Thursday’s G-20 summit communique was followed by an immediate hailstorm of judgements. The term “new world order” has been used more than once, which in principle is not out of order when the leaders of countries responsible for 90 per cent of world output are gathered together, and you know there is some kind of success when major world leaders queue up to claim the credit.
The blogosphere has been considerably more sour and angry, with a rush to condemn. This is is fairly typical of the majority of blograts who comment on the main posts and articles. Not all are equally into negativity, but often times the predominant tone is a world weary bemusement as to why anybody would expect anything other than unmitigated disaster for the rest of time. Catching the mood, the first comment in a thread on the Independent’s web-site calls the UK “Zimbabwe without the sunshine”, a strong candidate for most lop-sided comment of the year, smart in form and silly in content.
Between the hype and the black humour, where does the truth lie? Perhaps we can go through three steps in the argument.
And the winner is…
The Oscar-like public proceedings and jostling of media-hungry leaders got pretty wearisome after a mere 24 hours but the theatricality is important for political ratings back home. For all the energy that went it, and though some politicians emerged more strongly than others, it is not clear how much these wins and losses matter . I have my views and you have yours but so what? It is all so ephemeral. Yes, Brown looked every bit a world leader in the eyes of some British press – and has a 3 per cent opinion poll bounce to go with it - but so did Sarkozy in the eyes of some French media, Hu Jintao in China, Obama in the US and so on.
And the reality and substance are hard to pin down. China is cautiously emerging as a major player and Hu Jintao used the opportunity to put diplomatic pressure on Sarkozy over Tibet. The Franco-German axis was undermined by Sarkozy’s walk-out threat but his flamboyance got him a lot of coverage. Brown seemed to run the meeting effectively and put a lot of energy into preparing it; he won plaudits for all that but on the policy side got less than he was initially aiming for, though reasonably close to his later, adjusted expectations. From reports, it seems that Obama punched his weight, so he was a long way from making any kind of stumble , and he appears to have moved US-Russian relations forward. So, some modest winners, some modest losers.
The terms of the summit communique and the detailed meaning of what was said in it have already been torn into by commentators irritated by the way in which the participants have been spinning it as a major triumph. Much of what has been presented as new money and new decisions had already been agreed. I find this kind of outrage pretty spurious because spin is part and parcel of politics and summits, so what else would you expect these political leaders to do? Called by politer names, such as building confidence, spin is also central to the whole business of getting the major economies moving again. Since the credit crunch began we have become used to arguments that take as given that money is an artefact of faith, that credit is about belief, and that reputation is the key asset of any enterprise.
With this background, it is hard and maybe pointless to get very specific about net political gains and losses.
… the International Monetary Fund! – Er, what?
Second, coming at this from a different angle, the big institutional winner is the International Monetary Fund and, ultimately, judgements about the summit swing on attitudes towards it. The summit agreed to treble IMF reserves from $250 billion to $750 billion and make an extra $250 billion available in the form of Special Drawing Rights (i.e., loan availability). In other words, of the fabled $1.1 trillion dollars the summit decided, decreed and directed, the IMF is handling $750 billion, almost 75 per cent; the remaining big money from the summit was $250 billion available to support trade through governments’ agencies for export credit and investment, and $100 billion of cheap loans through the multilateral development banks. On top of this direct enhancement of its financial role, the IMF is also going to monitor fulfilment of the undertakings and implementation of policy by governments, and will work with a new international Financial Stability Board policing the financial sector.
If the IMF is essentially reliable as an instrument for the world’s well-being, then all of this must be good news. Contrariwise, if the IMF is unreliable, all this is obviously bad news.
However, that doesn’t quite sum it all up. The unfortunate fact is that there is no other institution that can take on any of these roles; if a new one is wanted, it has to be started from scratch or, at least, by breaking down the existing international financial institutions and building a new one out of the ruins. Many distrust the IMF as the main institutional bearer of the free-market rich world economic consensus dating back to the 1980s, with the mandate to apply rich world rules and norms in the poor world. For them, this absence of institutional alternatives leaves three possible next steps in the argument:
- Either the world does not need these big resources to be mobilised, which seems hard to argue given the world’s current economy and the situation of the poorer countries and the poorest people even in the richer countries;
- Or it does need these resources to be mobilised but there is no way to do that effectively, so we are doomed.
- Or it it does need them and this is the best way it can be done and while a long way short of perfect – well, that’s what there is and that’s where we are.
Now it is true that, as is the way with many summits, there is less here than meets the eye. Much of the extra $500 billion had already been agreed. The two sets of $250 billion are not real money yet but, rather, the availability of credit support. The IMF is not in charge of what most people would understand as a $1 trillion stimulus package. In many ways, therefore, what counts most is its role in assessing performance of governments and ensuring that international financial regulation works better.
On this, the response of many will be simply to scoff. From their point of view, the IMF is an intrinsic part of the world financial system that now appears dysfunctional and those people who have been running the IMF have been fully committed believers in that dysfunctional system. To ask them to administer the transition from the old, dirty system to a new, shiny financial system is like asking speed addicts to be traffic cops.
Yes, the International Monetary Fund!
My own view is that the first big plus is that the G-20 decision is based on asserting the necessity of reform in the financial sector. It is a major step forward in world politics. This is not a random view expressed by a campaigning politician. It is in a carefully worked, diplomatically worded communique, subjected to examination at the highest political levels. It deserves to be taken seriously.
Even so, without teeth, this political commitment could in the end amount to very little. This is what is important and even remarkable about giving the policing role to the Financial Stability Board and the IMF, even if the latter is a flawed institution. It gives a reasonably precise location of responsibility. That precision does not actually cover responsibility for all the tasks the comunique outlines but there is at least a place at which to direct future praise, criticism and proposals for improvement, along with a poorly defined standard (better than none at all) against which future criticism and praise can be calibrated. For true believers, confirmed critics and the open-minded alike, the G-20 decision sets out useful terms and space for continuing debate about the shape of the global financial system.
And compared to expectations?
And the third and final part of assessing outcomes is to compare them with expectations. I set out my stall in posts on 23 and 31 March, and in the second one I said that success on four points would allow me to feel the summit was about 75 per cent successful:
- Global Financial regulation: The summit went after tax havens as expected but my argument was that it had to be about more – it needed to be about changing banking culture and about closing the gaps between different national systems of regulation. That’s essentially what paragraphs 14 and 15 of the communique are all about – consistency of different countries’ regulations, the new Financial Stability Board, a critique of financial sector practices including excessive gearing of debt to assets and excessive pay for top bankers. Implementation is everything but as far as the words are concerned, I think the issue was pretty much nailed.
- Support for poor countries: It’s hard to figure this out in the communique and that is itself a cause for concern. Of all the sums being bandied about, it looks as if the low income countries are getting only $50 billion. Economic assistance to weaker economies is primarily oriented towards the more vulnerable of the emerging economies, such as eastern Europe, which means middle income rather than low income countries. However, the boosted IMF reserves and part of the Special Drawing Rights may be available to some low income countries. Possibly the most important statement in the communique for poor countries – though it is brief – is about the Doha round of trade negotiations. It is clear the G-20 leaders wanted to say they have not yet given up on Doha but there was nothing about how to iron out their differences. Even so, the firmness of the wording against protectionism is welcome because what hits the poorest countries hardest is when the terms of trade are rigged against them through a combination of different kinds of trade barriers.
- Low carbon economy: I wanted the importance and broad direction of a green recovery to be recognised by the summit. To be frank, it’s a bit gestural, especially when compared to the paragraphs about money committed, trade and financial regulation. They say in paragraph 4 that they have “pledged to do whatever is necessary to … build an inclusive, green, and sustainable recovery” – but apart from repeating the sentiment 23 paragraphs later, they say nothing further. They pledge its centrality while demonstrating that it remains peripheral. Nonetheless, a marker has been put down and they also commit to reaching agreement at the December climate summit in Copenhagen. Every government that is a major player on the issue was present at the summit; silence was possible, the issues could have been wholly parked, or they might have supported efforts anybody wanted to make in a green direction while committing themselves to nothing at all. Here they did actually say something and while there is no detail and no bite to it, saying it is already something.
- Global risk: I wanted recognition of the dangers that arise from world recession, especially because of its impact upon the poor. A single bullet point sidelines this issue, giving it to the UN to consider.
Out of all this, I reckon my bottle of expectation is right on the dividing line between half full and half empty.