Bill Emmott - International Author & Adviser

Article

Exciting? No--and thank God for that
Daily Telegraph - April 4th 2009

Committee meetings are not occasions from which grand, radical solutions can be expected to emerge. But it is nevertheless important to hold them, so that everyone who matters (and many who don’t) can have a chance to say their piece, and so that you can engender a joint feeling of responsibility. Then you all go off and do the real work elsewhere.

                That, more or less, is the right way to think about the “G20” summit in London’s docklands on Thursday. Nothing memorable was agreed at the meeting. No one’s life has been transformed by it. Even the window-smashers and police-bashers who claim to oppose capitalism will now go back to grubbing out a capitalist living  as if the summit had never happened. But it did, and it is even a good thing that it did.

                How? Not because of the “$1.1 trillion global boost” that the G20 boasted it had agreed upon and that many, including the Financial Times, reflected in their headlines. All the impressive sums of money agreed upon at the summit were actually technicalities, additions to the IMF’s emergency lending facilities here, or to credit lines for trade finance there. Nor because of the supposed crackdown on tax havens that Nicolas Sarkozy, the hyper-ventilating French president, threatened he would walk out over if the Chinese refused to sign up to.  The effect of his threat is barely detectible in the summit statement.

                Actually, the big progress, the quite genuine achievement, at this summit was not what happened but what didn’t happen. What didn’t happen was division, bitter argument, determination to blame others for the crisis or to try to get one over on other countries. That may sound banal but is really rather important.

                Most—perhaps all—of the true solutions to this economic crisis are matters of domestic policy and of the workings of private businesses and private investors. Government measures, whether they are fiscal stimulus packages, rescue plans for the banks or extra money for the IMF, cannot solve this crisis; they can only mitigate its effects, soften its blows, and make recovery possible, once private confidence returns. Most of all, though, what governments could do, if they so chose, is to make things even worse. They could do that chiefly by fighting with one another, by pursuing nationalistic, “beggar-my-neighbour” policies of local subsidies, of British jobs for British workers, of higher trade barriers.

                That is why the G20’s harmonious vagueness is really quite exciting. The fact that the G20 exists at all is a recognition of the way the world has changed, of the fact that a wide range of countries, from Brazil to China to India to South Africa, now matter as much as the rich world of Europe, America and Japan. But the further fact that this wide, inclusive G20 can meet and agree to maintain open global markets, can hold a reasonably shared sense of responsibility for how things proceed from now on, and can avoid bitching too much at one another, is pretty important and significant—for as long as it lasts.

                In the 1930s, the period to which our present era is often compared, the big powers were at each others’ throats. Reparations were owed, invasions were threatened, Lebensraum was claimed, trade barriers were erected. In 2009, thank goodness, things look completely different.

                Those things could change, of course. And the vague agreements could prove not to be worth the paper we all print them out on. Last November the same G20 promised not to introduce new protectionist measures for the following 12 months; yet according to the World Bank, 17 of the countries have since then introduced a total of 46 trade-restricting measures. They are hypocrites all. Or, rather, they are politicians, all serving their domestic constituencies.

                The G20 is no guarantee against hypocrisy. But the need to meet, in the bright lights of the media, does serve to discourage the more extreme forms of hypocrisy. Further meetings, however cynical we may be about them, are therefore essential to provide that deterrence. The protectionist measures introduced so far are all regrettable, all damaging, but none cripplingly so. Every recession brings some reversion to nationalism, to inward-looking, short-sighted policies. The crucial point is that they must be minor, must be reversible, and must not trigger outright trade war. So far, that hasn’t happened.

                Could it? The biggest danger period is still to come, perhaps as soon as the second half of this year but certainly by 2010. Painful as it may already seem, the recession is still quite young and new. Unemployment has been rising only for six to nine months in most countries. Last week America announced that its unemployment rate had jumped to 8.5% of the workforce, but that remains lower than it reached in 1982-83. Government efforts to deal with the recession, mainly through higher public spending and borrowing, have only just begun to be implemented. Barack Obama’s huge $787 billion package, after all, was passed by the US Congress only in February. It takes time to spend that sort of money.

                The biggest dangers will come if those fiscal packages, in America, Britain, continental Europe, Japan and even China, prove ineffective, if unemployment keeps on rising as private spending keeps on falling. If that happens, governments will not know what to do. They will be running out of options, fast.  The demonization of bankers will have long since run its course. The most tempting option, at that point, will be to blame foreigners, or in other words each other.

                That is when the solidarity of the G20 will be most sorely tested, but will also be most important. Europe and America are easily capable of falling out and of blaming each other, as the run-up to this summit showed. But divisions between Europe and America are likely to have more bark than bite: too many interests are shared, too many companies span the Atlantic, for us to fall out too seriously with one another. That is not, however, true of America and China, nor is it true between the big new emerging powers, such as China and India.

                America and China are the world’s biggest and third-biggest economies respectively, and famously China holds a lot of dollar-denominated debt. Those factors alone make the two countries’ relationship important. More vital though is the fact that these countries are military rivals—just last month, Chinese naval ships were harassing an American survey ship in the South China Sea—and are highly suspicious of one another. They are political and economic opposites: a democracy versus a communist dictatorship, a borrower versus a saver, an importer versus an exporter. If things stay bad or carry on getting worse, Americans and Chinese will immediately pick each other as the easiest foreigners to blame.

                If that happens, the G20 will suddenly become an absolutely critical forum through which to defuse or manage such tensions. It won’t be the only one. But summits, promises, TV cameras, statements, all will start to play a crucial role in limiting the damage from a US-China rift. The G20 this week may not have been very exciting. We have to hope that much greater excitement does not await us.

 

Bill Emmott was editor in chief of The Economist from 1993-2006; his latest book, “Rivals—How the Power Struggle between China, India and Japan will Shape our Next Decade” will be published in paperback in May


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