G20 Breakdown

Organization for Economic Cooperation and Development says money is ‘gone’

It is becoming more and more clear what G20 financial reform looks like – punishing cuts to the poor and middle class and obedience to the banks.

As I wrote on a few days ago, the G20 has decided to focus its energy at the Toronto summit on pressuring member nations to implement deficit cutting and fiscal austerity through deep and painful budget cuts.

This move to austerity is about maintaining investor/market confidence at all costs.  The head of the Organization for Economic Cooperation and Development, Angel Gurria, warned the world’s economies to “make sure that you give signals to the markets about fiscal consolidation.”

Translation: countries need to start slashing spending and then pronounce it publicly and immediately to ensure investors hear it.  This is expected to calm markets and boost growth, despite much evidence to the contrary (for example here, here, and here)

Canada, of course, was right in on the action: “We’ve pushed hard for those countries that need to fiscally consolidate in Europe to get on with it and to demonstrate their resolve” said Canadian Finance Minister Jim Flaherty.  The Bank of Canada is on-board as well.

Gurria further claimed that all the (public) money is gone. Thus, all we can really do is start cutting and becoming more ‘flexible’ (ie: crushing unions, increasing temp and precarious work to fix market needs), and making the world ripe for the markets:

“Countries need flexibility in labor markets, exchange rates; they need structural adjustment policies like competition, education, innovation,” said Gurria. “These are the things that are going to make the recovery hold, because you can’t hold it up with public money any more. It’s gone.”

And where did the public money go? To bank bailouts, to housing bubbles, to tax cuts for the rich, to corporate subsidies, etc… and now we get to pay for all that.

G20 deficit cutting wrong approach to fix crisis

A major turn took place at the G20 finance ministers meeting in Busan, South Korea over the weekend, as the G20 reasserted deficit and spending reduction its top priority, marking the final step in the (re)triumph of neoliberalism as global economy’s modus operandi. Britain and Canada were the major proponents at the meeting of this deficit warrior approach to recovery while China has cautioned against too rapid an end to stimulus efforts.

This deficit reduction approach is extremely significant given that, following the economic crisis, the neoliberal model itself underwent an identity crisis, as many began to openly question the orthodoxy of deregulation, cutting spending and deficits at all costs, etc…   Even the most conservative governments, as a means to help build an economic recovery, advocated for fiscal stimulus (lower interest rates, increases in government spending to help bolster demand and reduce unemployment, etc…), and the G20s stimulus approach continued right up to April of this year, where  called for continued stimulus until the recovery becomes “more entrenched”.  With the G20 announcement, that approach appears to be over.

What is wrong with this switch to austerity?

There is an argument that this austerity is just bitter medicine that must be taken to cure the economy of its ills.   However, even if you are one to accept the idea that austerity is necessary at times to right the ship, Nobel economist Paul Krugman points out that this is clearly not one of those times.  The economy, though there are signs of recovery, is still depressed – bogged down by high unemployment in most of the largest economies, including the EU and the US.  And when the economy is depressed, slashing spending to reduce debt is both “an extremely costly and quite ineffective way to reduce future debt” because it depresses the economy even further and it reduces the tax dollars received (which could be used to pay down the debt in the future).

Krugman is not saying deficits should be ignored, just that it is wrong and counterproductive for deficits to be the sole focus.

Also, the austerity simply hurts poor (working or unwaged) and middle class people, and we can not lose sight of that. Having started with Greece, it seems that the plan is to go country by country, one-by-one, and force these measures which will diminish social programs, decimate the public sector and dramatically increase poverty and unemployment.

In fact, the G20 pointedly told indebted nations that they must ‘speed up’ their austerity drives.  And, just today, British PM David Cameron brought the point home, announcing his drive to cut the deficit in the UK through massive cuts.  He warned that Britain’s ‘whole way of life’ will change due to the most drastic public spending cuts in 20 years.

It is worth reflecting on the value an economic system that can continuously and callously demand more from its population, undermining their futures in the process, to pay for the sins of financiers whose risky speculation made them billions of dollars before the bubble burst.

Now it is on the people’s backs to clean up the mess.  It is post-crisis shock doctrine for all of us. A clear reason to challenge the G20 agenda.

The bank tax idea have fallen off the G20 radar a bit with Canadian finance minister Flaherty’s ‘victory’ at the recent finance minister’s meetings. There is an uncritical sense in the news that Canada has won something big here by fighting the tax and getting some backing from other G20 countries, but not everybody agrees. Let’s do a brief rundown of who is celebrating and who is not.

Who’s happy

Canadian Banks
Domestic banks welcome global bank tax opposition

The Securities Industry and Financial Markets Association (SIFMA)
SIFMA Statement on IMF Bank Tax Proposals
This the central US/Can lobby association for the financial industry. Here’s their membership. And to get a better sense of them, they are also considering suing the Obama Administration for his own US focused bank tax proposal.

Canadian government itself
Canada’s banking system a G20 model: PM

And, in case you are wondering where strategy is clarified and decisions are made, it’s not Parliament, it’s here at the G8/G20 business summit Also see, the Chambers of commerce set agenda for G8/G20 summits

Who’s not

Walkom: Canada’s myopic approach to bank taxes‎.  “a financial meltdown anywhere in the globe can harm even the most virtuous of nations. Canada, whose entire manufacturing sector was zapped by the U.S. mortgage crisis, bears witness to that…if Canadian banks are as conservative as they claim, speculation taxes shouldn’t much affect them.”

G20 shuns bank tax: Jim Flaherty’s “victory” leaves taxpayers holding the tab. Excellent analysis from Mel Watkins

It’s time for high finance to come to the rescue.  If social and political pressure from around the world can build awareness of what this amazing initiative represents, much bigger players than Harper might make some real progress.

Bottom line: Canadian banks should pay their fair share. Financiers are economically and morally obliged to make a larger contribution to the cost of running our government.

1. A report from the G8 Halifax protest
Includes pointed criticism of the G8 and Harper’s narrowly focused approach to maternal health. “Where are the G8 leaders when women, many of them mothers, are raped, tortured, and/or killed at work, whether they’re working in Maquiladoras in Mexico or doing sex work in Vancouver’s Downtown Eastside?”

2. G8 development ministers are leaving Halifax without making any specific financial commitments for child and maternal health. The Harper government also hasn’t been very clear about what it plans or initiatives on that front. Non-funding of abortion is the only area where they have made their plans fully known.

3. Various questions and concerns have come up about the G20 pronouncement last week of recovery and growth:
G20 growth forecasts don’t add up

G20 wary of overconfidence; Greece cast long shadow

4. Excellent technical report by Andrew Jackson on prospects for the G20 in Toronto, found on the Progressive Economics website. He says that in a number of ways, panic has turned to complacency regarding global capitalism’s prospects.

At the G8 meeting in Halifax, Canada stated clearly that is will not be including abortion in its maternal and child health plans at the G8 meetings in Huntsville, including any funding of abortions. This could set off a potential impasse with other countries, including the U.S., which lifted the Bush administration ban on funding abortion in its development projects. The U.S., which is likely to tread lightly given its own highly organized anti-abortion groups, has said it will not cause a U.S./Canada split.

There is an excellent op-ed in the Globe and Mail today, taking the Harper government to task ‘bad policy’ on its maternal health initiative: “by refusing to fund abortions… the Conservative government is effectively saying only women who become mothers are worthy of complete health care…

It further argues that: “the maternal health initiative embeds these ideas in public policy. If you are a good woman, a woman who mothers, you will be rewarded with health care. If not, if you dare to be a non-mother, necessary health care will be withheld. In fact, the refusal to provide comprehensive health care to such a woman can be interpreted as punishment for being a bad woman.” Harper’s top-down do-good plans at the G8 seem more and more like a platform for his ideology.

I suspect there won’t be a lot done on maternal health when all is said and done in Huntsville, and there certainly won’t be any fundamental economic changes which are at the heart of poor health.

As I mentioned in an earlier posting, health care solutions (though they are important) that don’t acknowledge the sources of poverty and poor health are not nearly enough. Medicalized, band-aid solutions have been proposed for years, and poor health is as rampant as ever. But anything that might question globalization’s own role in this economic precariousness is surely off the G8 discussion table (and far away in another room).