In My View

Summit of inconsequence

In normal circumstances, an entry of the developing countries into the portals of the super-rich club like the G-8 would have raised many eyebrows. The clapperboys – in the media and academics – of the well-heeled would have then lamented the falling threshold of the exclusive club that allowed entry to the sweaty and toiling.

But the recent London summit of the G-20 nations, who account for 90 per cent of the world output have instead roused the levels of optimism of the courtiers to new highs by which they want it to be a permanent feature. They want the G-20 to replace G-8 as a more effective group of countries, which could undertake to lay down the economic destiny of globe from now onwards. This is a sign of the extraordinary times the world is witnessing. And this was possibly the only fundamental change the London summit has wrought.

For, the rest – the $ 1.1 trillion stimulus package; the recapitalisation plans for the IMF; new regulatory frameworks from the financial sectors of the economy; and promises to maintain the trade flowing – are all attempts to hold up a decrepit system, beyond its point of exhaustion.

There is no acknowledgement at the apex levels of the world capitalist system that neo-liberalism of the Friedmanite kind has failed miserably. It has, in fact opened fissures in the current capitalist system that cast systemic doubts about its continuance.

The changes that have been brought into the systems till now in America or Europe in the wake of the current crisis are of the nature that John Bellamy Foster, the Marxist economist calls, “special case theory of depression economics.” Rediscovery of Keynesian economics by the neo-liberal lot do not leave any scope for any discussion of what John Maynard Keynes’s had diagnosed as “outstanding faults” of capitalism.

Regulation of unbridled speculation is being provided as a panacea without tackling the issue of falling returns on investment driving capital to such wanton excesses for earning higher returns. No attempt is being made at addressing the impact of severely depressed wages on economic activity as a whole or the complete destruction of household savings in the past few decades resulting in precarious rise in debt.

There is also the element of culpability that is staying the hands of the current global leadership from fixing responsibility for this sorry pass. If they began taking action against those immediately responsible for the present crisis public ire could soon turn to them demanding their heads in turn. For it has been in their watch that all the violations of normative behavior took place. The public might finally ask the crucial question: were they sleeping on the job?

The various stimuli packages, the recapitalisation of IMF or “end to banking secrecy” are all attempts at increasing the supply of money in the paths of Milton Friedman supposed theoretical innovation about money driving capital expansion. This is opposed to the Marxist critique of capitalism based upon the logic of capital increasing the exploitation of labour by reducing their real wages to maximise profit, ending up depressing consumption and bringing down its own doom.

But this summit also signaled the incipient end to the dollar hegemony. Chinese made the proposal first that the world needed a new reserve currency. The Russians showed that they did not have any big objections about the proposal. Brazilians agreed too. Even Dominique Strauss-Kahn, managing director of the International Monetary Fund (IMF), said China's proposal to create a new global reserve currency to replace the US dollar was "reasonable." The silence from India was deafening.

The other question that should have been asked was about the mountains of debt that the USA has accumulated. By some calculations it now amounts to $ 15 trillion. This is the world’s savings that has been appropriated by the USA for its current consumption. Were it to repay even a quarter of the debt in the next five years, it would act as the biggest stimulus package that anyone could conjure.

In final analysis, it would be a pyrrhic acknowledgement by Indians that they economist prime minister, Manmohan Singh atleast understood that the kind of change that is needed, required a global reordering of political power of nations. He told the bastion of neoliberal economics, Financial Times, “In one day you are asking the leaders of the world to resolve all these issues. Beyond a point they are issues relating to the redistribution of powers among nations. I don’t think these are issues that can be resolved in a short period of time. If you look at Bretton Woods, it took two years for the Americans and British to work out arrangements. There was the Keynes plan, the White plan and now the power system is much more complex, there are much more issues. If you are talking about global reform it requires a lot more work. It is a task that should be entrusted to a competent group of people under the auspices of the IMF or another arrangement we are willing to look at.”