[R-G] U.S. takes back seat as power balance shifts

[Sid Shniad]

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Globe and Mail                                                                                    April 3, 2009 





  

Analysis 





  

U.S. takes back seat as power balance shifts 





  

Doug Saunders 





  

London — In a conference hall built atop the Blitz-scarred ruins of the east London Docklands, the leaders of the world's largest rich and poor nations huddled for a few hours yesterday and put an end to the postwar era. 





  

“The old Washington consensus is over; today we have reached a new consensus,” British Prime Minister Gordon Brown, who convened the summit and proposed many of its ideas, declared at its conclusion yesterday. “I think a new world order is emerging.” 





  

It was no mere rhetoric. No longer, after yesterday's G20 declaration, is the world governed by the logic and structures that have defined it since the final days of the Second World War, when the similarly momentous 1944 Bretton Woods summit set up global institutions, including the International Monetary Fund and the World Bank, to rebuild Europe and Asia under U.S. guidance. 





  

“Since Bretton Woods, the world has been living on a financial model, the Anglo-Saxon model. … Clearly, today, a page has been turned,” French President Nicolas Sarkozy declared in a statement broadcast at the same time as Mr. Brown's. 





  

Significantly, U.S. President Barack Obama didn't challenge those assessments and played a major role in building a 19-nation agreement that comes very close to making them true. 





  

The Bretton Woods institutions, and the U.S. government's financial arms, have overseen the expanding world economy for six decades and they were at the centre of yesterday's proposals to rescue that economy from its debt-driven collapse. 





  

But their role, and the shape of the world, is permanently altered. Until 2009, the fundamental goal of the IMF and its sister organizations was to deregulate the world economy, to remove restrictions from finance capital. 





  

Under yesterday's agreement, those organizations will serve as regulators: As well as keeping the financial system working and rescuing nations from bankruptcy, the IMF and new organizations will aggressively police the worldwide credit, finance and banking systems to prevent a recurrence of the bad-credit spiral that led to the current crisis. 





  

In exchange, they will become far less U.S.-dominated: In exchange for substantial contributions to the fund, formerly developing countries such as China, India and Brazil will play a larger role controlling them. 





  

Joseph Stiglitz, the Columbia University economist who has been a leading critic of the “Washington consensus” of freewheeling finance, described yesterday's agreement as a seismic event in financial history. 





  

“It's a historic moment when the world came together and said we were wrong to push deregulation,” he said. “It is a major step forward.” 





  

Yet it is not as dramatic a change as some leaders had hoped. This is not the “new kind of capitalism” proposed by Mr. Sarkozy, a system that would feature more state ownership and protectionism than before. Nor, in the long term, is it a turn away from the successful postwar combination of liberal economics, privatization and open foreign investment. 





  

Instead, it is a shift from the era of unrestrained globalization into a new era of what might be called “managed globalization.” 





  

The London G20 summit has changed the power relations behind globalization, probably permanently. Even if its proposals fail to arrest the deep recession, even if yesterday's proposals prove to be a mere speed bump on the road to ruin, it will be almost impossible to return to the old system. 





  

It was not the headline figure of $1-trillion in new credit, trade finance and fiscal assistance – a large part of it coming from China and other non-wealthy countries – although that news was enough to send stock markets soaring. 





  

Nor was it the surprisingly large sums to be spent on the world's poorest countries, an amount capable of making a huge difference to hundreds of millions of very poor people. 





  

The biggest difference lies in the summit itself and in the way it has been approached by the United States and its allies. The rise of the G20 as an instrument for mending the economy, and the new structure of the IMF, paves the way to a world in which the United States is no longer the necessary partner in any major economic dealings. 





  

The presence of the world's top “developing” countries – notably China, India and Brazil – was not tokenism or ornament, as it has largely been at past summits. Those countries are now contributors, rather than recipients, of finance; without China's $50-billion commitment yesterday, the trade-finance package would not have worked. 





  

But something important changed yesterday. It is no longer a case of Washington bailing out the world, with the help of a small group of wealthy European nations and sometimes Canada. 





  

Yesterday, to an important degree, the world bailed out the United States. Mr. Brown compared it to the Marshall Plan, in which the U.S. government injected hundreds of millions into the European and Japanese economies after the war in exchange for Washington holding decisive power in most international bodies. 





  

Yesterday, 65 years after Bretton Woods, the favour was returned.