Can the politicians Put People First?
Amidst the battle to prevent a global depression, never have so many economies expected so much from so few people as next week when the leaders of the G20 meet in London.
Yet despite such Churchillian echoes, never have the prospects for disappointment seemed so sure. Almost two years since the financial music stopped, the world is on the brink of the worst slump since the 1930s. Our leaders have already moved on from talking of spending billions to expending trillions of dollars to get us out of this mess. Now, in the space of a few hours on 2 April, they must do more.
The International Monetary Fund (IMF) believes world GDP will shrink for the first time since the Great Depression of the 1930s, falling between 0.5% and 1% in 2009. In the advanced economies taken together, GDP growth is forecast to be as much as -3.5% this year, compared with -2.6% for the US alone and -3.2% in for Eurozone countries. The January forecast that UK GDP will fall by 2.8% could be revised downwards.
This is no ordinary slowdown. Toxic assets are weighing down balance sheets, making banks reluctant to lend. Together with a widespread drop in demand, this has led businesses to cut jobs and salaries as they pare back. The threat of deflation looms. Governments are responding by trying to restore financial stability, by boosting the money supply through Quantitative Easing, and by borrowing and spending or cutting taxes.
The size of the discretionary fiscal measures varies from country to country. The IMF estimates that UK action this year represents 1.4% of 2007 GDP but we are projected to tighten policy in 2010. This will surely change with the April budget. US fiscal action this year represents 2.0% of GDP and next year will be almost the same. The hope is that governments agree to take further action together. However it seems not all governments take the same view, so raising the stakes for next week. The total stimulus to date is less than the 2% of GDP the G20 committed to in November.
This Saturday, church groups, NGOs, and trade unions will march together in London under the banner of a G20 manifesto called Put people first. It calls for a ‘massive investment in a green new deal’ to create new jobs. It also puts pressure on governments to maintain their commitments to help the world’s poor. The IMF summit briefing notes that developing economies are particularly vulnerable in the crisis as they are perceived by investors as higher risk.
The IMF and its Civil Society critics seem closer, calling for a more transparent and effective governance of the financial system, further reform of the IMF and World Bank, and agreement that further fiscal measures are necessary.
However, Put people first appears to be suspicious of further action to remove trade barriers. The 1930s depression was exacerbated by the erection of tariffs and import controls as countries sought to protect their economies. Such actions made things much worse: we risk repeating that history.
The summit will be no Bretton Woods Mk 2. But with a bit of leadership the G20 should be able to cooperate on fiscal measures, and on more and fairer trade. It has the potential to improve economic confidence. The stakes are high indeed.
This article previously appeared in Tribune magazine.
Stephen Beer, Friday 27 March 2009.
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Tribune, 27 March 2009, 27/03/2009