The Do-Nothing G-20

Kevin Lamarque / Reuters They fled Pittsburgh with vague promises to rein in their financial systems. But Jeff Madrick writes that the G-20 leaders didn't give this year of global peril its due respect.

Crisis can focus the mind. But can crisis focus 20 minds? This was the question asked in Pittsburgh last week, as President Obama hosted a meeting of the G-20—an expanded group of rich or fast-becoming-rich nations who will decide much of the course of the world’s economy. If this sounds unfair to the other 200 or so nations on the planet—the G-20 controls about 85 percent of the world’s wealth—it is a major improvement over its predecessor, the G-8.

We may not fully know as yet what was actually accomplished at Pittsburgh. But let’s hope more went on than met the eye because, aside from the formalizing of the G-20 itself, the final communique was a broad-brushed and mild agreement to cooperate on a wide range of timely and worthy issues, with few all-important details and no mechanism in place to assure enforcement of any one of them. The result was about as predictable as the press made it out to be. Hardly a feather will be ruffled. Being a club is not an adequate excuse.

Given the dimensions of this alarming crisis, in fact, it is possible this G-20 will be long remembered as an outright failure. Finance, trade, and stability were undone by grotesque levels of profit gouging, deep conflicts of interest, and regulatory irresponsibility. The world was brought to the edge of depression. The G-20 offers us no broad response in kind.

Given the dimensions of this alarming crisis, in fact, it is possible this G-20 will be long remembered as an outright failure.

Since the credit crisis of 2007-2008, it can no longer be argued that nation-states, the great political creation of the last thousand years or so, can contain capitalist excess. Money and debt are created today well out of sight of any regulator. Business can escape the regulations of one nation for another nation with little regulatory oversight at all. Dereliction of duty on the part of America’s Federal Reserve or Securities & Exchange Commission; excesses on the part of Bear Stearns, UBS, Bernard Madoff, or currency manipulation on the part of China, will have consequences everywhere. Trade and finance link all of us to each other’s excesses and mistakes.

• More Daily Beast G-20 coverageThe foreign minister of Mozambique, Oldemiro Marques Balói, perhaps put the issue of the new interconnectedness best in New York last Thursday as the U.N. General Assembly met. Balói noted that, in part because of International Monetary Fund pressure, Mozambique’s banks had stayed away from the toxic mortgage-backed securities that brought down so many of the world banks and put enormous holes in the portfolios of pension funds, hedge funds, and individual investors. For a while, this saved Mozambique from damage. But credit collapse, especially in the rich nations, soon brought falling demand for goods, sudden drops in commodities prices, and rising unemployment almost everywhere. Soon enough, Mozambique was suffering along with everyone else through no fault of its own. Balói’s appeal to the G-20 would normally have been that the rich nations keep their promises of more aid to the poor nations or to reduce their tariffs. But now his message to the G-20 was to fix the world economy first. He could also have added to never let it happen again.

With some glimmers of recovery, how to prevent further economic decline did not attract the attention it should have. The U.S. seemed most concerned about righting the damaging imbalances in the world, notably China’s trade surplus, America’s trade deficit, and the enormous flow of capital for China as a consequence, much of which wound up financing American mortgages. Europe and China saw this as more an attempt to tell them to cut back exports than to accept American blame for borrowing too much. China and others were thus more concerned about America’s federal budget deficit than their own exports. Europe interpreted the American emphasis on balancing the world as a way to fend off their more intense demands to restrict Wall Street bonuses that some on the Continent sought. Almost no one was ready to rough up the financial institutions very much, in fact.