G20 Marks Shift In Economic Power
by Efin Advisor | November 18, 2008
Nothing is harder than to determine the historic significance of events when they are happening. Yet the meeting of the heads of governments of the Group of 20 in Washington at the weekend looks as historic as the crisis it responds to, according to the Financial Times. It might even prove the one bright light in the gathering darkness.
Historically, world economic summits have been comprised mostly of the world’s leading democracies (the US and the UK for two), but for the first time, countries like India and Brazil were welcomed to this convocation. Recognizing the global economy is expanding, the need to meet with the leaders of rising powers was more pressing than normal and displayed the gravity of the situation.
The G20 leaders said they would require regulators to set up “colleges of supervisors” to monitor global banks and said ministers would report back by March 31 on issues such as strengthening of the credit derivatives markets and review of financial sector pay schemes, with further reforms to follow.
Additionally, the group opened up membership of key standards-setting bodies, including the Financial Stability Forum, to emerging economies such as China and India, and promised to increase their say at the International Monetary Fund. A renewed commitment to completion of the Doha round of trade talks may even be real. Also important will be strong action to reduce external imbalances, particularly by large countries with huge current account surpluses.
Other world bodies that were discussed included the WTO and World Bank, both of which, it was decided, needed further credibility and definition.
Robert Zoellick, president of the World Bank, told the FT the G20 recognised it faced “a global crisis that is going to need a global response”. Earlier, he warned the world leaders that a drying up of credit could lead to a “huge drop in trade”.
Why would the U.S. allow itself to be undermined like this? Yes, obviously the economic crisis is affecting the entire world. But it’s our mess, and we don’t need these nations, especially the likes of India and Brazil (nations with HUGE problems of their own) getting their noses in it. This seems like an admission of guilt on the part of the U.S. government, and our duty should be first and foremost to keep up our standing with the rest of the world. If we start acting like we’ve failed, then we will very soon become true failures. The U.S. needs to fix its own problems and not call on these nations unless it absolutely has to.
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Finally, the U.S. is stepping up and working with the rest of the world instead of working against it. Hopefully Bush can salvage the last few months of his administration by seeking help from the people he’s been so arrogant to for so many years. In our time of need, other nations are willing to help us, and that’s a good sign. Sure part of it stems from this crisis hitting them at home as well, but the fact that they’re even willing to try to bail us out of this mess shows that the rest of the world still cares to a degree, and that’s a good thing. I want the U.S. to succeed, but it’s going to need the rest of the world to do it.
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This is pretty scary. The World Bank? Imagine if the U.S. got into a position bad enough that we needed the same sort of international aid we currently give to developing nations. At least we’ve got some goodwill coming our way, right?
It raises an interesting question: should we focus on helping our own economy, or the economies of the other nations that depend on us? Obviously I’d love to help out the 3rd world, but we need to think of ourselves first and frankly as an American citizen I am very scared that the U.S. might plunge into a depression very soon…
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Cheryl, that’s an interesting question. I think the key is, sadly, to not concentrate on the 3rd world but instead work with the major power players in the world and cooperate, as we seem to be doing via the G20 summit. Honestly, how much worse could the economies of the 3rd world get? We have a lot more to lose and if we concentrate on the power players, we will be able to help those people in the long run.
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I was watching cspn yesterday and the debates in the british parliament were on (If you want a good laugh and like politics, watching this is an absolute must). There was a lot of debate between the Prime Minister and the Leader of Opposition about what was actually said at the meeting. This worries me since the fact that there is so much debate about this indicates that its unclear whether or not there is even consensus on what there is consensus about. I’m not sure if this is a good sign for the world.
The other hting they discussed was about how countries really shouldn’t be deficit spending too much, which worries me since I thought that is exactly what we shoudl be doing now. I think there was even a blog post about this on this website not too long ago about that very subject.
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You can tell the world is changing when the United States admits that they are the cause of a major world crisis (which we did). I think this signals a new order of more global cooperation. We rarely take accountability for our actions–its not politically expedient to do so–but doing this indicates that we are willing to man up when need be. I think more countries will be willing to work with us and lend us a hand in the future after this action. this also lets us figure out to fix the problem since we are willing to admit where it comes from.
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I think that this is an important step in the right direction. We were only hurting ourselves by shutting out a substantial number of the smaller economies from our summits. The current trend towards globalization means that the economies of other countries are just as important to us as the economy of our own country, especially if that country produces something we rely on. I applaud our leaders for inviting India and Brazil to talk about a global solution to a global problem.
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This is a huge boon for enforcement. I don’t mean to sound cliché, but if a country is a part of the solution, by definition they will not be part of the problem. When we invite countries to participate who are not normally consulted, we strengthen our economic and diplomatic ties, and ensure better enforcement all around. Brazil is more likely to take measures within its own country (and region) to ensure the stability of the multinational organizations, if it is given a seat at the table. We should be inviting as many of these growing economies into the solution process as possible.
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I’m curious to see what these G20 nations actually plan to do about this problem. It’s great that the U.S. is admitting it needs help but how much can these nations really do? Global economics can only be regulated to a point, and after that, it’s about individual nations doing what they can do right their own ships. I doubt these nations are going to be pouring aid into the U.S. economy, and I doubt they’ll be subsidizing the losses in the developing world, so what exactly do they plan to do?
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This does not bode well for our economy. It is rare that in actual practice, two heads are better than one- often what you end up with is a bunch of people with different opinions, none of whom actually do anything because they are arguing with each other. In this case, we are letting countries into our club, who’s economies are not extremely strong to begin with. This seems like a foolish move, its kind of like buying hair care products from a bald guy: he can talk a good talk, but at the end of the day he really has no standing to give advice about it.
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I take issue with the title of this blog post. Shift in economic power? You really believe that every time the international community comes together to help a county, that country is weakened? If anything, this is a testament to our economic power. If Zaire had an economic crisis, there would not have been an emergency G20 summit to solve it. But there was for the U.S., because everybody knows that if the U.S. fails, so does everyone else. So, they’re preparing for the fallout and acknowledging that the U.S. is still king of the mountain. No surprise here.
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I don’t see what the big deal is– don’t these nations have summits all the time during economic down periods? Yes, we’re obviously in a crisis, but them meeting and making some changes isn’t a sign of the apocalypse, nor does it say anything about the U.S. or the way the world thinks of us. It just says that the rest of the world is interested in keeping their own pocketbooks full, and they’re making some adjustments to ensure that. This news seems pretty ho-hum to me.
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The problem with international summits is that there is no enforcement. If everyone agrees to something, there is nothing that will actually make these countries go through with it. Now, of course, many countries will because they think it makes sense for the good of everyone, but there will be other people who use this to their advantage. Its called the free rider problem. If everyone else does it then others will not since they think the problem is solved or htey can get away iwht not doing it. This means tariffs will stay high or something like that in certain areas, and these countries will reap large benefits and screw over everyone else. I do not think we can expect any real change from this summit.
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This is essentially to avoid the economic calamity that is the tragedy of the commons. If everyone acts in their own self interest as is natural, then they will inevitably harm others in the process. The example that people use to describe this is grazing sheep. If i let my sheep overgraze then they may grow better. If all farmers do this, we will end up with a dead patch of land and the sheep will die. If we all get protectionist and try and help our own economies, the very same thing will happen. Trade will stifle and economies will start to ruin even faster than before. By meeting together, if real cooperation can be forged between nations, then we are more likely to be able to help one another help ourselves.
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