G-20 Proposals to Address the Crisis: Restoration or Transformation?

The proposals of the Group of 20 included in the London Summit statement reflect the tugging and forced consensuses negotiated within that boiling kettle. The central countries focused on their own navels, side-glancing at the rest of the world. But just as pompous, politically correct declarations that end up being too difficult to materialize are of no use, it would also be of no use to criticize without recognizing the making of any headway at all. This article analyzes the proposed course of action and intends to recognize the direction that is beginning to take shape.The proposals of the Group of 20 included in the London Summit statement reflect the tugging and forced consensuses negotiated within that boiling kettle. The central countries focused on their own navels, side-glancing at the rest of the world. But just as pompous, politically correct declarations that end up being too difficult to materialize are of no use, it would also be of no use to criticize without recognizing the making of any headway at all.

The statement points out that a global crisis requires a global solution, which is partially true. The crisis being global, an effective coordination of national efforts is required, although each country’s circumstances are so unique that the way and virulence with which the crisis manifests imposes treatments with some common denominators, and many more measures customized to the requirements of each specific reality.

In turn, the responsibilities for having generated the crisis are not homogeneous; there were countries and sectors that, having benefited to a greater extent than the rest in the pre-crisis period, were directly responsible not only for creating the conditions that led to the crisis but also for triggering it. Those countries and sectors should assume a larger share of the damage they caused and the cost of coming out of the crisis they helped to generate. It is a principle of justice that it be so, although in general everyone, and especially the most powerful players, seeks to pour the responsibility and costs on other shoulders. They have access to subtle economic mechanisms that allow reaching results nobody would dare to claim openly.

These lines analyze the proposed course of action in an attempt to recognize the implicit direction that is beginning to take shape.

It is true that to be constant, growth has to be shared. This is what the London statement proclaims when it says that “our global plan for recovery must have at its heart the needs and jobs of hard-working families, not just in developed countries, but also in emerging markets and the poorest countries of the world; and must reflect the interests, not just of today’s population, but of future generations too” (italics inserted by us).

What does this expression imply? That we will all grow at the same rate thus reproducing the current inequity? Or are we open to promote that the poorest countries and the small and medium sized emerging economies grow at a higher pace in order to start closing the huge income and opportunity gap there is on a global level?

Almost at the end, the statement addresses this question by stating, “We are determined not only to restore growth, but also to lay the foundations for a fair and sustainable world economy”. Then, it reaffirms the commitment to meeting the so far ill-accomplished Millennium Development Goals, and lists the actions to be channeled through the UN, the IMF, the World Bank, regional banks, the ILO, and the UN Climate Change Conference, to be held at the end of this year. This proposal resembles the conventional approach to tackle inequity and poverty, which more or less would consist in: let us, who have clout and voice, talk about our own growth problems, about the global economic dynamics, then consequently define strategies, policies and measures and, this being solved or sort of made clear, devote one special chapter that is separated, segregated from the core measures, to inequity and poverty. It is as though on the one hand the economy and the main interests of those who lead the process on an international level and within the countries flowed, and somewhere else along the margins, the economy and interests of the large majorities of contemporary world.

This is not the way in which shared growth is accomplished. Inequity, poverty, a fair and sustainable economic system need to be addressed from and through the main variables and not through a specific action merely complementing the core strategies:
key variables include world trade (with the essential safeguards for the development of new competitive advantages in small and mid-sized emerging economies), a balanced capital flow, the decentralized location of productive activities, adequate labour migration, strong cooperation and funding (including subsidies) by central countries in order to help Southern Hemisphere countries establish a vigorous scientific and technological development. What is required is not a “special program” but, rather, an adjustment of the systemic course, of our way of functioning that may lead to a fairer, more sustainable international and national order.

The statement points out that “the only sure foundation for sustainable globalisation and rising prosperity for all is an open world economy based on market principles, effective regulation, and strong global institutions”. The crisis has made it clear that the market is a formidable resource-allocating agent as long as the social and economic dynamics does not slide towards a process of wealth, income, savings, and investment concentration, or towards environmental destruction. A good market is capable of solving many things, but not those that over-conditions it. In order to influence the context and ensure a systemic course useful for our societies as a whole, political decisions such as the ones the G 20 was forced to tackle are needed.

The definition of the systemic course goes beyond the exercise of effective regulation and the establishment of strong global institutions, these two factors being of outmost importance. The issue is that if we manage to set a good systemic course, then it does become imperative to have effective regulation and strong global institutions to ensure that such course is respected and the systemic way of functioning is effective, agile, strengthen by innovations based on an adequate scientific and technological development. If, instead, the systemic course ended up being one that reproduced inequity, environmental deterioration, unfair and non-sustainable development, then what would be the use of having regulations or strong institutions, unless we used them to guard that ill-fated course, which is precisely what led us into the crisis?

In the statement, the G-20 members pledge to “do whatever is necessary to restore confidence, growth, and jobs; repair the financial system to restore lending; strengthen financial regulation to rebuild trust…” (Italics added by us). Note that the verbs used imply that there was something that was adequately working and now it is necessary to restore, repair, strengthen, rebuild it; it does not transpire that we need to generate a transformation of that way in which we functioned, a course adjustment that may result in something different, better than, overcoming, what existed before. And yet, and very rightly indeed, later on the statement proclaims that the entire effort will be aimed to “underpin prosperity and build an inclusive, green, and sustainable recovery”. Behold, a statement propounding an adjustment in the course and systemic way of functioning.

At the very heart of the statement there is then a sort of tension between two viewpoints: one that seeks to repair and preserve, and the other one that seeks to transform. This in a way was expectable because the new is built out of the existing rather than by sweeping through institutions, organizations or instruments. Beware, however: the existing is naturally prone to seek to reproduce, while a transformation requires that the existing be used to produce changes. It is a normal yet dangerous tension between an existing order that offers mechanisms and experience and a new, improved order that needs to be strengthened with that experience and supplied, from the very start, with the instruments required to impact on the directionality of the social and economic processes. In those turbulent and contradictory waters, those who set, lead, and secure the course acquire critical importance.

When we see the figures that will be allocated to finance the development of middle and low-income countries, and compare them to those committed for the recovery of central countries (not to mention the resources devoted to the wars underway and the production of weapons), the expectations for a growth that is capable of knocking down global inequity vanish. This is why in previous paragraphs we said that shared growth could not mean everyone growing at the same rate but, instead, making it possible for the least advanced to reinforce their development, so that the huge gaps separating us may begin to be closed.

In other paragraphs, the statement speaks about the need to “restore global demand”. It is certainly necessary to strengthen global demand, but not to bring it back to exactly the same situation it was in before the crisis. Because the global demand profile, the consumption pattern, mirrored exactly the prevailing concentration of income: some sectors’ consumerism coexisted with the indigence of immense majorities. Today, we should work to give way to a more extended, responsible consumption sending new and different signals to the productive apparatus in order to also transform its productive pattern, orienting it towards that G-20 call to work together to build an inclusive, green, and sustainable recovery.

A social and environmentally sustainable economy is possible; it is not just a guiding utopia. There exist a great variety of policies, measures, new instruments that can be adopted almost immediately in order to speed up the transition into the ecological economy the G 20 declaration aspires to. This is the right time to implement them.

In coming articles we will analyze each of the specific measures contained in the London statement, but it is now worth recognizing an inflection point that the G-20 effort managed to generate: faced with the debacle caused by the crisis, all the players involved have been forced to admit that, without a political orientation, the economic dynamics might go further off-track. In other words, no more automatic pilot to set the course and address the big issues because by applying that strategy difficulties were augmented rather than solved.

Today the challenge consists in exercising our free will responsibly, taking into consideration the complexity of the contemporary reality and the need to align the multiple legitimate interests converging on any situation. What is now at stake is the directionality of our future as a globalized society. Perhaps oversimplifying the matter, the bottom-line choice is, once again, between restoring what was in existence or prudently and responsibly embarking on its transformation. That is the question.

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