Thursday’s meeting of the Group of 20 in London is supposed to be an opportunity for world leaders to agree on common solutions to the global financial crisis and come up with ways to prevent another one from happening in the future. Yet as the summit approaches, observers seem to be more focused on the past -- specifically, on two previous international attempts to reorder troubled markets, one a model of success and the other of failure.
The moment of history the world hopes to avoid repeating is the 1933 London Monetary and Economic Conference, which took place under conditions strikingly similar to those of the present day: Representatives of 66 countries gathered to try to revive international trade and stabilize currencies in the midst of the Depression, while all eyes rested on a newly elected Democratic U.S. president who had replaced a deeply unpopular Republican.
From Europe’s point of view, the result was hugely disappointing. President Franklin D. Roosevelt refused to adopt the European consensus on such issues as debt forgiveness and the gold standard, and the lack of a common international approach only encouraged protectionism and isolationism. Some historians even blame the failure of the talks for strengthening the hand of Germany’s nationalist chancellor, Adolf Hitler.
Hoping for a very different result in 2009 is British Prime Minister Gordon Brown, whose political future could depend on a successful summit. He has pulled out all the rhetorical stops in talking up the London event, calling for a global “New Deal” of unprecedented cooperation. “The old orthodoxies will not serve us well in the future,” Brown said in February. “We’ve got to think the previously unthinkable; we’ve got to do what was previously undoable.”
What Brown presumably has in mind is something like the 1944 Bretton Woods conference, which laid the foundations for the postwar international financial system. Even as the invasion of Normandy was in full swing, negotiators in New Hampshire set up the International Monetary Fund, the General Agreement on Tariffs and Trade and the predecessor to the World Bank.
The good news for Brown and others hoping for a breakthrough is that a repeat of 1933 is very unlikely. The bad news is, so is a repeat of 1944.
President Obama has no intention of ruffling international feathers the way Roosevelt did immediately after the Depression. In an Op-Ed article published in The Times on Tuesday, he laid out what he hopes to see accomplished at the G-20 summit, a checklist nearly identical to the British government’s official goals as posted on the summit’s website. Obama’s aims include more stimulus spending by governments of wealthy nations, more efforts to get banks lending again, more aid to poor countries (especially in the form of emergency assistance from the International Monetary Fund) and more regulatory oversight of financial institutions.
Yet even if Brown and Obama are on the same page, many members of the G-20 -- representing the wealthiest developed and developing nations in the world, together accounting for 85% of global economic activity -- are not. Led most vocally by German Chancellor Angela Merkel, European leaders are rejecting calls for more stimulus spending and are asking for a global agreement to crack down on hedge funds and excessive executive pay. Brown and Obama say they’re pursuing such reforms, but they’d clearly prefer to do it within their own national regulatory systems than through international institutions.
Moreover, Obama’s recent free-trade rhetoric rings hollow given the protectionist sentiments he expressed during his presidential campaign and his failure to curb the worst impulses of congressional Democrats. After Congress inserted a misguided “Buy American” provision in the economic stimulus package, it killed a pilot program allowing Mexican trucks to operate north of the border, prompting Mexico to retaliate by leveling tariffs against billions of dollars worth of American imports. Other countries would be more inclined to take Obama seriously as a promoter of economy-boosting trade if he restored the truck program and backed key free-trade agreements with Colombia and South Korea.
Decades of globalization have left countries so interconnected that a repeat of the mistakes of the early 1930s is inconceivable -- the concept of mutually assured destruction now applies to trade policy, because a significant trade war would be universally catastrophic. At the same time, it’s unlikely that Brown’s hopes of a global New Deal could be realized on Thursday; with such countries as China, Brazil, Saudi Arabia and Germany bringing wildly different interests and priorities to the bargaining table, the summit will probably generate a modest agreement that could help prevent things from getting worse, even if it does little to make them better.
Yet the event will serve as Obama’s debut on the international stage, and give him a chance to repair some relationships strained by President Bush. And if he starts putting some of his stirring words about free trade and regulatory reform into action, he might hold more sway at his next world forum.