While outwardly the London summit will project unity against the global crisis, the reality could be a barely disguised fiasco.
On April 2 the leaders of the worlds major economies including China and nine other large emerging economies will gather in London for a one-day G20 meeting. None of the capitalist leaders attending this summit have a solution to the worst economic crisis for 80 years. There will be no grand bargain to reshape the global financial system, notwithstanding the endless talk on this subject. The call of the host, Britains Gordon Brown, for the summit to be the start of a shared revolution is no more than a meaningless soundbite.
The G20 has been promoted as the fire brigade of world capitalism because older formations like the G8 were seen as too elitist and antiquated, dominated by the U.S., Japan and EU, which can no longer make all the global economic rules by themselves. Since the G20 last met in Washington on 14-15 November four months that seem like an epoch ago the global capitalist crisis has dramatically worsened. Trade and output have collapsed and unemployment is surging.
At the time of the November meeting, the IMF was predicting global GDP growth of around 2% for 2009, a level that given population growth means recession in global terms. In January, the IMF cut its prognosis sharply, saying global growth would come to a virtual halt at around 0.5%. But in March it cut this again, saying the world had entered a Great Recession and warning that the global economy could contract by as much as 3% this year. This downward adjustment of five percentage points in just four months underlines how bad and how fast the economic crisis is becoming.
The World Bank estimates that 53 million more people will be pushed into extreme poverty this year. Aid organisations warn that millions more women and children will die during childbirth in the coming years as a result of the crisis and the social cuts and poverty it will bring forth. A report by SIDA, a European aid group, says that $31.4 billion is needed to save the lives of 10 million women and children in poor countries in the next five years, money that is unlikely to be found. Yet on 1 March, the near bankrupt U.S. insurance giant AIG was given another $30 billion in the third government rescue of the company (totally, AIG has received $170 billion). Just days later, AIG directors triggered a new political scandal by announcing they would help themselves to $165 million in bonuses. This is their reward for producing the biggest financial losses in U.S. history! Yet such is the general character of the wave of global bailouts of the last six months, the biggest ever seen. They are for the directors and bankers, not for the poor and those truly in need.
Return of Keynesianism
Mass hatred of the bankers and business tycoons has forced capitalist politicians to join the chorus of protest and issue their own populist denunciations. This pressure has even led to legislation against the most blatant acts of plunder the bonuses with new emergency taxation for example in the U.S. Such radical measures would have been unthinkable even one year ago. Governments everywhere are in shell-shock as a result of the crisis and explosion of popular anger. In Iceland and Latvia governments have been chased from office by street protests. Mass strikes or huge demonstrations have swept France and the French Caribbean, Greece, Bulgaria, Italy and former miracle economies like Ireland.
In record time the capitalists everywhere have dumped the old neo-liberal jargon and embraced Keynesian deficit-financing in order to save their system. Nowhere more so than in the U.S. where according to CNN roughly $4.8 trillion has so far been spent on economic stimulus measures, corporate bailouts, and pumping liquidity into the financial system. This political somersault can only be explained by their fear over what would happen without such measures. But Keynesian measures do not solve the underlying problems. At best they can act like an airbag in a car it may save the driver from death but it wont prevent the crash.
It is almost amusing to see spokespersons for the Chinese state assure us that the market system is not responsible for this crisis, only the bad application of this system by U.S. governments:
I think that people who attribute the global financial crisis to the failure of the free-market system are totally wrong… The U.S. government is nationalising AIG and Citibank. But nationalisation is not socialism. It is just a temporary solution that can steady the market. The base of the [market] system has not changed, said Zhou Ruijin, a former deputy chief editor of the Communist Partys main newspaper, Peoples Daily.
Financial Times warns of revolution
As we have seen the crisis continues with no bottom in sight. For capitalism, the bottom will come only when profitability has been restored and this requires the destruction of excess productive capacity and the inflated values created during the financial bubble. This can take many years. But the political effects of the crisis could soon be just as dramatic as the economic ones. The Financial Times, the internal bulletin of global capitalism, warned in an editorial (9 March) that, … increasing poverty is a grave threat to world stability and democracy. Revolutions often start as bread riots…
Against this background, what are the prospects for the G20 summit? Many commentators have already made comparisons with the ill-fated 1933 economic conference, also in the British capital, that convened after a new U.S. president, Roosevelt, had taken office. That conference ended in fiasco with the U.S. delegation saying each country must save themselves. Such an open failure is unlikely at this G20 summit. But neither will it produce much more than a cosmetic show of unity. This meeting will not address the issue of jobs, world poverty, or the climate time-bomb which is ticking loudly although the G20 politicians hardly hear this. In the run-up to London, serious schisms are already opening up between different capitalist blocs, in particular a transatlantic split between Washington and the EU.
The Obama administration wants others to follow its example and inject more fiscal stimulus into their economies. They are calling for extra stimulus worth 2% of global GDP for 2009 and 2010, and are especially putting pressure on economies such as Japan and Germany that have or had trade surpluses. The U.S. wants the London meeting to agree at least in outline to such a step. The EU, in so far as it is capable of adopting one position, says stimulus has gone far enough, and counters by telling the U.S. to do more to repair its banking system. It also wants a global regulatory system for banks, which the U.S. is against. Europes no to more stimulus is something of a role reversal: It is traditionally seen as standing for a more social variant of capitalism than the U.S.
Whether or not the EU backs down and the U.S. position is formally adopted at the G20 meeting, in practise the EU states especially the bigger ones will almost certainly be forced to expand their stimulus measures as the crisis continues, with mass struggle such as the strikes in France increasing the pressure on governments. In this process, as president Sarkozy has demonstrated, each government will use stimulus measures to protect their own industries and national champions. The G20 will also probably support injecting more money into troubled banking systems, but again it will be left to each country to put this into effect. Another issue on the summit table will be an expanded role for the IMF to intervene and prevent currency crises on the lines of the 1997 Asian crisis. A paper agreement will probably be reached on this, but this may not amount to very much in practise. There are calls for the IMF to monitor and thereby pressurise governments over stimulus measures, but it lacks the mechanisms and resources to do this. The U.S. and others want the IMFs war-chest to be doubled to $500 billion, which will probably be agreed. Pressure will be put on China to follow the example of Japan and the EU, and increase its IMF contribution.
China and the IMF
The IMF has traditionally been an arm of the U.S. Treasury, as the dominant world power, for imposing its policies on poorer countries. It has used its financial power to force structural adjustment privatisations, trade liberalisation and austerity measures on much of Africa, Latin America and Asia. When a country slides into an acute foreign payments crisis as Iceland, Pakistan and Ukraine today the IMF arrives on the scene like a gangster-moneylender who saves the victim, but then returns to cut off a finger or steal a daughter if the debtor does not meet his tough conditions.
For Chinas pro-capitalist leaders a bigger stake in the IMF does not pose any fundamental moral or political problems. China is already an IMF member, and influential in the IMFs sister organisation, the World Bank, where Beijings man Lin Yifu is number two (he is Senior Vice President and Chief Economist). As in all such questions, the Chinese regime acts with pragmatism in order to further its own interests and the interests of Chinas economic elite. In none of the so-called Bretton Woods institutions IMF, World Bank or WTO does China stand for a fundamentally different line to U.S. capitalism. On the contrary, the Chinese regime is receiving much praise for supporting Washington against the EU in the current debate over increased stimulus. Inside the WTO it has kept a much lower profile than Brazil and India, which are seen as the main spokespersons for developing countries.
Only when the Chinese regimes economic interests are directly threatened does it oppose the U.S. In the case of the IMF, however, a potential conflict looms. This is partly because of exchange-rate guidelines that were adopted by the IMF in 2007 under U.S. prompting, to pressurise China to float the renminbi. U.S. and E.U. leaders accuse the Chinese regime of keeping the currency undervalued to favour its exports. The 2007 guidelines came to nothing, but Beijing is unlikely to heed demands to put more money into the IMF without a guarantee that similar devices will be not be revived at a later date. In reality, in todays changed conditions, the renminbi would fall rather than appreciate against other major currencies if Beijing removed exchange controls as the U.S. and E.U. demand.
The Chinese regime is also increasingly worried about its massive $1 trillion-plus holdings of dollar securities it is now the main banker of the U.S. government and its stimulus plans. This investment is both unpopular inside China and extremely vulnerable should the dollar begin to fall again, a risk that is heightened by some of the policies of the Obama administration including its plan to buy up $300 billion of government debt, which is the same as turning on the (dollar) printing press. With a number of well-timed statements the Chinese regime is trying to use the G20 framework to increase pressure on Washington, to prevent it driving down the value of the dollar for its own short-term gain, at the expense of China and others. Central bank chief Zhou Xiaochuan for example has called for a new global reserve currency a super currency to be issued by the IMF as an impartial alternative to the dollar. This idea is also supported by Russia in the G20, but is in fact a non-starter. It is, however, a thinly disguised warning to the U.S. that Chinas purchases of dollar securities should not be taken for granted.
In his book, The World Depression 1929-39, Charles Kindleberger summed up that, In the world economy, no one was in charge. Despite the process of globalisation, i.e. imperialism, which is the stage when capitalism has outgrown national markets, it is in the nature of capitalism that such processes can only reach a certain point. Capitalism cannot overcome the division of the world into rival states and national economies that are in a permanent state of competition. These national contradictions have not been removed in Europe, where economic integration, common EU structures and even a common currency, have been built over decades, yet where national rulers disagree more often than agree, and where in a deep crisis perhaps sooner rather than later even these common structures and currency can collapse.
How much more difficult will it be for the hastily assembled G20 to reach a common position. A check-list over the things the G20 leaders agreed in Washington in November shows they have not fulfilled a single goal they set at that meeting. They committed to undertake a financial assessment programme in conjunction with the IMF and World Bank. So far, 0 out of 20 have made good on this. They all condemned protectionism and agreed without breaking into laughter to relaunch the collapsed Doha Round of WTO talks. Since the November meeting, however, several G20 countries have imposed new tariffs or other protectionist policies India against China, the U.S. and Mexico against each other, and there are other examples.
A global solution, which is of course needed to meet this crisis, cannot come from the failed politicians of capitalism. Only the working class, an intrinsically internationalist force that has actually been molded, even created, by a global system of production, can reorganise the world economy to end this crisis by ending the system of capitalism. To this end, workers must build new mass socialists parties and democratic fighting trade unions that match up to this historic challenge.