G20 ends Anglo-Saxon era

By Paul Taylor
April 2, 2009

Paul Taylor Great Debate

– Paul Taylor is a Reuters columnist. The opinions expressed are his own –

Thursday’s G20 summit may not mark the end or even the beginning of the end of the global recession. It did mark the end of the ascendancy of the unfettered, Anglo-Saxon model of capitalism.

What comes next is far from sure, but it will be different from the headlong dash for individual enrichment, short-term profit and financial acrobatics that began with the dominance of U.S. President Ronald Reagan and British Prime Minister Margaret Thatcher in the 1980s. The widespread acceptance of increased regulation would have been anathema for U.S. President Barack Obama‘s predecessors.

“The old Washington consensus is over,” British Prime Minister Gordon Brown declared after chairing the London summit. It was a clear acknowledgement that the deregulation that allowed casino capitalism to flourish on Wall Street and in the City of London, the world’s two biggest financial centers, had failed and will be fundamentally overhauled.

Brown’s role in brokering a bigger-than-expected G20 deal on refinancing and reforming the International Monetary Fund and World Bank, extending the scope of regulation and providing new finance for trade and the poorest countries was a personal success. But it may not help him much at home, where many recall his 1997-2007 decade as a “light-touch” finance minister who claimed to have ended the cycle of “boom and bust.”

The $1.1 trillion in funds for the IMF, the World Bank, trade finance and development which he announced, even if it is not all new money, may begin to restore market confidence that countries will not default, and to revive trade flows.

But Brown and Obama did not achieve their initial declared objective of persuading countries with balance of payments surpluses such as Germany and China to give a bigger fiscal stimulus to the world economy.

Nor did they come up with a solution for disposing of banks’ toxic assets, which continue to impede a recovery.

Indeed, they were upstaged by French President Nicolas Sarkozy and German Chancellor Angela Merkel, who appeared in lockstep on the summit’s eve to hammer home demands for tougher regulation of all markets and financial institutions, and for the naming of shaming of tax havens.

“We have taken an important step toward creating order in an area of the world where there was previously no order,” Merkel told a news conference. Sarkozy said the world had turned the page on “the Anglo-Saxon model.”

The Franco-German couple, so strained since the hyperactive Sarkozy’s election in 2007, achieved almost all its objectives. The French leader’s pre-summit theatrics of threatening to leave an empty chair may have been an empty threat, but it played well back home and may have put his host on the defensive.

Obama, who was more of a listener than a leader at his first global summit, made clear that while he believed in the free market, executive pay and rewards would have to be changed to encourage long-term performance instead of quick profits.

Other winners at the table included Chinese President Hu Jintao, who was courted by Obama and Sarkozy and magnanimously contributed $40 billion toward the IMF war chest to help countries in financial trouble. In return, Hu was promised a reform of IMF seats and votes in 2011 that will give his emerging economic colossus, which now has no more say than Belgium or Switzerland, far greater power.

That redistribution will also benefit India, Brazil, Mexico and Indonesia, and should reduce the traditional U.S. and European dominance over international financial institutions, symbolized by their carve-up of the top jobs.

Agreement to publish a list of tax havens that use banking secrecy to deny cooperation with other countries about suspected tax cheats and money launderers came only after countries such as China and Brazil had been assuaged about the fact that it was compiled by the Organization for Economic Cooperation and Development, a largely Western, rich countries’ body.

Russian President Dimitry Medvedev was also among the winners, enjoying a fresh start in relations with the United States despite his country’s continued military presence in breakaway regions of Georgia following last year’s war.

22 comments

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/

April 2nd, 2009 9:50 pm GMT – Posted by Sherry

The only winners are IMF and World Bank. The losers? Middle class in all participating countries! Generations to come will have to pay IMF and World Bank and Central banks for the money they generously lend us now.

I have to say that’s a very American statement. Not bashing Americans, I am one…

But to say the IMF and World Bank won while the middle class of every nation loses, think about this little inconvenient factoid:

These places hardly have a middle class. They are worried about how they’re going to provide even the simplest food items to their families. And they don’t have any luxuries. I mean if we REALLY need to we can cough up SOMETHING at the pawn shop to get to the next paycheck… and even if you’re absolutely homeless… you’re not absolutely hopeless. There are soup kitchens and shelters and ways (although difficult) to get out of poverty.

Not so in the developing countries that IMF and World Bank and dishing out money to. These people are worried about survival and your worried in a fraction of a percent to a few percent tax hike over the next few decades?

Please. There are serious problems in this world and this is a SMALL step towards fixing them. You don’t want to sacrifice a little to ensure that others have access to food and clean water? Well great, but I am proud to say that I live in a democracy and MOST of the people here (and thankfully now, our government) think it’s important to be a good global citizen.

Not to be combative.

/end rant

Posted by Bryan | Report as abusive

Sherry, there is nothing wrong with charity. But most of the countries where there is poverty, there is a corrupt government to deprive the people. Think India. Think Rwanda. These places don’t have a subsisting impoverished class because their nation is outright poor — it’s because every time the idiots at the UN elect to send food, the food is taken by the government to go where the government wants it… which is the government alone. Everyone else is left in the dust, and the government couldn’t care less. Therefore, it isn’t an issue of what the governments in our first-world nations can supply through generosity, but what our goverments can slowly encroach onto us as they raise the taxes like the temperature of a frying pan on which the frog sits. We’ll be okay with tiny increases year after year, until we give more than half of what we make to the government so they can play around with a few billion more dollars of money that isn’t theirs to begin with. This sort of thinking, letting the government do as it pleases, brought us into this mess.

Posted by Josh | Report as abusive