Long, long ago in a world far, far away, the leaders of the globe's biggest economies used to meet in a private, clubby atmosphere in a scenic hotel to discuss the future of the world economy - over some good meals, some nice wines and probably a cigar or two. Then they posed for a wacky group photo, wearing those funny shirts - and that was that. It’s a much more sobering picture now.
Back in the halcyon days of the go-go 1990s and early 2000s, before the Great Recession, the G-7 was an august gathering of presidents and prime ministers. G-7 eventually became the G-8 with the addition of Russia, then a bunch of others came along to make the G-20 meeting that now includes South Africa, Brazil and Senegal, among others. Olympus-like, these gods would divine how to spread wealth more evenly around the world and to give third-world growth a rousing shove forward – along with some other noble endeavours.
The G20 is now a gargantuan project. It will cost the Canadians, this year’s summer hosts (there will be another meeting in November in Seoul, Korea), at least a billion US dollars – most dedicated to security. And this astounding amount does not include spending by the participating nations to get their principals and staffers there, the cost to international television and print media to cover the thing, and the expenses for a gaggle of NGO delegations and others who believe they must be there to press their respective cases.
And it doesn’t include the cost of gathering up the horde of demonstrators who ritually convene as counterpoint to the rhythm of the meetings. No G8 or G20 or World Bank/IMF meeting or major UN conference is complete without a couple of days of ritualised, kabuki-like confrontations with police and the requisite trashing of city streets, storefronts and police vehicles. Followed inevitably by mass arrests and releases.
The expense of Toronto’s meeting includes – and we are not making this up – a media centre with its very own artificial lake (if you check out a map you will see Toronto sits astride a perfectly lovely natural lake by the name of Lake Ontario) has finally encouraged The Daily Maverick to contemplate how to do this whole thing rather differently in future. When it was a tight little group of seven or eight heads of state, some advisors, their security people and a vetted media contingent for a day and a night in a scenic spot, that was one thing. Now it is a mini-UN that effectively locks down one city at a time. Maybe it’s time to consider alternatives to make discussion the centrepiece again, rather than the fun of accomplishing all these administrative arrangements.
Planners might consider high-tech digital video conferencing – hundreds of corporations, major national militaries and media now do this routinely. The novelty alone of world leaders doing this should guarantee reams of media coverage for this trailblazing effort – and this would really shrink the carbon footprint of the meeting dramatically – and make the tree-huggers happy for a change, too.
Too high tech? Okay, try this out. Each time a country plays host to one of these bacchanals, do it in a really isolated resort or island, or on top of some scenic but distant mountain. Oh, and do it at the right season – none of this business of hosting it in a leafy, green Toronto early in summer. No, do it in Abashiri, Novosibirsk, Yellow Knife, Anchorage, Narvik, Jura or Harbin in mid-winter. They’ll never see a demonstrator – and nobody will tag along to the gab fest unless absolutely necessary.
Or, pick a permanent site for the thing – so much money goes into this effort that doing it in a small, but interesting, economically well-organised country like the Seychelles, the Maldives or Botswana with enough infrastructure to carry it off would be a real plus to the hosts. It would also provide routine and move things away from being an administrative apocalypse and media circus.
Or do it in a place that really needs foreign investment and keep the meeting in the same place for a couple of years. Pick some place like Bangladesh, Moldova, Albania or Liberia. Again, nobody will hang around just to be seen, the demonstrators will be fewer – who really wants to trash the spiffy stores in Dacca, Chisinau, Tirana or Monrovia – and the media hordes will go off quickly in search of some real things to report about. Hosting such a meeting would be a major economic stimulus to the host nation as well. The money spent on it probably would be more than the total annual foreign aid contributions any of those countries realises from the rest of the world. And it certainly would leave some infrastructure improvements over the years.
And what about the substance of this year’s meeting? In the early going, the gathering agreed to speak sternly to North Korea about its sabre-rattling ways, but without actually taking any specific steps to prevent future rattling – to placate the Chinese and Russians. And the Chinese agreed that their currency would float higher, but not because anybody forced them to do so – and nobody better say that either, they seemed to say.
Then, in the main tent at the G-20, the real battle was between two different approaches towards dealing with the effects of the Great Recession. On one side was Barack Obama who was preaching Keynesian orthodoxy – that now is definitely not the time to worry overly much about deficit spending when the main task remains reigniting economic growth. Pitted against him was a nervous caucus of European leaders who are dead scared about rapidly growing government deficit spending and the effect such spending is having on the ability to raise enough revenue, and on bond markets and interest rates, as well as in response to EU strictures on holding government spending in check.
The result was a wobbly agreement on cutting deficits over a three-year period, coupled with a push for stronger banking regulation and financial reform – but only in years to come. However, the group did not agree on the global bank tax supported by the US, the UK and the EU. The group did set a deadline – their November meeting in Korea – to agree on new capital standards for banks, but they also noted that some nations might not implement the standards by 2012. Ho hum. Agreement on standards but not on carrying them out.
Foreign Policy magazine, moving fast to comment on the final communiqué said: “The world’s industrialised nations agreed to halve budget deficits by 2013, echoing the concerns of European leaders about fiscal restraint. ‘Honestly, this is more than I expected, because it is quite specific,’ said German Chancellor Angela Merkel, one of the leading supporters of deficit reduction at the summit. [But] the agreement left some leeway for countries to cut spending at their own spend, reflecting the concerns of US President Barack Obama, who has warned countries not to cut stimulus spending too quickly. Following the summit, Obama stood behind the deal, but stressed that ‘our fiscal health tomorrow will rest in no small measure on our ability to create jobs and growth today’.”
The real decision of the G-20 seems to have been: Think small. After a couple of years of supporting fiscal stimulus programmes due to the dire economic conditions in most G-20 members, the group has now more or less resolved to emphasise debt reduction instead – even if cutting deficits means shrinking unemployment that much harder.
Obama had advocated a more cautious approach to debt reduction that would not stall growth or even trigger the dreaded double-dip recession, but ultimately yielded to Canada, Germany and Britain that halving deficits in three years should be the target, along with stabilising the ratios of public debt to GDP three years thereafter. But, to keep the US, Japan, and India on side, the timetable is just an expectation – and the conferees agreed Japan would not meet this target anyway. Or, in other words, it was an agreement to disagree – and then blame the other guy if it doesn’t come out so well.
Obviously speaking to his domestic audience, Obama told the media, “We must recognize that our fiscal health tomorrow will rest in no small measure on our ability to create jobs today.” Raghuram Rajan, a former chief economist at the IMF commented: “While the illusion of progress is good, I don’t see real action to alter the imbalances that brought us to this crisis. The US has been the world’s consumer of first resort and because it has been unable to persuade other countries to spend more or to reform quickly, it is likely to take up that position once again.” And so, if there was a “victor”, perhaps it was Merkel who had insisted on actions to rein in spending lest investors drive up borrowing costs, as they did in Greece.
But The New York Times’ Nobel Prize-winning, economics commentator, Paul Krugman, had a much less complimentary view about the results. He titled his Monday column on the Toronto meeting: “The Third Depression.”
“The cost — to the world economy and, above all, to the millions of lives blighted by the absence of jobs — will nonetheless be immense. And this third depression will be primarily a failure of policy. Around the world — most recently at last weekend’s deeply discouraging G-20 meeting — governments are obsessing about inflation when the real threat is deflation, preaching the need for belt-tightening when the real problem is inadequate spending.”
Krugman agreed long-term fiscal responsibility was important, but he insisted “slashing spending in the midst of a depression, which deepens that depression and paves the way for deflation, is actually self-defeating”. He concluded that the cost of such a rigid orthodoxy will be paid for by “tens of millions of unemployed workers, many of whom will go jobless for years, and some of whom will never work again”. This week’s mantra must surely now become, against all evidence to the contrary, that “Krugman was wrong, Krugman is wrong, Krugman will be wrong, forever and ever. Amen”.
By J Brooks Spector
For more, read: The New York Times, the Los Angeles Times, The Independent (UK), Time, Foreign Policy, the Christian Science Monitor, AP, CSIS, Brookings Institution, reports by the Peterson Institute for International Economics here, here and here, the G-20 official site, Politico, and the BBC, among many others.
Photo: World leaders including (back row, L-R) Spain’s Prime Minister Jose Luis Rodriguez Zapatero, Netherlands’ Prime Minister Jan Peter Balkenende, South Africa’s President Jacob Zuma, Russia’s President Dmitry Medvedev, (front row, L-R) China’s President Hu Jintao, South Korea’s President Lee Myung-bak, Canada’s Prime Minister Stephen Harper and U.S. President Barack Obama, pose for a family photo at the G20 Summit in Toronto June 27, 2010. REUTERS/Chris Wattie