London G20 Summit A Success
The just concluded G20 summit in London has underscored the seriousness and complexity of our global economic challenges, but also the determination of member governments to address these vexing problems. Discussions were focused, concrete outcomes resulted and there is room for optimism.
The heads of government agreed to provide $1.1 trillion in additional global financial resources, including $750 billion to the International Monetary Fund (IMF), $250 billion for new Special Drawing Rights, the liquidity mechanism developed in the 1960s, and $100 billion to development banks. There will also be a new Financial Stability Board. They agreed to expand global regulation of hedge funds and other private pools of capital, generally secret offshore financial havens and the now notorious financial derivatives.
Much media commentary has focused on the apparent dichotomy between American and British emphasis on spurring economic growth, and Continental European concern with greater financial regulation. In fact, the two dimensions are complementary, each is essential to effective macroeconomic policies, and the summit dealt with both.
The summit has confirmed the central role of the Group of 20 nations in global economic leadership. In the past, such meetings have focused on the G7, the sizable economically highly developed nations of Canada, France, Germany, Italy, Japan, the United Kingdom and the United States. In recent years, Russia has also been included, reflecting geographic proximity, military power and natural resources rather than comparable economic development.
Current emphasis on the G20 indicates consensus that a very small group of nations can no longer effectively lead the global economy. Brazil, China, India and other developing nations are rapidly evolving into major manufacturing powers, along with traditional roles as important suppliers of raw materials and other natural resources.
The history of international economic cooperation in the twentieth century shows success reflects sustained long-term work. There are no quick solutions to vexing problems, especially the structural sort which the international economy currently confronts. To truly succeed, this summit must be part of a continuing process.
Supplementing summit progress are domestic policy efforts of the Obama administration. The Treasury Department has produced very comprehensive plans for relief and reconstruction of United States financial institutions. Treasury Secretary Timothy Geithner has been a prime political target domestically during in his first weeks in office. The summit confirms his policy efforts and will probably strengthen his standing.
Paul Volcker, head of the U.S. Economic Recovery Advisory Board, recently served as chairman of the International Accounting Standards Board, headquartered in London. Earlier, during the Carter and Reagan administrations, he broke the back of U.S. inflation as chairman of the Federal Reserve Board. This remarkable skillful public servant is at the crossroads of domestic and international financial regulation. His influence likely will grow in the summit wake.
In 1944 at Bretton Woods New Hampshire, Allied leaders in World War II hammered out the economic structure for the post-war period. New institutions under the United Nations umbrella included the General Agreement on Tariffs and Trade (now the World Trade Organization), the IMF and the World Bank. Functions have changed, especially after the Nixon administration in 1971 ended fixed monetary exchange rates, but the institutions have endured. British Prime Minister Winston Churchill and American President Franklin D. Roosevelt initially announced the UN in 1941, during the grim early years of the war. The London summit is the direct legacy of these two remarkable men, and their associates.
Arthur I. Cyr is Clausen Distinguished Professor at Carthage College and author of ‘After the Cold War’ (NYU Press and Macmillan/Palgrave). He can be reached at email@example.com