Subject: [SocialistWorker.org] Summit with no answers
-----
View original article here:
http://socialistworker.org/2009/04/01/summit-with-no-answers
Analysis: Lee Sustar
======== SUMMIT WITH NO ANSWERS ==============================================
Lee Sustar looks at the clashing economic agendas among the Group of 20
industrial nations meeting in London this week.
April 1, 2009
THE GROUP of 20 meeting of leaders of the world's biggest economic powers is
marked for failure even before it begins April 1.
Convened to come up with solutions to the biggest economic crisis since the
1930s, the G20 meeting was billed by its host, British Prime Minister Gordon
Brown, as a vehicle for international coordination of economic recovery
policies and major changes in financial regulation.
Yet little more than a day before the summit began, French President Nicolas
Sarkozy--under mass pressure from strikes and demonstrations--threatened to
walk out of the G20 if the meeting couldn't agree on regulations to reign in
what he calls "Anglo-American capitalism." Meanwhile, most big European Union
countries, led by Germany, are opposed to Obama's and Brown's calls for huge
government spending to stimulate global growth. The /Wall Street Journal/
explained:
>As the U.S. and the UK pressed the case for greater government stimulus to
>lift the global economy, they have encountered stiff resistance from
>European leaders, forcing U.S. officials to downplay the targets. The 20
>nations, while promoting free trade, also have had to face their own
>penchants for protectionism--with many recently moving to guard their own
>economies and companies from the downturn.
>
- - - - - - - - - - - - - - - -
CERTAINLY, THERE is a dire need for an international economic policy to
counter the international downward spiral. According to the International
Monetary Fund, the global economy will contract this year by between 0.5 and
1 percent--the first such decline since the aftermath of the Second World
War. The Organization for Economic Cooperation and Development (OECD), the
club of rich industrialized countries, predicts the world economy will shrink
by 2.75 percent.
"The world economy is in the midst of its deepest and most synchronized
recession in our lifetimes," wrote OECD chief economist Klaus Schmidt-Hebbel.
The OECD also forecast that unemployment in 30 industrialized countries will
near 10 percent, up from 6 percent last year.
The World Bank forecasts a milder contraction of 1.7 percent. But in a speech
in London, World Bank President Robert Zoellick said that even this decline
would have a devastating impact on the world's poorest countries. "These
events could next become a human and a social crisis, with political
implications," he said in a speech in London. "People in developing countries
have much less cushion: no savings, no insurance, no unemployment benefits,
and often no food."
The enormous resources of the G20 countries--they produce 80 percent of the
world's economic output--could be harnessed to counteract that downward
spiral. Instead, however, the meeting is turning out to be--as it was in its
November meeting in New York--a talk shop.
Of course, the G20 will issue statements about the urgent need for countries
to work together to combat the global slump and avoid protectionist measures
like higher trade tariffs. There may also be an agreement on reform of the
IMF to give China and other developing countries a greater role in the
institution and to increase funding for loans.
Yet the reality is that each major economic power is taking steps to prop up
its own economy--often at the expense of their rivals and of the poorer
countries in the world.
For example, the World Trade Organization expects trade to decline by 9
percent this year--the worst drop in 80 years. Most of the decline is due to
the overall impact of the recession, but mounting protectionist measures are
taking a toll. "The World Bank estimates that 17 [of the] G20 countries have
instigated 47 policies that have restricted trade since the November G20
summit in Washington," the /Financial Times/ reported.
Other "beggar thy neighbor" policies have also been adopted, such as
devaluing national currencies to make exports cheaper and imports more
expensive. (Exhibit A of this strategy is the U.S. Federal Reserve Bank's
recent move to electronically create $1.3 trillion in new money, which will
tend to erode the value of the dollar in comparison with the euro and the
Japanese yen).
But falling trade levels and protectionism are only two of the deepening
cracks in the world economy. Another is collapse of foreign direct investment
(FDI) in Eastern Europe and developing countries in Asia and Latin America.
For example, Russia saw $130 billion flee the country last year, and another
$170 billion could flow out again this year as Russian banks and other
businesses struggle to repay debt. In China, long the world's biggest magnet
for foreign investment, FDI has dropped five months in a row, including a
26.2 percent drop in just the first two months of 2009.
So while the G20 leaders will line up for photo ops and issue suitably solemn
and resolute statements about international cooperation, their policymakers
are working overtime to foist the costs of the slump on one another.
- - - - - - - - - - - - - - - -
FOR BARACK Obama and the U.S. govenrment, negotiating agreements among the
G20 is complicated by a qualitative shift in the international economic
balance of power.
A quarter century ago, the U.S. was able to contain rising economic
competition from Europe--mainly, from then-West Germany--in part because
Europe was locked into the U.S. camp during the Cold War between Washington
and Moscow.
The U.S. could also use its political leverage over Japan to force the
Japanese government to except "voluntary" restraints on exports to the U.S.,
as well as an increase in the value of the yen that made Japanese goods much
more expensive in the U.S. market. This gave the U.S. economy the breathing
space to restructure and emerge in the 1990s as more competitive against its
these rivals.
Today, however, the picture has changed radically. The U.S. emerged a decade
ago as the importer of last resort in the East Asian financial crisis, thanks
to super-low interest rates implemented by then-Fed Chair Alan Greenspan. The
low rates softened the blow of the dot-com stock market bust and the 2001
recession that followed. Plus, low interest rates led to the housing bubble
that allowed U.S. consumers to go into debt to compensate for stagnating or
falling wages until the recession began in December 2007.
But the economic expansion of 2001-2007 has helped redraw the economic map of
the world. The U.S., having poured hundreds of billions of dollars in
investments into China since the 1980s to counteract Japan's rise in East
Asia, now confronts China as an industrializing rival and a major source of
imports.
At the same time, China is the U.S.'s leading creditor, with an estimated $1
trillion of U.S. Treasury bonds and other government-backed bonds held by
Chinese banks. This has allowed China room to maneuver economically against
the U.S.--most recently, by proposing the replacement of the dollar as a
means of payment in international transaction. While there's little prospect
of such a development, it's a signal that if China is to continue to fund
U.S. trade and budget deficits by buying government bonds, it will seek
something in return.
Brazil, while not nearly as powerful economically as China, has been strong
enough to block U.S. plans to extend the North American Free Trade Agreement
throughout the Americas. Further, Brazil has overseen regional economic
integration in Latin America that has often left the U.S. on the sidelines.
India, too, has become a key economic power, both because of its high-tech
and software industries and the rise of companies like Arcelor Mittal to
become a major player in the global steel industry. And the European Union,
though fraught with internal problems, has a greater economic output than the
U.S.
Plus, given that the U.S. economy is no longer capable of using debt-financed
consumer spending to spur international growth, the entire global trading
system is crumbling.
All this complicates Barack Obama's agenda as he calls on the G20 to endorse
a U.S. program for a global recovery effort. Nevertheless, the U.S., despite
its shattered financial system and discredited neoliberal economic doctrines,
retains considerable economic clout, not least because the dollar remains the
world's reserve currency.
The U.S. remains the overwhelmingly dominant military power in the world as
well, which reinforces American economic power in countless ways. But given
continued volatility in Iraq and the prospect of another endless war in
Afghanistan, the economic crisis could constrict U.S. imperial power as well.
That's why Obama is spending much of his European trip trying to shoring up
NATO support for the occupation of Afghanistan.
All this means that the G20 and NATO meetings are at best stopgap efforts for
a U.S. administration confronting multiple economic, political and military
crises. The G20 will offer platitudes about international economic
cooperation while they're really straining to prevent the fragmentation of
the world economy into rival trade blocs. And while the U.S.'s NATO allies
will dutifully proclaim their commitment to preventing the spread of "terror"
and bringing "democracy" to Afghanistan, their commitments of troops and
resources are likely to be far less than what Obama wants.
Obama's meetings with the G20 and NATO, intended to restore international
public confidence in the U.S. as a global leader, will inevitably highlight
the fact that the world capitalist system is in the midst of a profound and
intractable crisis.
- - - - - - - - - - - - - - - - -
Published by the International Socialist Organization. Material on this Web
site is licensed by SocialistWorker.org, under a Creative Commons (by-nc-nd
3.0) license, except for articles that are republished with permission.
Readers are welcome to share and use material belonging to this site for
non-commercial purposes, as long as they are attributed to the author and
SocialistWorker.org.
