Will the Global Economy be a Seoul-Survivor?

The Seoul G20 communique asks countries to work together to sustain a fragile economic recovery, but does nothing to address the pressing problem of unemployment.

It is pretty easy to become cynical about summits. Leaders arrive with massive entourages, to agree to a precooked communique behind an impenetrable and expensive wall of security. Nothing changes afterwards.

The Seoul communique paid lip service to the need for countries to work together to sustain a very fragile recovery. But that will do nothing to lower unemployment anywhere, including here in Canada where the jobless rate will remain near eight per cent through at least next year.

And yet, the G20 is important. It is the only realistic instrument to resolve the tensions, contradictions, and crises of global capitalism. There are no longer purely national solutions to our economic woes, least of all for small economies like Canada.

And the G20 has shown some capacity to be effective in the past, most notably when agreeing in 2008 to the concerted wave of government spending and ultra low interest rates which saved us – perhaps only temporarily - from another Great Depression.

Going into the Seoul Summit, it was apparent that the shared sense of crisis has evaporated. Most of the so-called advanced economies – the U.S., most of Europe and Japan – remain mired in slow growth and high unemployment, while most of the large developing countries – China, Korea, Brazil, Argentina – are doing rather well.

Past agreement over the need for fiscal stimulus to kick-start a recovery has given way to co-ordinated spending cuts to rein in government deficits and debt. Quite aside from the fact that austerity is a bad idea where there is no real recovery at hand, this creates a collective problem.

Everyone is looking to exports and higher business investment to drive a recovery. But all countries, by definition, cannot be exporting more than they are importing, and not everyone can attract what little new investment is being undertaken by footloose global corporations.

National strategies of competitive austerity – cuts to social programs, public services, and wage “discipline” for workers – worsen the underlying problem. The ability of the world to produce outstrips the ability of the world's workers to buy. Some can win a zero sum competitive game, but others will lose.

In Seoul, naked national self-interest was clearly on display. China wants to maintain a grossly under valued exchange rate to keep its exports to the U.S. flowing, and most of Asia sides with them because they lever off Chinese-led development.

Germany is also running a large trade surplus. They lecture everybody on the need to for low inflation, fiscal austerity and business competitiveness, ignoring the fact that their success makes things much worse for their European partners and the U.S.

The world is now operating under the illusion that we can go back to the pre-crisis days when the U.S. was the consumer of last resort for the global economy, running up huge household debts financed by reckless banks feeding off capital inflows from surplus countries.

Rational observers of the global economy such as the IMF know that the U.S. trade deficit is unsustainable, and that the U.S. recovery is very likely to stall, especially now that the Republicans are set to implement their slash and burn agenda in Washington.

What Seoul ducked was the obvious first answer to the question of how to deal with huge trade and financial imbalances in the global economy. Surplus countries like China and Germany must expand demand at home so that others can grow out of their large trade and fiscal deficits.

The only ray of light is that the next G20 – in France – may yet take a serious look at global currency reform. And Canada, with a growing trade deficit driven by the over-valued loonie – may yet climb on board.

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