It’s no secret that the financial meltdown has hurt London and the UK economy more than most. Our banks have shrunk in value by more than 50 per cent. The City, once rivalling Wall Street, is haemorrhaging jobs and revenue. Our financial sector comprises a much larger part of economy, and as a result, the UK’s recession and indebtedness looks set to continue for longer than the US, and our prospects for recovery seem more remote.
But in the last few days, there does seem to be a genuine scent of warmier sunnier times – and that’s not just this spell of lovely spring weather. It also came from the vast conference centre in London’s docklands which was the base for the G20 summit of developed and emerging economies.
Forget the images of vandalism from the demonstrations yesterday. I was in the West End last night, and the crowds coming back from the City were peaceful, young, good humoured, singing and laughing, as if they’d just returned from a pop festival. And that’s what most of yesterday was, a political carnival of popular discontent. They begged a question, and begged it loudly, but you’d have to look hard to find a practical answer to the problem.
The solutions were likely to come from further afield….
Even as I write, I can hear the deep throb of more navy helicopters overhead as Obama returns to the American Embassy residence on the edge of Regents Park a couple of miles away. It’s far too early to get euphoric about the summit, or conclude that the plans will be enough, but listening to the mood music coming from the G20 summit there’s no doubt that the international outlook of President Obama and his new team brought positivity and freshened pace.
Just contrast today with the Great Depression. It took 16 years and a World War for any collective international consensus to emerge after the Wall Street Crash on 1929. The Bretton Woods post war agreement created the paradigms and institutions that brought stability and economic growth to the US and most of Europe for a generation in the post war era. That consensus was slowly unpicked from the early eighties onwards with the rise of regulation, especially in financial services.
The meeting, hosted by Gordon Brown, a politically unpopular figure here, also gave our Prime Minister one last time to show some of strengths rather than weaknesses. Every virtue is also a flaw, and Brown’s famous dour doggedness, his micro managing and professorial interest in history, have soured with British voters. But in preparation for the G20 summit, which apart from ‘saving capitalism’ was Brown’s last chance to restore his dwindling political capital, has turned those qualities back into virtues.
Tomorrow, both the right wing Daily Mail and the left wing Guardian will lead with the same headline: Brown’s New World Order.
The lede is both unimaginative and wrong – it’s not Brown’s New World Order by any stretch, but a compromise between the ‘Anglo Saxon’ system of Wall Street and Threadneedle Street, and the more social democratic dirigism of continental Europe.
The G20 summit will also be noted for the major contributions made by China, Russia, Brazil and India.
But Brown’s saving grace over the last few years has been his consistent attention to issues of debt in developing nations, and while the fiscal stimulus packages will have to be worked out nation by nation, the major refunding and the reform of the IMF is probably – in most commentators eyes – the most significant element of the final agreement announced tonight.
Of these, the announcement of 250 billion ‘special drawing rights’ might seem, given the figures bandied around recently in stimulus packages, rather small. But this is mainly devised to help emerging economies, particularly those in Eastern Europe (dear to my heart for many reasons) which – left unattended – could create a second wave of bankrupt banks and illiquidity in emerging economies.
What are we to make of this all? In the short term, as you all know by now, markets across the world have lifted between 4 to 8 percent on the news of the deal. But in the longer view, this G20 summit may be seen as the turning point when, rather than just screwing on new security measures to the stable door after the horse had bolted, there are proactive measures in place that will prevent the recession spreading wider and deeper.
So governments are being proactive again. Across the board, there’s barely a voice to dissent from the overwhelming conclusion: unregulated markets are doomed to catastrophic asset bubbles. George Soros said as much on BBCs Newsnight tonight, concluding that 25 years of ‘market fundamentalism’ is finally over.
The content of the final G20 agreement has tilted the power back towards collective oversight of international finance. But the form of the agreement is probably more important in the long run.
Unlike the 1930s, there is a consensus among governments on the basic institutions and mechanisms to preserve world trade, credit, employment and wealth creation – keeping the best of the market without its internal logical failures. It’s not about 20th behemoths of socialism versus capitalism, but recognising the role of the market as an efficient distributor of goods, services and talent – and also reinforcing the role of democratic accountability and oversight: not more government but smarter government: not destroying the market mechanism, but preventing it from overheating and then crashing and destroying itself.
As Brown put it last night “fair without being laissez faire”.
The G20 summit has ratified a historic shift, a Gotterdamarung for the Financial Wizards as the masters of the universe are finally displaced from the centre of power.
The new global regulator – the Financial Stability Board…. should be busy. Another surprise is the level of regulation now forced upon the fiercely-independent hedge fund community. The “hedgies” of Mayfair and Manhattan will all have to disclose how much they have borrowed – a major blow to those who use leverage to juice their performance…
…taken as a whole, the declaration shows how little political influence is now wielded by the once powerful vested interests of Wall Street and the City of London. Instead, Sarkozy and Merkel’s insistence on linking this to the rest of the G20 reforms means the masters of the universe have been brought down to Earth with a bump.
Some are calling this Gordon Brown’s ‘finest hour’. But even in the midst of this nationalist hyperbole, let’s not forget that Britain’s “finest hour” during the Battle of Britain was a last ditch defensive move. It was also the prelude to it dismantling its empire, and the man who sealed that famous phrase, Winston Churchill, was ceremoniously dumped by the British electorate after the end of the war in Europe.
I doubt the G20 summit will save Gordon Brown’s premiership or increase his popularity much, but it may do something to redeem his legacy.
And the truth is that the crucial player was, of course, President Obama and his new team. The willingness of the new administration to engage in multiple multilateral agreements, the emphasis on diplomacy and consensus and above all, the Presidents belief in smart government will be seen to have a crucial stimulating role all on its own.
You elected this guy, and now everyone is reaping the benefit. I doubt there are many other American leaders who understand intellectually and emotionally what the globalised economy now means: the congruence between America’s interests and those of the rest of us.
So, as another helicopter chugs overhead, there does seem to be warmer breeze blowing across the Thame
s this evening, and for the first time in many months I think of a word which I had almost forgotten: hope.
UPDATE: Just to put some flesh on the bones of Obama’s advocacy of multilateralism, and the importance of global development for both the US and its partners, here are some quotations from his hour long press conference (which was met by a standing ovation, even from members of the inveterately caustic and cynical British press). And none of these responses was pre-scripted.
On the role nations such as China, India and Brazil:
“If there’s just Roosevelt and Churchill sitting in a room with a brandy, that’s an easier negotiation…. But that’s not the world we live in, and it shouldn’t be the world that we live in.”
In response to a question from a Chinese journalist.
“Look, I’m the president of the United States. I’m not the president of China. It is also my responsibility to lead America into recognizing that its interests, its fate, is tied up with the larger world…
Unless we are concerned about the education of all children and not just our children, not only may we be depriving ourselves of the next great scientist who’s going to find the next new energy source that saves the planet, but we also may make people around the world much more vulnerable to anti-American propaganda.”
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