Prospects for the Toronto G20

G20 finance ministers released a communique last week, as did G20 labour and employment ministers.  These are straws in the wind which tell us what is likely to take place at the June Toronto G20 summit.

Not to put too fine a point on it, panic about the prospects for global capitalism has been supplanted by growing complacency.

The meeting of G20 labour and employment ministers – a first – was mandated by the last G20 summit in Pittsburgh with a view to balancing the normal dominance of the summit process by finance ministers. They had been charged with “building an employment oriented framework for future economic growth” building on the recent International Labour Organization Jobs Pact which focuses on quality job creation as the key to a sustained and broadly-based recovery.

The ministers released a statement which set out some important themes. It stressed the need for a job intensive recovery, and consideration of additional employment creation measures where needed. It also referred to the need for social dialogue, the sharing of productivity gains with workers, and respect for fundamental labour rights.

Fine words,  but the statement fell well short in terms of process. Some – perhaps most – countries pushed for an institutionalization of the process through future labour and employment ministerial meetings, and continued linkage of the ILO and its institutionalized social dialogue. But no commitment was made  to future process beyond discussion of a forthcoming ILO report on training strategies. It is not even clear if Prime Minister Harper will invite the ILO to participate in the Toronto summit – which would leave the IMF functioning as the only effective G20 secretariat.

Finance ministers  recognized the need to maintain stimulus measures, for now, but the focus was on getting back to the old normal as soon as possible.  “We should all elaborate credible exit strategies from extraordinary macroeconomic and financial support measures that are tailored to individual country circumstances while taking into account any spillovers.”

Ministers took no position on the IMF report on possible new taxes on the global banking system to pay for the cost of bail-outs and to curb speculation and excessive risk-taking. “We call on the IMF for further work on options to ensure domestic financial institutions bear the burden of any extraordinary government interventions where they occur, address their excessive risk taking and help promote a level playing field, taking into consideration individual country’s circumstances.”  Reading between the lines, European proponents of a Financial Transactions Tax did not even strongly back the IMF counter recommendation of a tax on excess profits (including remuneration.)

Discussion of financial re-regulation continues in opaque fora such as the Financial Stability Forum, butt rather little appears to be squarely on the agenda for Toronto beyond raising capital standards for the banks. Earlier calls for regulation of all financial products (including over the counter derivatives) and all financial institutions (including hedge funds and private equity) seem to have disappeared into the endless limbo of technical discussion by insiders at the IMF, central banks, and  national regulatory authorities.

The one ray of real hope is that there may still be some ongoing serious discussion of how to remedy global economic imbalances through some co-ordination of macro-economic and exchange rate policies. The elephants in the room are, of course, the huge US trade deficit and the large surpluses of China, Germany and Japan. A sustainable recovery depends rather critically on expanding internal demand in the surplus countries so that the US can experience export led growth rather than re balance through protracted domestic austerity.   The plan is for the IMF to ensure that national recovery strategies (most of which emphasize export growth) add up to a coherent global picture.

“Our Framework for Strong, Sustainable and Balanced Growth for the global economy is a key mechanism through which we will continue to work together to address the challenges associated with achieving a durable recovery and our shared objectives. In accordance with our timetable set out in St Andrews, we have conducted, with support from the IMF and World Bank, the initial phase of our cooperative and consultative mutual assessment process for the Framework by sharing our national and regional policy frameworks, programs and projections, assessing their collective consistency with our objectives, and producing a forward-looking assessment of global economic prospects. We further provided guidance to the IMF, and other international organizations, to assist us in assessing collective implications of national policies that could improve our global economic prospects and bring us closer to our shared objectives.”

The real issue is whether China can be pushed to devalue, and Germany to ease up on domestic austerity. No sign of that yet. But at least they are talking.


  • Great report Andrew. It does make you wonder about economic evolution and power. After the crash in ’29 eventually there seemed to be a whole lot more financial change than what is happening today. I am no financial history guru, but at least some re-regulation occurred, as many of the trading vehicles that were created in the lead up to ’29 were outlawed.

    Imagine just the threat of communism against the American way created such an event in the US as the red scare, where thousands of live were ruined over rumour and innuendo. Yet here amidst the ashes of wall street, 2 years after the crash and despite a whole trainload of evidence, not a single individual is charged for “unAmerican” or how about “inHuman” like activities.

    In fact many of these are undoubtedly still writing books on how to make a fortune on Wall Street.

  • Comment re rebalancing:
    The US trade deficit is a big plus for the US and will not be rebalanced anytime soon. The US receives huge quantities of real goods (and some services) in exchange for US denominated financial assets that exporting countries prefer to have rather than the stuff they export. Up until the early 1970s the US exchanged foreign held US dollar assets for gold but stopped doing so when they risked losing all their gold reserves. Now it pays in non-convertible fiat money that it creates.

    In theory the US financial assets are claims on US real assets but the US won’t allow the holders of the financial assets to exchange them for anything real of consequence. Witness the refusal by the US government a few years ago to allow China to buy Unocal, 11th largest US oil company with few assets actually in the US.

    So in effect the US is getting its imports for free. The same process allows it to pay for its hundreds of military bases around the world and its spreading wars. All paid for with dollars the rest of the world holds but can’t use.

    One day, no doubt, exporting countries such as China will reduce the new US financial assets they accept and produce more for their domestic markets. The US standard of living will then take a dive. But it won’t happen if the US can prevent it.

    Take a look at Michael Hudson’s thesis on Super Imperialism:

  • Japan’s prospects for domestic growth seem grim. Their government is projecting the population to shrink by some 25 million persons by 2050.

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