exactly do the leaders of the world want for the global
economy? The official communiqué released by
the G20 Seoul Summit suggests that they have very
little idea. The sense that document conveys is of
complete confusion, not just in terms of contradictions
across the positions held by governments of different
countries, but contradictions within positions, in
terms of stated goals and the means to achieve them.
There has been a lot of talk about the apparently
''irreconcilable differences'' between surplus and deficit
countries, for example, or between countries that
are trying to engineer lower values of their currencies
through monetary policies and other measures, and
other countries who are trying to prevent appreciation
created by the inflows of hot money. There is no doubt
that these issues have emerged as significant areas
of friction between some major economies. There are
growing fears of currency wars and trade wars, and
these fears can at best be only partly alleviated
by the platitudes coming out of summit documents.
But the obsession with imbalances obscures the lack
of coherence on what should be the more significant
question: what are to be the major drivers of growth
for the world economy? It is remarkable that the countries
that ought to be the most concerned about this within
the developed world seem to be the most confused,
particularly from a developing country perspective.
The United States government, for example, mooted
the extraordinary idea of capping the external deficits
or surpluses (as proportion of GDP) of major countries
- as if such a thing could be done realistically,
or indeed as if the global economy has ever really
required such a false notion of balance. The idea
clearly got no traction at the summit, but in any
case simply trying to enforce balance is hardly likely
to resolve the problem of revival of growth and employment.
If anything, it will exacerbate them.
The German position is even more remarkable and self-contradictory.
On the one hand, the Germans want the US to reduce
their external imbalance, which they have decided
is a cause of many problems. Yet when the US Federal
Reserve announces a policy of buying long-term bonds
in order to provide more liquidity in the market,
they rail against this strategy of bringing down the
external value of the dollar. But surely such depreciation
is one of the routes to greater ''competitiveness''
and achieving the trade balance that the Germans supposedly
Similarly, the Germans want the US to get into fiscal
consolidation quickly, on the (wrong) presumption
that this will not affect growth prospects. But if
the private sector has to continue to wind down its
excessive debt, which it is already doing, then the
slack has got be taken up by the government or exports.
If this does not happen, then the US economy will
not grow, and this will also affect demand for German
exports. The same wrongheaded argument is also being
applied by Germany on the peripheral European economies,
without adequate consideration of the obvious negative
implications for the German growth model.
It seems bizarre that global leaders have to be reminded
that all countries cannot use net export growth as
the route to expansion. But clearly this message has
not yet struck home. How else can one explain the
almost complete absence of any meaningful measures
to enable sustained expansion of demand from low income
countries, which is really the only sustainable and
equitable way out of this global dilemma?
Consider what has come out of this summit for most
developing countries. The much-delayed reform of the
IMF is to proceed very gently along, and at most will
enable a minor shift in voting power at that institution
in the next 3 years. Since there was no clear mandate
against imposing procyclical conditions on countries
in distress, the IMF will continue to impose austerity
upon economies that are already experiencing downswing,
rising unemployment and falling wage incomes.
Meanwhile, the ''Seoul Development Consensus for Shared
Growth'' is so general as to be mostly meaningless.
It continues to valorise the role of the private sector
despite all the unfortunate experience of the past
three years, and continues to place importance on
the need to ''stimulate the flows of private capital
for development'' and ''improving the investment climate''.
The fact that most developing economies have been
trying to do this for two decades without much benefit
in terms of improved living standards for the bulk
of their people is simply not noticed.
The list of important omissions in the Seoul G20 documents
is long, but one of the more significant ones for
developing countries relates to financial regulation.
The focus is all on monitoring and regulating the
problem of ''SIFIs'' or systemically important financial
institutions that are too big to fail. This is doubtless
important, but in the developing world the bigger
problem today is that of financial activity in the
futures markets for primary commodities, which is
once again driving up prices of goods like oil and
wheat. Here the discussion was anodyne at best, asking
for more study of the problem rather than financial
regulation to control speculative activity that has
damaging effects on food security in the developing
Clearly, this latest G20 Summit displayed lack of
cohesion among its members as well as lack of imagination.
But what is more startling is the extent of which
it displayed the paucity of ordinary economic sense
among those who currently control the world's destiny.