In an event billed by some media as “Bretton Woods II,” the G-20 (the heads of state of 19 of the world’s largest economies and the president of the European Union Commission) convened in Washington, D.C. this past weekend in order to discuss the deepening global financial crisis. Certainly, if there is any time for world leaders to be tackling the subject, it is now. Unemployment in the United States is at its highest rate in 14 years. The Eurozone is officially in recession, and the effects of the financial crisis on even the robust Chinese economy are worse than expected. Even smaller actors in the international economic system like Iceland, Pakistan and Ukraine are turning to the International Monetary Fund for help.
The purported overarching aim of this meeting is nothing less than a restructuring of the international financial system. This was an ambitious goal to say the least, and to believe that it could be achieved over the course of two days requires a great deal of optimism. At the same time, it is easy to dismiss the conference as mere show and rhetoric. While a single meeting cannot solve the financial crisis, the G-20 summit indicated that the world’s most influential economic actors are approaching it in the right manner.
First, the composition of the summit was noteworthy. Whereas in the past a convention of the advanced Western countries would have been the standard response to global economic troubles, this meeting included several representatives from the developing world. Altogether, the G-20 possesses 90 percent of the world’s gross domestic product, making this particular summit far more representative of the global economy than previous ones.
ore significantly, this summit marked a decisive change in how the international economic system is understood. No longer can an exclusive club of wealthy countries fix the world’s problems by fiat. As emerging economies continue to develop, they are shouldering an increasing proportion of the world’s economic growth; as the current large account surpluses of East Asia demonstrate, they are becoming influential players in the financial system as well. With economic growth in the Western world slowing, the world will be ever more dependent on emerging economies to maintain growth. Their exclusion from this summit would have been a harmful denial of the economic realities the world now faces, and their substantive involvement in future global economic decisions is crucial.
Beyond this, the summit’s conclusions are also significant in their commitment to uphold the core principles that have characterized the international economic system since the end of World War II. In the summit’s declaration, all members of the G-20 pledged to support greater international coordination with regards to both macroeconomic policy and financial regulation and to reject protectionism as a means of bolstering national economies.
The themes of openness, liberalization and cooperation are more than just slogans. For all of the comparisons that have been made between this crisis and the Great Depression, one is perhaps more relevant as countries debate how to manage the current economic situation: During the 1930s, economic recession was accompanied by an increase in protectionist economic barriers, essentially bringing international trade to a stop. By restricting the flow of goods and capital, these policies arguably worsened the depression rather than ameliorated it.
Almost 80 years after the stock market crash of 1929, the world has once again become a deeply integrated economic system. Many economies are dependent on exports and foreign direct investment, and the health of the American economy is in turn inextricably linked to that of the world. The interdependence of the world economy cannot be denied or ignored. It should be remembered, after all, that the current economic mess was precipitated by a smaller crisis in the U.S. subprime mortgage market, itself only a small feature of the global market as a whole. Although the likelihood of countries resorting to Depression-era policies remains small, genuine international cooperation in economic policy will be necessary if this crisis is to be fully resolved.
With such ends in mind, the G-20 must be applauded for their efforts. The advanced economies made the correct decision in including developing countries in the summit and, as a group, they were able to avoid conceding to protectionist impulses that might have crippled an effort to fix the financial crisis. Merely sounding the right notes was a good beginning – now the world’s leaders must follow through.
alin Hu is a sophomore in the School of Foreign Service and a member of the Georgetown University College Democrats.
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