The G20 – an entity virtually unknown just two years ago – now seems to be holding meetings every month. While people in Canada were still reeling from the militarized display of force that accompanied G20 meetings in Toronto, Canada, last June, a second summit was held November 11 and 12 in Seoul, South Korea. In general, it is the rhythm of economic slump which is driving these recurring summits. In particular, the Korea summit was fixated on the danger of currency wars between the major powers – in particular between the United States and China.
In the 1990s, there was no notion of the need to expand beyond the G8. The richest and most powerful nations of the world – the United States, Japan, Germany, France, the United Kingdom, Italy, Canada along with Russia (pulled in for geopolitical reasons after the collapse of the Soviet Union) – formed an exclusive club which arrogantly assumed it could alone determine the course of the world economy.
By 1999, some had started to rethink this. “For the past five years, the global economy had shuddered under a string of massive debt defaults – first in Mexico, and then in Southeast Asia and Russia.”[1] The scale of this crisis, outside the core of the system, was staggering. Russia had collapsed to the extent that through the winter of 1998, hunger stalked the countryside. “Maybe we’ll all die in the winter” said one 44-year old Russian mother trying to cope with her five children in a rural settlement.[2] According to Fareed Zakaria, then managing editor of Foreign Affairs, by July 1998, Indonesia’s economy had “shrunk by almost 80 percent, Thailand’s by 50 percent, South Korea’s by 45 percent, Malaysia’s by 25 percent.”[3]
It took a crisis this severe to reveal the inadequacies of the G8 as a governing instrument – not to speak of the fact that in Indonesia, the crisis had seen not just economic turmoil, but political upheaval. The year 1998 was, after all, the year of the massive uprising which overthrew one of the G8’s closest supporters in the Global South, the dictator Suharto.
It was Canada’s own Paul Martin – then finance minister in Jean Chrétien’s Liberal administration – who, in the wake of the these events, mooted the issue of expanding beyond the G8. His method will not lead to confidence in the processes by which the world is run. April 27, 1999 Martin was sitting in the office of Lawrence Summers – then nominee for U.S. treasury secretary in Bill Clinton’s second term as president. Confronted with economic collapse, the spectre of mass hunger and the threat of revolution, Martin could not find a piece of paper. So – on the back of a manila envelope – he and Summers started to jot down the countries that should be brought to the table to deal with a crisis that was beyond the capacities of the G8. “I would love to say we sat down and ran the numbers on whose GDP was bigger, but we didn’t,” said Martin reflecting on the process. So it was “literally, a back-of-the envelope blueprint for what would become, today, the most powerful forum on economic and political matters in the world: the G20.”[4]
But if the idea emerged in 1999, it mouldered on the back of Martin’s and Summers’ envelope for almost a decade. The 1990’s crisis was centred in the Global South, and while severe, was not felt as profoundly in Washington and Berlin as compared to Jakarta and Seoul. Further, that slump was followed by the long expansion of the first years of the 21st century, which made memories of the late-1990’s crisis fade.
But in 2007, a new slump was gathering steam, and this time it was the G8 countries that were in trouble. While the financial crisis which erupted that year had an initial impact in China, India, Brazil and the other big countries of the Global South, they very quickly recovered, even as the United States, Europe and Japan remained mired in stagnation and slump. The rich countries could no longer pretend to steer the world economy on their own. More to the point, they needed the help of the emerging powers in the world. So it was that the G20 convened its first summit in November 2008. The Financial Times was not alone in calling this a “shift in economic power,”[5] bringing countries like China, India, Brazil and Indonesia to the table alongside the now crisis-ridden economies of the old G8.
But bringing together all the big economies – including the poor countries of the Global South – did not mean that agreement could be reached as to how to solve the problems facing the world economy. The recent South Korea summit was preceded by a storm of controversy over the unilateral actions of the United States. Before the summit was convened, U.S. Federal Reserve Board Chairman Ben Bernanke, announced that as at the peak of the financial crisis in 2008 and 2009, the U.S. was going to create money out of nothing – a strategy called “Quantitative Easing” – and “push” this new money into the system to try and kick start the U.S. economy.[6] In 2008-2009, Bernanke had “created” $1.2 trillion to rescue the U.S. economy. In November 2010 he announced the second round – QE2 – which would mean creating another $600 billion of “new money.”[7]
Officials in Germany, China and elsewhere were furious. The fear was that this unprecedented creation of money out of nothing would lead to a steep decline in the value of the U.S. dollar, and as a result inflation in the rest of the world. “If the domestic policy is optimal for the United States alone, but at the same time it is not an optimal policy for the world, it may bring a lot of negative impact to the world,” said China’s Central Bank chief Zhou Xiaochuan.[8]
In the 19th century, Karl Marx argued that “the capitalists, like hostile brothers, divide among themselves the loot of other people’s labour.”[9] The tensions between the two hostile brothers staring at each other across the G20 table – the world’s biggest economy (the United States) and the new, as of this year, number two economy (China) – are now defining the problems and difficulties which the G20 has, so far, proved incapable of handling.
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(c) 2010 Paul Kellogg
References
[1] John Ibbitson and Tara Perkins, “How Canada made the G20 happen,” The Globe and Mail, 18 June 2010.
[2] John-Thor Dahlburg, “Hunger in Russia’s Heartland,” Los Angeles Times, 20 October 1998.
[3] Fareed Zakaria, “Will Asia Turn Against the West?” The New York Times, 10 July 1998.
[4] Ibbitson and Perkins.
[5] “G20 marks a shift in economic power,” Financial Times, 16 November 2008.
[6] For an explanation of Quantitative Easing, see Paul Kellogg, “Currency Wars and the Privilege of Empire,” Links, 23 October, 2010.
[7] Ellen Brown, “What’s Really Behind Quantitative Easing QE2? The Looming Threat of a Crippling Debt Service,” Globalresearch.ca, 20 November 2010.
[8] “China, Germany and South Africa criticise US stimulus,” BBC News, 5 November 2010.
[9] Karl Marx, Theories of Surplus Value 1861-3.
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