London G20 summit reboots capitalism in search for a better economic model
Setting aside the vast ideological differences in their political cultures, priority national interests, monetary policies, exit strategies from the current crisis and other key global issues begging for, but currently defying fast-track resolutions, the leaders of the world’s 20 largest countries — battered into a ‘marriage of convenience’ by the unprecedented scale of the current global economic meltdown that now threatens the world’s political and social stability — agreed at the London Summit on April 2 to discard the existing post-World II model of capitalism for its complete failure to ensure stable global economic prosperity after the collapse of communism, and also its obvious incapability to provide innovative solutions to the pressing challenges of the 21st century.
The urgent need for ‘rebooting’ the current model of capitalism, according to the G20 summiteers, does not only stem from the collective search for quick exit strategies from the current crisis, but also from the long-overdue craving to abandon the outdated fiscal and monetary practices and clog the loopholes in the market regulatory mechanisms that have been responsible for the perennial cyclic repetitions of avoidable crises in the global economy since the WWII.
The search for new model of capitalism with a human face
To achieve the above-stated far-reaching objectives, the G20 nations, which currently account for almost 90% of the global GDP, have pledged to clean up the global banking system, adopt stricter-than-expected measures to tighten the current financial regulations, including a radical clampdown on tax havens, as well as a myriad of other urgent steps that are needed to completely rebrand contemporary capitalism into ‘a fairer and more responsible economic model with a human face.’
The overhaul of the current system, according to the adopted plans, will be comprehensive in scope, covering all aspects of today’s capitalism as the world leaders search for a new economic model that will be founded on well-established transparent regulatory frameworks that will make the global economy less prone to the ‘boom-and-bust cycles that have come to characterize contemporary capitalism. As a part of the rebooting process, the G20 has agreed to commit up to $1.1trln between now and end of 2010 — in addition to the unprecedented $5trln already injected by several countries in the past 18 months in collective efforts to kick-start the battered global economy. The new cash will go into generation of global demand for goods and services, activation of growth in trade flows, investments and creation of jobs.
UK Prime Minister Gordon Brown: “April 2 is the day the world came together to fight against recession. Our declared measures are not just a collection of programs, but a collective action for common good.”
Upbeat about their plans, the G20 leaders said the gross global fiscal stimulus package and the successfully implementation of the prescribed measures will not only leapfrog the global economy from its current ‘comatose’ state, but also raise the global GDP by at least 4% by the end of 2010. These and other ambitious goals were explicitly stated in the summiteers’ final joint declaration. “We start from the belief that prosperity is indivisible; that growth has to be shared; and that our Global Plan for Economic Recovery (see tab) must have at its heart the needs of families, not just in the developed countries, but also on the emerging markets and in the poorest countries of the world,” the G20 noted in their joint Communique. “Together with the measures we have each taken nationally, this constitutes a global plan for recovery on an unprecedented scale.”
International financial institutions also under reformation
The G20 summiteers also agreed to radically overhaul all the existing international financial institutions — namely, the International Monetary Fund (IMF), World Bank (WB) and others borne from the Bretton Woods Conference Agreements in 1944 — and give them more forward-looking visions that will reflect the current global financial architecture and the interests of all the players on the international economic arena.
Specifically, the plans include the elevation of the legal status of IMF, whose coffers will now be bolstered by the pledged staggering $1.1trln, to a higher status that will enable it to have more significant impacts on struggling national and global economies. In this context, it is important to note China’s flexing of its rising ‘financial muscular’ role in the global economy, having pledged to provide $40bln of this promised funding for the IMF, thus significantly boosting its influence in the organization.
Russian President Dmitry Medvedev: “The London Summit was a breakthrough and a big step forward, especially in comparison with the November conference in Washington that was all talks and no concrete actions.”
Also, there are plans to radically overhaul the management structures in these financial institutions by introducing fairer, more inclusive principles in appointments of their top management officials via more transparent, merit-based selection procedures. This requirement, if eventually approved, is very important as it will eradicate the existing discriminatory appointment policies in these agencies. For instance, according to the Bretton Woods Agreement, the head of the WB must be a U.S. citizen, while the IMF’s topmost post is reserved exclusively for the Europeans. As IMF Managing Director Dominique Strauss-Kahn put it at the sidelines of the summit, the plans under consideration envisage a scenario, where “the most qualified candidates, irrespective of countries or continents of origin, will get the top jobs in these institutions.”
The summiteers’ contributions and reactions
Commenting on the G20 Summit outcomes in his capacity as the host at the final press conference, UK Prime Minister Gordon Brown called April 2 the day the world came together to fight back against global recession. “The announced measures are not just a single collection of actions, but a collective action of people working together at their very best.”
Similarly, Barack Obama, making his European debut as the U.S. president, was effusively positive, calling the summit ‘historic’ because of the ‘size and scope of the challenges’ faced by the G20, and also because of the ‘timeliness and magnitude’ of its collective response to the global crisis. “Faced with similar global challenges in the past, the world was slow to act, and people paid an enormous price,” he said, adding that, “today, we have learned the lessons of history, because we responded today with an unprecedented set of comprehensive and coordinated actions intended to restore global growth, and more importantly, prevent crises of this magnitude from happening again in the future.”
French President Nicolas Sarkozy, also hailing the mapped out strategy to reform the global economy as the ‘greatest financial reform’ since the Bretton Woods Agreement, called the summit the ‘end of madness of total deregulation of financial markets and the Anglo-Saxon financial model, one of the reasons currently blamed for the current crisis. “This summit meant that the era of unregulated banking secrecy is now over, and that page had been turned on the economic model which had dominated the global economy since the Bretton Woods Conference created the world’s current institutional framework in 1944,” he said. “Since Bretton Woods, the world has been living on the Anglo-Saxon financial model. It is not my place to criticize it, it has its advantages, but clearly a page has been turned on that model today.”
U.S. President Barack Obama: “This summit is historic because of the size and scope of the challenges we face, and also because of the ‘timeliness and magnitude’ of our collective response to the global crisis.”
Airing the same view, Brown said the London summit ended the so-called ‘Washington Consensus’ — a term frequently used to describe the United States’ overtly lopsided roles in the economic mix of free trade, privatization and public-debt reduction policies, which are now seen by both U.S. friends and foes, as exceptionally unfair, unrepresentative and non-reflective of today’s political and economic realities. Angela Merkel, the German chancellor — who along with Sarkozy was among the staunchest advocates for the introduction of draconian regulatory measures on the international financial markets — also called the decisions ‘a very good, historic compromise.’ Speaking on behalf of the European Union, Jose Manuel Barroso, the president of the European Commission, was equally enthusiastic. “What we have achieved today at the London summit is incomparable in economic history,” he noted. “We said what we would do, and now we will do what we have said.”
The Russian president, Dmitry Medvedev, was similarly effusive in his praise of the summit, calling it ‘a breakthrough and a big step forward,’ especially in comparison with the November conference in Washington last year that was all talks and no concrete actions. “Unlike the Washington resolutions, the London declaration contains very serious and more concrete measures on how to improve the global economy.”
A myriad of untabled and unsolved issues remains
Some of the declared topics never made it to the negotiation tables in London. Some of these included calls to review the U.S. role in the world, including proposals — mainly by Russia and China — for the creation of a supranational reserves currency in lieu of the U.S. dollars. Thus, answering a question on the speculations about the end of and/or the diminished U.S. influence in the world, Obama conceded that there was some inevitable diminution in U.S. authority, mostly attributable to the previous [President Bush] administration actions, but noted that negative trend will change under his administration. “I would like to note that with my election, the early decisions we have made so far and other plans in the pipeline that we are starting to see some restoration of the U.S. standing in the world.”
German Chancellor Angela Merkel: “All the plans, strategies and decisions adopted at the London Summit are tantamount to ‘a very good, historic compromise.”
And, drawing attention to the international polls showing other countries ‘more hopeful about U.S. leadership, Obama said he does not buy into the notion that United States cannot lead in the world or act alone, if and when utterly necessary, but added that his administration will always try to pursue collective, rather indulging in unilateral actions. “It is important for the United States to form partnerships to solve global problems as opposed to just dictating terms and solutions,” he said. Obama also noted this was one of the principles that guided his actions at the G20 summit when things became tense. “During the G20 negotiations, we recognized that there were some issues that were not negotiable to our partners and we tried as much as possible to accommodate such issues in the final declaration in a way that does not lower the overall quality of the finally adopted document.”
However, the proposal for the establishment of a new ‘supranational reserves currency’ or raising the status of the Special Drawing Rights, the ‘special currency’ used by the IMF in its operations, which was of one of the key items on the Kremlin’s G20 agenda, did not make it to the negotiations table, as the summiteers did not feature the issue of reducing the world’s reliance on the U.S. dollar. It is generally believed that the tabling of such issue in the summit would have angered the United States, thus jeopardizing whole forum. As one international observer noted at the sidelines of the summit, the Kremlin proposal is totally irrelevant at this stage, because the urgency now is to put off the raging fire in the global economy, rather than wasting time on some popular issues that are long on politics, but worryingly short on economic relevance, especially in the context of the current global crisis.
But the undaunted Medvedev insisted that the idea on seeking alternative powerful regional international reserves currencies — as substitutes or complementary to the existing ones — remains a realistic possibility, noting that time will justify the expediency of his vision. “The idea of new international reserve currencies was not among the easiest topics tabled at the G20, and definitely no one had expected that a quick decision on it,” he said. The Russian leader, however, took solace in Clause 12 of the joint Communique, which calls on the summiteers to take every effort to pursue balanced monetary, financial and credit policies. “This means that we will definitely return to this issue in the future, both at the IMF and the G20 formats.”
European Commission President Jose Manuel Barroso: “What we have achieved today at the London Summit is incomparable in global economic history.”
The high-profile nature of this issue on the Russia’s G20 agenda prior to the London summit probably underlined the Kremlin’s decision to specifically note that apart from the reserves currency issue, most other Russia’s proposals and visions on the reformation of the global economy found their ways into the group’s joint declaration. “Russia’s proposals were sent ahead of the summit to its G20 partners and some of them were included in the final Communique,” Arkady Dvorkovich, adviser to the Russian president, said.
Parting to meet again
The summiteers exited London in an upbeat mood, satisfied with the successful fulfillment of their joint international obligation to save the global economy from the current crisis, and with a promise to continue to keep close eyes on monitoring the trends both on their respective domestic markets as well as on the global economy so as to act swiftly, if and when necessary.
In this regard, the G20 summiteers pledged to reconvene later in the year, probably in September, in New York to exchange notes and share opinions on the realizations of the adopted plans in their respective economies. “We have committed ourselves to work together with urgency and determination to translate our words and resolutions into actions,” the summiteers noted in their joint declaration. “And, also, we agreed to meet again before the end of this year to review the progress on our commitments.”
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