In 1932, Franklin Roosevelt, the US Democratic Party nominee for president, promised “a new deal for the American people”. The US government under Roosevelt would go on to enact stimulus and redistribution programmes that set the economy’s course for decades. Other individual governments also stepped up to the challenge of the Great Depression, but collectively, they failed to halt a collapse of world trade and a slide into a global war hastened by the economic turmoil.
Now, we have the global economy’s greatest challenge since the 1930s, and the G-20 summit has, remarkably and unexpectedly, produced a significantly positive response from a heterogeneous group of national leaders. What did they achieve? Not anything revolutionary, perhaps, but certainly the beginnings of a global new deal. And this was done, I think, through a new kind of global leadership from the US. By all accounts, Barack Obama listened, he kept leaders talking to each other, he charmed and he compromised. This is exactly what he promised in his campaign, when the focus was on conventional foreign policy and the failure of the previous administration’s unilateral approach.
His first success has come in the economic arena. No doubt, many of the G-20’s other leaders played significant roles, but the US’ new president scored a major triumph.
What was agreed and what might be achieved? Despite Obama’s and British leader Gordon Brown’s remarks that the “Washington consensus”, which they associated with unfettered globalization and deregulation, is outmoded, the G-20 agreement preserves the essence of free movement of goods, services and capital. There is $250 billion to finance global trade; there is a statement reaffirming a commitment “to refrain from raising new barriers to investment” as well as trade in goods and services. Nevertheless, the statement outlines a sequence of measures designed to improve global coordination of regulation of financial markets and flows, and the overall quality of such regulation. In some ways, this change parallels the revamping of financial regulation following the manipulation of stock markets in the 1920s, but has to apply on a much larger scale and in more complex situations.
It might seem that the failure to achieve a globally coordinated fiscal stimulus undermines the parallel to the New Deal of the 1930s. However, there are strong statements about global fairness, new “resources for social protection for the poorest countries” and a half-trillion dollar increase in the International Monetary Fund’s (IMF) resources, to be used to aid poorer nations and emerging market economies. Significantly, IMF’s approach will further depart from its old fiscal orthodoxy, at least in the short run, and flexibly support growth. “Emerging markets and developing countries” are no longer bad boys or basket cases, but are recognized as “the engine of recent world growth”. Perhaps I am reading too much between the lines, but the language and emphasis of the G-20 statement, as well as the structural reforms previously on the table and reaffirmed by the summit, all point towards the beginning of a major shift in global power, including an inevitable change in the workings of international financial institutions.
In this context, the reluctance of Europe to increase its fiscal stimulus or to take part in a globally coordinated fiscal effort becomes a minor failure. The action will be in the developing world, with private capital flows restored and increased IMF backing for counter-cyclical policies to combat the downturn. This seems to me a far cry from the old “structural adjustment” approach.
Of course, things will not change instantly. The US and Europe, with less than an eighth of the world’s population, still account for 40-50% (depending on how one measures across countries) of global output. Leaders of global NGOs expressed disappointment that not enough was being articulated to help the global poor. One claimed, “What’s missing is a global green new deal that puts the interests of poor people and the environment at the heart of international trade and finance.” But that may be an ideal that is unattainable in any realistic world. And the G-20 statement certainly kept environmental sustainability and human development on the global agenda, even while acknowledging the importance of markets and trade.
Instead of utopias, it is 10% growth—which China has demonstrated and India may still be capable of with the right policy reforms—that will change the global economic balance. The leaders of individual European countries—the UK, Germany, France—all received disproportionate media attention, but their concerns often seemed petty and parochial. They have even failed to address the problems in their eastern backyard. The new global game of cooperation will be between the US and the emerging economies. Brazilian President Luiz Inacio Lula da Silva, who has demonstrated an ability to pursue policies pragmatically, summed it up. According to him, rich countries had engaged with emerging nations on “equal terms” to achieve a good result. That may be the essence of a global new deal.
Nirvikar Singh is professor of economics at the University of California, Santa Cruz. Your comments are welcome at email@example.com