THE POLITICS of political economy were positively to the fore at yesterday’s Group of 20 summit in London. Agreement to triple funding for the International Monetary Fund, to strengthen global regulation of shadow and real banking and to co-ordinate economic stimulus packages across the 85 per cent of the world economy represented there is a significant political achievement. So are the commitments made that the G20 will meet again in the autumn to hear an IMF appraisal of how these agreements have been implemented, and news that the IMF’s own membership and voting rules will be renegotiated over the next two years.
If these agreements are delivered upon they can help establish (or restore) the belief that political leadership is capable of governing (or regulating) global economic forces so as to make a real difference in employment and welfare at national level. Advance commentary on the tensions of policy and interest between the various delegations and the consequent reduction of expectations failed to anticipate that this summit could be an event in its own right as well as the start of a longer process of geo-economic and geo-political transition. As Gordon Brown put it, the “Washington Consensus” of economic policy in place for the last 20 years is now giving way to another more globally representative model of market capitalism, less subject, it is hoped, to cyclical bubble and bust.
In his press conference President Obama underlined that this was a collective effort requiring sensitive awareness of growing economic interdependence and a recognition that many separate interests are involved. He said that while the US is a world power it is prepared to listen and learn as well as lead. This sets a new tone more appropriate for this complex multilateral setting and it should indeed earn the US a better hearing after the Bush administration’s sovereign assertiveness. Mr Obama’s meeting with Chinese, Russian and European leaders bore out his claim of change.
Much will now depend on how these agreements are put into practice at national and international levels. Regulatory reforms of hedge funds, tax havens and banking practice will be subject to IMF and OECD supervision and review, but how strong will they be? The radical changes in IMF funding proposed yesterday can make a real difference, but will they be applied effectively and equitably? The commitments to keep trade open and resist protectionism are valuable, but can they be adequately funded with the new resources made available? And perhaps most significantly, how will the co-ordination of national stimulus packages work in the face of different economic cycles between different world regions and without any real mechanisms to ensure they work together?
To ask such questions is not to cavil at the outcome of this summit but to respond critically to the hope for economic recovery and political leadership it will undoubtedly encourage. That should be welcomed as a possible turning point in what is now universally agreed to be the deepest economic recession since the dangerous 1930s.