CQ TODAY ONLINE NEWS
April 3, 2009 – 12:02 a.m.
G-20 Summit Communique: Implications for the Global Poor
By Madison Powers, CQ Guest Columnist
In the American press, much has been made of one particular aspect of the disagreements between U.S. and European leaders in advance of the G-20 meeting in London.
Vigorous opposition was expressed to U.S. insistence that European governments spend more public funds and incur greater deficits to stimulate their economies.
Particularly infuriating was the suggestion made by President Obama and others in his administration that the United States cannot “go it alone” in revitalizing global economic production. Both German Chancellor Angela Merkel and French President Nicolas Sarkozy bristled at the suggestion that the United States would seek to tell them how to run their budgets.
From the American perspective, the European response is either to be dismissed as nothing more than political posturing meant for the benefit of their own domestic political audiences, or fresh evidence for the American right that Obama’s own worldview really is more socialistic than actual European socialists.
From the European perspective, both assessments could not be further from reality.
The problem, as many Europeans see it, is that the U.S. stimulus package had to be as large as it was, and so much of it had to be devoted to social safety-net programs simply because the United States was not carrying its fair share of the global burden of putting in place programs that would ensure economic stability in the first place.
Rather than seeing themselves as not doing their fair share in emergency spending, many European observers see the United States’ own lack of social safety nets as having contributed to the added level of global economic risk. On their view, the American antipathy to social welfare programs is not a matter of mere ideology affecting no one other than American citizens. It is a policy failure that makes a global financial downturn more severe than it otherwise might have been.
This particular complaint against American-style global economic policy is mirrored in another European complaint articulated especially well in a Washington Post editorial this week by Sarkozy. The core of his argument is that the post-war global financial institutions, such as the International Monetary Fund (IMF) must be overhauled, and the money they lend to developing nations must be increased — and provided to those nations with fewer strings attached.
Sarkozy summed up his complaint against the status quo with the conclusion, “We must help those who have been hit hardest by the crisis.”
Indeed, Section 25 of the post-summit communique issued Thursday proclaimed Sarkozy’s sentiment. It asserted, “We recognise that the current crisis has a disproportionate impact on the vulnerable in the poorest countries and recognise our collective responsibility to mitigate the social impact of the crisis to minimise long-lasting damage to global potential.”
Much significance lies behind these cryptic remarks. For most of the existence of the IMF and its parallel institution, the World Bank, major lending to developing nations has come with conditions that reflect what many refer to as the “Washington Consensus.”
In return for developmental loans from the IMF — typically the only available source of such massive infrastructure loans — creditor countries have had to agree to strict demands for privatization, fiscal discipline, trade liberalization, and deregulation.
The upshot of such conditions has been the destruction of the social safety nets in developing nations and the creation of private entities to replace governmental services ranging from providing health care to ensuring fresh water.
In short, the Washington Consensus has favored a path to economic development that is contrary to the path most European nations have taken.
Now that the global economy has deteriorated and global growth projections are nearly flat for the near-term, many of the least affluent countries are saddled with the greatest economic losses and their citizens have been left without the very social safety-net programs that Europeans have to buffer their citizens.
So not only does U.S. hectoring for European nations to take on larger deficits strike many Europeans as a poor substitute for the global responsibility they see the United States as having abdicated — by not doing its share in providing safety nets for its own people — many believe that the Washington Consensus has made many of the poorest people of the world much worse off in these bad times by the economic policies it imposed upon them.
To be sure, the concern for the fate of the poorest nations is not entirely altruistic. Europe has a healthy element of self-interest in urging more IMF contributions. The wealthiest countries stand to lose far more in the way of bad bank loans to the emerging economies of central Europe. More IMF funding will mean more relief of the stress on established Western European economies.
But simultaneously, the Europeans also want an end to IMF loan conditions that added to the economic burdens imposed on the world’s poorest nations, and they believe this is a crucial ingredient in any strategy designed to deal with the next round of crises.
In key language of the communique, the agreement was struck for the IMF to undertake plans for $6 billion in “concessional and flexible finance for the poorest countries over the next two to three years.” Translated into ordinary language, this means breaking the stranglehold of American ideology in shaping the path of global economic development in ways that make long-run stability more likely.
This is just a beginning, however. It is far from the end of the dominance of the Washington Consensus, but it is the first major crack in the way the global financial order has been controlled by American ideology for the better part of the last half-century.
The United States made concessions, but it also had some significant success in achieving some of its goals. Instead of the $500 billion originally proposed by the Europeans, Obama argued and got $750 billion, a tripling of the available amount the IMF had on hand to meet the needs of developing nations.
While the U.S. interest in the even larger amount for the IMF may not be obvious at first glance, real benefit for Obama’s agenda lies in the fact that, absent greater European commitment to spend more money domestically to stimulate the global economy, he was able to find a way to get more money into the system by injecting it in nations other than European countries.
In fact, targeting developing nations rather than developed nations for more spending may have more systemic benefit for the same reason that increased safety-net expenditures domestically are more efficient and more immediate in economic stimulative impact than many other policy options. Those with fewer resources will spend rather than save.
Investment in developing nations thus achieves some aims of relieving the great burden on the world’s poorest people, and simultaneously, it may do more to prompt a quicker and more robust global recovery.
And, of course, the focus on the IMF part of the equation meant that Europeans did not have to commit to American-style deficit spending domestically, and the United States will have taken a step toward walking away from the Washington Consensus that most developmental economists have long ago rejected as bad economic theory and profoundly unjust in practice.
Madison Powers is Senior Research Scholar, Kennedy Institute of Ethics. His column appears on Friday in CQ Politics.
Comments
One certainly hopes this reading of that communique is appropriate. If it is, then we may very well be witnessing a decline, from global pressure, of Wall Street's power to impose dysfunctional economics on the whole world, and to impose it through a supine Washington, DC, that too often rubber stamps what it doesn't comprehend (War in Iraq; escalation of Afghanistan/Pakistan War; bulldozing trillions to dysfunctional banks, etc.), and slices pork for everything else. One no longer needs to look for ways to trim US arrogance. US elites are through their incompetence making it unavoidable, not least through economic dissolution. So be it.
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