David Woodward

The G20 Communiqué issued yesterday recognises explicitly, in its second paragraph, that “A global crisis requires a global solution”. But at no point does it recognise any need for a global process to decide what that global solution should be. The G20 members appear determined that they, and they alone, should determine the future course of the global economy – and that it should be designed to protect their financial interests and promote their preferred economic model, with no more than token gestures towards limiting the damage to the rest of the world. Extraordinarily, they even refer to the IMF and World Bank as their international financial institutions, and proclaim that they will reform them. They are trying to seize control of the global economy; but in doing so, they are amply demonstrating why they must not be allowed to succeed.

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The G20’s long-awaited London Summit has come and gone – and they have finally told us how they propose to run our global economy. Their plans may provide some reassurance to bankers, financiers and investors. They may even help to protect jobs for those lucky enough live in rich countries, and for the better-off in some of the more prosperous developing countries. But for the majority of the world’s population, living on less than $3 a day, they offer little cause for optimism.

This was a forum of the privileged, meeting to discuss their agenda on their terms, behind closed doors. Not a single low-income or least-developed country was allowed to attend. So the concerns of the poor majority were limited to tokenistic gestures aimed to give the appearance of limiting the damage done to them by a crisis created by the very governments which dominate the G20.

“What Global Process?” What the Communiqué DOESN’T Say

Much of the discussion ahead of the Summit focused on whether the Communiqué would or would not include a commitment to further “stimulus” packages. It didn’t. This is somewhat ironic: it may be open to question whether further “stimulus” measures would be a good idea, but coordination of their own macroeconomic policies is one of the few areas in which the exclusive club of the G20, which has no mandate beyond its member countries, has any legitimate role.

A much more important gap in the Communiqué has been much less commented upon. At no point in the entire document is there any reference to support for, or even to the existence of, the global process for reform of the global economic system established by the United Nations. The Communiqué recognises explicitly, in its opening paragraph, that “A global crisis requires a global solution”. But at no point does it recognise any need for a global process to decide what that global solution should be.

The G20, it seems, is happy to “call on” global institutions of which they comprise a small minority of the membership – the IMF, the World Bank, the ILO, WTO – to do their bidding, and to “encourage” the (mostly regional) Multilateral Development Banks, to do their bit. They even “call on the UN, working with other global institutions, to establish an effective mechanism to monitor the impact of the crisis on the poorest and most vulnerable”.

But they conspicuously avoid any mention of a role for the UN in decision-making on the response to the crisis, or ongoing discussions of the issue within the UN, or of the major UN conference to discuss the issue in June – an appropriately global forum in which to discuss this critical and far-reaching global issue on a (relatively) even political field. The G20 members clearly aim to keep the process to themselves, and to use their political privileges and the (waning, but still considerable) economic dominance they (or at least the developed country members) have gained largely by abusing these privileges, to try to fix the crisis they created for the rest of the world in such a way as to further their own interests. They want a global solution; but they want to be allowed to design it themselves, in accordance with their own interests, without any interference from anybody else thank you very much.

The G20’s demand that the UN should “monitor the impact of the crisis”, with no reference to any broader role, merely reinforces the message: the UN should sit patiently on the sidelines, shedding silent tears as they watch the devastation wrought by the G20’s efforts to salvage its own financial interests at the expense of the rest of the world – and, in all probability, a substantial proportion of their own populations.

Why the UN?

Clearly, the G20 is not an appropriate body to decide how to respond to the current crisis. It has no legal mandate or status, and its membership is exclusive and grossly unrepresentative. Almost the entire developed world is represented, directly or indirectly; but only the largest and most prosperous developing countries have a seat at the table, and low-income and least-developed countries are excluded entirely.

But this is, at root, a financial crisis. Why, then, should it be addressed through the United Nations rather than the IMF, which has a global mandate on international financial stability? There are three overwhelming reasons.

First, the roots of the crisis may be financial, but its branches extend everywhere – to poverty, health, education, the environment, labour markets, migration, etc, etc. And the IMF, in its single-minded obsession with “making the numbers add up”, has shown a spectacular ignorance of, and indifference to, all of these issues.

Second, the IMF’s governance structure is wholly unsuited to this role. Its economically weighted voting system gives a substantial majority of the votes to a small rich minority (the developed country governments) and a veto on major policy decisions to a single country (the US). Substantive discussions take place in an Executive Board where five countries directly control how their votes (38.4% of the total) are used, while others cannot. The UN undoubtedly has its shortcomings – but it operates on a one-member-one-vote system, in which all countries are represented on an equal basis, and where representatives are directly accountable to the governments they represent.

Third, in large measure because of its bizarrely anachronistic and undemocratic governance structure, the IMF has consistently (and quite spectacularly) failed even to fulfil its own relatively narrow mandate of maintaining the stability of the international financial system for the last 30 years. Apart from the current crisis, it has not only failed to prevent the Sub-Saharan and Latin American debt crises and the Asian financial crises, but has responded to them in such a way as to compound their economic and social impacts.

The IMF is not merely an inappropriate body to deal with the current crisis, with an excessively narrow mandate – it is quite simply not capable of doing so in anything resembling its current form.

The Arrogance of Wealth and Power

With a quite extraordinary arrogance, the G20 refer to the IMF and the World Bank no less than four times in the Communiqué as “our international financial institutions”, even asserting ithat “We will reform their mandates, scope and governance”, without reference to the remainder of the membership.

They speak of the global financial system they (or some of them) have wrecked as “our financial system” (it’s our toy, so why shouldn’t we break it if we want to?), and of sanctions against “non-cooperative jurisdictions” only “to protect our public finances and financial systems” – but not, apparently anyone else’s. They have, however, corrected a Freudian slip in the draft Communiqué, where they forgot themselves and said that they “have agreed a general SDR allocation”. It is not for the G20 to “agree” such an allocation, any more than it is for them to reform global institutions.

(It is also worth noting that a general SDR allocation essentially amounts to printing $250bn and putting most of it in the bank accounts of…. G20 countries. In 1997, the IMF approved a special one-time allocation of SDRs (not a General Allocation) which would have allowed somewhat more of the benefits to go to some non-G20 countries. But the US, despite supporting the allocation at the time, has ever since been using the veto it alone has on major policy decisions the IMF to block the amendment to the Articles of Agreement which is needed to allow it to be implemented.)

While telling “their” global institutions what to do, the G20 members also graciously say, without apparent irony, that they will support “candid, even-handed, and independent IMF surveillance of our economies and financial sectors, of the impact of our policies on others, and of risks facing the global economy”. In other words, they support the idea of “their” IMF doing this critical part of the job they have given it. Interestingly, though, the language appears to have been consciously and deliberately watered down at the Summit itself: in the draft Communiqué leaked just two days earlier, the G20 members didn’t merely express support for such surveillance – they commited themselves to it.

Of course, it should go without saying that the G20 countries support the idea of the IMF doing its job independently and even-handedly. The fact that they see a need to say this at all is a recognition that certain G20 members (no names, no pack drill….) have abused their political privileges in the IMF’s undemocratic weighted voting system to prevent it from doing this critical part of its job. This is a major part of what got us into this mess in the first place. And their deliberate refusal to make any actual commitment to submit to independent IMF surveillance on an equal basis with its less powerful and privileged members suggests that some of them still reserve the right to do so again in the future.

Equally, it should go without saying that the G20 members “commit to implementing” measures on IMF and World Bank governance reform which have already been approved, with their support – but, as the US veto on the changes required to allow the 1997 SDR allocation clearly demonstrates, it doesn’t.

Few Crumbs for the Poor

Of course, there are the usual tokenistic references to protecting the poor and vulnerable – but only to protecting them, in part, from the effects of the crisis and the G20’s self-serving crisis response. And what do these references really amount to?

On aid, G20 members merely “reaffirm our historic commitment… to achieving our respective ODA pledges”. In other words, they are offering no additional aid to what they promised before the crisis. One also has to question the value of such “commitments”: developed country governments made a commitment nearly 40 years ago to provide 0.7% of their national income in aid, but no G20 member country has ever actually fulfilled this commitment. Some G8 members (all of whom are also in the G20) have slipped even further behind this standard since the promises they made at their Gleneagles Summit in 2005.

Otherwise, gestures to the poor are limited to promoting new lending through the international financial institutions (for which, of course, G20 members will pick up only part of the bill – once again, spending other people’s money). But these loans will have to be repaid, with interest – and they will increase indebtedness even as the recipients’ debt-servicing capacity is destroyed by the crisis. Historical experience suggests that this may not have serious consequences in the long term. But then, what has anything in the Communiqué to do with the long term.

While there are calls for reform of the IMF and World Bank (see below), the additional sums which are to be provided through them are in no way conditional even on the limited reforms proposed. Neither is there any mention of further reform of IMF and World Bank policy conditionality, or of any need to reconsider the economic model on which it is based – the very model which has created the current financial and environmental crises, while failing to tackle social problems such as poverty and health. (See below.)

At a time when many non-G20 countries are in desperate need of additional funding, through no fault of their own, as a direct result of a crisis created by G20 members, channelling funds through an unreformed IMF and World Bank will give them little choice but to follow these destructive policies. The G20 members, of course, face little risk of having to do any such thing. On the contrary, while the IMF dictates ever-greater austerity elsewhere, the G20 countries are doing exactly the opposite, scattering publc resources like confetti through more and more extravagant “stimulus” programmes. Clearly, it’s a question of “don’t do as we do, do as we tell you”.

Trade

On trade, the Communiqué repeats a previous G20 commitment “to refrain from raising new barriers to investment or to trade in goods and services, imposing new export restrictions, or implementing World Trade Organisation (WTO) inconsistent measures to stimulate exports”.

Here again, the difference from the wording of the draft Communiqué on the last point (“not to create new subsidies to exports”) is worth noting. It appears that the G20 leaders took a conscious and deliberate decision at the Summit to allow themselves the leeway to use export subsidies to the maximum extent possible, irrespective of the effects on other countries, subject only to the legal restrictions imposed on them by WTO Agreements they have already signed – and whose terms developed country G20 members largely dictated. Even on import barriers, the commitment is limited to not making the situation worse than it already is.

The developed countries also continue to use the financial crisis they have created as yet another lever to push ahead their agenda in the WTO through the Doha Round. However, they have backed off slightly from the language of the draft Communiqué – possibly as a trade-off for dropping the commitment to avoid (WTO-consistent) export subsidies. Where the draft Communiqué referred to “rapid agreement… on modalities leading to a successful conclusion of the Doha Round” – emphasising the need to maximise speed towards the completion of negotiations – the final version referred to “reaching an ambitious and balanced conclusion”, shifting the emphasis towards the content, and the need to take some account of (G20) developing country concerns.

Fundamentally, however, the Doha Round is based on the commercial interests of the developed countries, and on further intensification of the current economic model (see below). The dynamics of negotiations have been modified somewhat since the last round of negotiations by the growing power in the WTO of the larger and richer developing countries – the very countries represented on the G20; and these countries’ interests are fundamentally different from the interests of the smaller, poorer and (mostly) less industrialised developing countries which are excluded formally from the G20, and from any real influence in the WTO. And the “agreement” the G20 is after undoubtedly entails these countries succumbing to their political and economic pressure and submitting to their demands.

These countries stand to lose three times over: from the absence of any commitments to lower trade barriers against them; from the prospect of yet more export subsidies undermining their domestic markets; and from a further round of WTO Agreements over which they will have little say.

The Economic Model – More of the Same….

The most important reason why the G20 should not be allowed to dictate the response to the financial crisis is that it will largely determine the dominant economic model to which the rest of the world will have to adapt – at least until the next crisis. (Although we may not have too long to wait, if the G20 gets its way….)

Here, the message is crystal clear. The objective is to “restore global growth”, and the way to do it is through “an open world economy based on market principles, effective regulation, and strong [but not, apparently, democratic, accountable or transparent] global institutions”. In other words, the G20 wants to get back to business as usual – presumably because the vast majority of the proceeds of global growth accrue to… the G20 members.

In other words, the G20 is just seeking more and wider application of the same old free-market model, designed to make the rich (most of whom are in… G20 countries) ever richer, with vacuous language and tokenistic add-ons to give the appearance that the poor and excluded are not being screwed completely.

In reality, the need for change goes far beyond this. The current slowdown in global economic growth has certainly been damaging to the poor – but mainly because the rich and powerful have spent the last 30 years imposing on them an economic model which has made them critically dependent on ever greater over-consumption by the rich to avoid sliding inexorably into complete destitution.

Simply restoring global economic growth is not the answer. It isn’t even part of the answer. Current levels of over-consumption among the better-off in the North (and among Southern elites) are already grossly unsustainable, and have brought us to the brink of an environmental precipice in the form of climate change. Worse, the first to fall over this precipice will unquestionably be the poorest. Simply getting us back on to the environmentally disastrous track which led us into the current crisis might help to avoid making the poor majority even poorer in the short term; but it will spell disaster for many of them in the longer term – and in this context, the longer term isn’t as long as all that.

The issue of climate change is critical to any consideration of the response to the current crisis, precisely because the current model is environmentally, as well as socially and financially, unsustainable. And yet (apart from the usual insertion of the word “sustainable” here and there, and a token reference to future generations) it rates only 36 words in a 3,000+ word Communiqué. Even these few words are merely another reaffirmation of an existing commitment “to reach agreement at the UN Climate Change conference in Copenhagen in December” – in other words, to agree to do something unspecified in another eight months, so long as the rest of world accedes to their demands to do it their way. There is not the slightest hint that climate change might impinge in any way on any of the issues discussed elsewhere in the text.

Everyone has a stake in these issues – and no-one more so than the poorest people in the poorest countries. And yet it is precisely these countries which are systematically excluded from the G20. As long as the G20 is in the driving seat, we will inevitably be driving towards social disaster and environmental oblivion.

Global Economic Governance

At first sight, the Communiqué might appear to offer slightly more hope on future decision-making processes. As noted above, however, the reference to reforming the mandates, scope and governance (including, ironically, providing greater voice and representation of “emerging and developing economies, including the poorest) is rather undermined by the G20’s assertion that these are “our international financial institutions” and that “we will reform” them.

And, as always, of course, there is no reference to democracy. Rather the G20 propose to reform “their” international financial institutions “to reflect changes in the world economy” – an implicit reference to making economic weighting more accurate, rather than shifting towards a more democratic system. This would actually reduce the votes of the poorest countries, already the most under-represented, still further – largely because their economic weight in the global economy has been reduced by the damage wrought by the disastrous policies foisted upon them by institutions from whose decision-making they are effectively excluded.

The Communiqué does call for action to increase the IFIs accountability; but unless and until they are democratised, this only means increasing their accountability to those countries which control over them – the developed country governments. There are most certainly serious issues of overall accountability; but at least as important is the issue of equal accountability to all members, on which the Communiqué is (unsurprisingly) silent.

The G20 also “agrees” that “the heads and senior leadership of the international financial institutions should be appointed through an open, transparent, and merit-based selection process”. But this is a sentiment that has been parroted meaninglessly for a decade or more, without any significant effects on the selection of the last two IMF Managing Directors or the last two World Bank Presidents. And phrases like “we commit to” or “we will” are conspicuously absent from this particular bullet point – even though this is one of the few measures that is almost entirely in the hands of G20 members: there is absolutely nothing to stop the US and the EU going beyond lip-service and unilaterally renounce the “tradition” by which they select, respectively, the President of the World Bank and the Managing Director of the IMF.

Slightly better news – perhaps the only (slightly) good news in the Communiqué – is the call on the IMF to “to complete the next review of quotas by January 2011” (although the call in the draft for the review to be launched at the 2009 Annual Meetings has been dropped). In principle, this provides another opportunity to raise the issue of democratisation sooner than we might otherwise have hoped.

Before becoming too enthusiastic, however, we need to bear in mind why this call is there, and what the interests of the G20 members are. It is undoubtedly there because the larger and richer developing countries (most notably China) want it there; and their interest is not in democratisation, but in more accurate reflection of economic weights in voting shares.

The developed countries would undoubtedly prefer not to push ahead with a further quota review any more quickly than they have to; and they will undoubtedly use their existing majority of the votes yet again to make sure they keep a majority of the votes, while giving just enough extra to the “emerging markets” to keep them on board – and just enough to smaller and poorer developing countries to avoid a politically embarrassing reduction in their votes from their already pitiful levels.

However, while a further quota review may provide an opportunity to raise the issue of democratisation, it offers little prospect of making significant progress towards the observation of basic democratic principles in the IMF. This will only happen when the developed country governments finally acknowledge the utter hypocrisy of their position in defending a governance system at the global level which fundamentally contradicts their own most basic democratic principles, purely in order to protect their own political privileges and the control it gives them over the rest of the world.

This is perhaps the most conspicuous reason why the G20 (and the G7 and the G8) must not be allowed to pre-empt global discussions of much needed global reforms. Yes, unlike the G8, the G20 includes some developing countries; and this means that some attention needs to be paid to the concerns of these countries. But it only includes a handful of developing countries, of a certain type – the larger, richer and more successful ones.

These countries are larger, richer and more successful precisely because they have contrived, in one way or another, to benefit from the status quo; and because they are larger, richer and more successful, they stand to benefit from preserving global governance systems which reinforce inequalities in economic power rather than off-setting them.

Only when we can move to a global economic governance system which reflects standards of democracy at the national level, and gives equal weight in decision-making to the smaller and poorer countries which have been penalised by the status quo, can we seriously hope to deal successfully with the real global challenges of poverty, climate change and health. And we can only begin to move towards such a system by putting the G20 (and the G8) firmly back in its box, and quietly turning the key.