Fifteen years after the G8 summit, it’s the UK that’s in dire need of aid | Economics

Fifteen years after the G8 summit, it’s the UK that’s in dire need of aid | Economics


Just like Gordon Brown 15 years ago, Rishi Sunak has spent June working on an aid package. As was the case in 2005, details of the chancellor’s plan to help the vulnerable will be announced on 8 July.

There, though, the similarity ends. Sunak’s focus is the UK economy and in particular those about to lose their jobs as a result of the Covid-19 pandemic. The doubling of work coaches in job centres tells its own story: the government knows unemployment will soar in the coming months.

By contrast, in early July 2005, final preparations were being made for the G8 summit to be hosted by Tony Blair at the Gleneagles hotel in Scotland. The leaders who gathered for three days of talks didn’t spend much time discussing their own economic problems, for the good reason that they thought they had none. Instead, they worked on proposals that would provide debt relief and additional aid for Africa.

The years leading up to the 2005 G8 marked the defeat of communism and the triumph of the market economy. It was a time of rising living standards and lower trade barriers; an era when globalisation seemed unstoppable and central banks had to do little but provide the occasional tweak to interest rates. Living standards rose year in, year out. Economists dubbed it the Great Moderation: a time of steady growth and low inflation.

The fact that the UK had 16 years of uninterrupted growth between 1992 and 2008 and has since suffered the two severest downturns of the post-war era is one obvious difference between the pre-Gleneagles and post-Gleneagles worlds but there are plenty of others.

For a start, the G8 has become a G7. The hopes in the 1990s that the collapse of communism, financial support channeled through the newly created European Bank for Reconstruction and Development, and a seat at the west’s top table would transform Russia into a liberal western democracy have proved over-optimistic. Russia was kicked out of the G8 in 2014 after Vladimir Putin’s annexation of the Crimea and, despite the best efforts of Donald Trump, is viewed as a pariah state.

Suma Chakrabarti, who left the EBRD last week after an eight-year stint, thinks there is more chance of the organisation extending its operations to sub-Saharan Africa than of resuming lending to Russia.

Among the G7’s members – the UK, the US, France, Germany, Canada, Japan and Italy – some have also had second thoughts about China in the years since 2005. One of the guest invitees to Gleneagles was Chinese president Hu Jintao, which made sense given his country’s rapid growth in the 1990s and early 2000s.

A big part of the globalisation story in the 1990s was the shift of production from the west, where labour costs were high, to China, where they were dirt cheap. This meant lower prices for Western consumers as a quid pro quo for the hollowing out of their manufacturing sectors. As with Russia, the assumption was that the arrival of the market would turn China into a western-style democracy. Again, the assumption was wrong: China does capitalism its own way, and stronger growth has not led to political freedom. On the contrary, as China has become richer so it has become more repressive.

The passing last week of the Hong Kong national security law has led to a hardening of the mood. India has banned 59 Chinese mobile apps; the US congress has passed a bill that would make it possible to impose sanctions on banks that connive in the loss of Hong Kong’s autonomy. The UK government has promised to offer citizenship to 3 million residents of Hong Kong. It also has some awkward decisions to make over whether it wants China to be involved in the building of nuclear power stations or the 5G wireless network. One thing is certain: the dream of a community of countries all committed to the same ends is dead.

Which is a pity, since the world still has to tackle the three issues that faced the Gleneagles summiteers: one that they didn’t tackle because they thought it didn’t exist; one that they thought they had solved but didn’t; and one where they tried and failed.

The problem that failed to blip on to the G8 radar in 2005 was that the global economy was much more vulnerable than they imagined. Cheap goods from China and other emerging market economies meant low inflation, which in turn meant central banks could keep interest rates low. This created the right conditions for soaring asset prices and a widening of the gap between those who owned shares and houses, and those who didn’t. In 2005, the pricking of the bubble was only two years away.

The problem that the G8 thought they had cracked was Africa. Debts were cancelled, aid budgets were increased, African governments improved the management of their economies. For a while, all looked good, and countries with strong growth and plentiful natural resources were able to borrow freely on the international financial markets. Even before Covid-19, many of those debts were unpayable. The pandemic has inevitably made things a lot worse. The World Bank is forecasting the first rise in global poverty in two decades.

Finally, there’s the climate crisis: the issue that was on the agenda at Gleneagles, but where – courtesy of the hardline stance taken by George W Bush – there was no progress. Fifteen years on, the attitude of the man in the White House has not changed but the planet is even hotter.

What’s needed? Nothing, apart from a vision of a sustainable, equitable future that all can sign up to and the leadership that was provided at Gleneagles to make it happen. Simple, really.


Source link

Like this article?

Share on facebook
Share on Facebook
Share on twitter
Share on Twitter
Share on linkedin
Share on Linkdin
Share on pinterest
Share on Pinterest

Leave a Reply

Your email address will not be published. Required fields are marked *