What Happened at Pittsburgh?
The main result of the Pittsburgh summit was to institutionalize and modestly extend the global economic governance role of the G-20 which arose as a necessary response to the global economic crisis.
There is talk of medium-term co-ordination of national macro-economic policies, and a â€œre-balancingâ€ of the global economy. However, while this is welcome, there is little of real substance on these issues at the moment due to clear differences of interest between surplus and deficit countries in terms of dealing with trade imbalances, and clear ideological differences between countries over the need for expansionary and interventionist policies beyond the short-term. Indeed, there is insufficient recognition of the need for a new growth model, and far too much faith that private sector demand will soon revive.
There is some talk of attaching a â€œsocial dimensionâ€ to G-20 governance of the global economy, but an only slightly reformed IMF will be the agency charged with the development and implementation of co-ordinated economic policies.
Calls from some quarters to quickly return to â€œbusiness as usualâ€ were generally resisted. While there will be no new global stimulus, â€œexit strategiesâ€ from expansionary monetary and fiscal policy have been postponed.
There was some push back against a lack of strong national action to re-regulate the financial sector, and Europe won stronger commitments on control of financial sector compensation.
Brief Commentary on Key Points in the Communique
The G-20 put continuing stimulus measures ahead of â€œexit strategiesâ€ and made some loose commitment to making stimulus measures more efficient in terms of job creation.
â€œWe pledge today to sustain our strong policy response until a durable recovery is secured. We will act to ensure that when growth returns, jobs do too. We will avoid any premature withdrawal of stimulus. At the same time, we will prepare our exit strategies and, when the time is right, withdraw our extraordinary policy support in a cooperative and coordinated way, maintaining our commitment to fiscal responsibility.â€
There was some recognition that stable growth will not return without some re-balancing among countries, as pushed for by the US in particular.
â€œWe need to â€¦ establish a pattern of growth across countries that is more sustainable and balanced.â€
However, the language is very vague and no reference at all is made to the origins of the crisis in rising income inequality and depressed wages across the global economy.
The IMF is given an enhanced role as a global economic policy co-ordinator.
â€œAs recovery takes hold, we will work together to strengthen the Fundâ€™s ability to provide even-handed, candid and independent surveillance of the risks facing the global economy and the international financial system. We ask the IMF to support our effort under the Framework for Strong, Sustainable and Balanced Growth through its surveillance of our countriesâ€™ policy frameworks and their collective implications for financial stability and the level and pattern of global growth.â€
The share of voting rights/quota of developing countries will be modestly increased, but the US will retain a veto at the IMF.
Next to nothing is said about a role for the ILO, the OECD and other, more balanced, institutions in global economic governance.
However, the G20 will now replace the G8 as the body responsible for global economic policy co-ordination.
On financial regulation, the statement commits to continued implementation of what had already been agreed and toughens policy up in terms of raising bank capital standards, and in terms of controlling â€“ but not capping â€“ bonuses.
â€œWe committed to act together to raise capital standards, to implement strong international compensation standards aimed at ending practices that lead to excessive risk-taking, to improve the over-the-counter derivatives market and to create more powerful tools to hold large global firms to account for the risks they take. Standards for large global financial firms should be commensurate with the cost of their failure. For all these reforms, we have set for ourselves strict and precise timetables. â€œ
However, the Financial Stability Board which will be responsible for planning and co-ordinating financial regulation remains an opaque body dominated by central banks, finance officials and financial regulators.
It is interesting to note that the G20 called in a vague way for further work on a financial transactions tax.
â€œWe task the IMF to prepare a report for our next meeting with regard to the range of options countries have adopted or are considering as to how the financial sector could make a fair and substantial contribution toward paying for any burdens associated with government interventions to repair the banking system.â€
It is disappointing that the key issues of unemployment and creating quality jobs appear at the end of the communique, but the language is not bad. The statement even hints at support for tougher global labour standards â€“ which Lula apparently pushed for quite hard. A G-20 labour ministers meeting will be held, and there will be advance consultations with employers and labour. This creates the possibility to shape a broader agenda for the two G-20 meetings in 2010.
â€œWithout sustained action, unemployment is likely to continue rising in many of our countries even after economies stabilize, with a disproportionate impact on the most vulnerable segments of our population. As growth returns, every country must act to ensure that employment recovers quickly. We commit to implementing recovery plans that support decent work, help preserve employment, and prioritize job growth. In addition, we will continue to provide income, social protection, and training support for the unemployed and those most at risk of unemployment. We agree that the current challenges do not provide an excuse to disregard or weaken internationally recognized labor standards. To assure that global growth is broadly beneficial, we should implement policies consistent with ILO fundamental principles and rights at work.â€
â€œWe agree on the importance of building an employment-oriented framework for future economic growth. â€¦ We also welcome the recently-adopted ILO Resolution on Recovering from the Crisis: A Global Jobs Pact, and we commit our nations to adopt key elements of its general framework to advance the social dimension of globalization. The international institutions should consider ILO standards and the goals of the Jobs Pact in their crisis and post-crisis analysis and policy-making activities.â€
â€œTo ensure our continued focus on employment policies, the Chair of the Pittsburgh Summit has asked his Secretary of Labor to invite our Employment and Labor Ministers to meet as a group in early 2010 consulting with labor and business and building on the upcoming OECD Labour and Employment Ministerial meeting on the jobs crisis. We direct our Ministers to assess the evolving employment situation, review reports from the ILO and other organizations on the impact of policies we have adopted, report on whether further measures are desirable, and consider medium-term employment and skills development policies, social protection programs, and best practices to ensure workers are prepared to take advantage of advances in science and technology. â€œ
Brief reference is made to further work on the global charter proposed by Merkel to outline a â€œsocial dimensionâ€ to economic globalization.
Very little new was said on climate change and green jobs, and certainly nothing that would lead one to be more optimistic about outcomes at Copenhagen later this year.