In September 2009, a high-profile meeting of the G-20 organization of developed countries took place in Pittsburgh, Pennsylvania. It was accompanied by 3,000 to 4,000 demonstrators and a roughly equal number of heavily armed riot police. Asked for his response to the demonstrations, President Obama suggested that "many of the protests are just directed generically at capitalism…. Ironically, if they had been paying attention to what was taking place inside the summit itself, what they would have heard was a strong recognition…that it is important to make sure that the market is working for ordinary people; that government has a role in regulating the market…so I would recommend those who are out there protesting, if they’re actually interested in knowing what was taking place here, to read the communiqué that was issued."
Reading the summit communiqué (pittsburghsummit.gov) reveals that the real "irony" is that Obama has failed to even propose, let alone accomplish, the serious change promised in 2008. The document sheds a lot of light on the current neoliberal policy, including the economic crisis, the reappearance of the IMF, and global climate change.
The bank bailout is a prime example. The $700 billion bailout program was monumentally unpopular, to the point that Congress was forced (at first) to deviate from its usual role of banking industry rubber-stamper and instead reject rescuing the biggest banks. Nevertheless, the Obama administration recently announced its plan to continue the program, "injecting capital" into banks near failure, with some small-business window dressing (NYT, "Geithner Outlines Future for TARP," 12/19/09). Of course, the "too big to fail" banks that received the majority of the bailout money were those large enough to be politically connected. This was confirmed when the New York Times reported that banks were far more likely to get a public rescue if an executive had sat on a Federal Reserve Bank, had some relationship with a finance committee member, or had spent heavily on lobbying (NYT, "Banks With Political Ties Got Bailouts," 12/21/09).
Such relationships suggests that the large banks shaped the government policy that will affect them. It could also be noted in this connection that the enormous banks were not required to make any loans with the public’s bailout money—banks have not increased lending and so the credit crisis has continued. This is because the U.S. was uncommon among the developed nations bailing out their banks in 2008 in not requiring the rescued banks to make any loans that would relieve the credit crisis (NYT, "Paulson Says Banks Must Deploy Capital," 10/15/08).
Another indication of this investment in politics is the failure by regulators to seriously reform the practices that got the banks in so much trouble in the first place. The G-20 meeting endorsed the new international banking rules proposed by the Basel Committee on Banking Supervision, which focus on quite limited measures, like higher liquidity ratios and leverage limits for big banks, as well as attempts to adjust reserves to reflect the risk posed to insurers (Financial Times, "Dividend and Bonus Rules Face Reform," 12/17/09). This is an effort to somewhat "internalize" the risk posed to other "external" parties when systemically important banks make decisions. Other possible changes include forcing banks to hold a small part of the risk associated with loans which they "securitize," meaning create and then sell to others.
These modest regulations are somewhat valuable, but they clearly leave in place the basis of the banking crisis, including large volumes of speculative capital, securitization of debt, and the expectation by large banks of a public safety net. While Obama promised change, and still maintains an adversarial public posture toward the banks, clearly the megabanks have a strong hold on finance policy. In fact, Obama’s pioneering candidacy was probably part of the reason for his heavy support from finance, as Paul Street and others have observed (Z Magazine, "There Is No Peace Dividend," January 2009). This suggests that the investment theory of party competition has passed yet another test: despite strong expectations and public announcements to the effect that the banks would be dealt with harshly, their key profit activities have been left effectively unmolested.
This same commitment to basic unchanging policies can be seen in the Democratic leadership’s revitalization of the International Monetary Fund (IMF) as a means of managing the economic crisis. The primary means of doing so have been the structural adjustment programs (SAPs), which were a major focus of popular protest movements prior to 9/11. These SAPs involved heavy cutbacks in public services, tax and interest rate hikes, and privatization of public institutions.
The SAPs became infamous for "the strikes, riots, and mass job cuts that the…orthodox reforms provoked," as the conservative Financial Times put it ("Price May be High for Spurning Tough Economic Reforms," 6/24/99). When Brazil sought an emergency refinancing of its debt in 1998, mostly from the 1980s era of U.S.-backed military dictatorship, the IMF insisted that credit could come only with a severe SAP. The package consisted of tax increases, fuel subsidy reductions, and public service cutbacks that even the Wall Street Journal recognized "would mean a period of severe austerity for Brazilians" ("Brazil Promises Severe Steps to Win IMF Aid," 10/28/98).
Few noticed that the 2009 Pittsburgh meeting, including its pledge to reinvigorate the IMF, came on the heels of the 10th anniversary of Ecuador’s acceptance of a typically draconian International Monetary Fund SAP, which included sharply regressive tax hikes, a dramatic lowering of the minimum-taxable income, and cuts to gas subsidies for the poor majority. The passage was difficult due to the "recalcitrant Ecuadoran Congress" and its minimally democratic character (Wall Street Journal, "Ecuador Nears Agreement With IMF," 8/30/99). Citigroup advised the Ecuadoran executive on the process, but, of course, when Citigroup was itself bailed out a decade later, it accepted nothing like this imposition of harsh conditions against its will.
In the intervening decade the IMF has fallen on harsher times: "As with the U.S. military during the Vietnam War, people inside the IMF are bewildered, resentful and frustrated, and don’t feel like suffering in silence any longer," the Wall Street Journal tearfully related, on account of the angry turn-of-the-century movement that prevented them from enjoying their meetings ("IMF Weary of Criticism," 9/22/00). Further, as some countries like Argentina sought successfully to "rid themselves" of the IMF, its importance to the global capitalist system declined along with its clout.
More recently, a further complication emerged for, as the business press puts it, "During past crises, the fund demanded tough cuts in budget deficits, privatization of industries and liberalization of markets. In light of the response of the U.S. and western Europe to the current crisis, such conditions are clearly not tenable now. The IMF has to soften its stance" (FT, "All the World’s a Stage as Fear Grows," 10/27/08). In other words, since expansionary Keynesian fiscal and monetary policy are what led to growth, as shown by the use of them by the G-20 nations when they get into trouble, the IMF must moderate its depressionary demands on debtor nations, if only to save face. When Iceland was headed for insolvency last year, it went so far as to appeal to Russia for capital before turning to the IMF.
The Return of the Fund
Nevertheless, the Pittsburgh summit did commit to revitalizing the Fund—partly to deal with the risk of collapse of small countries, its traditional neoliberal function, but also to coordinate some multilateral policy responses. Ironically, one response is "reducing the economic disruption from sudden swings in capital flows." Of course, the IMF was in part chartered to regulate capital flow before becoming a leading force to expand its power. But in an ahistorical culture like ours, such incongruity is rarely recognized.
This new mandate for the IMF requires significant capital. To augment their own strained resources, the rich nations have finally agreed to a small reapportionment of the IMF quota system. In a moment of great munificence, the developed nations condescended to increase the global south’s share of the IMF voting quota by "at least five percent," insisting, however, that the present quota formula be the basis from which to work. This uncharacteristically generous move can be explained by the need to collect new capital for the organization, with Asian currency stockpiles and oil export surpluses being prime sources, if a few quota percent will bring them around.
Keeping the IMF in place to dictate depression to the world’s majority is hardly the change the world hoped for when the Democrats took office. On the other hand, the IMF has long had the reputation of being the "credit community’s enforcer" and its new role in stabilizing world finance is in line with the demands of world capital.
Another key thrust of the G-20 statement that the protesters "ironically" missed dealt with carrying forward the stalled fight for global "free trade." Meetings of the developed nations routinely call for continuation of the Doha Round of free trade talks, but the call was more imperative this year due to the steep fall in global commerce, by over 10 percent from 2008.
The cause of the delay is simple enough: "Multilateral trade liberalization has largely benefited the developed economies of the North. They have opened their markets when it was convenient and maintained trade barriers when it was not—in agriculture above all—but also in certain manufacturing industries" (FT, "Road from Cancun Leads to Brussels," 9/16/03). This "has exposed the North’s hypocrisy," which would not normally be a big deal, since the fundamental power relations have historically favored the North to the point that it could dictate terms of trade.
But lately, this has begun to change as the major states of the global south have partially freed themselves from U.S.-backed dictators and International Monetary Fund SAPs, and as popular "anti-globalization" movements in civil society in the north and south make demands for a greater public role. Even the current leader of America’s free trade process, U.S. Trade Representative Ron Kirk, admits that "people are afraid" of further trade deals, in spite of low Wal-Mart prices, because "the pain of trade is very real" (WSJ, "Blame Goes Global at WTO," 12/3/09). The economics are simple: low prices don’t make up for lost employment and lower wages nor do they benefit the countries firms choose to invest in.
Shocking as this may sound to the ear of an orthodox economist, the point is common in the business press: "Conventional wisdom is that the big challenge to trade comes from embittered workers, many of whom didn’t enjoy much of the gain from trade in the good times. They see imports and immigrants as a threat to their livelihoods, and press elected politicians to protect them" (WSJ, "New Rules Have Potential to Alter Path of Global Trade," 5/14/09).
The Battle of Seattle at trade talks in 1999 was a manifestation of the late arrival of this consciousness in the north. The collapse of the Doha Round, meant to further loosen trade and investment regulations and barriers, was a manifestation of the far greater strength of this movement in the south. This was the background of the neoliberal failure at Cancun (2003), as the major states of the south continue to struggle to cope with surges of subsidized imports into their countries under the neoliberal regime.
The message from Pittsburgh is a continuation of quite unpopular policies by Obama, as long as the policies benefit the great corporations and banks, which is surely the design of the International Monetary Fund SAPs and the Doha Round requiring poor countries to do without what the rich countries insist on.
The Copenhagen climate summit (December 2009), the direct successor to Pittsburgh, was a perfect instance of the Obama Democrats’ commitment to unpopular business as usual. The U.S. and China, both investment playgrounds, blocked anything more than lip service to binding emission reductions. Their reasons are easy to understand. As the Wall Street Journal wrote, Obama is a "Washington liberal," but a "Copenhagen conservative," busy "supporting the least-aggressive steps, advancing the conservative position of opposition to strict world-wide limits on emissions that ask much more of developed nations than of poorer countries…the leader of the ‘haves’ in their dispute with the ‘have-nots’" ("Obama: Washington Liberal, Copenhagen Conservative," 12/16/09). The energy industry, of course, donated heavily to Obama’s 2008 campaign.
China’s move also makes some sense in light of the fact that the developed nations are responsible for the overwhelming majority of total historical greenhouse emissions and therefore might be seen to bear the major share of the responsibility, having benefited economically from the emitting industries. The EU is livid in Copenhagen’s aftermath, and with China and the U.S. agreeing only to token future goals, the director of BusinessEurope is threatening that European corporations will move operations to world regions with less emission regulation (NYT, "EU Blames Others for ‘Great Failure’ on Climate," 12/23/09). If there is no progress on binding global emissions limits, the U.S. and EU may impose tariff duties on goods made in economies with no carbon taxation, a prescription for a great trade war with unpredictable consequences.
This is because even the U.S. is internally moving toward a very modest greenhouse emissions taxing regime. The reason this small change has been allowed to move forward is the break within the powerful energy industry, with some retail energy providers and utilities recognizing they will benefit from future public spending to reinvent the energy system, while the energy industry proper is still in opposition (NYT, "Energy Firms Are Split on Bill to Battle Climate Change," 10/19/09). The division has recently become quite serious, with prominent corporate giants like Apple and utility colossus Exelon splitting from the U.S. Chamber of Commerce over its heavy spending to fight climate change legislation.
This has led to emissions legislation suddenly becoming politically viable. As recently as 1997 the Senate voted unanimously to recommend the U.S. not sign the Kyoto Protocol, yet now the prospects for the (still inadequate) American Clean Energy and Security Act and its cap-and-trade emissions regime are considered to be decent. The difference, of course, is not that several respected geologists and climatologists recently published a paper in Science describing how Arctic ice core and tree ring records indicate that the 1999-2008 decade "was the warmest of the past 200 decades" ("Recent Warming Reverses Long-Term Arctic Cooling," 9/4/09). Terrifying scientific findings don’t scare policymakers unless they affect their power and privilege. Climate change is now an issue because large-scale capital has split opinions and public awareness and organized support for emission reforms has grown.
Obama hardly deserves credit for this development, as it reflects the recognition by large-scale capital that the changing investment climate now requires federal spending to finance a major change in the industry. The break in the normally monolithic energy industry and the hard work by environmental organizers are the necessary conditions for this political maneuvering.
Finally, it should be noted that the Obama administration is being confronted with a budget-balancing hysteria similar to that which met the Clinton administration. The situation is quite similar to Clinton’s years, actually. A previous Republican administration ran up monumental budget deficits in those areas which in the U.S. are considered most legitimate—increased military spending and decreased taxes on the richest households. Then the succeeding Democrats are obliged to cut down the deficit run up by the GOP, not by cutting imperial intervention or re-taxing the billionaires at previous rates, but by slicing back at the withered remains of U.S. social services.
It was Clinton who decapitated AFDC, the main welfare program for poor families with children, in order to shrink budget deficits run up by Reagan’s wars and upper-class tax chopping. Likewise, absent a powerful countervailing public movement in defense of public services, it may be Obama who oversees the next great wave of austerity measures in the U.S., perhaps focused in severe cutbacks in funding for state services. This has been anticipated by a number of analysts on the left, notably Doug Henwood (of the Left Business Observer). What this suggests is a bipartisan rotating door in state policy where the right pursues its regressive tax goals and imperial designs and center-right Democrats put the pain on the population in order to pursue a centrist budget-balancing agenda. The modern political system has developed into a good cop-bad cop capitalist management team.
In the end, Obama said the anti-G-20 protestors were "ironic" because the issues they made such an impolite fuss over are already addressed in the summit communiqué. But each of the high points is a continuation of the neoliberal status quo which the demonstrators condemned and which Obama implied he would alter. The Democrats can promise all the change they want, but with an economy run by all-powerful corporate networks, you can’t put your money where your mouth is if you want to stay in office. Unless a popular movement arises to demand the change they believed in, the historic Obama presidency won’t be changing a hell of a lot. Irony loves company.