Crucial summit

2009-04-02 00:00

TOO much should not be expected of this week’s G20 summit. Bringing together the countries that represent 85% of the world economy, it has a daunting task: fighting off global recession, restoring faith in the banking system and reforming international financial institutions.

Stimulating economic activity and avoiding a depression will involve dropping interest rates and increasing government spending on public works. The danger lies in destroying the incentive to save; and, in those countries that are already well-developed welfare states, increasing national debt at a time of lowered tax revenue. South Africa, for instance, will eventually increase its borrowing requirement.

Perhaps most crucial is the need to regulate banks more effectively. As British prime minister Gordon Brown said before the summit, the free enterprise system requires imagination and an entrepreneurial spirit. But this should not extend to the abandonment of professional ethics or reckless risk-taking with other people’s money. Much of this has amounted to outright criminality.

South Africa and other nations are pressing for a restructuring of the International Monetary Fund (IMF) that takes heed of a wider range of opinion, particularly from poorer countries. Some countries want the IMF to launch a world currency to replace the United States dollar. Officially, everyone is warning against a slide towards protectionism, although a factory worker recently made redundant would undoubtedly have a different view of free trade.

The London summit should be seen not simply as an event, but as part of a long process of reforming the international economy. It is estimated that a staggering 53 million more people will be rendered poor by the current global recession. At the very least the Doha round of trade talks should be resumed in search of agreement on freer trade in agricultural produce.

When the Iron Curtain fell and the communist experiment came to an abrupt close, the end of history was announced. Unregulated free enterprise and liberal democracy were the future. Twenty years later any anticipation of the re-emergence of socialism would be recklessly premature. But this summit should mark the final chapter of the cowboy capitalism commonly associated with Reaganomics and Thatcherism.

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