London Econ Summit: Born of Good Intentions, But Ends in Disastrous Results

By John Cavanagh and Robin Broad, AlterNet. Posted April 3, 2009.

The French and German governments understand this story and they proposed a new international regulatory system to close down the casino.  U.S. and British officials resisted, revealing again that the U.S. Treasury department still doesn’t understand that this global crisis cannot be fixed through national measures.  Economist Jagdish Bhagwati captured this limited worldview well in his phrase: “the Wall Street-Treasury complex.”  Hence, the London communiqué takes only a few small steps in the direction of the real regulations that the United States and world need to embrace. 

Finally, to Barack Obama’s very good instinct that the world needs coordinated and green government stimulus packages.  Here, the summit failed in a cultural clash between healthier European social democratic societies and the U.S.-British model of societies that leave behind those who are suffering the most.  In the crisis-ridden Europe of today, most ordinary people are doing a lot better than their American counterparts.  Education, heath care, and pensions for older people -- the so-called social safety nets -- are largely guaranteed by government (although less so than a quarter century ago) at great expense, even in times of crisis.   

In the United States' version of capitalism, these things are left largely to the market.  We have a lot to learn from the Europeans and in some ways,  Obama's domestic stimulus plan was actually an acknowledgement of the need to get some money to tens of millions of people who are homeless, on the verge of homelessness, or in terrible economic distress.  Yet when Obama asked for a global stimulus, most European countries were contemptuous of the United States lecturing them on the need for bigger economic recovery plans; they already have them in the form of these “social safety nets.”  The other countries that desperately need such safety nets are in the global South, and the choice of the IMF as the financial transfer mechanism typically prevents the countries in crisis from creating them.   

Add all of this up and you get major failure at a crisis moment.  The critical need to transform our economies from giant unaccountable firms and casino finance into rooted economies where finance serves real production in a fashion that is “green” and just and aids the transition to clean energy was not heeded.  Too many in the U.S. government still haven’t fully rejected the market fundamentalism of this last era, as bankrupt as the ideas have turned out to be.   

Failure also grew from the fact that the venue was wrong. While getting the 20 largest economies together is a step better than the old forum of the world’s seven biggest economies, it is not representative of the needs of the majority of poorer nations.  Instead, the United Nations has created a commission under the able leadership of Nobel laureate Joseph Stiglitz that has laid out a concise plan to shut down the financial casino and begin the transition to healthy economies.  It includes a call for a "Global Coordination Council" that would broadly coordinate global economic and financial reform.  It deserves attention and support. 

Alas, up until the summit, Barack Obama had been making a strong case to the American people about new roles for the U.S. government to stimulate and regulate economic activity.  The London summit represents a step backward for such an activist government role. 

See more stories tagged with: economic crisis, london economic summit

John Cavanagh is Director of the Institute for Policy Studies.  Robin Broad is a Professor of international development at the American University.  They are co-authors of Development Redefined: How the Market Met its Match.

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