By now we’ve heard “The worst economic crisis since the 1930s” – or words to
that effect - so many times it’s become like a mantra. But as
the days roll on it begins to appear that it might just be an
understatement and that not only does the economic situation appear
more like the late 1920s, the politics of the world sound much
like that period as well.
Early in a full page article on the present economic situation, Martin Wolf,
associate editor and chief economics commentator for the Financial
Times, referred to “a huge recession if not something worse…”
Later, he observed “a huge financial crisis, together with a deep
global recession. If not something worse…” You can be sure if
Martin Wolf is not sure how bad the situation is – or will become
– there is little reason for optimism.
And
when the commentator who has tried to convince us that the world
is flat (technologically speaking) starts to sound like Henny
Penny, I sit up and take notice. “It’s always great to see the
stock market come back from the dead. But I am deeply worried
that our political system doesn’t grasp how much our financial
crisis can still undermine everything we want to be as a country,”
writes columnist Thomas Friedman in the New York Times.
“Friends, this is not a test. Economically, this is the big one.
This is August 1914.
This is the morning after Pearl Harbor. This
is 9/12. Yet, in too many ways, we seem to be playing politics
as usual.”
On
Sunday, the chair of the President’s Council of Economic Advisers,
Christina Romer, said the country is involved in an “economic
war,” the outcome of which is yet to be determined. Meanwhile,
the Financial Times says editorially that “the world economy
has already stumbled over the edge of a ravine” and the historian
Paul Kennedy writes on its pages of the need to “put the shattered
Humpty-Dumpty of international capitalism back together again.”
It called for the major powers to form a “united front.”
The
crisis is, indeed, worldwide and system-wide and if the current
actions being taken by the major players to head off something
much more serious that what we are witnessing today are any indication,
all the kings horses and all his people are making a mess of things.
In
some respects, the situation in the rest of the world is even
worse than it is here. Trade is down within the European Union
and between it and the rest of the world. For Germany,
exports are down around 20 percent. But the hardest hit are the
formerly socialist countries of Eastern Europe
where, for most a decade or so, economic growth and relative prosperity
has been bought on credit which has now run out. The pain is widespread
in the region as well as in the banks of some Western European
countries, notably Austria, to which they are
in hock.
The
worst victims of the crisis, however, are the people of the planet
whose lives in the era of globalization are always the most precarious.
“The odd situation is that we have trillions of dollars directed
at banks and bail-outs but we’re told there’s nothing for the
poor,” says Jeffrey Sachs, a special UN economic adviser. “Meanwhile,
we are teetering on the brink of collapse and violence in parts
of the world where people have been pushed to the brink.”
Kevin Watkins, director of UNESCO’s Global Monitoring report, observes:
“With the slowdown in growth in 2009, we estimate that the average
income of the 391m Africans living on less than $1.25 a day will
take a 20 per cent hit. When you convert economic growth effects
into human costs the picture looks even grimmer. Best estimates
point to an increase in infant mortality of somewhere between
200,000 - 400,000 [a year].”
It is against this backdrop that next month’s G20 world leaders are
headed for a meeting that is beginning to look more like a 1920s-style
showdown between rival camps in the capitalist world. The conferees will include the Group of Seven industrialized countries
- Britain, Canada, France, Germany, Italy, Japan and U.S, the
European Union and leading developing nations like Brazil, China
and India.
A
new level of international cooperation is the imperative of our
age. It is critical for confronting climate change, AIDs and other
plagues, violent conflicts, world poverty and a world economic
system verging on the dysfunctional. In
the runup to April 2, the prospects in the area of economic relations
don’t look too promising.
You might not know it, if you are dependent on the U.S. mass media, but when President Obama travels
to Britain
for the London gathering he will be attending a turning
point event. What the leaders who confer there April 2 are supposed
to do is come up with a coordinated plan to avert “something worse,”
plot a recovery from the present crisis and try to ensure against
repeat. Well informed observers agree that failure to do so could
have grave consequences.
“The
summit of the group of 20 leading advanced and emerging countries
in London on April 2 will fail,” writes Wolf of the Financial Times.
The
stumbling block – in a nutshell – is that Washington is calling for the other rich countries to increase spending
to stimulate their economies. European governments are stubbornly
refusing to commit to such a course. On the other hand, the U.S.
is resisting Europeans’ call for “global” regulation of the world
financial system, the lack of which the Europeans maintain brought
on the crisis in the first place. The White House says the U.S. has two goals for summit: to make sure there
is “concerted action around the globe to jump-start the economy”
and to achieve consensus on regulatory reform to take place “in
each country”
The
spin is on; every effort is being made in advance to play down
expectations for the summit. The U.S.
is unlikely get a commitment from the Europeans for greater stimulus
efforts and there is scant chance of any real headway in the area
of international financial regulation. They will probably agree
to “step up efforts to revive bank lending and regulate hedge
funds.”
Washington’s goal of increased contributions
to the IMF relief fund for poorer countries might get through
but even that is being viewed by some Europeans as just another
way to get them to put up more dough. The Chinese and others might
go along with that if… The four major emerging economies at the
meeting - Brazil,
Russia, India and China - last week jointly
called for a bigger role in running the IMF. According to Reuters,
the pre-summit gathering of G20 finance officials meeting last
week agreed that “IMF governance needs to reflect the changed
global economy and the growing role of developing countries.”
However, the target date for realizing the goal was reportedly
set for 2011.
The
G20 meeting could be a major embarrassment for British Prime Minister
Gordon Brown, the meeting’s host. Only a few weeks ago he was
in Washington, proposing a wide ranging international “global new deal”
to the newly elected U.S. President. Alas, there most likely won’t
be much of a deal at all. “Though the summit might not end up
like what a British expert put as ‘going to achieve nothing,’
what the White House has said recently, and what Brown said at
his joint press conference with Merkel, showed that leaders across
the Atlantic were trying to downplay the upcoming G20 meeting,”
writes Ma Jianguo for the Chinese news agency Xinhua.
Last
week the London-based financial magazine The Economist
dismissed the “epic agenda” Brown had set forth. “A big agenda
can give everyone something they want, but it can also give everyone
something to disagree about,” the editors wrote. “Americans are
suspicious of the European desire for a system of global regulation
that may threaten their sovereignty Europeans do not agree with
American demands that governments spend yet more money - partly
because they are worried about the size of the state; Asians,
who blame America and Britain for the crisis, do not want a souped-up
IMF unless they have a greater say in how it is run. The summit
may agree on minutiae like tax havens (none of which will be represented)
and bankers’ bonuses (nobody loses votes bashing bankers). But
on the important stuff, the stage is set for disappointment.”
The
Economist did come up with a united front proposal – so
to speak. “The second priority is to present a united front against
protectionism. This does not just mean fine words. They are too
easy to ignore. The London
summit should promise tariff cuts and pledge to put aside the
arsenal of legal trade protection, such as anti-dumping suits,
which have been surging lately, and to ensure that subsidies do
not discriminate against foreign companies. If the world’s leaders
could do those two things, they would be doing the best they can.”
Even that is unlikely to happen. It’s difficult to see how the
major economies could agree to such trade principles in anything
other than rhetoric, as each acts to shore up their own manufacturing
industries and exporting potential.
Much
attention will be focused on the world’s stock exchanges in the
days and weeks ahead. A perception that the summit will fail to
come up with a united front could jolt investor confidence. Alistair
Darling, the British Chancellor of the Exchequer, says failure
to use coordinate approach could even deepen the ongoing crisis.
“In 1933 governments failed to reach agreement with disastrous
consequences,” he said.
“For
economists, the German-American conflict brings back unpleasant
memories,” said the German magazine Der Spiegel Monday.
“During the world economic crisis of the 1930s, the European countries
and the United States were also unable to agree on a common
strategy. The result was a worldwide trade war, which accelerated
the economic plunge into depression.”
“At
their first summit meeting last November in Washington, the industrialized nations made it clear that this cannot
be allowed to happen again. But now there is a growing rift between
the United States
and continental Europe.”
In
response to the continuing conflicting statements concerning the
issues before the G-20 summit, Dominique Seux, editor and chief
of the French daily financial newspaper Les Echos, wrote
“These exchanges are worrying because they show the differences
in mind-set a few weeks before the G-20 … They are of all the
more concern considering that - according to the World Bank and
the IMF - the planet could experience its first global recession
in 60 years this year. That means that growth in emerging countries
will not be sufficient to compensate for the big developed countries’
retreat. There is absolutely no doubt that the economy will pick
up again, but after having plunged millions of men and women into
poverty and unemployment.”
“Each
side defends its own position. Barack Obama, who has put 787 billion
dollars on the table to sustain economic activity, is asking Europeans
and Asia to contribute more to that effort. In his view, the recovery is
the main issue for the London
meeting. It’s difficult to disagree with him: The reconstruction
of a house on fire can’t take place until the fire is put out.
But continental Europeans don’t want to allow their agenda to
be dictated. Even though they don’t say so this clearly, they’re
inviting the United
States to clean up the mess on its own doorstep
by first and finally settling their banking crisis.”
“Above
all, they refuse to go any further as long as Washington has not
clarified its position on the reforms of the financial system
that are deemed indispensable, something Federal reserve President
Ben Bernanke timidly began yesterday. ‘What are you ready to do
concretely and do you agree to draw up the new rules together?’
the Europeans ask the American president and Gordon Brown. Obviously,
these are normal arguments. But they also show that a G-20 failure
is possible.”
“While
global leaders disagree about what to do, the world economy tumbles
at accelerating speed,” Financial Times Associate Editor
Wolfgang Munchau wrote Monday. “Last week’s news of the virtual
collapse of the German manufacturing sector is the clearest sign
yet that Europe is heading into a depression.
Japan
is going the same way, as are other Asian countries.”
“Our
ability to solve these various collective action problems will
ultimately determine how bad this crisis is going to get,” concluded
Munchau. “The G20 is clearly not the ideal forum because it is
too large for effective intergovernmental co-ordination. But for
the moment, there is no alternative. The US
proposals offer a glimmer of hope. The European reaction is disappointing.
But this is probably the global economy’s last chance to avoid
a depression.”
Brazilian
President Luis Incacio Lula da Silver has called for building
of a “new world financial architecture,” saying the London Summit
must take a hard look at the banking system and offer some reforms.
Pointing to the economic downturn affecting working people, he
said, the “G20 must do something about this. We can’t go to London and end up scheduling another meeting.”
“This
crisis doesn’t yet have a name,” writes Editor Bob Kuttner, co-editor
of the magazine American Prospect. “It has all the hallmarks
of a depression, but people are understandably reluctant too use
the D-word. So let me suggest one: The Great Collapse, since this
was both a financial collapse and an ideological one.”
“This
great collapse doesn’t have to be a second Great Depression –
if government does nearly everything right, and soon. And when
we come out the other side, we could have a more decent and sustainable
society.”
“But
if government doesn’t do more, and fast, this could be worse than
the 1930s.”
The
danger is not of doing nothing, but rather of doing to little,”
Wolf wrote in the Financial Times.
BlackCommentator.com Editorial Board member Carl Bloice is a writer in San Francisco, a member of the National Coordinating Committee of
the Committees of Correspondence for Democracy and Socialism
and formerly worked for a healthcare union. Click here
to contact Mr. Bloice. |