A plutocrats summit?
At an official dinner in Washington, DC, ahead of November’s G-20 Summit in Brisbane, Australia-born media mogul Rupert Murdoch lectured ministers on the dangers of socialism and big government. A fervent opponent of Australia’s carbon price, and a battle-hardened opponent of US President Barack Obama, Murdoch lauded the virtues of austerity and minimal regulation, and railed against the corrosive effects of social safety nets. The ministers were in Washington to attend the Annual Meetings of the International Monetary Fund and the World Bank, where they attempted to thrash out differences and establish common ground before the upcoming summit. The tone set by Murdoch, however, suggests that a consensus on sustainable, inclusive growth will be hard to achieve.
Murdoch’s comments are in keeping with views expressed by his friend, Australian Prime Minister Tony Abbott, and Abbott’s current administration. In January, for example, Abbott informed a startled Davos conference that the global financial crisis was caused not by unregulated global markets, but rather by too much governance. This was certainly news to the finance ministers who had spent the past few years struggling with the toxic fallout from financial-sector excess.
Viewed in the context of such comments, one can better understand Australia’s refusal to put issues of climate change and inclusive prosperity on the Brisbane agenda. Of course, stimulating global growth is a big enough challenge in itself, even without considering inclusiveness or environmental sustainability. The IMF’s gloomy growth forecasts attest to that. And many policymakers view Australia’s G-20 chairmanship as an opportunity to reenergise and refine the group’s mission to boost global growth, create jobs, and raise living standards. G-20 finance ministers have already decided on a 2% target for annual growth through 2018, and are sifting through more than 900 proposals for structural reforms in order to achieve this.
What reforms G-20 members propose in Brisbane, and how serious they will be about implementing them, remains to be seen. The bigger challenge, though, is hitting those growth targets in a sustainable and inclusive way. If structural reforms are not done right, the Brisbane Summit will regarded as a failure.
Structural reforms, in which certain interests are sacrificed for the greater good, will always be controversial and difficult to execute. But when such reforms involve sacrifices by ordinary citizens and benefit society’s most privileged groups, political gridlock and instability invariably follow.
Over the past two years, academics, regulators, economists and financial institutions have all linked the secular stagnation in demand with greater income inequality. It is ironic that, at a time when many in the developing world are entering, or aspire to enter, the emerging middle class, wealth in much of the developed world is becoming more concentrated at the top.
Indeed, inequality of outcomes both in emerging and advanced economies has increased within and across generations. Australia’s refusal to discuss inclusive growth in Brisbane may please plutocrats like Murdoch, but talk of unregulated markets, lower taxes, and the removal of social safety nets strongly indicates that the summit will offer no substantive policies aimed at reducing inequality.
With just days to go until the Brisbane meeting, the G-20 is ignoring the main long-
be term threats to the global economy. As the Bank of England’s Governor Mark Carney (who I assume also heard Murdoch’s lecture) remarked earlier this year, “[U]nchecked market fundamentalism can devour the social capital essential for the long-term dynamism of capitalism itself.” IMF Managing Director Christine Lagarde recently put it more starkly, noting that the world’s 85 richest people control more wealth than the world’s 3.5 bln poorest people, and that this degree of inequality is casting a dark shadow over the global economy.
Inequality is not a fringe issue. Combating its rise is essential to achieving sustainable economic growth and political stability. The G-20’s real power is to highlight such challenges and generate informed debate on the issues as a prelude to action. The question now is which leader in Brisbane, if any, will grab the global megaphone and speak out.