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BW Businessworld

Players And Spectators

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It is the custom of the Group of 20 to issue a statement after every meeting to tell its constituents what it did. It always meets in picturesque resorts, all the more reason for it to assure the people who pay taxes that it was not all fun and games, and that it did serious work. After its meeting last week it issued two statements — a communiqué and an action plan.

It has been at work for three years, so it would not be out of place to ask what it has achieved. That is easily identified. Financial Security Board has more or less completed on time the work G20 asked it to do. To prevent tax evasion and money laundering, countries must cooperate and share information; it has ascertained that 41 important "jurisdictions" are doing so, and 20 are not. In recent months it has published reports with recommendations on unreasonably high pay of bank executives, how to deal with bankrupt banks, over-the-counter derivative markets, and residential mortgage underwriting. It has published a list of 29 banks that are too big to fail, and the regulations that should be applied to them. The list includes eight American, four British and three Japanese banks. FSB is one institution that deserves an accolade for its diligence and efficiency.

Another institution that has got somewhere is the Global Forum. Its job is to get countries to sign agreements to exchange information that would help them catch international tax evaders. The Global Forum has 105 members. It says that 59 of them have broadly satisfactory standards; it is pursuing the others to raise their standards. Of course, even one tax haven is enough for tax evaders, and Global Forum is far from persuading all. But it has made some progress.

FSB and Global Forum are both products of initiatives taken by the Group of 7 which first met in 1999; so they have been at their job for 12 years. They have got somewhere, but if their achievements are all that can be counted, G7 has not achieved much; after expanding to G20 in 2008, it has achieved nothing. But it is full of determination and ambition; its communiqué contains 50-odd "commitments". About a third relate to financial issues on which FSB and other institutions have been working for over a decade; G20 keeps repeating that it would continue to pursue the issues that brought G7 together in the first place. Another third are really expressions of support for what various international institutions are doing — World Trade Organization, International Energy Forum, international development banks, etc. And the remaining third were vague expressions of good intention.

Thus G20's numerous expressions of determination and commitment really relate to business as usual. The world is full of international institutions set up opportunistically over the past 60 years — some as part of the UN system, some set up in response to topical issues such as energy. G20 takes a roll call of  these institutions, tells them more or less that they are doing well, and wishes them good luck.

Is that really what G20 got together to do, or would like to think it has achieved? That is unlikely; the language of the communiqué is intended to give the impression that G20 is in control, knows what it should be doing, and is going ahead doing it. Either it is fooling itself, or trying to fool the world. That, however, cannot be. At least some of the world leaders are intelligent, and they can have no illusions about the seriousness of the problems they face.

The best interpretation that can be put is that G20 consists of two groups: the core industrial countries and the periphery. The latter are the bigger ones amongst what once were called developing countries but have since become quite heterogeneous. Industrial countries have experienced some scary episodes of instability in recent years. Their leaders feel the urgency of overcoming the instability, know that Keynesian policies can no longer tackle it effectively, realise that their countries have become so interdependent that their macroeconomic policies need to be coordinated, and are leading the international institutions they command in search of a strategy that works. They notice that although some other countries such as Brazil, Russia, India, China, or Indonesia do not face similar problems, they have grown too big to be ignored. They also do not want to be branded as a White transatlantic coterie. So they invite the latter, and accommodate their fetishes such as agriculture and inclusive growth to make them feel at home. But for industrial countries, G20 is serious macroeconomic business; for the rest, it is a nice holiday in posh resorts.

(This story was published in Businessworld Issue Dated 21-11-2011)