Monday, June 28, 2010

Toronto is a turning point

The failure of the G20 summit in Toronto to find a common approach to tackling the global economic and financial crisis had an air of inevitability about it. After all, capitalism is not exactly a rational system where sensible men and women come together to sort out an international crisis.

If that were really the case, the 20th century would not have experienced two catastrophic world wars, for example. Nor would the inter-war years have been dominated by the calamity of the Great Depression in Europe and America, which only ended when the major powers took to the battlefields.

In reality, what the Toronto communiqué – which apparently took all of 54 hours to negotiate – heralds is another period of intense competition and rivalry. In an abandonment of the unity of the past three crisis-era Group of 20 summits, the leaders decided to adopt "differentiated and tailored" economic policies for each country. Earlier proposals for a unified approach to limiting the activities of major banks by imposing tighter capital requirements were also put on the back burner.

In other words, it’s every country for itself. Sound familiar?

President Obama’s plea not to start cutting budget deficits too soon because it might harm the “recovery” was simply ignored. All the major economies are cutting deficits – and America won’t be far behind. Obama, it was noted, praised Britain’s “courageous budget” of last week.

He is aware that his stimulation package has failed to revive the US economy. On the contrary, unemployment continues to grow despite an increase in state spending. The recession has wrecked the finances of many states too, which are dependent on local property and sales taxes.

The small southern California city of Maywood is disbanding its police force and firing all public sector employees. Every service is being contracted out. US states have an estimated $200bn budget shortfall, equivalent to 30% per cent of all state budgets. The federal government’s deficit is about $1.3 trillion and rising.

The impotence of the political elites who gathered in Toronto reflects a stark reality of the problematic and contradictory relationship between capitalist nation-state systems and the globalised economy. Masked while the world economy expanded, this conflict has worsened since the 2008 meltdown of the banks.

Modern globalisation has created immense economic and financial forces that are greater in their impact and power than the sum of their parts. They are way beyond the control of even the most powerful states. Take, for example, the financing of government borrowing through what is known as the bond market. This isn’t some single marketplace, with a sign outside the door but is a series of inter-linked buyers and sellers in Europe, Asia and America, trading electronically around the clock.

Participants include commercial and investment banks, hedge funds, insurance companies, pension funds and – of course – the governments that guarantee interest on fixed-term bonds. Identifying all the various buyers and sellers globally is a task in itself; “bucking” this market is virtually impossible because states never know when they might come under attack. Just ask the Greek government.

Toronto, with its insistence on halving budget deficits by 2013, makes the transition from recession to depression much more certain. The political classes in every country are locked in a deadly embrace with economic and financial forces too powerful and inaccessible to cope with. So they take it out on ordinary workers, cutting their wages, pensions, jobs and services.

Remedial, curative action is not an option, just as it wasn’t in the 1930s. Telling the bond markets to take a running jump off a short pier, that they can whistle for their interest payments, for example, requires something quite different and quite revolutionary. The G20's failure at Toronto is a turning point. Now it’s our opportunity to seize the initiative.

Paul Feldman
Communications editor

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