There is only one message that comes out of Toronto, where the G20 summit has come to an end. The formation, ostensibly created to reflect changing power equations in the world economy, serves no purpose. It has turned out to be one more talking shop in which agreement to disagree is presented as a consensus.
The disagreement that matters today concerns the near-global rush to reduce public debt by curtailing government expenditures. Occurring so soon after the Great Recession this policy stance is threatening a second recessionary dip.
On Tuesday, June 29 the World Trade Organization’s Committee on Financial Services will hold its much anticipated session on the WTO and the financial crisis. Developing countries should follow this session with great scrutiny. The WTO has claimed that it played no negative role in the financial crisis. However, research by the IMF and the UN suggest otherwise.
Almost two decades ago, Francis Fukuyama, at the peak of the hubris and arrogance of neoliberal thinking, famously suggested that history had ended. The unfolding of the European crisis may finally prove him wrong. It is true that the failures of the Washington Consensus during the 1990s led to a revival of the left in Latin America, starting with the election of Chávez in 1998. However, I would venture, risking being a bit Eurocentric, that political changes in the periphery are seldom capable of having global effects in the same way as changes in the center of the capitalist system.
On the other hand, the crisis of the euro, and the adjustment measures taken by the European countries may prove more significant as a way of bringing back the old coalitions that were instrumental in building the Welfare State. There are at least two elements in the rescue packages implemented in Greece and Spain that are particularly wrongheaded and will have a terrible social impact.
Trade officials in the Obama Administration have made it abundantly clear that they will move forward in the WTO’s Doha Round of negotiations only if the larger developing countries agree to open their economies more to U.S. exports. As Kevin Gallagher pointed out on the Triple Crisis Blog (“Obama’s New Trade Agenda”), the administration’s trade policies, and its announced goal of doubling U.S. exports, backtrack from those of the Bush Administration, renege on the basic principles of the Doha Development Round, and undermine precisely the kind of multilateralism President Obama claims to stand for.
Such intransigence does not bode well for the WTO, nor does it give much hope that the Obama Administration will use the current TransPacific Partnership negotiations to forge what it promises will be a “21st century trade agreement.”
Clearly, a creative new approach is needed to break the trade deadlocks. I offer a modest proposal here: Instead of negotiating reductions in tariffs and farm subsidies, it’s time to negotiate reductions in hypocrisy. I call it the Hypocrisy Clause, which mandates phased reductions in “trade-distorting hypocrisy,” with the greatest reductions coming from the most developed hypocrites.
The global economic crisis is a wake-up call for developing countries, particularly low-income ones, to reconsider their long-term industrial and development strategies as the short-term counter-cyclical macroeconomic policy tools available to them are very limited. It is not going to be easy, but it is necessary. Some selective import restrictions under the “balance of payments clause” of the World Trade Organization (WTO) and capital controls would be helpful, but not sufficient. A debt moratorium, debt forgiveness and other concessional financial flows are urgently needed, and will help, to provide low-income countries with some temporary relief. But what is essential for their long-term development is to increase their capacity to take the risk of external shocks and instability in export earnings. To do so, a different development and industrial strategy is required to diversify and upgrade their structure of production and trade.
Of the many undesirable effects of the ongoing – and increasingly policy-induced – recession in Europe, one has received relatively less public attention: the resurgence of racist and xenophobic attitudes. This was already something of a problem especially in western Europe in the past decade when rightwing political forces demanded major restrictions on immigration and sporadic episodes of violence broke out against migrant and Roma groups.
As the economic crisis bites deeper and as the “austerity measures” enforced by governments cause more unemployment and more failure of small family-run businesses, bitterness and anger among the population will inevitably grow. The danger is that it will be directed not at powerful financial or even against governments that seem to bend like willows to every dictate of the market, but against more vulnerable targets that can be more easily attacked. The most obvious targets, of course, are the migrants, who often stand out also because of their perceived racial differences.
Over the last many months, TripleCrisis bloggers and readers have written about many dimensions of the crisis. I would like to raise here several issues that warrant attention by progressive observers of the crisis.
1) The credit rating agencies and Polanyi rise again in Mediterranean Europe
We are now seeing that the government in Spain is trying to get ahead of a Greek-like fate by imposing its own extremely severe austerity measures that involve myriad types of budget cuts and recasting of its (inflexible) labor laws. Certainly the situation in Greece (and the protracted negotiations over its bailout) gave these moves particular impetus. But so did the downgrade of Spain by the credit rating firms.
To mark our first four months, the Triple Crisis Blog wants to take stock of how we’re doing. And we want your feedback: how do you like the blog, and why do you keep reading? How well have we tied together the crises in finance, development and environment? Are there issues we’ve missed?
Please feel free to provide your feedback in the form of comments to this post.