The security clampdown will be the same. The press corps will gather in droves. The spin doctors will be in full flow, claiming victory for their respective governments. But in every other way the meeting that British Prime Minister Gordon Brown will host next Thursday will be different from the last gathering of world leaders hosted by a British prime minister — Tony Blair’s 2005 Gleneagles summit.
The world has changed irrevocably since the financial crisis began in 2007, grew last year and will probably result in this year being the first that the global economy has contracted since World War II. In Brown’s view, the era of laissez-faire is over. Although they disagree about the means, US President Barack Obama, French President Nicolas Sarkozy and German Chancellor Angela Merkel agree.
A new world order is not going to be shaped in one day, but next week’s meeting can help chart the right course, creating the framework for reform at a national level. Here are the five big areas that the G20 should be concentrating on:
Proposal 1: It’s time for a new economics
The financial crisis and the environmental crisis are one and the same: crises of excess. There will be no lasting recovery without recognizing that the world needs to slow down. For central banks, it means a wider range of instruments so they can lean against the wind. More generally, it involves adopting the precautionary principle of elevating the local above the global — and having the humility to accept that the G20 doesn’t have all the answers.
Proposal 2: A Green New Deal
If former US president Franklin D. Roosevelt’s big idea for the Great Depression was public works, then it makes sense to use this crisis to start the long, hard process of making economies more sustainable and less dependent on fossil fuels. A combination of low interest rates and fiscal expansion is ideal — provided the investment is used productively rather than for speculation. That will involve two concepts that have been anathema during the heyday of laissez-faire: industrial policy and credit controls.
For Britain, a Green New Deal (GND) is even more vital than for other developed countries, since the economy is acutely unbalanced, is experiencing a manufacturing meltdown almost on a par with that of the early 1980s and has a strong science base that could, with the right support, spark a new industrial revolution. But a GND is also vital for the rest of the world: The US is responsible for 25 percent of global carbon dioxide emissions with only 4 percent of the world’s population; the problems of the big three carmakers provide Obama with an unprecedented opportunity to send the gas guzzler to the scrapheap. Rebalancing the global economy means countries such as China must boost domestic demand; one way to do that would be through investment in greener energy.
Proposal 3: Reform the IMF
One reason the big Asian creditor nations built up huge surpluses before the crash of 2007 was that they were badly scarred by the financial crisis a decade earlier and were determined never again to be at the mercy of the IMF. The IMF’s response — as it has always been since 1944 — was that countries seeing capital flight should be subject to austerity programs.
So, reforms must overhaul the fund — not just to beef up its surveillance role but to make it less dominated by developed nations (especially the US) and less driven by the dogmatic belief that free movement of capital is always a force for good. The fund’s big shareholders should go back to Keynes’s blueprint and accept that the burden of adjustment in crises should fall on both creditors and debtors.
It is a concern that IMF reform appears to be low on the G20 agenda, particularly as the weakening grip of the US over the global economy makes change easier. The era of the unipolar world dancing to the tune of the Washington consensus lasted a scant two decades between the collapse of communism and the collapse of Lehman Brothers.
Proposal 4: Make the global financial system more progressive
The humbling of Wall Street and the City of London has made them dependent on support from the taxpayer and opened up the prospect for reform. The most pressing need is for action against tax havens, not just because the money lost to national exchequers could be better used but because the big financial institutions can move offshore if threatened with tougher regulation. There seems to be greater G20 unanimity on tax havens than on any other issue, and the summit should insist on tax havens providing information to any government that asks for it. The G20 should also back a currency transaction tax — set low initially — that would provide the money to hit the UN millennium development goals.
Proposal 5: Tougher global regulation
Brown should forge ahead with his plans for an international college of supervisors to provide cross-border oversight of multinational banks. The G20 should start work on an international agreement to split retail and investment banks — an updated form of the Glass-Steagall reform in the US in the 1930s. The capital adequacy regime for banks should be toughened up; credit-rating agencies should be made statutorily independent of the companies they monitor; the more exotic forms of derivatives products should be subject to the same sort of licensing regime as new drugs. We will know governments are really serious about reform when they link the pay of regulators to the pay of bankers.
Larry Elliott is the Guardian’s economics editor.
The central bank and the US Department of the Treasury on Friday issued a joint statement that both sides agreed to avoid currency manipulation and the use of exchange rates to gain a competitive advantage, and would only intervene in foreign-exchange markets to combat excess volatility and disorderly movements. The central bank also agreed to disclose its foreign-exchange intervention amounts quarterly rather than every six months, starting from next month. It emphasized that the joint statement is unrelated to tariff negotiations between Taipei and Washington, and that the US never requested the appreciation of the New Taiwan dollar during the
The diplomatic dispute between China and Japan over Japanese Prime Minister Sanae Takaichi’s comments in the Japanese Diet continues to escalate. In a letter to UN Secretary-General Antonio Guterres, China’s UN Ambassador Fu Cong (傅聰) wrote that, “if Japan dares to attempt an armed intervention in the cross-Strait situation, it would be an act of aggression.” There was no indication that Fu was aware of the irony implicit in the complaint. Until this point, Beijing had limited its remonstrations to diplomatic summonses and weaponization of economic levers, such as banning Japanese seafood imports, discouraging Chinese from traveling to Japan or issuing
Since leaving office last year, former president Tsai Ing-wen (蔡英文) has been journeying across continents. Her ability to connect with international audiences and foster goodwill toward her country continues to enhance understanding of Taiwan. It is possible because she can now walk through doors in Europe that are closed to President William Lai (賴清德). Tsai last week gave a speech at the Berlin Freedom Conference, where, standing in front of civil society leaders, human rights advocates and political and business figures, she highlighted Taiwan’s indispensable global role and shared its experience as a model for democratic resilience against cognitive warfare and
The diplomatic spat between China and Japan over comments Japanese Prime Minister Sanae Takaichi made on Nov. 7 continues to worsen. Beijing is angry about Takaichi’s remarks that military force used against Taiwan by the Chinese People’s Liberation Army (PLA) could constitute a “survival-threatening situation” necessitating the involvement of the Japanese Self-Defense Forces. Rather than trying to reduce tensions, Beijing is looking to leverage the situation to its advantage in action and rhetoric. On Saturday last week, four armed China Coast Guard vessels sailed around the Japanese-controlled Diaoyutai Islands (釣魚台), known to Japan as the Senkakus. On Friday, in what
RSS