The G-20 Conference -- Thin Air at the Summit

What was missing at the G-20 was a true revolution in the thinking of the global financial and political elites. And that will not happen without either more inspired leadership at the top or more pressure from below.
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Brussels -- While the heads of the world's twenty leading nations did their best to paper over serious divisions at the G-20 economic summit in London, here in Brussels leaders of the world's democratic left held a summit of their own to take stock and plan strategy. At the Global Progressive Forum, organized by the more left wing of Europe's social-democratic leaders, people felt that this global economic crisis should be their moment--but that the politics has not yet caught up with the economics.

The Forum is testament to the leadership of Poul Nyrup Rasmussen, who was Danish prime minister in the 1990s and who now spearheads the socialist caucus in the European Parliament. In contrast with, say, Britain's Tony Blair or Germany's Gerhard Schroeder, when the Danes elected Rasmussen to lead a progressive government, they actually got a progressive government. But for the most part, the fate of the European center-left has been to preside over slightly less awful center-right policies and then to suffer retribution at the polls.

With European parliamentary elections coming up in June, and even nominally center-left governments more solicitous of banks than of ordinary people, it's not at all clear that progressive parties will benefit from what should be the greatest embarrassment of capitalism since the 1930s, or that the politics and regulation of capitalism will be transformed.

The Brussels meetings produced a brave communiqué, calling for a Global New Deal, built on sustainable development, the harnessing of private finance, and broad social justice. The meetings opened with a stirring speech by Bill Clinton, who managed to sound more progressive than he ever did in office. I found myself thinking: If only this man had been president.

Trade union leaders arrived here from the official London meetings, grateful for relative crumbs. Gordon Brown, the British Prime Minister, and Kevin Rudd, his Aussie counterpart, actually found time to meet with union delegations (as Barack Obama did not). The final Summit communiqué, reflecting this broader effort, was slightly friendlier to concerns about unemployment than the original draft document. The British Trades Union Congress, putting the best possible face on small victories, declared the summit a success for working people. Gordon Brown, the summit's host, was sounding a little more like a Labour Party leader and less in his traditional role of front man for British financial interests.

Since they began at Rambouillet, France, in 1975, these annual economic summits have been treated as momentous events, but they are memorable mostly for being forgettable. Only very infrequently, as in the 1999 Cologne summit's embrace of debt relief for the third world, do they produce lasting achievements.

This Group of 20 meeting was notable only because the club of seven leading democracies plus Russia ("the G-8") was expanded to include emerging world powers such as India, China, and Brazil. The most important third world nations never embraced financial market fundamentalism, and they are a salutary counterweight.

But the 2009 summit, whose extensive press clippings will soon be fishwrap, succeeded mainly because it managed not to fail. Michelle Obama dominated European television for a week. Her husband was hailed as a diplomatic genius for mediating a minor dust-up between French President Sarkozy (who was threatening to take his boule and go home because of the summit's tepid acceptance of an OECD blacklist of forbidden tax-havens) and Chinese President Hu Jin-tao (who insisted that the communiqué not give any role to the OECD, which excludes China.) Obama solved the spat with an indirect reference to the OECD list, and persuaded the two grown men to shake hands like adults. In this age of diminished expectations, that feat passes for statecraft.

But the Europeans did not get the Americans to commit to the details of tougher financial regulation. Nor did the Americans get the Europeans to agree to more economic stimulus spending. Instead, the two camps punted the ball to two international organizations of dubious provenance.

For tougher and more consistent international financial regulation, the summit turned to an obscure club of bankers and bank regulators known as the Financial Stability Forum (FSF), newly named the Financial Stability Board. For more than two decades, this Swiss-based body has assented to the financial deregulation that produced the crisis. Its one tangible contribution, the Basel Accords on capital standards, produced criteria that relied largely on the banks' own models and entirely missed all of the speculative abuses that brought down the system. The FSF is famously opaque, conducts deliberations in secret, invites no public comment, and is mainly a club of bankers and their largely tame regulators. Its head is Mario Draghi, who heads the Bank of Italy, a former Goldman Sachs man, naturally.

Turning to the FSF for tough financial regulation is a bit like--it's hard to find a sufficiently far-fetched analogy--it would be like putting Mary Schapiro, the Wall Street self-regulator who missed Bernie Madoff, in charge of the SEC; or putting Gary Gensler, the onetime Deputy Treasury Secretary under Larry Summers who helped head off regulation of credit default swaps, in charge of derivative regulation. Oops, we got that, too.

Unable to agree on direct stimulus spending, the G-20 decided to shower funds on the International Monetary Fund. The IMF will get an additional $1.1 trillion, some of it in real money, mainly for third world finance. But this is no substitute for increased public outlay in Europe and North America. Nor is it at a scale of real transfer of wealth that will allow poor countries to invest massively in green infrastructure.

In his speech to the Global Progressive Forum, Clinton pointed to the opening scene in the movie Slumdog Millionaire, where police are chasing the children of the slums across a massive dump that is inhabited by scavengers picking through what must be the world's least promising garbage. What if India employed more people in recycling rather than leaving them unemployed and scavenging, Clinton asked. (Good question. Actually, the most advanced systems, like part of Stockholm's, use pneumatic tubes to carry pre-sorted waste directly from people's apartments to central facilities, and there is no curbside pickup at all. What if the third world went directly from the 19th century to the 21st?)

The cost of modernizing third world infrastructure is on the order of 30 trillion dollars. That would be a real program of global Keynesianism married to green development. But instead, we have the IMF as place-marker for the West's failure to agree on serious outlays.

In recent years, stung by the IMF's onerous credit terms, most needy nations simply avoided doing business with the fund. And though the current head of the IMF is a French socialist, Dominique Strauss-Kahn, it's not at all clear that the IMF has fundamentally changed. For decades, IMF financial rescues were predicated on the wrong kind of "conditionality." Countries that received aid were required to slash social spending, balance budgets, and deregulate financial markets as a condition of getting assistance. Just in case some nations managed to avoid the IMF's tender mercies, other organizations such as the OECD and the World Trade Organization piled on with similar requirements.

Nations that wanted to join the OECD, like Mexico and Korea, first had to deregulate their money markets, so that their small economies could become part of the global speculative playground. The WTO's General Agreement on Trade in Services continues to be a battering ram, requiring members in good standing to deregulate their financial markets. The stalled Doha round of trade liberalization, supposedly intended to benefit the third world, offers a deal that includes even more financial market deregulation.

Speaking at the Global Progressive Forum, Pascal Lamy, another French socialist who improbably heads the World Trade Organization (the principal engine of market fundamentalism among the world's international bodies) agreed that his predecessors had conflated the liberalization of trade in products (which developing nations need) with liberalization of financial markets (which has been a scourge.)

What was missing at the G-20 was a true revolution in the thinking of the global financial and political elites. And that will not happen without either more inspired leadership at the top or more pressure from below. Almost exactly 76 years ago, in the spring of 1933, another global economic meeting, also held in London, broke up in failure. The world's central bankers of that era, despite the ravages of the depression, were wedded to budgetary balance and the gold standard. The conference failed largely because one major player, the United States, refused to go along. Franklin Roosevelt pointedly did not attend. Instead, Roosevelt embarked on a program of domestic recovery, using deficit spending, public works, tough regulation of finance, and abandoning the shackles of the gold standard. And this was still in Roosevelt's first hundred days.

Barack Obama is not yet playing a Rooseveltian role, though as the crisis deepens, he may yet. I keep thinking of the wonderful and terrible line of the British historian A.J.P. Taylor, writing about the aborted revolutions of 1848--the liberal democratic revolutions that were supposed to be Europe's destiny. Prof. Taylor described 1848 as a turning point of history on which history failed to turn. Particularly in Germany, the failure to devise 19th century republican institutions led to very fragile democracy, which set in train events that ended with Hitler.

The fateful year 1933, by contrast, was a true turning point. For Germany, it turned out disastrously. For America, it turned out well. But before the economic crisis could come round right, Roosevelt had to spend money on a massive scale, which did not truly occur until the war. And he had to get serious about harnessing private finance.

For now, speculative private capital has been disgraced but not dethroned. If this is another of history's aborted turning points, the aftermath will not be pretty. It cries out for a true global progressive politics, of which the conferees in Brussels could only dream.

Robert Kuttner is co-editor of The American Prospect and a senior fellow at Demos. His best-selling book is "Obama's Challenge: America's Economic Crisis and the Power of a Transformative Presidency."