Promises of a new era of international co-operation to end economic imbalances, monitored by the G20 and the International Monetary Fund, were overhyped by the leaders of the industrialised nations, according to the Nobel prize-winning economist Joseph Stiglitz.
The G20 pledged this weekend to work towards a stronger and more balanced global economy, after years when US policymakers have blamed China for saving – rather than spending – the fruits of its export boom, leaving the American consumer to borrow and spend to keep the global economy moving.
The post-summit communiqué described itself as "a compact that commits us to work together to assess how our policies fit together, to evaluate whether they are collectively consistent with more sustainable and balanced growth, and to act as necessary to meet our common objectives". And it promised a new role for a reformed International Monetary Fund, which would help conduct a "candid, even-handed, and balanced analysis of our policies".
But Professor Stiglitz said hopes that this might mean the Chinese agreeing to international oversight of their economy were far-fetched. "It has been accepted because at least some of the people who have signed up to it believe it won't be effective," he said.
Substantial further concessions will be required from Western nations, Professor Stiglitz said, but he welcomed the agreement to scrap the G8 as the main body of international economic co-operation in favour of the G20, which includes more emerging nations. The move is the first step in what will be "very slow progress towards a new financial architecture", he said. "At the G8, China and others were treated like second-class citizens, allowed only to come to the dinner after the communiqué was issued.
"So China is beginning to assert itself, and to take its rightful place. The post-colonial world order, 60 years on, is beginning to fall apart."
The G20 pledged that there will be reform of the IMF to increase the voting power of newly powerful economies, including China, but the balance of power will shift by just 5 per cent. Bigger moves were blocked by France and the UK, which face losing seats. Professor Stiglitz said: "There is quibbling over the details, but the bigger picture is that the US is not giving up its veto power and, until it does, the IMF as an institution cannot serve in the role of international arbiter."
John Lonski, a senior economist at Moody's Investors Service, said the economic imbalances will erode in the face of reality – not because of any international communiqué. "Even without an accord, you would still find that countries such as the US will move away from consumption and towards production.
"That's what the weaker dollar implies, and an ageing US population means it cannot be the juggernaut of global growth any more. It behoves other countries to step up and stimulate demand of their own."Reuse content