Basics matter

Written by Sreeram Chaulia | SREERAM CHAULIA | Updated: Dec 31 2009, 06:47am hrs
Necessity is the mother of invention. When faced with the worst global economic disaster since the Great Depression, world leaders had to innovate by upgrading or creating new institutions. The elevation of the G-20 from a mere conclave of finance ministers and central bank governors since 1999 into a heads-of-state steering committee of the world economy was dictated by a dire need to revive an interdependent economic structure.

This process of improvising on an existing institution and raising its protocol value and decision-making power was one of the highlights of international cooperation in 2009. Two G-20 summits in London (April) and Pittsburgh (September) carried huge burdens of expectations for collective action by systemically important industrialised and developing economies to stave off economic disaster. The pressure was especially acute as the first G-20 summit in 2008 in Washington threw up national differences more than a preference for coordination.

Progressively, as 2009 passed, the hope that this odd grouping of countries from the Global North and South would fine-tune their actions in light of the actions of others has been realised.

Neo-Keynesianism emerged as the guiding light for the entire G-20. By the time the major economies arrived in Pittsburgh, there were fears of mounting public debt due to excessive stimulus spending and calls from some quarters for exit strategies that would lessen the footprint of the state on markets. But without exception at Pittsburgh, all G-20 members affirmed that they would persist with stimuli until recovery is secured. Winding down the states role as the bankroller of last resort remains an aspirational goal, but the joint wisdom of the G-20 continued to be firmly against hasty measures that could restart the vicious cycle of low consumer demand, unemployment and lack of economic activity.

The star role played by Nobel laureate Paul Krugman, and other similar voices, in batting relentlessly for more activist state spending to avoid a relapse of the bumpy 1930s was a definite hallmark of this year.

As 2009 ends, the gaze of the world will slowly shift to future G-20 summits in Canada and South Korea in the New Year. These follow-up meetings will take stock of the accomplishments thus far and the tasks that remain unfulfilled. One of the outstanding failures of this ingenious institution has been its inability to arrive at a mutually agreed plan for a global financial regulatory architecture.

Unlike the coalescing around macro-economic policies that enhance state power and responsibility, G-20 members are divided on the proposition of using the economic crisis as an opportunity to clean the Augean Stables of greedy financial practices that triggered the problem at hand. The recent introduction of heavy taxes on banking bonuses and incomes of high net worth individuals in the UK by a Labour government desperate to reverse loss of ground before the forthcoming general election has found French concurrence but American disapproval.

British and French proposals for a global Tobin tax to rein in profligate financial risk-taking and fund policies combating climate change have fallen on deaf ears at the G-20. When London and Paris went ahead and announced their own unilateral measures to wield the stick on their financial classes, no general precedent was set. The talk of the world as the year concluded was about the UK ironically losing more tax revenues and forfeiting its prestige as a premier node of global finance, as hard-pressed bankers in the City of London could vote with their feet and relocate to Zurich in Switzerland or Frankfurt in Germany.

The odds that strong anti-big banking politics in Britain will survive the predicted victory of the Conservative Party in 2010 are slim and it could well be that financial elites are verbally threatening an exodus in order to soften the states policies in the new year. The battle between politicians eager to win re-election by scoring brownie points with voters and insecure financial elites is set to intensify in several countries in the new year, leaving little room for domestic consensus that could then be carried forward to G-20 or other inter-state bargaining tables.

This year also offered a stark reminder of the disjuncture between domestic politics and international negotiations on countering climate change. After the back-slapping and reassuring G-20 show came the dampener at Copenhagen, which expectedly ended without making great progress towards a binding new treaty to replace the Kyoto protocol. Neither international nor domestic balances of power were propitious for a substantial multilateral solution to the environment problem.

But the world did witness the rise of a new formation of key states at Copenhagen, the so-called BASIC+US. The most dramatic diplomatic move of the year came at the eleventh hour of the Copenhagen summit, when US President Barack Obama allegedly muscled his way past Chinese security personnel who were guarding a closed-door meeting of leaders of Brazil, India, South Africa and China and shouted out loud at the startled heads of emerging economies, Are you ready

The Copenhagen Accord that ensued may have been little more than a face-saving statement, but it again shone light on the multipolar international system already upon us at the close of the first decade of the 21st century. The heirs apparent from the Global South are today as indispensable for managing world affairs as the US considers itself. 2009 should therefore ultimately be remembered as the year of the catchers-up who converted their economic bounce into political clout.

The author is associate professor of world politics at the OP Jindal Global University