The G20 Leaders Communique”²

This article critically reviews the G20 communique”², [1] which is a statement that summarises 21 of the major commitments and claims arising out of the two day summit held in Brisbane last weekend (15-16 November, 2014). On a reasonable view, the communique”² is the world’s most important economic statement because it is an annual statement made collectively by nations that produce about 85% of global Gross Domestic Product (GDP). [2] This review is limited to four of the major themes in the communique”²: (a) what is constraining the global economy?, (b) structural reforms, (c) inequality, and (d) the 2015-2018 growth goal.

What is constraining the global economy?

In item 1 of the communique”², the G20 starts off with a claim that, when viewed from an economic perspective, is pregnant with contradiction: “[t]he global economy is being held back by a shortfall in demand, while addressing supply constraints is key to lifting potential growth.”[3] The contradiction is that on the one hand the G20 is claiming that it is a shortfall in demand that is limiting growth and yet on the other hand it claims that a constraint on supply is limiting growth. Typically, growth is limited by one or the other and neither tend to act simultaneously or in concert. The present global economic crisis is characterised by a shortfall in demand, falling prices and an abundance of supply. All major components that drive global growth have fallen sharply in price and remain in over-supply: debt, oil, gas, iron-ore, copper and coal. And so where is the supply constraint?

The obviousness of the contradiction triggers the thought that duplicity is at play and that perhaps the statement is better viewed from a political rather than an economic perspective. If so, then a reasonable proposition is that the claims are made to reinforce two political agendas: (a) the G20 is encouraging national parliaments to continue using public funds and debt to support a failing private sector, and (2) garnish an increase in support for Free Trade Agreements (FTAs), which seek to remove trade barriers such as tariffs and subsidies that constrain foreign suppliers from increasing global market share – while destroying local suppliers.

Structural reforms

Item 2 claims that the G20 is “implementing structural reforms to lift growth and private sector activity, recognising that well-functioning markets underpin prosperity.”[4] The G20 does not shy away from accepting that the world economy is in recovery mode but falls way short of admitting that the latest failure, “The Global Financial Crisis (GFC)”, is yet another example of the G20’s failure at structurally reforming itself. That is a fair proposition to make considering, as previously mentioned, that the G20 produces 85% of global GDP and it is too far-fetched a notion to contemplate that the nations that make up a mere 15% of global GDP are dictating terms to the US, China, Japan and the EU. And so, it is fair to propose that when there is a global economic crisis it is because the G20 has failed to reform or its reform has failed.

One prime example of the G20’s failure to reform is the way the mischief makers that triggered the GFC have been protected. Many of the private sector organisations, the kings of capitalism, which triggered the GFC have since requested and received public bail-outs. And rather than the executives of those organisations being punished for their mischief with long-term jail sentences, the executives and their organisations engage in plea bargains, admit no liability, and yet pay billions in costs which attract public subsidy through tax deductions.[5] And while in item 12 of the communique”², the G20 claims that: “[w]e have delivered key aspects of the core commitments we made in response to the financial crisis [the GFC]. Our reforms to improve banks’ capital and liquidity positions and to make derivatives markets safer will reduce risks in the financial system”,[6] those reforms fail to remove the plea bargain protection that supports the mischievous executives who are the greatest risk to the financial system.

Urgently, there needs to be reform in the G20 that removes the facility for future mischievous executives to rely on plea bargains to avoid jail-time. By committing solely to its structural and system based approach to reform, the G20 has inadvertently undermined the global economic structure and systems it seeks to protect by not condemning the behaviour which socialises white-collar fraud: turning a blind-eye to the practice of converting fraud from a criminal act in to a tax deductible business expense and turning plea bargains in to an everyday business tool. And so, while fraud remains a business expense and plea bargains remain a business tool no amount of economic structural and system reform will save the world economy from mischievous executives. It is time for the G20 to alter its tried-and-failed angle of approach to problem-solving and try a new angle which calls for severely punishing the executives that abuse what is a reasonable economic structure that houses reasonably adequate systems.

Inequality

Item 11 of the communique”² claims that the G20 is “committed to poverty eradication … and sustainable growth in low-income and developing countries.”[7] That is a noble and bold statement to make and one that appeals to the humanitarian factions within the G20 and the community at large. However, if the G20s immediate past is a guide to the future, then be careful in accepting the claim.

Oxfam published a report in January 2014 entitled “Working For the Few – Political capture and economic inequality.”[8] The report states that “[i]n the US, the wealthiest one percent captured 95 percent of post financial crisis growth since 2009, while the bottom 90 percent became poorer.”[9] And the Oxfam report also states that: “[t]he richest one percent increased their share of income in 24 out of 26 countries for which we have data between 1980 and 2012.”[10] Given that the G20 was created in 1999 [11] and during its 13 years of operating the wealthy have got wealthier at the expense of the poor, then the G20’s humanitarian commitments to poverty eradication and sustainable growth to those in need masks the reality. All of which begs the question: why is it that G20 reforms have not prevented the wealthy minority gaining from an increasingly poorer majority, particularly during the last six years of austerity?

The 2015-2018 growth goal

And finally, item 2 of the communique”² claims that “[t]his year we [the G20] set an ambitious goal to lift the G20’s GDP by at least an additional two per cent by 2018 ‘ our commitment, if fully implemented ‘ [will] help to reduce inequality and poverty.”[12]

Let’s look at the state of the economic platform on which the G20 expects that this claim will boost GDP by an additional two per cent (2.1%) within three years. Currently, GDP for the advanced nations alone is growing at a mere 1.8% per year, after being marked down – not up – from 2.2% per year. [13] We have already established in the “Inequality” section, above, that there is no nexus between the G20 increasing GDP and reducing inequality and poverty – the Oxfam reports suggests the inverse is true. And so we will leave that claim to one-side in this section.

Of the US economy, the world’s largest economy, it was reported in July, 2014 that “[t]he IMF now expects the US economy to grow at 1.7 per cent in 2014, which would be the weakest rate since the country’s recession officially ended five years ago. That is down from its April prediction of 2.8 per cent, mostly because of a severe cold snap in the first quarter. The US economy shrank at an annual rate of 2.9 per cent in the first three months of the year.”[14] The observant reader will notice two things: first, the US economy is at best weak or at worst weakening, and second that this is perhaps the first time that a G20 document has left open the door to an inference that if global warming had been doing its job, then it would have helped the US economy – by saving it the cost of a cold snap.

Of China, the world’s second largest economy, it was reported in July, 2014 that in the IMF’s “conclusion [in] its annual Article IV economic consultation with China, the IMF repeated its projection that the economic growth would dip to 7.4 percent this year. The IMF cut its 2014 and 2015 economic growth forecasts for China last week. It had projected in April that the world’s second-largest economy would grow 7.5 percent this year, and 7.3 percent next year.”[15]

Of Japan, the world’s third largest economy, it was reported on 17 November 2014, the day after the G20 Summit concluded, that “Japan’s economy unexpectedly shrank for the second consecutive quarter, leaving the world’s third largest economy in technical recession. Gross domestic product (GDP) fell at an annualised 1.6% from July to September, compared with forecasts of a 2.1% rise. That followed a revised 7.3% contraction in the second quarter.”[16]

And finally of Germany, the European Union’s powerhouse economy, it was reported in October 2014 that Germany’s “Economy Ministry reduced its 2014 economic-growth forecast to 1.2 percent from 1.8 percent, and its 2015 prediction to 1.3 percent from 2 percent.”[17]

The evidence above is clear that forecasting GDP, even as far out as one year, is presently most difficult and major nations have been caught-out being overly optimistic. It is also clear that the state of the economic platform on which the G20 bases its claim that it can extract an additional 2.1% growth over an above baseline predictions during the next three years does not support that claim. But that is where the caveat (“if fully implemented”), which is strategically placed within the 2015-2018 goal claim, comes in to play: it defends the G20 from further and obvious criticism. Which in turn begs yet another question: why is the G20 upgrading its claims and commitments at a time when its top four members are downgrading their claims and commitments?

Conclusion

Whilst this article has been critical of the communique”² it does so on the basis that the good in the communique”² speaks for itself and the not-so-good benefits from a critical review. However, such criticism should not be interpreted to mean that the G20 is not a good thing. On the contrary, the G20 plays a critical role in bringing countries together to discuss vital matters affecting the state of the world. Yet, it is quite clear that the meta-language of political agendas is driving G20 economics and that needs to be curtailed so that the humanitarian agenda gains more than token meaning in the G20 lexicon. The 2015-2018 goal should not be aimed at growing GDP by an additional 2.1%, which at face-value is rhetoric, but at sustaining growth in these uncertain times while reversing the trend which shows that the wealthy 1% minority is growing its wealth at the expense of the 99% majority.

References:

1https://www.g20.org/sites/default/files/g20_resources/library/brisbane_g20_leaders_summit_communique.pdf 2 https://www.g20.org/about_g20/g20_members

3https://www.g20.org/sites/default/files/g20_resources/library/brisbane_g20_leaders_summit_communique.pdf 4https://www.g20.org/sites/default/files/g20_resources/library/brisbane_g20_leaders_summit_communique.pdf

5 http://blogs.wsj.com/moneybeat/2014/06/06/bank-of-america-settlement-talks-spotlight-tax-deductibility-issue-again/

6https://www.g20.org/sites/default/files/g20_resources/library/brisbane_g20_leaders_summit_communique.pdf 7https://www.g20.org/sites/default/files/g20_resources/library/brisbane_g20_leaders_summit_communique.pdf

8 http://www.oxfam.org/sites/www.oxfam.org/files/bp-working-for-few-political-capture-economic-inequality-200114-en.pdf

9 http://www.oxfam.org/sites/www.oxfam.org/files/bp-working-for-few-political-capture-economic-inequality-200114-en.pdf

10 http://www.oxfam.org/sites/www.oxfam.org/files/bp-working-for-few-political-capture-economic-inequality-200114-en.pdf

11 https://www.g20.org/about_G20

12https://www.g20.org/sites/default/files/g20_resources/library/brisbane_g20_leaders_summit_communique.pdf 13 http://www.imf.org/external/pubs/ft/weo/2014/update/02/

14 http://www.abc.net.au/news/2014-07-25/imf-cuts-global-growth-forecasts-on-china2c-us-downgrades/5623788

15 http://in.reuters.com/article/2014/07/31/china-economy-imf-idINKBN0G008T20140731

16 http://www.bbc.com/news/business-30077122

17 http://www.bloomberg.com/news/2014-10-14/german-investor-confidence-declines-as-growth-prospects-weaken.html

Categorised in: Article

This post was written by Mark Horner