LONDON
The prime achievement of this month’s G-20 summit, in long-term, historicalterms, may turn out to be that it took place at all and ended with sufficientharmony for a second meeting to be planned. That is not to damn the proceedingsin London with faint praise. By bringing China, India, Brazil and Saudi Arabiatogether with the leaders of the developed world to discuss the economic crisis,the summit provided a vivid manifestation of how globalised the world hasbecome. The G7 and G8 may continue to meet, but a wider forum has been createdwhich reflects the way in which the world has altered.
That said, the world is not so much in need of long-term historical significanceas for more immediate measures to cope with a recession which grows morethreatening by the day. On this count, the London summit fell decidedly short.Though the line-up for the final photograph – with President Barack Obamamoving to the back row - may have illustrated the widening of thedecision-making process, the proceedings showed all too clearly how national andregional divisions stand in the way of effective global action.
Despite some pre-summit grandstanding by President Nicolas Sarkozy of Francethreatening to leave if he did not get his way, there was never a serious threatof a breakdown; the meeting was too important for that. Nonetheless, a moreserious and fundamental flaw was evident which will have to be overcome if realprogress is to be made at future G-20 meetings. The summit showed littlereadiness on anybody’s part to budge from prior positions and little sign of areadiness to compromise or to get to grips with basic issues. If that does notchange, the G-20 will be able to play only a marginal role as individual membercountries, and blocks such as the European Union, pursue their own paths.
The fundamentally destabilizing structural divide between the surplus exportingnations and the deficit importing countries was not addressed. While economicstringency may be obliging Americans to spend less, the shifting away from theClinton and Bush era economic model is still a distant prospect as the USstimulus program aims to boost incomes and, thereby, consumption. For theirpart, Germany, China and Japan see their road to recovery as lying through theold model - a revival in exports. Chancellor Angela Merkel says her country doesnot want to alter its reliance on exports while China has been rolling out taxrelief for export industries under strain, from steel to textiles. Between themthe three biggest exporting nations run an annual surplus of $835 billion whichhas to be matched by spending by the deficit nations.
The $1 trillion pledged to the IMF, the World Bank and other internationalbodies was welcome, but well short of what is needed and remains a generalcommitment with no fulfilment date attached. President Obama may have wowedpublic opinion on his visits to London, Strasbourg, and Prague, but Europe’sleaders (with the exception of the fence-sitting British) were not swayed whenit came to joining the United States and China in stepping up stimulus measures.For the Europeans, who point to their welfare states as protecting theircitizens from the downturn, tighter regulation and a drive against tax havenswas more important than pumping in more money and aggravating budget deficits– despite arguments that getting out of the present hole is more importantthan constructing machinery to prevent similar outcome in the future.
As Prime Minister Gordon Brown and others insisted, the summit was only aninitial encounter. Much more work and many meetings will be needed to work outsolutions to the crisis. The urgency of the fast deteriorating situation,though, leaves no time for such exercise.
Away from the cheering European crowds, President Obama faces massive challengesas US unemployment hits a 25-year high and Congress estimates this year’sfederal deficit at $1.8 trillion. The OECD predicts a 4.3 per cent contractionin advanced economies this year followed by stagnation in 2010. Growth in theEurozone is forecast to drop by 2 per cent this year. Eastern Europe is inmaximum danger. Exports from China, India and South Korea fell by more than 20per cent in February over 2008. Nobody knows how many toxic assets remainhidden, but Western banks are in no condition (or state of mind) to fuelexpansion – a study by Morgan Stanley puts the balance sheet shrinkage at 15leading banks at $3.6 trillion with another $2 trillion to come.
There was, of course, a commitment to free trade in London – anything elsewould have been unthinkable. But, with its report that 17 of the 20 countriesrepresented had enacted protectionist measures, the World Bank showed just howfallible such promises can be.. From the ‘Buy American’ program to PresidentSarkozy’s talk of repatriating car manufacturing by French companies fromEastern Europe, politicians all too easily pander to real or imagined politicalpressures. Mr. Brown’s spin doctors may have come up with a reassuring glosson his earlier promise to ‘create British jobs for British workers’ but thevisceral appeal to nationalism was unmistakable.
What makes the current crisis all the more challenging is that it is takingplace at a time amid a shift in the balance of the world economy. If bigemerging economies, notably China and India, have been hard hit by theirexposure to the contraction of global demand, the London summit was freshconfirmation of globalisation’s momentum since China joined the World TradeOrganization in 2001. The problem is that nobody has a clear vision of how thetwo parts of the global economy – the West plus Japan, on the one hand, andthe BRIC nations (Brazil, Russia, India and China) on the other – can betterfit together in more than a simple trading relationship.
This quandary, addressed only by implication in London, concerns China most ofall. The last seven years not only propelled the People’s Republic into theposition of the third largest global economy but also turned it from a countrywhich, following the advice of the patriarch Deng Xiaoping, grew richer but keptquiet into a power that is ready to make its voice heard. So, before the summit,Beijing’s leadership lambasted the Western financial system, talked aboutSpecial Drawing Rights (SDRs) held by the IMF as an alternative to the dollarand admonished Washington to set its house in better order.
However, for all its expressions of concerns about its dollar holdings, theremay be little China can do to lessen its symbiotic relationship with the US, atleast in the short term. Still, it has gained a voice which will not be muffledand is likely to be followed by other big emerging economies represented at thesummit. A page has been turned which recognizes the scale and scope ofglobalisation. Now, the urgent task is to put more substance into the new worldforum before the strength of the recession and the play of national interestsblock the emergence of a new mechanism that can respond to the global challenge.
Jonathan Fenby’s latest book, the Penguin History of Modern China: TheFall and Rise of a Great Power, 1850-2009, has just appeared in paperback.Rights: © 2009 Yale Center for the Study of Globalization YaleGlobalOnline
