G20 ends Anglo-Saxon era
— 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.