There is nothing quite like giving yourself a pat-on-the-back and going as far as claiming “it worked”. Well, this unsurprisingly is exactly what the G20 aficionados stated with no irony in Pittsburgh. Like a bunch of misfit Captain Planets, they managed to save the World. Yay!
But has it worked, and if so who has it worked for? Moreover I hear scant mention of the poorer nations. It seems as if the G20 is providing little other than nice sound-bites for embattled leaders to carry home to uncertain domestic futures. It is essentially the same tune played with a different instrument. Nevertheless the G20 is now deemed the future of international economic co-operation. Hooray!…for those 20.
The global economy has created new global governance, but we wait with baited breath to hear of any truly global answers. The only solutions bandied around are that banking bonuses will be curbed, and even that will take some time to organise. More to the point, not all countries need to put restraints on their bankers, as some had foresight to already do so, namely Japan.
What did come out of this week’s G20 was a plan for implementing future solutions, and a feeble attempt at how the IMF should be (re)organised. They, our Captain Planets, decided on a three step approach;
- The national leaders will agree priorities for the world economy at the G20 summit;
- Respective countries will then submit reports to demonstrate how their domestic polices will fall in line with G20’s ambitions, and;
- The IMF decides whether or not the national plans will mesh with the global objectives.
These are problematic because:
(1) Only the 19 most powerful nations and the EU are represented. This means, as Ban Ki Moon stated, 85% of the world’s countries were not represented! At best they can participate on the fringes, oberserving but not getting hands-on involved – presumably the ‘don’t touch what you can’t afford’ ethos;
(2) Each country is likely to adopt a stance that favours their own nation, and trying to draw out a consensus may prove tricky. Possibly the best thing to do is to take the middle ground between China and America – but then we may as well only have a G2;
(3) The IMF is the true winner of the crisis, giving out loans to needy countries and gaining a vital role in aiding the G20 has paid dividends for their prestige. However, the IMF is still flawed – America controls 17% of the votes, and 85% is need to carry through a decision, therefore America has de facto veto power. For all the talk of a global economy and global governance, the IMF has not changed much since its inception in 1945, and this is itself worrying.
Although the communiqué calls for a “shift in quota share to developing countries of at least 5 per cent”, but this share does not necessary have to go from a rich country to a developing country, rather it can be changed between developing countries. Therefore, I do not expect the richer countries willingly give their share away. Another issue is the IMF board of directors, which comprises of 24 directors and is essentially the decision making body.
Eight of these directors come from individual countries – USA, UK, France, Germany, Japan, China, Saudi Arabia and Russia – whereas the 43 African countries only have 2 representatives. The US wants to cut the number of directors to 20, perturbing the UK and France as they will in all likelihood lose their seats. In retaliation, they attack the USA and it’s veto power. Thus we have the eternal squabbling too often associated with diplomacy.
There also seems to be a growing call for China to take on greater responsibility in the global economy, with even America pointing the finger at China. Their argument goes something like this: China and other emerging markets that grow through exports, incubated the crisis by creating an imbalance through savings. In other words they had wealth, while America had consumer driven debt. Therefore, if there was a balance then one country would not have been in so much debt when the crisis struck. They, however, seem to neglect the badly regulated financial sectors in this argument. Again this leads to more diplomatic bickering – it seems that they are only interested in blaming each other.
So, is China the next great economic power? I would argue yes, however they are some way off being the next dominant power. Whenever we see a shift in the structure of international institutions, we can establish where the underlying hegemony is moving. For the meantime it seems to be wavering, but nevertheless growing from the G7, established at the Asian crisis of 1997-99 to the G20 of the 2008 – present, is one small step towards, dare I say it, a new form of governance?
Finally, a note about The Financial Stability Board, which implemented standards for Sound Compensation Practices for the G20 summit. If you are unaware “Compensation” seems to be the euphemism for bonuses, which I believe was coined by Tim Geithner. Through their six pages of solution making they failed to produce any form of definitions or limitations surrounding the “compensation”. They stated that “[n]ational supervisors should limit variable compensation as a percentage of total net revenues when it is inconsistent with the maintenance of a sound capital base.” They do not go far to explain what the capital base should be made-up of, or what a satisfactory level should be. Any responsibility they had was quickly passed on to the “national supervisors”.
This is reminiscent of the European Courts stance on controversial issues, such as abortion and euthanasia; they do not make judgements, rather the leave it to the discretion of the state; thus relegating the notion of cross-border co-operation to whimsical fancy. If this is the road to be pursued, and they leave each state to regulate as they see fit, then I cannot see any difference between pre-crisis and post-crisis.
But possibly watch this space, and see how the IMF will “mesh” the domestic regulation with G20’s (not truly international) agenda. It seems if there is to be unification and standardisation we may have a footslog ahead. For all this talk of new economic leadership and retooling the global economy one cannot help feel a little deflated when the dynamics of these proposals are analysed. *Sigh*