NEW DELHI: The Group of 20 (G20) came up in the context of global financial crisis of 2008. It was a time when economists world over predicted the return of the US Great Depression of 1929, which lasted for almost a decade.
During the 1929 crisis, in the US almost a third of all banks failed, unemployment shot up to 25 pc, housing prices went into a downward spiral, international trade collapsed, and deflation soared. In just first five years, the GDP contracted by more than 50 per cent. But in 2008, the Doomsday scenario was averted as G20 cooperation saved the day. The countries worked in unison and put in place exceptional measures and brought a sense of stability to the financial market. Structural reforms gained primacy, the G20 leaders vowed to make sure that grim scenario like these do not repeat in future.
The very second paragraph of the declaration of Washington Summit of 2008 proclaimed: “The G20 will work in close coordination with the shared belief that “market principles, open trade and investment regimes, and effectively regulated financial markets foster the dynamism, innovation, and entrepreneurship that are essential for economic growth, employment, and poverty reduction.”
As the world today faces prospects of stagflation, with global economies witnessing contraction in GDP, one must ask, what did the G20 Washington consensus achieve? The 2008 Declaration was filled with promises of structural reform. In fact the word ‘reform’ appears more than 15 times in the document.
Under the section, ‘Root Causes of the Current Crisis’, the declaration identifies “inadequate structural reforms” as one of the key factors of the 2008 crisis. So, where are these ‘reforms’? It is almost impossible to not get tempted and point towards Covid-19 and the havoc it brought to human lives and economies. But, it would also fuel the conclusion that like human beings, financial markets are not immune to the disease or catastrophes. Aren’t structural reforms supposed to “strengthen financial markets and regulatory regimes so as to avoid future crises”, as promised in the declaration.
Perhaps Russia-Ukraine crisis and subsequent supply-chain disruptions and energy crisis can be used to explain the state of world economy today. Maybe, G20 was only concerned with structural reforms in national economies; it did not account for inter-state war with global ramifications. But, the document does identify financial markets as “global in scope” and advocates for “intensified international cooperation among regulators and strengthening of international standards, where necessary, and their consistent implementation is necessary to protect against adverse cross-border, regional and global developments affecting international financial stability.”
Maybe the fact that, both, events of the recent past and ongoing, are unprecedented and G20 members could not have predicted or prepared for them. But, under the section ‘Commitment to an Open Global Economy’, G20 members do resolve to “remain committed to addressing other critical challenges such as energy security and climate change, food security, the rule of law, and the fight against terrorism, poverty and disease.” It is but natural to ask, especially when Europe is looking at prospects of a cold winter in the absence of crucial gas supply by Russia, what did the resolve to address ‘energy security’ achieve? Or, when major supplier of wheat – Russia and Ukraine – are at loggerheads and the world is facing acute shortages of food items, what did the 2008 commitment of addressing ‘food security’ result into? Maybe, the idea of ‘reforms’ needs some serious introspection by G20 members.