World powers reject calls for coordinated response, settle for status quo

By KD Tait

GROWING tensions between the world’s imperialist rivals are obstructing efforts to secure a coordinated response to the emerging economic crisis.

Crunch talks at the G20 summit in Shanghai assembled finance ministers and central bankers from the world’s leading economies to discuss policy responses to the faltering economic recovery. According to the International Monetary Fund (IMF), “what to do about the increasing risks to the recovery is perhaps the single most important question before the finance chiefs in Shanghai”.

The slowdown of the Chinese economy is causing market volatility, having a knock-on effect on economies dependent on oil and raw material exports; Japan faces its fifth recession in five years; the European Union remains mired in slow growth and negative interest rates; and the United States’ recovery is being hit by the strong dollar.

Factor in the refugee crisis engulfing the Middle East and EU, and escalating geostrategic and military tensions between Russia and the USA, and the USA and China, and it’s clear why those present faced what the New York Times called “their toughest task since the worst days of the global financial crisis.”

Talking shop

As with all recent G20 summits, the leaders of states encompassing 80 per cent of the world’s economy proved manifestly unequal to the task. The IMF urged the G20 to “plan now and proactively identify policies that could be rolled out quickly, if downside risks materialise”. Nothing of the sort was forthcoming.

The communique issued following the summit declared the ministers’ commitment to use “all policy tools – monetary, fiscal and structural – individually and collectively” to achieve their ambition for “strong, sustainable growth”.

The IMF and the Organisation for Economic Co-operation and Development (OECD), which had urged the G20 countries to shift policy towards state-led investment in infrastructure to boost global demand, had to make do with the acknowledgement that “monetary policy alone cannot lead to balanced growth.”

With the exception of an appeal for countries to commit to a responsible currency policy and refrain from competitive devaluation, the undisputable outcome of the summit was an unspoken declaration of every country for itself, as states try to position themselves advantageously against their rivals to weather the coming storm.

German Finance Minister Wolfgang Schäuble led opposition to the debt financed growth model, claiming it was “causing new problems, raising debt, causing bubbles and excessive risk taking, zombifying the economy”.

Michel Sapin, French Finance Minister balanced his view that France does not have the “capacity” to engage in a global fiscal stimulus package, by claiming that “other countries have more capacity and they can use this capacity to continue to support global growth.”

Although China’s $400 billion infrastructure investment programme kept several raw material exporting economies out of recession, this is now being run down as it struggles to maintain debts incurred financing projects that will never show any return on the initial investment.

In the face of what UK Chancellor George Osborne called “gathering storm clouds in the world economy,” which has seen growth figures for the British economy revised down by 1 per cent to just 0.5 per cent in the last quarter of 2015, he said that the government “may need to undertake further reductions in spending because this country can only afford what it can afford and we will address that in the budget.”

The Republican-dominated US Congress has proved intractable on the subject of borrowing to finance badly needed investment in rail, roads and related infrastructure.

The cracks that have emerged between the major powers swallowed up any prospect of a coordinated stimulus plan. The ministers’ response was to downplay concerns over the health of the global economy – by implication downplaying the importance of a new round of spending.

Accordingly, they judge that “the magnitude of recent market volatility has not reflected the underlying fundamentals of the global economy. We expect activity to continue to expand at a moderate pace in most advanced economies, and growth in key emerging markets remains strong.”

Ministers made clear their favoured solution with a commitment to “further enhancing the structural reform agenda”, insisting this would “bolster potential growth in the medium term and make our economies more innovative, flexible and resilient”.

Clearly the G20 leaders are not unaware that the economic data gives the lie to their optimistic prognosis for the “underlying fundamentals” of the world economy.

According to the World Trade Monitor, the value of global trade suffered its first contraction since the height of the recession in 2009, declining by 13.5 in 2015. Emerging economy growth was 1.92 per cent last year, eclipsed by 1.98 per cent growth in advanced economies.

Divisions

In 2008-09, in the midst of the global financial meltdown, the G20 was able to chart a more or less coordinated response to a coordinated recession. This time it has been different, for three reasons.

The first is that the scale and synchronisation of the 2008-09 crisis made it qualitatively different from previous crises. The scale was such that recovery still hasn’t occurred, with industrial output below 2008 levels in most advanced countries. The faltering and anaemic recovery reveals that the inherent underlying problems are only becoming more powerful through their postponement.

The second is that the rate of economic recovery has been different across the G20 economies; and the third, no less significant factor is the growing tension between the world’s military and economic rivals, with proxy conflicts, trade wars and economic sanctions seriously disrupting the previous global order.

These tensions have their origins in the imperialist world system, where competition for markets, labour and raw materials fuses capitalist interests with state policy. The particular expression or form they have taken today emerges out of the techniques and policies adopted to deal with the 2008-09 credit crunch and recession.

The problem underlying the crisis was the overaccumulation of capital in the major economies. The policies adopted during the recent crisis have only postponed the necessary destruction of overaccumulated capital. This may encourage the wing of the capitalist class who want to “let the crisis rip” – refusing to bail out unprofitable or bankrupt banks and businesses, clearing the way for a new round of investment and accumulation.

Even if this trend remains a minority, other policies will simply exacerbate the problem, as states try to force the working class to pay for the crisis through austerity, inflation, or more likely, both.

There is no solution to capitalism’s historic crisis at a national level, which explains the development of geopolitical tension and of regional trading blocs that exclude rivals. The working class needs to prepare not only to defend itself country by country, but needs to understand the logic of the crisis and forge an international counter-attack aimed at a socialist cure for the crisis, rather than reformist palliatives for its symptoms.