DIPLOMACY is often described as the art of the possible. Economics is frequently about trade-offs between costs and benefits. The summit of leaders of the G20) countries tried to straddle these two painful realities, with only limited success. While the direction of the reforms is positive, there can be little doubt that the summit declaration has fallen woefully short of expectations in certain key areas.
There is no evidence to support Gordon Brown’s exaggerated claim that April 2 was the day the world came together. The vital issues of reforming the working of free market economies and bringing about greater financial regulation were swept under the carpet, as was the need for “green reforms” aimed at greater environmental protection.
Barack Obama, too, may have overstated things a bit when he declared it a turning point for the now-shrinking global economy.
However, the meeting did manage to boost the confidence of financial markets, inject another $1 trillion into the financial system and provide necessary political cover for world leaders to take unpopular actions in their own countries.
The Prime Minister surely acted as a midwife to this new world order (or disorder), but the rich West has yet to accept that it needs to be cut down to size. In order to accommodate the legitimate aspirations of emerging and developing nations in international financial institutions, the number of Europeans at the table will have to shrink. This should force them to pool their representation under the flag of the European Union, as they do in trade negotiations.
Managing the new power constellation won’t be easy and may not work. But diverse countries can recognise their interdependence and take concerted action. In the end, the G20 communiqué, with its promise of a global regulatory crackdown, was an easy win for all concerned. Gordon Brown deserves praise for overseeing what was agreed. French President Nicolas Sarkozy and German Chancellor Angela Merkel could declare victory over unfettered Anglo-American capitalism, while Barack Obama now has added political ammunition for taking on the banks, hedge funds, rating agencies and private equity firms which will try to water down his proposals. While that may constitute a turning
point for Anglo-American capitalism, it is hardly its death knell. Some questions remain unanswered – whether the lifting mood of gloom is rooted in reality or the result of a public relations exercise.
The ebb of power from the West in general and the US in particular is a welcome development. Until late 2008, the Group of Eight industrialised nations – the US, Canada, Germany, France, Britain, Italy, Russia and Japan – was the key forum for economic governance. The new, unwieldy top table has emerged faster than anyone dared predict because a humbled America and a chastened Europe need the money and co-operation of rising powers such as China, India, Russia and Brazil to fix the world economy. Just as the old G7 gave way to the enlarged G20, so the governance structure of the International Monetary Fund and the World Bank must be revised to give the large developing countries the representation they deserve.
It remains a cause of concern that the huge amounts of easy money poured into the global economy are the root cause of the present financial crisis. From this perspective, almost everything being done to solve our present problems adds up to an attempt to re-inflate the same risky bubble once again.
But we should be thankful that the G20 has provided some cheer. Since panic is one of the components of the current crisis, anything that raises hope ought to be part of the solution
Kailash Chand is a Manchester-based GP
