Not really the Great 20.
Reading up on the G20 communique somehow provides a bit of a relief because amidst the mountain of issues, there seems to be strong coordination to arrive at a solution to the issues. From among the many commitments stated in the document, the one that hit the headlines was the commitment to provide up to a trillion dollars in funding for the IMF, which is double the amount that many leaders called for. Then there were other funding commitments for global trade and the multilateral development banks. All these indeed looked promising.
Prior to the summit, leaders seemed to be divided on various issues. While the US was calling for further stimulus, other European states such as France and Germany thought it was unnecessary. However, in the communique there was that a trace of divisiveness when it comes to the issue of further fiscal expansion. It said: We are committed to deliver the scale of sustained fiscal effort necessary to restore growth. Does that say the Franco-German leaders were in agreement with this? After all, there was a segment in the document devoted to increasing regulations just as they wanted. Perhaps that served as the ‘compromise’. They all agreed that further stimulus and heightened regulations are the way to go. What doesn’t bode well for the financial industry are the push for tightening regulations/oversight of hedge funds and the hunt down for tax havens. The communique also included capping executive compensation.
The problems I see with those things are as follows. First, hedge funds are the more unregulated from among the many financial institutions. They try to escape regulation precisely because too much government interference somehow defeats the purpose of their existence. With pending regulations, hedge funds’ days could be numbered (at least those who are not able to circumvent the laws). Second, assuming many of these hedge funds do cooperate and perform the reporting the regulators seek, I’m not sure how much (useful) information the latter can extract from the former. What they get is what the funds want them to get. They could have much power but I believe the hedge funds are highly capable of outsmarting them. And they’re likely to be outsmarted. Just pointing that out as a loophole of this idea.
Third, the tax havens. While their existence poses ethical issues, it also points to the reason that they exist. When one has a Congress such as in the US, unless of course you have a Republican majority, you shouldn’t even be surprised that the affluent flee and transfer their wealth to offshore islands to park their money. I wouldn’t want to assume that everyone who uses tax havens are guilty of something illegal, because I don’t believe so. So I don’t think this qualifies as a strictly ethical issue.
One of my biggest worries about this whole communique is that it turns government into even bigger ones. This financial crisis is already turning governments into super regulators. Maybe it is more acceptable in Europe, but here in the US, the summit could only reinforce the ever increasing role of the government. From among those stated in the communique, perhaps the most and only favorable to capitalism is the commitment to increase funding for global trade. The others I discussed above, not so. For this whole summit, only a few things make me happy:
- the huge funding for IMF, which I hope would all reach the poorer and emerging countries
- the potential for increased leadership by the emerging markets in IMF (“We agree that the heads and senior leadership of the international financial institutions should be appointed through an open, transparent, and merit-based selection process”)
- the promotion of global trade through a $250bn trade finance
They probably make up half or less of the communique; that is to say, the summit only went so far. It apparently didn’t have the perfect plan but it’s enough to be applauded for its efforts. With my cynical mind, I’ll back down a bit and be happier that agreements have been reached and it was the IMF that made the biggest buzz. After all, it’s one thing to say A; it’s different to do B.