G20: Illegitimate, Incompetent and Out of Control

By on 06/24/2010 in Uncategorized

You can’t formulate a sensible international economic policy without the basics: helicopters, snipers, riot police, attack dogs, tanks and miles of chain link fence. Wherever ministers of finance gather, the essential accessories for crowd control and popular repression are always to be found. But even by the historical levels of unaccountability, profligacy and cowardice set at meetings of the world’s richest economies, this weekend’s Canadian G8/G20 meetings raise the bar. By the time the teeth of the last protester are hosed from the soles of the last Mountie, the security bill will have topped one billion dollars. The six kilometer fence in the middle of Toronto cost $5 million alone but most of the rest of the bill is secret – ‘national security’ provides an alibi for backhanders and white elephants.

So what will Canadians (and the rest of the word) get for their money? Very little. The meeting will produce a tepid ‘big tent’ declaration with language elastic enough to stretch over the bickering interests of thrifty Europeans, improvident Americans, tightrope-walking Chinese, and restive Saudis. All done.

What’ll be worse, though, is what the G20 meeting will fail to do. It will prevent open debate about alternatives, it will let those responsible for the financial crisis maintain their veneer of legitimacy, and it’ll chip away at the institutions that, still, offer an alternative to the G20′s traveling circus. Here, just for the record, are three reasons why the G20 is already a failure.

1. The G20 is illegitimate

On the G20’s website, we read:

“The G-20 … brings together important industrial and emerging-market countries from all regions of the world. Together, member countries represent around 90 per cent of global gross national product, 80 per cent of world trade (including EU intra-trade) as well as two-thirds of the world’s population. The G-20′s economic weight and broad membership gives it a high degree of legitimacy and influence over the management of the global economy and financial system.”

To restate: because the G20 governments are rich and, with India and China among their number, populous, they are the legitimate managers of the global economy and financial system. First, of course, the G20 represents the sum of 46 democratic deficits (the European Union’s 27 members count as one G20 member). China and Saudi Arabia of course, don’t sully themselves with the pretense of democracy at all.

Do we gain much by diluting the club of former colonizing countries (the G8) with the formerly colonized ones? Not really. The Financial Times reports that the number of millionaires in Asia has finally overtaken that in Europe, and there’s no good reason to think that governments in the East are any less craven than governments in the West. At the G20, there will be a chance for ministers to receive advice from businesses – the so called B20. This rather hints at the class orientation of the G20’s leaders.

Of course, there’s one thing worse than having your government at the G20, and that’s not having your government at the G20. The G20, albeit awkwardly, admits that there might be something wrong with the world’s largest economies deciding what’s best for the entire world, particularly the hundred countries who aren’t invited. So the G20 have taken measures to increase the representation of poor countries in their favourite international fora: the IMF and World Bank. They’ve made progress too. Again, they congratulate themselves for

… the World Bank’s voice reform to increase the voting power of developing and transition countries by 3.13%.

It’s true! China, India and Saudi Arabia have more votes. But, in the part of the World Bank that makes so-called concessional loans, eleven African countries have seen a decline in their relative voting power, and Bangladesh has lost more voting power in the shuffle than the UK. And it’s a bit of a stretch to call the loans concessional – technically, the concession is meant to be a low interest rate, it’s always developing countries that have to make concessions in their economic policies in order to qualify for them.

Of course, there is an organization that does include every country in the world – the United Nations. And it’s the one organization that the G20 goes out of its way never to mention. Because the G20 members see themselves as the UN’s replacement.

So, not terribly much legitimacy, even on the metrics that the G20 likes to hold itself to. And by the metric it doesn’t like to hold itself to, there’s even less legitimacy. Which group has been more affected by the recession, after all, than women? The United Nations knows all about this, with a series of investigations, reports and policies on gender and the impact of the financial crisis available here. The G20′s site doesn’t mention gender at all. Not once.

2. The G20 is incompetent

Here’s how the G20 represent themselves:

“To tackle the financial and economic crisis that spread across the globe in 2008, the G20 members were called upon to further strengthen international cooperation.”

As if the G20 were sitting the Batcave when, suddenly, the Batphone rang and Commissioner Gordon was asking them to save the planet. As if their policies hadn’t, in fact, facilitated the problem in the first place.

Despite a few changes of leadership since 2008, this is largely the same crew, armed with the same toolkit and the same instruction manual for the economy. It’s wishful thinking to hope that these governments are going to be able to fix the very problems that they’ve spawned.

Yet there has been, and continues to be, solid thinking about the economy outside the corridors of central banks and ministries of finance. Dean Baker, for instance, notes that:

“The economy thrived in the three decades following World War II with a financial sector that was proportionately one-fourth of its current size. There is no reason that the financial sector should use up a larger share of the economy’s resources today than it did three decades ago. Effective regulation will restore the financial sector to its proper role in the economy.” (Taking Economics Seriously, 2010, p79)

The United Nations has been thinking about the financial crisis for a while – and held a conference last year at which Nobelists like Joseph Stiglitz worked with representatives from every government (legitimate and otherwise) at the Conference on the World Financial and Economic Crisis and its Impact on Development to produce a plan of action . It’s one that almost every sane economist would endorse. It’s not terribly revolutionary, though it’ll take a revolution to get it accepted, because it recommends things like fiscal stimulus, strong regulation and investment in a green economy. In the scope and strength of its recommendations, it far outstrips the statement currently circulating for the G20. Yet it’s a vision that’s necessary in order to tackle the issues of sovereign debt, unemployment, climate change, gender inequality, and poverty.

3. The G20 isn’t in control

Perhaps the biggest problem is that the G20’s ministers, awed as they are by financial markets, can’t see their way to respond without capitulating to them. It’s not at all clear whether G20 members govern financial markets, or the other way round. But it’s becoming clearer. Britain under its new Conservative ( and Liberal!) government has decided that, in fact, it’s the financiers who run the country. In order to restore market confidence, the people have been served with the most austere cuts for decades in a recent ‘emergency budget’. The belt tightening has, so far, made the markets happy. The British Pound made some brief gains, and the the OECD pronounced it a ‘courageous budget’.

John Maynard Keynes, as quoted by his biographer in the Financial Times recently, had something to say about budgets like these:

When the Conservative-Liberal coalition that had succeeded the Labour government introduced an emergency budget in September 1931, Keynes again stood out against the chorus of approval. The budget was, he wrote, “replete with folly and injustice”. He explained to an American correspondent that “every person in this country of super-asinine propensities, everyone who hates social progress and loves deflation, feels that his hour has come and triumphantly announces how, by refraining from every form of economic activity, we can all become prosperous again.”

So, how to make those with super-asinine propensities listen? For the longer term, the good folk at places like the US Social Forum will be organising for the future. Over this weekend, though, many good folk in Toronto will be trying hard to make some noise, present some alternatives, and avoid the boots of the Royal Canadian Mounted Police.