BY ANIS CHOWDHURY AND JOMO KWAME SUNDARAM
SYDNEY and KUALA LUMPUR: The G20 leaders meeting in Hamburg, Germany, on July 7 and 8 comes almost a decade after the grouping’s elevation to meeting at the heads of state/government level. Previously, the G20 had been an informal forum of finance ministers and central bank governors from advanced and emerging economies created in 1999 following the 1997-1998 Asian financial crisis.
The new grouping’s record in steering the global economy since the first summit in Washington, DC. in November 2008 after the global financial crisis (GFC) was acknowledged by financial markets to have begun a couple of months before.
London summit’s high point
At the following April 2009 London summit, hosted by Gordon Brown, the G20 leaders demonstrated unprecedented solidarity in confronting the global meltdown with financial packages for the IMF, World Bank and others worth $1.1 trillion. The London financial package included $250 billion to help developing countries secure trade finance in the face of financial uncertainty.
These measures succeeded in turning the tide, with world economic growth recovering robustly from minus 2.1 percent in 2009 to plus 4.1 percent in 2010, exceeding the pre-crisis 2007 level of 3.8 percent. G20 boosters are inclined to claim that the London Summit pulled the global economy from the cusp of the first post-Second World War “great depression”.
However, there has been little evidence of how the funds may have saved the world economy. There has been modest trade growth since 2008 — after earlier sustained trade expansion — as most G20 member countries introduced essentially ‘protectionist’ trade measures despite their declared commitment to the contrary. The leaders also agreed to develop new financial regulations and improve financial supervision, but the patchwork which emerged has had limited and mixed consequences.
G20 leadership, evident at the April 2009 London summit, was abdicated with its U-turn at the June 2010 Toronto summit while claiming success for its earlier collective efforts. The Canadian hosts trumpeted its own strong recovery from around -3 percent in 2009 to +3 percent in 2010 as the G20 exaggerated hints of recovery to pave the way for “fiscal consolidation” instead.
Canada received strong support from Germany and Japan which also claimed strong recoveries. Further support came from the International Monetary Fund (IMF) and the European Central Bank (ECB) which invoked the “expansionary fiscal consolidation hypothesis” to claim that urgent U-turns would boost investor confidence to sustain economic recovery.
The U turn from Keynesian-style debt-financed fiscal stimulus measures deprived the modest recovery of the means for sustaining renewed expansion, thus ensuring the GFC’s ‘great tecesrion’, which has dragged on in much of the North for almost a decade since, dragging down world and developing country growth in recent years
Despite warnings from the United Nations and a few others against premature fiscal consolidation, G20 leaders at the Toronto summit agreed to cut budget deficits in half by 2013, and to eliminate deficits altogether by 2016! The decision triggered a double dip recession in Japan and some Eurozone countries.
Canada and Germany, which pushed for rapid fiscal consolidation, have since experienced significantly slower growth averaging 1.8 percent and 1.2 percent respectively. The global economy thus began a prolonged period of anemic growth averaging around 2.5 percent per annum.
Clearly, G20 economic growth continues to be modest. They are still unable to attain the 2010 growth rate, giving the lie to the ‘expansionary fiscal consolidation’ claim. The IMF has since acknowledged that its initial recommendation of rapid fiscal consolidation was based on “back of the envelope” calculations!
Research also shows that fiscal consolidation has exacerbated income inequality while fiscal consolidation basically began once financial sectors had been rescued from the consequences of their own greedy operations.
Lack of accountability to the rest of the world has also meant that the G20 continues to undermine multilateralism. Inclusive multilateralism is now being threatened on many other fronts as well, not least by the Trumpian turn in the White House and the growing tendency for the Europeans to act as a bloc.
The G20’s broader membership has made negotiations and consultations more difficult than those involving the G7 grouping of major developed economies. But its greater inclusion and diversity has also ensured its superior record compared to the G7, which continues to decline in relevance.
As the Toronto U-turn and its devastating legacy remind us, the G20’s finest moment after its London summit in 2009 was easily reversed through host country efforts although the US and China were acting quite differently in practice.
Expectations of the Hamburg G20 summit are now quite modest, and there is greater media and public interest in the bilateral meetings around the event. It is a sad reminder that needed reforms to improve the world economy and the welfare of its people are unlikely to come from the G20, and tragically, from any other quarter for some time to come.