Last weekend’s G-20 summit in Toronto has ended with much less acrimony than earlier ones. There was, however, a clear division between countries which stressed on cutting down deficits — which means a huge dose of austerity and an exit from stimulus packages — and the other group which felt there should be a phased withdrawal of stimulus measures. In fact, the second group, which includes India, said it was not the right time to withdraw stimulus packages as this could result in double-digit inflation. The United States and Brazil were also of the view that withdrawal of stimulus measures — at a time when the global economy was recovering and remained fragile — would derail it and plunge the world once again into recession. France, Germany and Britain, on the other hand, wanted an aggressive push to cut down fiscal deficits. Britain has already announced one of the most ambitious austerity budgets on Friday. It claimed this would keep the level of confidence in the British economy high, and this was vital for growth. The new measures to raise revenue included a tax on bank transactions and a higher VAT on industry.
Growth and employment were the buzzwords underpinning both views — so the division was not all that strident when countries that account for 85 per cent of the global economy gathered in Toronto. There was one lone voice which felt that the debate over job creation or growth and deficit reduction was a false one, and that it was possible to do both simultaneously.
For all their discussions, agreements and disagreements, there was the underlying fear that all countries needed protection from the tsunami of destruction that afflicted almost all the world’s economies in 2008. The lengthy resolution at the summit’s end was all about palliatives and the need for reforms to sustain growth and employment. The reform agenda rests on four pillars: a strong regulatory framework, effective supervision, addressing systemic institutions and a transparent international assessment and peer review system. Interestingly, the summit agreed that the financial sector should make a fair and substantial contribution to pay for any burdens associated with government interventions to bail out failed institutions — as the US and others did in the last crisis. Taxpayers in almost all countries deeply resented governments using their hard-earned money to bail out delinquent fatcats. If financial institutions are made to cough up their own funds in a crisis, it would not burden national budgets. It was calculated during the discussions that globally $12 billion could be mobilised through a banking transaction tax. But in the end these are all temporary measures: despite the recovery in the past year and a half, job creation, for one, has not managed to keep up with demand. Developing countries don’t want developed countries to withdraw their stimulus measures as this would put a lid on consumption, to the detriment of exports from developing nations. Countries like China and India have been adopting measures to increase employment and production by stimulating domestic demand. But the problem remains in high-cost developed economies, which have priced themselves out of the market. Most multinational corporations are therefore setting up production hubs in developing countries, where labour is still relatively cheaper. The US faces huge problems in creating jobs, which to an extent reflects the crisis of capitalism. Placards displayed by protesters in Toronto outside the G-20 summit venue screamed: “Capitalism is a failure”. This major crisis was, however, not discussed at the summit, though the failures and chaos thrown up by the capitalist system were sought to be tackled. This is one of the ironies of the G-20 summit.