The problem with Pittsburgh

Economies of the world unite: but can the results match the hype? Photograph: European Communities, 2009

“The only difference between a caprice and a lifelong passion is that the caprice lasts a little longer”, quipped the notorious cynic Lord Henry Wotton in Oscar Wilde’s The Picture of Dorian Gray. Pittsburgh would have done well with some of Wilde’s particular brand of cynicism last week, as world leaders in the G20 group gathered to draw up new guidelines for the global economy. There is not much left of the smoke-emitting old steel mills in Pittsburgh, but the city had no shortage of hot air.

The group of leaders managed to agree on a few important issues, such as capital requirements for banks and principles for marginally changing the power structure in the International Monetary Fund (IMF). They also decided to stick their noses into matters that politicians and bureaucrats should stay away from, such as bankers’ pay. But any advancements made were drowned out by the verbosity, hypocrisy and painful lack of realism that have become the hallmark of too many international summits.

We have now entered a “new era of global economic cooperation”, world leaders said in an attempt to gloss over profound differences between G20 members on policy details, as well as the future role of the G20.

A new declaration on core values for sustainable economic activity was issued at the request of a German chancellor with a special affinity for unsustainable economic activity in the automotive sector.

WIth the threat of spiralling protectionism now growing stronger in line with rapidly rising unemployment, G20 leaders decided to put new emphasis on the promise to push trade liberalisation and not to succumb to protectionism. This would be excellent – if only leaders planned to honour their promises. Now it seems little more than an expedient way to cover the fact that all G20 leaders have used protectionist measures during the crisis, plan to use more of them in the near future, and lack the political will to liberalise trade.

It is easy to be a cynic and ridicule global summits, their participants and pomposity. It is also easy to neglect the profound difficulties of modern international economic cooperation; most leaders have good intentions and do what they can. Yet there are reasons to be worried about how this new manifestation of global economic decision-making has developed. The G20 will now become the leading body for worldwide economic cooperation – partly replacing other decision-making fora. Hence, what started as a caprice will now become a long, if not lifelong, passion. There are several global issues in need of leadership, but the G20 does not look tailored to address them. It has two problems: history and power structure.

It is not the history of the G20 itself I have in mind. It is rather the history of 1929 and 1931 – the stock market crash and the banking collapse that led to the Great Depression – that is worrying. The problem is that too many crisis response policies in the past year have been tailored to fight the Great Depression of the 1930s rather than the great recession of 2008-9. Excessive fiscal expansion and the central banks' liquidity bonanza are two examples: absent in the 1930s, over-supplied today.

A grand engineering of global economic cooperation is a third area area in which Great Depression leaders strikingly failed. Tariff wars, competitive devaluations and other beggar-your-neighbour policies ensued. It took a world war for leaders to unite around what we today know as the IMF, the World Bank, and the World Trade Organisation, global institutions to discipline the economic behaviour of governments.

It may be reassuring to reflect that the G20 has now addressed these problems associated with the Great Depression - but what about today’s economic concerns? If a new official body like the G20 should be worth the time, effort and money invested in it, it must have a clear idea of exactly which problems they are here to solve.

The G20 leaders have not been able to unite around any clear policies or concerns. The gulf between members is understandably wide as they come from very distant positions. The world looks different if your vantage point is Brussels rather than Beijing or Washington; the interests and priorities are not the same. Yet without a shared view of the problems to solve, the G20 will become a new version of Luigi Pirandello’s Six Characters in Search of an Author.