Table of Contents
1. What is the G20?
2. The History of Capitalism and the G7/G20
1) The birth and background of the G7
2) The structure and role of the G7
3) The Asian financial crisis and the birth of the G20
3. The Economic Crisis and the G20
1) The 2008-2009 economic crisis
2) What has the G20 done?
4. Main Issues
1) So, is the G20 a decent institution?
2) How should we understand financial regulation?
5. What Should be our Goals in Protesting the G20?
1) A fight against the Lee Myung-bak administration
2) Refusal to pay for capital’s crisis and a struggle against complex crises
3) A movement for a new world
1. What is the G20?
-The G20 is group of 20 countries: The G7 (the U.S., The United Kingdom, Germany, France, Japan, Italy, Canada) + BRICs (Brazil, Russia, India and China) + Asia-Oceana (South Korea, Indonesia, Australia) + Middle East/Islamic Nations (Saudi Arabia, Turkey) + Central and South American (Argentina, Mexico) + Africa (South Africa).
*Why was the G20 formed?
-When the global financial crisis took a turn for the worse during the second half of 2008, leaders of the world quickly got together. They decided to upgrade the G20, which had been formed in 1999 as a meeting of Financial Ministers and Central Bank Governors in the wake of the 1997-1998 Asian Financial Crisis, to summit-level and make it the main body responsible for tackling the crisis.
*Why was the G20 given this role? What are the characteristics of and issues dealt with by the G20?
-To answer this question we have to begin with the G7. This is because the G7 was, until recently, the highest-level informal meeting dealing with the global economy. In addition, the G20, which operates as an informal network-style organization, has been modeled in structure and form on the G7. (Yes, I said informal. You’ll see in a second.)
2. The History of Capitalism and the G7/G20
1) The Birth and Background of the G7
-The G7 was formed in response to the crisis of the Bretton Woods system and the economic crisis of the early 1970s.
*What is the Bretton Woods system?
-At the end of WWII, economic representatives from the victor nations met in Bretton Woods, New Hampshire to discuss how to revive the world economy, which had been destroyed through years of fighting. Here, they decided that the U.S. dollar would become the world currency, backed in goal, and agreed to form the International Monetary Fund (IMF) and the World Bank as international financial institutions. They also gave each nation the authority to strongly control the movement of finance capital. This was, in effect, an internationalization of Keynesian economic policy.
*The boom of the 1950s and 60s
-After WWII ended, United States implement massive aid programs to rebuild devastated Europe and Japan. These policies were justified in terms of the Cold War, which also provided the ideological means for quieting domestic dissent. The U.S. pursued a policy of containing communism (making the Free World free for capitalism) and supporting development for pro-U.S. leaders, which, by mid-century, had brought about the revival of national economies and (re)integration of the capitalist world economy through established trade relationships, all centered on the U.S. Recording high growth rates, world capitalism entered a golden age.
*The 1970s crisis
-This boom period could not last for long, however. Going into 1970 profit rates bean to fall and economies around the world were thrown into crisis. The value of the dollar had also become highly unstable due to continuous printing in pace with economic growth. Faith in the exchangeability of dollars for gold was lost and a gold rush occurred. In 1971 U.S. President Richard Nixon unilaterally put a stop on dollar-to-gold conversions, bringing an end to the Bretton Woods system. In 1973 the first oil shock hit, worsening the crisis.
2) The Structure and Role of the G7
-The G7 was made in response to the economic crisis of the early 1970s. In 1973, the U.S. Secretary of Treasury first proposed meeting of this sort, and in 1974 financial ministers and central bank governors from the U.S., the U.K., Germany, France, and Japan met as the G5.
-At that point a G10 in fact already exist. The U.S., however, thought it included too many countries from Europe. The G5 was started precisely because the U.S. wished to substitute the G10 with an even smaller elite. Later, Canada and Italy were added to make the G7.
*The board of directors of global capitalism
-Unlike the UN or the IMF, the G7 had no status in international law and has no formal secretariat or headquarters. At the G7 leaders of the most advanced nations in the world capitalist system met to discuss issues pertinent to the world economy. Basically, the G7 is an informal network-like group of the top bureaucrats from powerful nations.
-This is precisely why the G7 is fundamentally undemocratic: Powerful elite bureaucrats from a few dominant nations get together to make decisions on the main issues facing the world economy, which effect the rest of the world. Meetings are not open to the public, and the only official disclosure of the content of the meeting comes with the announcement of the final resolution.
-The G7 is, nonetheless, very powerful. The G7 Meeting of Financial Ministers and Central Bank Governors is held before the meetings of the IMF and World Bank and this is were administration of the two institutions is actually decided. In fact, the G7 has decisive influence in all international financial institutions and regulatory bodies. Seen from this light, the G7 looks much like a Board of Director of the major shareholders of the world capitalist economy headed by the U.S.
The G7 Summit and the Meeting of Financial Ministers and Central Bank Governors
-The G7 Summit and the G7 Meeting of Financial Ministers and Central Bank Governors are separate entities. In 1975 Italy joined the G5 countries and the first G6 Summit was held. The Summit was originally a proposal made by financial ministers of Germany and France, Helmut Schmidt and Giscard d’Estaing after they become Prime Minister and President of their respective countries. In 1976, President Gerald Ford of the United States, which was then acting as G6 chair nation, invited Canada and expanded the G6 into the G7 Summit. In 1997, Russia was invited to the Denver Summit. It began to participate as a formal member in 1998 and the G7 was expanded into the G8.
-The Meeting of Financial Ministers and Central Bank Governor continued separately from the Summit as the G5 until 1985. In 1986, it was expanded into the G7. In September 1985, the G5 Meeting of Financial Ministers and Central Bank Governors reached the Plaza Agreement. (The Plaza Agreement included provisions for the appreciation of the yen and the mark, and consequently the depreciation of the dollar, as a means to improve the United States’ current account deficit.) Since major decisions affecting the world economy were being made at the G5 Financial Meeting of Financial Ministers and Central Bank Governors, Italy and Canada asked the it be opened to countries participating in the G7 Summit. Thus, from 1986 on the G7 (including heads of state, financial ministers, and central Bank governors) became the highest-level meeting.
*The pilot of neoliberalism
- At its beginning, the G7 dealt primarily with coordination between national economic policies and adjustment of exchange rates. With regards to the latter, adjustment of the value of the dollar as appropriate to the U.S.’s economic situation was of top importance.
-But the main issues covered by the G7 changed going the 1980s.
-First, coordination of exchange rates became less of a focus. In the 1990s emphasis on national fiscal policies (taxation and spending) was replaced with emphasis was on monetary policy (change in interest rates and money supply) aimed at curbing inflation and strengthening the independence and credibility of central banks. Exchange rates became increasingly less important as a policy focus of the G7. This is because doubts about the possibility of effective intervention in foreign exchange markets increased as private domestic and international foreign exchange transactions increased.
-Secondly, the range of issues discussed by the G7 expanded. In particular, during the 1990s reform of international financial institutions, development in developing nations, and foreign debt became important topics of discussion. This change came with and supported the implementation of neoliberal policy reforms and neoliberal financial globalization.
-Through this process, the G7 promoted the spread of neoliberalism through its involvement in international financial institutions and gave this neoliberalism an air of legitimacy and a means for entering countries around the through with aid and development policies. Given that the G7 was always working in the rear behind the IMF and the World Bank, we can say that it has acted as the pilot of neoliberalism
3) The Asian Financial Crisis and the Birth of the G20
*The increased importance of developing nations
-After the 1980s, awareness developed that the G7 was limited in its ability to ensure global economic stability given the steady growth of developing nations.
-Given this situation, assertions that a more inclusive institution was necessary grew stronger. Such an institution was created after the 1997 Asian Financial crisis reverberated throughout the entire global economy.
*The U.S. and the G7′s agreement
-Recognizing that the participation of developing nations was necessary for reform of the international financial system and stabilizing the world economy, the U.S. and the rest of the G7 led the way in the formation of the G20.
-In November 1997, U.S. President Bill Clinton first proposed a G22 Meeting of Financial Ministers and Central Bank Governors in order to work on reform of the international financial system at a APEC Summit, in Vancouver. The G22 held its first meeting in Washington in April 1998. In October the same year an expanded G26 meeting was held, and in March of the following year the meeting was against expanded to the G33. Many expressed doubts about this meeting’s efficiency however. As such, G7 financial ministers and central bank governors agreed to the formation of the G20 at a G7 meeting held at the same time as the IMF annual meeting in December 1999. The G20 was to include the G7 countries, 12 newly emerging economies and the country holding the presidency of Council of the European Union. The first G20 meeting was held in December 1999 in Berlin. After this, it was made the regular grouping for the Meeting if Financial Ministers and Central Bank Governors. We can say, therefore, hat the G20 was made through two years of trial and error in the wake of the Asian Financial Crisis.
Participants in the Various ‘G’s
*G7: the U.S., the U.K., France, Germany, Japan, Italy, Canada + Russia =G8
*G10: G7 + the Netherlands, Belgium, Sweden, Switzerland (observer status)
*G22: G8 + South Korea, India, China, Thailand, Hong Kong, Singapore, Indonesia, Malaysia, Poland, Australia, Brazil, Argentina, Mexico, South Africa
*G26: G22 + Netherland, Belgium, Sweden, Switzerland
*G33: G26 + the Ivory Coast, Chile, Saudi Arabia, Spain, Turkey, Egypt, Morocco
*G20: G8 + South Korea, India, Indonesia, Mexico, Brazil, Argentina, Saudi Arabia, Australia, Turkey, South Africa, the country holding the presidency of the EU
3. The Economic Crisis and the G20
1) The 2008-2009 Economic Crisis
-After Lehman Brothers’ filed for bankruptcy in September 2008, financial crisis erupted and quickly led to stagnation in the real economy. Soon, the world was facing them most severe economic crisis it had seen since the Great Depression.
*The problem: neoliberalism
-Many people agree that neoliberal globalization is the main cause of the economic crisis. President Nicolas Sarkozy of France and American economists Joseph Stiglitz and Paul Krugman have also said that neoliberalism is a problem. In South Korea, former Democratic presidential candidate representative Jeong Dong-young has also issued a written statement of regret that he had not paid sufficient attention to the problems of neoliberalism.
*Neoliberal financial globalization
-Neoliberalism is not simply a misguided economic policy, however. And, the current crisis is much deeper and more generalized then even these people admit. The current economic crisis is both a crisis of neoliberal financialization and a crisis of the capitalist system itself.
-As soon as profit rates began to fall in 1970, capitalists began looking for new ways to make money. They began to turn their attention to making profits through financial transactions and speculation.
-In other words, neoliberal financial globalization is the outcome of capital’s attempt to respond to the crisis of the 1970s. Capital has sought to get around the lack of profitability in the real economy through financialization: speculative investment in stocks, bonds and real estate. This speculation expanded and expand… until the system collapsed.
-We can say that the current crisis is the result of capital’s continuous financial accumulation, once it found it could no longer make a rebound through the real economy. In other words, it is the result of a structural crisis internal to capitalism. This can be summed up as follows: 1) falling profit rates in the real economy -- 2) financial accumulation (neoliberal globalization) -- 3) formation of speculative bubbles -- 4) financial and economic crisis.
-The approach of the G20 and mainstream economists to the current crisis is to look for solutions through adjustments in the areas of 3) and 4) above, without considering the entire process. If we understand the entire process, however, we realize that the only way to truly prevent another crisis is through new economic reform that can stop falling rates of profit in the real economy. Unfortunately, if we look at the current state of the economy a means for doing this is not readily visible. We call the current crisis a ‘structural crisis of capitalism’ because it is doubtful that capitalism has the capacity overcome to overcome its internal problems.
-It is highly likely that the capitalist economy will be swept up in long period of low growth and instability. In this process crises developing in multiple areas including poverty, climate change, energy, and agriculture will only get worse. It is, therefore, time now, more than ever to make a break with the current economic order and develop an alternatives to capitalism.
2) What has the G20 done?
-The G20, however, is only approaching the economic crisis as a problem of policy, while seeking to maintain the existing hegemonic system In fact, the agreements the G20 has reached in the last few years are highly disappointing and have only made the situation worse.
-G20 heads of state have agreed to the principles of improving financial regulation and oversight, strengthening financial market transparency and international financial institution responsibility, increasing international cooperation, and increasing quotas for developing nations in the governance of international financial institutions.
*Increasing the power of international financial institutions
-There has been no discussion of structural controls on the power of financial capital or creating a new financial institution to replace the IMF. To the contrary, the complete responsibility for developing the details of financial reform has been delegated to the Financial Stability Forum (FSF) (now the Financial Stability Board (FSB)) and the IMF, thus expanding their authority.
-The G20 is completely ignoring demands that the system for allotting decision-making power in financial institutions based on size of economy and amount of contributions be changed and that the policy of forcing neoliberal structural adjustment be abolished. Instead, it is seeking to maintain the existing structure while adjusting the quotas allotted to each country to account for change in the size of their economies.
*Untrustworthy financial reform
-At the G20 Summit held in Toronto last June leaders failed to agree on implementation of a bank tax. The concept behind the bank tax is that since financial institutions have received bailouts paid for by taxpayers, they should shoulder some of the burden in the future. Unfortunately, agreement on this measure faltered due to the competing interests of various countries.
-The bank tax, a levy on large banks and financial institutions, is a partial, passive measure aimed at getting back a portion of the money that went into bailouts. It is much less overarching than the financial transactions tax that social movement forces have been demanding, which would require payment of a tax on all financial transactions. Nonetheless, the G20 has not been able to agree to even this limited measure leading to a decision that each participation country would makes its own policies with regards this matter.
-Discussions on regulation of hedge funds, private equity funds, and risky new financial commodities have stalled in the same way. As we can see, the G20 has not even been able to get started on the most important of financial reforms. In fact, it has no intention of fundamentally controlling the power of financial capital. This makes sense, since countries that house the financial centers of the world, such as United States and the UK, are of course, not interest in limiting financial capital’s activity.
*All words, no action
-While weak on action, the G20 has been good at hiding its problematic nature and packaging itself nicely. As soon as the economic crisis appeared to be letting up in the second half of 2009, the G20 began to make references to employment, development, and the environment.
-The fact is, however, that international meetings like the G20 have a record of failure with regards to these problems. Heads of state generally make a nice show of their friendship and unity, and make grand statements for the press. In fact however, as time wears on we see that that their promises have no real content.
-The G8 is a typical example. As soon as the G8 found itself on the receiving end of criticism for pursuing neoliberal policies, it began to claim it also saw issues such as development aid cancellation of foreign debts as important. These proclamations succeeded in giving the G8 an air of legitimacy. In fact however, very few steps were taken in these areas. Most of the talk was just that--talk.
-The G20 is just the same. The G20 has made vague promises to work towards achievement of the Millennium Development Goals, address the problem of climate change, develop policy concerning the use of renewable energy over fossil fuels, make efforts towards job creation, respect labor rights, etc., etc.
-But in each country, these pledges are already being broken. South Korea is case in point. At the G20 Summit in Pittsburgh, leaders promised that international labor standards would not be ignored or deteriorated. However, in South Korea the government of Lee Myung-bak is weakening labor law protections and repressing labor activities. In addition, while stricter financial regulation is being discussed on an international level, in Korea the law maintaining a division between financial and industrial banks and regulations on financial commodities are being weakened and more power is being given to investors. This is true for many other countries as well.
*Avoiding responsibility and maintaining hegemony
-As can be seen from the above, the G20 is doing nothing to bring about a real transformation of the system that has rule the world for the last 30 years. Its goal is to revise policy only to the extent it does not threaten the interests of participating countries. In this process, most of the aims of dominant countries like the U.S. and the U.K. are being satisfied, while others are being made to bear the burden of the economic crisis. The G20 has no intention of abolishing neoliberalism or of creating a alternative international order to replace neoliberal globalization. In the end, the G20′s primary intention is find a means for smooth management of the world system that maintains the current hegemonic structure.
To be continued