Larry Elliott suggests five areas for leaders at next week's G20 summit to focus on ...
Vote for your favourite proposal
The security clampdown will be the same. The press corps will gather in droves as usual. The spin doctors will be in full flow claiming victory for their respective governments. But in every other way the summit that Gordon Brown will host on 2 April will be different from the last gathering of world leaders hosted by a British prime minister – Tony Blair's 2005 Gleneagles summit.
All governments accept that the world has changed irrevocably as a result of the financial crisis that began in the summer of 2007, came to a climax in the autumn of 2008 and will probably result in 2009 being the first year the global economy has contracted since the second world war. In Brown's view, the era of laissez-faire is over. Although they disagree about the means, Barack Obama, Nicolas Sarkozy and Angela Merkel agree with him.
A new world order is not going to be shaped in a one-day meeting in Docklands next week, but the meeting can help to chart the right course, creating the right global framework for reform at a national level. Here are the five big areas that the G20 should be concentrating on:
Proposal no 1: Accept that this is the time for a new economics
The financial crisis and the environmental crisis are one and the same: both are crises of excess. There will be no lasting recovery without the recognition that the world needs to slow down a bit. For central banks, it means a wider range of instruments so they can lean against the wind. More generally, it involves adopting the precautionary principle of elevating the local above the global and – above all – having the humility to accept that the G20 doesn't have all the answers.
Proposal no 2: A Green New Deal
If Roosevelt's big idea for the Great Depression was public works, then it makes sense to use this crisis to start the long, hard process of making economies more sustainable and less dependent on fossil fuels. A combination of low interest rates and fiscal expansion is ideal for this process, provided the investment is used productively rather than for speculation. That will involve two concepts that have been anathema during the heyday of laissez-faire: industrial policy and credit controls.
For Britain, a Green New Deal (GND) is even more of a no-brainer than it is for other developed countries, since the economy is acutely unbalanced, is experiencing a manufacturing meltdown almost on a par with that of the early 1980s, and has a strong science base that could, with the right sort of support, provide the products for a new industrial revolution. But a GND is also vital for the rest of the world: the US is responsible for 25% of global CO2 emissions with only 4% of the world's population; the problems of the big three carmakers provide Obama with an unprecedented opportunity to send the gas guzzler to the scrapheap. The need to rebalance the global economy means that countries such as China will need to boost their levels of domestic demand; one way of doing that would be through investment in greener energy.
Proposal no 3: Reform the IMF
One reason the big creditor nations of Asia built up such big surpluses in the decade leading up to the crash of 2007 was that they were badly scarred by the financial crisis a decade earlier and were determined never again to be at the mercy of the International Monetary Fund. The response of the fund – as it has always been since 1944 – was that countries seeing capital flight because of current account surpluses should be subject to austerity programmes.
So, any reform programme involves a major overhaul of the fund – not just to beef up its surveillance role but to make it less dominated by developed nations (especially the US) and less driven by the dogmatic belief that free movement of capital is - everywhere and always - a force for good. The fund's big shareholders should go back to Keynes's original blueprint and accept the idea that the burden of adjustment in crises should fall on both creditors and debtors.
It is a concern that reform of the fund appears to be low on the G20's agenda, particularly as the weakening grip of the US over the global economy makes change easier. The era of the unipolar world dancing to the tune of the Washington consensus lasted a scant two decades between the collapse of communism and the collapse of Lehman Brothers.
Proposal no 4: Make the global financial system more progressive
The humbling of Wall Street and the City has made them dependent on support from the taxpayer and opened up the prospect for reform. The most pressing need is for action against tax havens, not just because of the money lost to national exchequers is money that could be better used but because the big financial institutions can domicile themselves offshore if threatened with tougher regulation. There seems to be greater G20 unanimity on tax havens than on any other issue, and the summit should insist on tax havens providing information to any government that asks for it, not just governments with which they have bilateral deals.
The G20 should also back a currency transaction tax – set low initially – that would provide the money to hit the United Nations millennium development goals.
Proposal no 5: Tougher global regulation
Brown should forge ahead with his plans for an international college of supervisors to provide cross-border supervision of multinational banks. The G20 should start work on an international agreement to split retail and investment banks, an updated form of the Glass-Steagall reform introduced in the US in the 1930s. The capital adequacy regime for banks should be toughened up; credit-rating agencies should be made statutorily independent of the companies they are monitoring; the more exotic forms of derivatives products should be subject to the same sort of licensing regime as new drugs. We will know governments are really serious about reform when they link the pay of regulators to the pay of bankers.
Copyright Speakers Corner 2016