It is obvious from the latest G-20 meet that the West will not countenance a new power structure beyond the G-7, whose heads still don’t seem to see anything wrong in the BRIC group not having a legitimate say in global affairs.
The eagerly anticipated G-20 meeting that was to have solved much, if not all, of the world’s problems has happened, with leaders of the 20 nations and international financial institutions all good intent about working together to restore growth.
The key ‘good intentions’ of the summiteers include:
Reform of international financial institutions such as the World Bank and the International Monetary Fund
An agreement by the end of 2008, leading to a successful global free-trade deal
Improvements to financial market transparency and ensuring complete and accurate disclosure by firms of their financial conditions
Making sure banks and financial institutions’ incentives “prevent excessive risk-taking”
Asking finance ministers to draw-up a list of financial institutions whose collapse would endanger the global economic system
Strengthening countries’ financial regulatory regimes, and
Taking a “fresh look” at rules that govern market manipulation and fraud.
But more than ‘good intentions’ these sound like political escapism to push problems away as far as possible even while appearing to be solving them.
The way global financial architecture has evolved over the last couple of decades, the pre-eminence of national and international institutions has been usurped by global financial corporations, many of which are even bigger than some nations. The World Bank and the IMF, which see themselves at the vanguard of capitalism, are actually perceived as the hand-maidens of the West and, by extension, of the TNCs.
The IMF’s conditionalities and prescriptions that harp on total privatisation, including of utilities, have done little to the popularity of the organisation in much of the developing and less developed world. So it is all very well to speak blithely of new Bretton Woods institutions but, when there is no acceptance of a world mediated by Western ideas, the move is doomed ab initio.
Set in their ways
The West’s stock in the world is perhaps at the lowest ebb as the financial crisis begins to bite and the pain is beginning to be felt in economies as far removed as South Korea and Ukraine. Till yesterday the champions of “light touch” regulations, today they want financial market transparency and accurate disclosures by firms of their financial conditions.
A look at the British experience suggests how much wishful thinking this is. None of the banks that took help from the British government to recapitalise has passed on interest rate cuts, despite firm suggestions from the Office of the Exchequer.
Nor do they plan to cut out bonuses to their management. In fact, one bank, to avoid such interference, preferred to go a West Asian country for the funds. Banks and financial institutions have got used to playing with other people’s money. They will not willingly kick this habit and will fight till the last man against any serious government intervention.
The global financial/banking set-up has grown too vast for governments to rein it in. The insidious capital is so networked and entrenched that disengaging is well nigh impossible and indeed not desirable even, as that could lead to more tragedies.
All that can be done is for countries to strengthen their financial regulatory regimes. But this, if the Western memory is not too short, is what countries like India and China were reviled for doing a while ago. There was unseemly pressure, no doubt initiated by market-hungry TNCs from the West, on Beijing and New Delhi to open their markets or free their currencies.
Even more disingenuous is the intent to conclude a free trade deal by end-2008, when the Doha Round has been festering. The stalled trade talks, according to some leaders, should be pushed forward so that a basic agreement is reached before the US President, Mr George Bush, demits office in January. But this very fact will tie Mr Bush’s hands. Nor may the new incumbent, Mr Barack Obama, want the US committed to something he will have to live with.
In fact, this is one of the key factors of the G-20 meeting not generating any thing concrete. It is transition time for the world’s biggest power — the US. There is a lame duck government in office. It cannot commit the new government to deals that the new regime may not want nor has any say in.
This is why, perhaps, the British Prime Minister, Mr Gordon Brown, sees an opportunity to assert the UK’s presence in the world political firmament by appearing to give the lead in matters economic.
Most countries have no choice other than adopting the Keynesian revival model, but that has not stopped Mr Brown from claiming intellectual property rights for it. It is extreme irony that Mr Brown should be fount of wisdom when his economy is hurtling towards recession thanks to his ‘light touch’ regulation that gave banks the carte blanche to do what they wanted and they dragged people into the quagmire of easy, but dangerous, debt.
New power structure
It is obvious from the latest G-20 meet that the old lions may have lost their teeth but they are not going to vacate their place in the pride. For them the world remains frozen in 1944, at the time of the Bretton Woods conference.
If it can help it, the West will not countenance a new power structure beyond the G-7, never mind that this grouping no longer represents the world’s biggest. They do not, or at least pretend not to, see the impatience of the BRIC (Brazil, Russia, India and China) group in not getting a legitimate say in global affairs.
Only now does the World Bank chief, Mr Robert Zoellick, who in October said the G-20 was too unwieldy, think that a new grouping of nations must emerge. “We need to modernise the multilateral system to bring in the important developing country voices such as Brazil...” he said. But will this set him and his IMF counterpart thinking on re-working the quotas that determine the voting? Unlikely.
The more pragmatic leader in recent times, France’s Nicholas Sarkozy is suggesting bringing emerging economies on board as members of the club of industrialised nations, that is, expand the G-7. Possibly, he is eyeing the trillions of dollars in reserves that China and the Gulf states have that could help the developed countries as much as the smaller nations (via IMF) in the present turmoil.
But this storyline is about to change because, with oil prices dropping, West Asia may not, after all, be awash in dollars. The surpluses of China (and other Asian nations) depend on the splurging by the West.
With the West slowing down, Asia’s dollar riches may start to dwindle. Further, they may also need all the riches to stimulate their own economies in the face of the global slowdown.
Possibly, the only good thing about the summit was that it was of G-20, not the usual G-7. Maybe this is how it should be if there is to be a happy ending to the story. Of course, there will be many more twists and turns to it. Half has not been told.Related Stories: