First published in the Telegraph on 12 March 2009
No-business meetings, John Kenneth Galbraith called them. They sprout in the wake of a crisis like weeds in scorched earth, nourished by the overwhelming sense that Something Must Be Done. Men gather, they sit in a room, they look pious; they are photographed, they talk to the press, they go home.
Politicians summon these grand meetings, said Galbraith, “not because there is business to be done but because it is necessary to create the impression that business is being done. Such meetings are more than a substitute for action. They are widely regarded as action.”
They were what President Hoover kept himself busy with in the wake of the Great Crash. We may blithely assume that the problem in the early 1930s was torpidity, as the US government allowed the economic system slowly to disintegrate, but that wasn’t how it felt at the time. The White House was a hive of activity, the president meeting everyone from politicians to industrialists and financiers. The problem was that nothing useful came of it.
Things are different these days, you might argue. I agree: rather than limiting themselves to meetings, politicians also invoke inquiries, investigations and reports. But the result has been the same. Historians will look back at the financial crisis that erupted last year and conclude that rather than taking direct, comprehensive action, politicians occupied themselves with no-business meetings, no-business reports and no-business plans which hid the fact that they had not a clue what they were doing.
With only a few weeks until the G20 meeting in London, there is nothing to dispel the impression that this will be another no-business meeting. The Americans and Europeans cannot agree on what to set at the top of the agenda; the US wants a bigger injection into the economy, the Europeans an overhaul of financial regulation, while the Britons sit, awkwardly, somewhere in between. The US Treasury is so beleaguered by domestic issues that it isn’t even returning phone calls, according to the head of the Civil Service, Sir Gus O’Donnell.
Grand treaties which change global policy are not magicked up overnight. It took two years or so for officials to complete all the groundwork that led to the Bretton Woods agreement, which overhauled capital markets and currencies for most of the post-war era. So it is hardly a surprise that Whitehall insiders have been dampening speculation that either the finance ministers’ summit this weekend or the heads of government summit next month will provide an overarching plan.
This is tragic, for a rethink of the way the financial system fits together is what is needed. It was the malfunctioning of this machine – the quirks which encouraged people in the West to over-borrow and in the East to over-save – that caused the crash.
Instead, the items hogging the G20 agenda revolve around fiddly little issues such as a crackdown on tax havens and excessive bonuses, and reforms of the IMF and World Bank. Putting them at the top of the agenda is rather like telephoning a man stranded in the desert and asking him whether, if and when he escapes, he’d prefer Perrier or Evian.
The first objective should be ensuring the economy survives. This will involve, gulp, another big dose of government money. Much as it may stick in their throats, the leaders must agree that their economies need a little bit more spending to ensure they make it through. Those with big stashes of surplus cash – Japan and Germany – have resisted this.
Persuading them to come onboard ought not to be an invitation for more unscrupulous leaders – such as Gordon Brown – to borrow more (Britain’s room for manoeuvre is limited, given the size of the structural deficit). But the one thing that will seal a global depression of unprecedented scale is if different blocs of nations try to tackle the situation in radically different ways. It would spark a further descent into protectionism and disrupt capital flows.
A new, clearer accord on how to deal with troubled banks is also necessary. Most governments have taken quite similar steps in supporting their banks – attempting to avoid outright nationalisation, setting up insurance schemes for their dodgiest assets. But they have done so following pragmatic, ad hoc principles rather than an overarching set of guidelines. The result is that they have turned the banks into zombie institutions which may never recover their verve, and have left investors terrified.
There are other important ancillary issues, such as finding new cash for the IMF so that it can bail out the worst hit, and considering a more coherent approach to interest rates and monetary policy worldwide.
But securing a G20 deal on any of the above looks increasingly like wishful thinking. It is going too far to say this is one of the final opportunities to save the world economy from sliding over the brink. The descent in the Thirties was far more gradual and intangible. But at some point the politicians must do something to arrest the economic collapse, or cave in to its inevitability. Instead what we will get is another summit full of sound and fury; another no-business meeting.