At last, the demonstrators have got the correct target in their sights. The anti-globalization movement has always been too sweeping in its choices of enemies, lumping the excesses of big global finance in the same dark place as free and open trade, the handmaiden of growth and prosperity.
No more. This week’s protests in the run-up to the G-20 meeting on Thursday chime with a growing mood across Europe and the US. The world has been brought to its knees by the behavior of Western financiers, who even now do not recognize the magnitude of their mistakes or the rank unfairness of the bargain that has been struck with civil society. They have had license to make billions — Wall Street paid itself $39 billion in bonuses in 2007 — while ordinary taxpayers are then left to foot the multi-trillion dollar bill in bailouts, capital injections and loan guarantees.
Yet still bankers and financiers claim staggering bonuses and pensions from the institutions they have bankrupted, the executives at AIG in the US being the latest in a long line. Still the banks organize monumental tax- avoidance schemes to cheat governments from the tax revenues needed to rescue their own industry.
Some AIG executives have handed their bonuses back, however gracelessly. Extraordinarily, Swiss bank executives now fear arrest if they travel abroad. Two of the three American partners in Barclays’ Project Knight, the tax-avoidance scheme, have withdrawn from the deal. The suspicion must be that they daren’t be part of such a scam. RBS felt it had to suspend its own operations dedicated to tax “efficiency”.
Such transformation of attitudes and behavior is good news. The even better news is that, partly in response to public opinion and partly because the risks of doing nothing are so obvious, the G-20 countries increasingly look as if they have got their act together. There will be a deal that will create a new regulatory architecture for global finance.
This is not the fashionable view of the G-20 meeting. It is billed to be a huge disappointment, full of banalities and merely papering over the deep cracks between Europe and the US. I beg to differ. Nothing effective can be done about any broken national financial system unless it is within a set of internationally agreed rules.
My understanding is that, extraordinarily, the G-20 will decide to regulate hedge funds, register credit-rating agencies and their business practices, insist that derivative trading is undertaken in regulated exchanges, set a framework for bank pay and bonuses, require transparency and disclosure of information from tax havens and organize international “colleges of regulators”.
In addition there will be an agreed common template to address the alarming depth of the global recession, release credit flows, especially for trade finance, and assist the less-developed countries who have suffered from a flight of capital.
The G-20, despite its many different economic traditions and philosophies, will agree that governments must put capital behind their banks if necessary, and banks must adjust that capital up and down over the economic cycle. On top, monetary and fiscal policy must be deployed to the maximum extent to prop up weak demand.
Yes, the Americans are more aggressive than the Europeans in wanting a fiscal stimulus, but they need to be; they have a weaker welfare state.
I am also blinking at the emerging unanimity over the IMF. It is to be doubled in size to $500 billion, and given new powers to monitor national economic policies. Equally important is that less-developed countries will be allowed much more access to its “Special Drawing Rights” on an IMF paper currency backed by dollars, yen, euros and sterling that can be used to buy hard currency at the discretion of individual central banks.
Meanwhile, emergent economies in Latin America, Africa, Asia and Eastern Europe are teetering on the edge. Wider commitments to boost demand in 2010 are insufficient. The IMF’s proposed new powers are still unclear. Rogue banks will still be able to poach staff by promising absurd rewards. Yet anybody who suggested a year ago that so much could have been achieved would have been asked what they were smoking.
The real script is very different: This is the first international summit to make substantive progress regulating global finance since 1944. The protesters must keep up the good work. It is public opinion that is forcing such change. We must not be allowed to forget who was responsible for our plight — and the need for still more reform.
