The only surprise to emerge from the recent G20 Washington summit –billed in advance as the launching pad for “a new global financial architecture”, “Bretton Woods II” etc. – was the apparent surprise at the meager results. International action to combat global economic meltdown was confined to a vague commitment to “coordinated policy response”. There were some references to stimulating demand and the ritual calls for “greater transparency” and “sound regulation in financial markets”. Private equity and hedge funds were enjoined to regulate themselves in the name of “best practice.” Climate change and increased hunger linked to food price volatility – essential components of the spreading crisis – were nowhere mentioned. And governments agreed to meet again some time in… spring 2009.
However, despite the devastatingly destructive role of the IMF in previous crises, governments represented at the summit were united on the need for a rapid strengthening of the organization’s finances, mandate and reach. Governments were united as well in their call for a rapid completion of the WTO Doha negotiations, which include ambitious provisions for locking in the growth and immunity from regulation of a financial sector whose crisis the meeting was ostensibly convened to address.
Meanwhile, despite the injection of trillions of dollars of public money into national banking systems the financial carnage continues and is now ravaging manufacturing and services. While jobs around the world are being destroyed by the hour, massive new financial bets are being placed on corporate debt and share values as investors seek to cash in on the damage.
The summit communiqué’s vague language and lackadaisical timetable contrast powerfully with the focused demands of the financial sector. The Institute of International Finance, the financial sector’s global lobby organization, set out its demands in a letter addressed to US President Bush on the eve of the summit signed by IIF Chairman (and Deutsche Bank head) Joseph Ackermann and four other high-ranking bankers at the IIF. The IIF has two key demands. These are, first, the creation of a Global Financial Regulatory Coordinating Council to direct the international financial system, in which the IMF’s role as enforcer would be strengthened. The Council would serve as an umbrella group for private banks and the multilateral lending institutions and be linked to “colleges of supervisors” watching over (in the words of the letter) “the top 30-40 global financial services institutions”. The IIF sees the expansion of the G8 to G20 and greater representation rights for what they call “several systemically important development countries” within the IMF and other multilateral organizations as the basis for expansion and further integration of the global financial services sector.
If the G20 seemed to dither, Ackermann and company have a clear timetable. According to their letter, “As financial institutions and markets are being restored to normal functioning, well-defined exit strategies need to be formulated and implemented. Emergency action should not provide the basis for a permanently larger role for the public in the international financial system: this would risk setting back the prospects for renewed sustained growth of output and jobs by introducing widespread inefficiencies into global markets.” The message is clear: in times of crisis, governments should bail out the financial sector and then quickly retreat to their traditionally more limited role of underpinning the expansion of private finance by guaranteeing public debt.
Does the G20’s dismal performance reflect merely a failure of will and imagination on the part of governments? Or is it an illusion to imagine that alternatives to the G8’s neo-liberal orthodoxy would emerge spontaneously from a group of 8 enlarged to 20, 30 or more central banks and their national financial lobbies whose only shared commitment is to protect the value of their dollar reserves?
Expanding the participation of (selected) developing countries in global summit exercises meets demands for greater representation but leaves untouched the social relations and balance of forces which are at the root of the system and its present crisis. A new financial architecture won’t be built by simply adding on rooms. A new foundation is needed, and we won’t get it by “lobbying” the IMF or periodic conclaves of governments. Requests for more demand stimulation, more fairness and more respect for workers rights are no more likely to be heeded now than they have been in the past. The entire experience of the past two decades – years in which labour’s historic gains have been rolled back on virtually every front – demonstrates otherwise.
The labour movement, nationally and globally, faces a crisis of enormous depth and scale. Institutions like the IMF which have traditionally served as the instruments for resolving more limited crises currently lack the resources to tackle it. And governments do not currently face the massive social and political pressure which would push them to address the crisis in ways which could reverse decades of social and environmental destruction and strengthen labour’s capacity to mobilize.
In this situation, all questions should be regarded as open – and an opportunity for unions to intervene in new ways through new alliances. If the G20 are paralyzed, Ackermannn, the banks and the IIF have a program and the means to implement it. What is labour’s response? We can begin to think about alternatives by asking some of the questions which weren’t on the table at the G20. A partial list would include:
Regulating financial markets – regulating what, and for whom?
Progressively freed by state action from laws and regulations which inhibit its activity, the financial sector has assumed unprecedented weight in the global economy. To take but one example, the value of outstanding credit derivatives is currently eight times greater than global GDP. Enormous bets are being placed on everything from bankruptcy to crop failure. To describe this as casino capitalism is a disservice to the casino.
Reregulation is clearly required, but to what end? Is the goal to help the casino operate in a less volatile, more orderly fashion, or is to substantially shrink the sector in order to channel resources into real investment in people and jobs? The IIF clearly wants more regulation, because their member banks no longer trust the paper they and their rivals have on their books. They want to invest, but they don’t necessarily want to invest in jobs, communities and people, unless it’s on their terms. We should distinguish between their regulation and ours.
Finance vs. the real economy?
The financial crisis, we are told, has moved on from its original epicenter and is now attacking the real economy of goods and services. This is true in a limited sense only, because it overlooks the progressive erosion of the distinction between the two which is a key factor in the current stage of the crisis. Manufacturing, services and even farming have become financialized, with corporations devoting increasing resources to purely financial activity at the expense of their manufacturing and service operations. For years, finance has been more profitable than manufacturing for leading TNCs like General Electric and General Motors. German carmaker Porsche in the last 12 months made 7 times more money exercising stock options than by manufacturing automobiles, prompting the Financial Times to ask: Is Porsche a hedge fund or an automobile maker? (in fact it’s both). The fusion of the financial with the real economy reaches new heights with the big private equity funds, investment vehicles with portfolio companies employing millions of workers. Agriculture too has become increasingly financialized as huge streams of speculative capital enter previously restricted commodity markets and futures contracts negotiated in distant financial centers impact directly on remote rural producers.
At the same time, manufacturing and service corporations have been steadily pumping cash out of their operations in the name of “shareholder value”, rewarding executives and shareholders with astronomical share buybacks, dividends and stock options. Real investment in plant and equipment is reduced to a minimum, or undertaken only at the expense of massive worker concessions and subcontracting. Corporations have become so lean that a slight downturn in consumer spending can spell instant death, especially for those now choking on their financial operations.
Government paralysis and the credit crunch
Despite the injection of trillions of dollars into some of the world’s leading financial institutions, the banks are refusing to lend and hoarding their cash. Governments, who are now major or even the sole owners of important banks and financial corporations, have been pleading to no avail for them to turn on the credit tap on which the economy depends.
Governments appear paralyzed in the face of the lending strike because these massive injections of capital have been precisely structured in ways to facilitate minimal control and maximum exit speed (the IIF program). There is nothing inevitable about this – as owners, governments can in fact require the banks to lend, and determine how and where the money should be invested. They can also use their national regulatory authority to pressure banks which have not (yet) received large injections of public money into lending. They should be compelled by mass political pressure to use their power to mobilize both short-term credit and necessary investment capital – and to ensure that money is not hoarded for acquisitions and dividends or simply parked in expectations of a return to the days of the 25% return.
We should be demanding at work, in the streets, in every public forum and through the creation of new ones, that governments and corporations account for the growth of unemployment at a time when unprecedented sums of public money are being poured into the banking system. Following the biggest nationalizations in history, labour should insist that the banks be regulated as a public good, structured as a public utility, accountable for the pursuit of democratic policy objectives. Money must be used to finance real investment, not to finance finance.