused to borrow from the Fund – and thus incur an obligation to keep its conditions – various nations have shunned the institution. (Though the Wall Street Journal might disagree.) According to the FT,

experts and former IMF officials say the problem is not just with the current architecture but that the world’s leading countries have either ignored or misused the fund to further their own interests.

In a discussion on the fringes of the fund’s annual meetings last weekend, Stanley Fischer, governor of Israel’s central bank and former number two at the IMF, said rich countries had deliberately bypassed the fund by creating the Financial Stability Forum – an association of rich-nation regulators and policymakers – after the Asian financial crisis of 1997-98.

“It was an industrialised country move to keep the fund in its place … That was simply a mistake,” he said.

It seems increasingly clear that there is a strong desire for a new Bretton Woods-style arrangement to be constructed. As I have argued elsewhere, there is great potential here to make this a turning point. If this historical opportunity is fully grasped, we may be able to see a far more equitable system formed.

I had intended to write this post in order to survey all the various proposals and discussions that are currently surrounding the potential new architecture, but in the course of my research I’ve become somewhat overwhelmed. Of course, creating new forms of global governance is a hugely difficult and complex task, somewhat akin to creating a new constitution for a country that’s just undergone some kind of revolution. As Martin Kettle says,

it is tempting to imagine the great latterday economists – Ha-Joon Chang, Paul Krugman, Amartya Sen, Joseph Stiglitz and the rest – all gathering in the New Hampshire mountains 65 years after Keynes and White to hammer out a new ideal framework of banking and credit reform for the world to follow. It would certainly be a fascinating exercise. But the reality is that the first decision about Bretton Woods II would be an entirely geopolitical one: which countries would get a seat at the table?

Additionally, lobbying groups of all persuasions, as well as governments, will attempt to insert their own pet projects and ideas to the discussions. For example, Linda Yueh is arguing that the WTO should be reformed at the same time as the IMF. Others will talk about the environment – see Jeffrey Sachs’ thoughts. These side issues are to be expected and whilst it will slow down proceedings, perhaps that’s no bad thing.

For my part, I would make one suggestion. I attended a debate last night between Robert Keohane and Anthony McGrew and the topic of the Tobin Tax came up. That is certainly something that should be considered very seriously, especially in light of both the MDGs and the way that such a tax could usefully ‘throw sand in the wheels’ of capital flows.

In the end, I must admit that I am sceptical that a ‘Bretton Woods II’ would actually produce substantively different forms of global economic governance than those we see today. We won’t see revolutionary change – as Seumas Milne reports, ‘a Financial Times-Harris poll conducted across the advanced capitalist world this month found large majorities believe the financial crisis has been caused by “abuses of capitalism”, rather than the “failure of capitalism itself’. While I would agree with this assessment, change, even if merely in institutional culture(s) can only help.

As DSK put it, ‘I like the words Bretton Woods II, but we have to have something behind the words.’

See also: The Bretton Woods Project’s coverage; The Guardian’s ongoing public debate at Comment is Free; Choike’s views; the proposals of Michael Bordo and Harold James.

Dani Rodrik on the welfare state

In a 1997 article in Foreign Policy[1], Dani Rodrik discusses the implications of the impact of globalisation upon the relationship between states, markets and society. He points out that globalisation can undermine traditional social bargains, creating a backlash.

Interestingly, social insurance and welfare schemes have become larger and more significant since World War II, even as market economics have called for the rolling back of the state. Government spending as a proportion of GDP has actually increased. For Rodrik, ‘the social welfare state has been the flip side of the open economy’. As economies have opened up to the global market, the social impacts of this have required states to increase the range and strength of their safety nets.

However, according to Rodrik, the balance is shifting. Governments now (bearing in mind that the article was written in 1997) are finding it more difficult to fulfil these expectations. Globalisation and the global market economy first force social welfare programmes, then gradually make it impossible to carry them out. This dilemma is a fault line for the anti-globalisation backlash.

Rodrik also looks into other social arrangements: long-standing balances of power between worker and employer are being undermined by the fact that capital and corporations are more footloose than individual employees. Workers can also be more constrained than business in other ways – for example, where a company is free to relocate to the country with the cheapest workforce, individual workers are not able (in many developed democracies at least) to price themselves below the minimum wage, or to offer to work longer hours than the legal maximum.

What Rodrik is getting at is that globalisation is both empowering and disempowering, for states and individuals. The intricate ways that these ties play upon national policymaking are causing damage to social contracts everywhere. Rodrik calls for ‘greater breathing room’, though what this would entail in practice remains unclear.

It seems to me that in essence, this is a global governance problem. Indeed, imagine an integrated and truly global government existed. Why, then, these problems would disappear. Whilst I am not arguing in favour of global government, the problems many societies are undergoing today are related to the fact that piecemeal political globalisation is lagging behind rampant economic globalisation. From where I’m sitting, it seems that our lifetimes look likely to be a period of transition and instability as this gap either widens or closes. If we want to decrease the gap and the damage it causes, we need first of all to rebalance the relationship between our states, our markets and our societies.

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[1] Dani Rodrik, ‘Sense and Nonsense in the Globalization Debate’, Foreign Policy, No. 107, (Summer) 1997.