As finance ministers of the G-20 nations convene in England this weekend to prepare the agenda for their heads of state meeting in April, divisions among them are threatening to exacerbate the global economic depression. For all the aspirations of hammering out a coordinated response among advanced industrialised and emerging economies, domestic pressures peculiar to each country have pulled apart the key players into different corners.
Economic meltdowns force policymakers to look inward at the dislocation and distress within their own societies rather than outward at problems of global governance which require collective multilateral solutions. When the onus shifts to stimulating domestic consumption or pampering domestic vested interests, policymakers fall into the dangerous illusion that there is no need for a global solution and that each will find one?s own way out of trouble.
Chinese Premier Wen Jiabao reflected this isolationism in February by saying that that his country will try to maintain its own economic growth by boosting domestic demand and that such a strategy would suffice as ?the biggest contribution to the whole world.? Can the slow stimulation of Chinese domestic consumption pull the chestnuts of the rest of the world out of the fire? The Americans, who have the largest stake in keeping China export-oriented so that it continues to amass foreign exchange to invest in the US dollar, do not believe so.
US intelligence experts from the emerging field of ?threat finance? are worried, perhaps prematurely, about the possibility of a ?Pear Harbour on the dollar?, wherein China could suddenly sell its $1 trillion of US treasury bonds to meet its domestic stimulus needs and devalue the dollar. The US?s own plan of revving up domestic demand through record deficits is predicated on the dollar remaining the reserve currency of the world. Thus far, a panicky world has taken refuge in the safety of the dollar.
The American position for the upcoming G-20 summit is itself narcissistic and deferential to domestic lobbying interests. The Obama administration?s line (shared by the British) is that the most important remedy for the depression is for the other 19 countries to stimulate their respective economies with greater deficit spending and tax cuts. Germany, France and Japan are against going further down the road of Keynesianism and are rooting for a long-term supranational entity that can regulate financial markets. Their argument is that offshore banking, hedge funds, derivates, credit swaps and other dubious practices which triggered the downturn should be strictly supervised by a global body. India and Brazil are also inclined to grant teeth to the Financial Stability Forum to police speculative transactions.
Since the headquarters of global finance are New York and London, the derivatives lobby whose market worth is estimated to be $300 trillion is using all levers to convince the Obama administration and the Gordon Brown government in Britain that acquiescing to a supranational regulation would be a double blow to national sovereignty and to the cachet of Anglo-American economic vitality- finance capitalism. Even though miracle investors like Warren Buffet have certified derivatives as ?financial weapons of mass destruction?, the Wall Street class in America wants Obama to believe that only it can rescue the US and world economies from depression.
The divides at the G-20 are, at one level, ideological, i.e. about the appropriate role of states and intergovernmental organisations in markets. Practically though, they are outcomes of domestic lobbies within each country adopting zero-sum-game positions and using their governments to block multilateral consensus. The G-20 tower of Babel is thus playing out a redux of the Doha Round deadlock of the WTO, only with far deadlier consequences. The last G-20 summit in November 2008 had little to cheer except that developing countries like India, Brazil and China were visible at global decision making forums. With that novelty factor now a bygone, the upcoming summit will struggle for relevance.
-The author is a researcher on international affairs at the Maxwell School of Citizenship & Public Affairs in Syracuse, New York