The message from last weekend’s G-20 summit meeting on the global economy must be a parody of Samuel Beckett’s Waiting for Godot: The game can’t go on. The game must go on.
In the face of the worst financial crisis since the Great Depression, European leaders had flirted with the idea of actually trying to change something. French President Nicolas Sarkozy said, "Laissez-faire, it's finished. The all-powerful market that is always right, it's finished." As a result, it is necessary to rebuild the entire global financial and monetary system from the bottom up, “the way it was done at Bretton Woods.”
British Prime Minister Gordon Brown pointed out a deep contradiction of capitalist globalization: “We now have global financial markets, global corporations, global financial flows. But what we do not have is anything other than national and regional regulation and supervision.” We need “a global way of supervising our financial system.” He called for “very large and very radical changes,” including turning the IMF into a “global central bank.”
But the Bush administration soon put an end to such wild talk. “This meeting is not about discarding market principles or about moving to a single global market regulator,” a White House official said. “There is very little support for that.”
Indeed, as the leaders of the G-20 countries were winging their way to Washington, Bush announced, “The crisis was not a failure of the free-market system, and the answer is not to try to reinvent that system.” It would be a “terrible mistake” to allow “a few months of crisis” to undermine faith in free market capitalism.
Astonishingly, no one seemed to disagree. In the midst of the worst financial crisis since the Great Depression, the leaders of 20 countries gathered in Washington and produced not an agreement to act, but a declaration of principles.
The declaration itself is extraordinarily vacuous, even by the standards of international summits, given that their system (not to mention the livelihoods of billions of people) are at risk. Their “common principles for reform” are things like “Strengthening Transparency and Accountability,” “Enhancing Sound Regulation,” and “Promoting Integrity in Financial Markets.” No corporation or investor need lose much sleep over “commitments” like: “We pledge to strengthen our regulatory regimes, prudential oversight, and risk management, and ensure that all financial markets, products and participants are regulated or subject to oversight, as appropriate to their circumstances.”
It was eerily reminiscent of another such international gathering, the London Monetary and Economic Conference of 1933. Sixty nations sent high-level representatives to London to forge a solution to the Great Depression. Each came with proposals, some of them potentially effective, for halting the downward spiral in which they were all engulfed. But each was deeply suspicious of the others’ proposals, seeing them as primarily means to advance their proponents’ national interests at the expense of others. Finally, US President Franklin Roosevelt rejected the agreement his own representatives had negotiated and the conference broke up in shambles. Trade wars and competitive devaluations followed apace.
EVERY MAN FOR HIMSELF
The G-20’s failure to accomplish anything is being attributed to the Bush administration’s lame duck status – everything must grind to a halt until Obama’s inauguration ends the “interregnum.” But the real problem is deeper than that.
In a whirlpool of “deleveraging” and deflation, many fortunes are going to be lost – through bankruptcy, insolvency, plunging stock values, and the like. Every national and international policy can affect whose capital is to be gored. If the Big Three US auto companies can persuade the government to give $25 billion from the bank bailout to them, the auto companies will be $25 billion richer -- and the banks $25 billion poorer.
When Treasury Secretary Henry Paulson’s original $700 billion bailout plan proposed to purchase the “toxic assets” of US financial institutions, it thereby earmarked the funds for the small number of large institutions (notably his old company Goldman, Sachs) that had large amounts of such assets – giving them a huge advantage over the other, mostly regional and local banks, that did not. Representatives of those banks attacked the plan immediately, and part of the reason Paulson has abandoned his original plan is no doubt because of their pressure. Similarly, when Paulson proposed to guarantee investments in money funds, the banking industry went ballistic, arguing that it would lead to catastrophic runs on banks as people pulled their money out of banks and put it into money funds; Paulson reversed his position within a few days.
The same struggle is going on between nations. When Ireland guaranteed all deposits in Irish banks, money poured out of other countries and into Ireland; banks in other countries were threatened with collapse. Other European countries quickly denounced Ireland – and within days retaliated by guaranteeing their own banks’ deposits. When Britain used its anti-terrorism law to take control of the assets of a failing Icelandic bank, it justified the action on the grounds that the bank’s collapse might harm the U.K. economy. Commenting his country’s financial catastrophe, Iceland’s Prime Minister said, “In a situation like this it’s turning out that it’s every man for himself.”
As Dean Baker recently pointed out, when the US and some other countries gave a trillion-dollars-and-still-counting in low-interest loans and other subsidies to their own banks, it constituted just the kind of unfair competition and non-tariff barriers to trade that they were busy condemning at the G-20 meeting. When Europeans push for a larger role for the IMF, we should remember that the Europeans have disproportionate voting power there, whereas the US is weaker in the IMF than in other international institutions -- and the rest of the world is virtually frozen out.
National governments are under tremendous pressure to follow policies that serve one or another desperate special interest, rather than the whole national, let alone global, community. Claims that bailout, monetary, fiscal, and international policies are for the public good must be carefully measured against the private interests they actually benefit, however plausible the arguments put forward to prove they are in the public interest.
This points to the Achilles heel of proposals for a “new Bretton Woods.” The Bretton Woods agreement developed in the context of overwhelming US dominance of the world economy at the end of World War II. The agreement made the dollar the reserve currency for every country. A “new Bretton Woods” system would have to replace that with what is generally referred to as a “market basket of currencies” that reflects the relative importance of the dollar, euro, yen, and other currencies. As French President Sarkozy put it, “Times have changed, now the Euro and other currencies have a place in world financial exchanges, a new reality that should be reflected in new rules.”
Not surprisingly, the US is dead-set opposed to any such “new rules.” So attempts at a new Bretton Woods system are stymied from the start. This fundamental conflict will make global cooperation to end the global economic crisis highly unlikely – and an economic “war of all against all” the most probable alternative. (Obama’s advisers have yet to give a hint of their approach to this reality.)
DOWN THE DRAIN?
The world desperately needs national and international policies in the global public interest. And they must start with the threat of global warming. The British government’s authoritative Stern report found that global warming will have an economic impact greater than the Great Depression and World Wars I and II combined. And as Al Gore recently wrote, “The bold steps that are needed to solve the climate crisis are exactly the same steps that ought to be taken in order to solve the economic crisis and the energy security crisis.” Yet the subject is mentioned only once, and in passing, in the G-20 communiqué.
Economic crisis changes minds. President Bush recently explained to reporters why he had agreed to the $700 billion rescue plan for US financial institutions: “I’m a free-market person until you’re told that if you don’t take decisive measures then it’s conceivable that our country could go into a depression greater than the Great Depression.”
If the current recession does indeed turn into a long, drawn out depression, there eventually will have to be a new Bretton Woods – or some other way to create a new structure for the global economy. But it is unlikely to come as an initiative of the existing powers and principalities.
Where could such an initiative come from? One place is what’s sometimes called the global justice movement or “globalization from below”: Planners for the January World Social Forum are already organizing discussions for transnational popular responses to the global economic crisis. Another is the global labor movement: Just before the G-20 summit, the International Trade Union Congress, which represents represents 168 million workers in 155 countries, issued a “Washington Declaration” laying out an alternative approach to global economic reform. Another is the UN General Assembly: Its president just appointed Joseph Stiglitz to chair a high-level task force to review the global financial system.
Today’s global leaders do have one thing right: economic warfare between countries will be ruinous, just as it was in the 1930s. But while they give lip service to international cooperation, they are in fact already engaging in trade wars and beggar-your-neighbor policies. It’s up to people and social movements around the world to force our governments to cooperate. We need to challenge “free market principles,” not in the name of economic nationalism, but of common global interests. Otherwise what economic historian Charles Kindleberger wrote about the Great Depression in his magisterial book THE WORLD IN DEPRESSION will be prophetic for our future as well: “When every country turned to protect its national private interest, the world public interest went down the drain, and with it the private interests of all.”