The G20 finance ministers and central bankers have emerged from their weekend meeting in Sydney with a promise to grow the world’s economies by an extra 2 per cent.
It’s a cliché after these international conferences to point out they’re long on motherhood statements and short on blueprints.
But the Sydney G20 communique is a classic of its genre. It is, in a way, symbolic of the entire G20 to date: bold, plain-spoken and fundamentally worthless.
After all, who wouldn’t want 2 per cent extra growth? That’d be great.
Yet the only concrete policy in the whole document is hitchhiking on the OECD’s Base Erosion and Profit Shifting action plan, which is designed to prevent multinational corporations from taking advantage of low tax countries.
And focusing on how to extract more money from the private sector doesn’t exactly scream “growth-inducing”.
The most sympathetic interpretation is as follows: The extra money governments take from multinationals might be spent on the most economically vital infrastructure and in a few years (infrastructure takes time to build) will manifest in future growth.
But the far more likely scenario is the money will be spent ineffectively and slowly on programs that please voting blocs or interest groups, and will come at the cost of suppressing international tax competition.
A tax crackdown is easiest to agree on at the G20 because it is in the G20’s interests. As some of the world’s biggest governments, they don’t like having to compete against small, lower-taxing jurisdictions.
As for other ways to boost growth? Well, we have to wait for them. The idea is that all the finance ministers now go home, brainstorm ways to reach 2 per cent growth, and come back to Australia in November along with their leaders. Then a “Brisbane Action Plan” will be devised, and everybody goes home and gets rich.
The G20 is relatively young. It was formed in 1999 to facilitate cooperation about the global financial system.
It was only when the financial system collapsed that the G20 became, as a 2009 statement put it, “the premier forum for … international economic cooperation”.
Many people argue the G20 helped prevent the world falling into a second Great Depression. This is a complete fantasy.
An emergency G20 summit held in Washington in November 2008 was all about creating a “Bretton Woods II” – completely redesigning the international monetary system – but that didn’t happen.
It also pledged to avoid the protectionism that was so damaging during the depression of the 1930s. In his book Who’s in Charge Here?, the Financial Times journalist Alan Beattie points out this pledge lasted just 36 hours before G20 member Russia announced new car tariffs.
Certainly the G20 was no constraint. Beattie writes: “I have never heard a G20 pledge cited as the reason why a serious amendment to policy was made.”
The next summit, in London, focused on fiscal stimulus plans and monetary easing. But that meeting was held in April 2009 – that is, after many countries had gone ahead and done those things anyway.
Both Australia’s and the United State’s big stimulus packages were announced in February 2009. China’s major stimulus pre-empted the November 2008 summit by a week. It’s not obvious how “coordinated” the G20’s approach to the Global Financial Crisis really was.
In subsequent years the G20 became bogged down in debates about austerity. The United States wanted everybody to continue expansionary fiscal policy. But European countries were being compelled by their dire budgets and the European Central Bank to slow government spending.
Between 2010 and 2013 the G20 argued about austerity because there was actually something to argue about. It’s not just that each country had starkly different needs. It’s that there is no consensus on how to survive and recover from a major economic crisis.
Indeed, the ease with which the G20 has managed to sign up to a growth agenda now that the crisis has abated is a sign of its irrelevancy rather than vibrancy.
Ultimately countries are going to pursue their own domestic agendas in their own way. Organisations like the G20 either endorse pre-existing national policy preferences or are ignored.
The G20 agreements are non-binding. In theory this is supposed to enhance the institution’s flexibility but just means that it is unable to achieve the goals it sets. As one paper in 2012 put it, the “G20 has proved about as far from effective as Greece is from solvency.”
Perhaps we are asking too much from what is really just a chance for finance ministers, central bankers, and government leaders to catch up.
But then perhaps it would be better to refrain from the ridiculous claims that the Sydney meeting was a “win” for Treasurer Joe Hockey, because he managed to convince the G20 to nominate a specific, entirely hollow, growth target.
Or the claims that the G20 is now “back on track” because it agreed to go for growth in the first place.
Or the most ridiculous claim of them all: That what a G20 communique says means anything of significance to the world economy.