The Australian
G20 a circus for clowns
written by Michael Costa
April 17, 2009
THE Group of 20 meeting in London produced plenty of media hype and uncritical commentary but very little to resolve the global financial difficulties. Most damagingly, leaders continued to perpetuate the myth that market failure, not the failure of government-mandated organisations, was the core contributing factor to present economic difficulties. Political expediency, not sound economics, was the beneficiary of the meeting.
The summit communique reflected the primacy of politics over economics. Leaders were desperate to ensure the communique would allow participants to claim to their domestic audiences that they had succeeded as national leaders. So along with the usual self-important hyperbole - "we will bring the world economy out of recession and prevent a crisis like this from recurring in the future" - the communique provided specific phrasing to accommodate the more politically exposed leaders, particularly the summit's host, Gordon Brown.
The British Prime Minister is struggling politically. The latest opinion polls show his Conservative rival, David Cameron, has a double-digit lead. Brown's key weakness is that he was chancellor of the exchequer during the the property asset bubble. Immodestly, but not uniquely, during the boom years he projected his personal role in creating the boom.
Since the bubble burst, serious talk of national bankruptcy has become common. Brown's response, including significant fiscal stimulus, has failed. Scandals surround substantial government bailouts, such as that of the Royal Bank of Scotland.
Brown went into the G20 meeting in conflict with his own Chancellor, Alistair Darling, and Mervyn King, governor of the Bank of England, over further stimulus packages.
Brown recklessly claimed that the G20 needed to commit to injecting a large fiscal stimulus into the global economy. By large he meant more than $US1trillion ($1.38 trillion).
The Germans and the French, among others, refused to co-operate. Brown would have been left with egg on his face if US President Barack Obama hadn't helped by conjuring up a figure close to that amount for inclusion in the final communique.
However, the $US1.1trillion program referred to in the communique is not a fiscal stimulus.
It represents potential loans or credits to be administered by the International Monetary Fund or the World Bank. Only $US250billion is new money and most of the money may not even be spent. The G20 communique is global political spin on a grand scale and Kevin Rudd, to his discredit, has been complicit in this foolhardy attempt to sex up the size of financial commitment.
The communique has many examples of this type of spin. The pledge to "build an inclusive, green and sustainable recovery" and "accelerate the transition to a green economy" are transparently self-promoting. Yet the only action agreed to is to have more discussions on values and principles for a charter of sustainable economic activity.
More worrying, the spin extends to significant omissions in the wording of the communique compared with the document issued after the G20 meeting in Washington in November last year. Key wording agreed to in November has been dropped, including explicit commitments to free-market principles, the rule of law in respect of private property, open trade and investment, efficient financial systems and an explicit recognition that over-regulation would hamper economic growth and exacerbate the contraction of capital flows. These words were significant as they were agreed to by China and Russia and may well have long-term economic consequences for the global economy.
Even the much vaunted reforms to the governance structure of global economic institutions such as the IMF and the World Bank, when closely examined, are window-dressing. There are promises of greater representation of developing and poor countries through additional voting rights and a third African seat on the executive board. The new Financial Stability Board has vague goals such as "collaboration with the IMF to provide early warning on macroeconomic and financial risks and actions to address them". Why the FSB would be better placed to predict changes to global economic activity than present institutions is not explained. In any event, predicting the emerging economic crisis does not guarantee co-ordinated global responses. The property asset price bubble at the core of today's financial difficulties was obvious to many observers yet the political will to act was lacking.
Please click HERE to continue reading this article...
G20 a circus for clowns
written by Michael Costa
April 17, 2009
THE Group of 20 meeting in London produced plenty of media hype and uncritical commentary but very little to resolve the global financial difficulties. Most damagingly, leaders continued to perpetuate the myth that market failure, not the failure of government-mandated organisations, was the core contributing factor to present economic difficulties. Political expediency, not sound economics, was the beneficiary of the meeting.
The summit communique reflected the primacy of politics over economics. Leaders were desperate to ensure the communique would allow participants to claim to their domestic audiences that they had succeeded as national leaders. So along with the usual self-important hyperbole - "we will bring the world economy out of recession and prevent a crisis like this from recurring in the future" - the communique provided specific phrasing to accommodate the more politically exposed leaders, particularly the summit's host, Gordon Brown.
The British Prime Minister is struggling politically. The latest opinion polls show his Conservative rival, David Cameron, has a double-digit lead. Brown's key weakness is that he was chancellor of the exchequer during the the property asset bubble. Immodestly, but not uniquely, during the boom years he projected his personal role in creating the boom.
Since the bubble burst, serious talk of national bankruptcy has become common. Brown's response, including significant fiscal stimulus, has failed. Scandals surround substantial government bailouts, such as that of the Royal Bank of Scotland.
Brown went into the G20 meeting in conflict with his own Chancellor, Alistair Darling, and Mervyn King, governor of the Bank of England, over further stimulus packages.
Brown recklessly claimed that the G20 needed to commit to injecting a large fiscal stimulus into the global economy. By large he meant more than $US1trillion ($1.38 trillion).
The Germans and the French, among others, refused to co-operate. Brown would have been left with egg on his face if US President Barack Obama hadn't helped by conjuring up a figure close to that amount for inclusion in the final communique.
However, the $US1.1trillion program referred to in the communique is not a fiscal stimulus.
It represents potential loans or credits to be administered by the International Monetary Fund or the World Bank. Only $US250billion is new money and most of the money may not even be spent. The G20 communique is global political spin on a grand scale and Kevin Rudd, to his discredit, has been complicit in this foolhardy attempt to sex up the size of financial commitment.
The communique has many examples of this type of spin. The pledge to "build an inclusive, green and sustainable recovery" and "accelerate the transition to a green economy" are transparently self-promoting. Yet the only action agreed to is to have more discussions on values and principles for a charter of sustainable economic activity.
More worrying, the spin extends to significant omissions in the wording of the communique compared with the document issued after the G20 meeting in Washington in November last year. Key wording agreed to in November has been dropped, including explicit commitments to free-market principles, the rule of law in respect of private property, open trade and investment, efficient financial systems and an explicit recognition that over-regulation would hamper economic growth and exacerbate the contraction of capital flows. These words were significant as they were agreed to by China and Russia and may well have long-term economic consequences for the global economy.
Even the much vaunted reforms to the governance structure of global economic institutions such as the IMF and the World Bank, when closely examined, are window-dressing. There are promises of greater representation of developing and poor countries through additional voting rights and a third African seat on the executive board. The new Financial Stability Board has vague goals such as "collaboration with the IMF to provide early warning on macroeconomic and financial risks and actions to address them". Why the FSB would be better placed to predict changes to global economic activity than present institutions is not explained. In any event, predicting the emerging economic crisis does not guarantee co-ordinated global responses. The property asset price bubble at the core of today's financial difficulties was obvious to many observers yet the political will to act was lacking.
Please click HERE to continue reading this article...
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