The G-20 Finance Ministers and the Coalition’s Agenda
It was perversely amusing to watch the overdone theatrics involved in the recent meeting of G-20 finance ministers and central bankers in Sydney – a prelude to the main G-20 summit in Brisbane later this year. The theatrics didn’t come from the summit itself: like all such international gatherings, this one was bland, micro-managed, and bureaucratic. Rather, the only entertainment value was injected by the frantic attempt of Coalition spin-doctors to portray the event as some kind of historic turning point for global capitalism – and worse yet, as somehow constituting international endorsement for the tough-love direction the Abbott government is set to take the country.
The Murdoch papers and the rest of the media parroted these themes obligingly, reporting the event as an enormous diplomatic victory for Mr. Hockey (the host finance minister). The key milestone, it was said, was getting the 20 nations (which together account for 85% of world GDP) to agree to an explicit target for boosting global economic growth – a target which, we were told breathlessly, would add $2 trillion to global output. Wow! That’s sure a lot of money! But what does it really mean?
Summits are always mostly a stage from which national leaders play to their home audiences, look statesmanlike, and tilt at whatever windmills are helpful to their domestic political agendas. The Sydney meeting took this practice to an unprecedented extreme. Perhaps the sheer novelty of holding a global summit in far-off Australia threw fuel on the fire of this over-excitement. In any event, the triumphalism of the Abbott-Hockey rhetoric was so over-the-top it should have been laughable – were it not for the fact that the whole event was manipulated for such perverse and destructive purposes.
If we actually examine the documents of the Sydney meeting, the dissonance between the aggressive interpretation of Abbott and Hockey, and the cautious diplomatic verbiage contained in the actual approved statements, is startling. In particular, the Sydney meeting provided no international endorsement whatsoever for the Coalition’s agenda of harsh fiscal restraint, anti-union industrial relations “reforms,” and historic attacks on health and welfare programs. The opportunistic attempt by the Coalition government to make political hay from the accidental fact that they played host to this summit so early in their mandate, should be exposed for what it is: manipulative and dishonest.
What did the G-20 actually say?
Not much. Coalition leaders have tried to portray the Sydney meeting and its resulting communique as a big "victory" for the host government, and some kind of historic turning point in global economic policy. This is nonsense.The final communiqué from the Sydney meeting can be readily obtained on-line (for example, here):
It is more bland, than offensive.
The so-called growth "target" merely says the G-20 member countries will implement policies that they think will lift global GDP (currently around $90 trillion US) by 2 percent (cumulatively, not per year) after 5 years. That is akin to an increase in annual growth of less than four tenths of one percentage point per year (ie. not much). For comparison, the latest OECD forecast (late in 2013) reduced its expectation of medium-term global GDP growth by half a percentage point per year – so the big outcome of the Sydney summit (even if realized) adds back less to growth, than the OECD’s own forecasters just took off.
Yes, arithmetically, that much extra growth over 5 years would indeed produce $2 trillion in new GDP – but that's just because global GDP is very large to start with. Even the normal expected global growth rate of close to 4%, would add $20 trillion to GDP over the same period. We all know that’s not going to solve the world’s problems – so an additional $2 trillion (again, even if realized) won’t even be noticeable, and certainly is not a game-shifting commitment. It's easy to issue media statements based on big numbers (especially when you add them up over many years). More importantly, there is no concrete plan regarding how that growth will be stimulated, what will be done if the target is missed, or even how growth is to be measured.
[Of course, all this is subject to a deeper critique that meeting human & environmental needs, not growing GDP, should be the actual goal of economic policy. We should be putting people back to work doing useful things, not growing GDP for its own sake.]
The biggest gap in the G-20 statement is that there is no obvious program to actually achieve that growth. The communiqué mentions four key components of the growth agenda:
* increase investment
* lift employment and labour force participation
* enhance trade
* encourage competition
It also mentions the continuing importance of macroeconomic policies (including low interest rates, and a gradual approach to fiscal re-balancing) in order to support aggregate demand and the painfully slow recovery from the global financial crisis.
Regarding government finances, the G-20's agreed goal is to put debt as a share of GDP on a “sustainable path.” That does not mean reducing government spending, or even eliminating the deficit. It is hard to imagine a more broad, "motherhood" statement of the fiscal goal. In no way can the G-20 statement be interpreted as an endorsement of Abbott's coming cutbacks. (See below for more discussion of the arithmetic of debt/GDP stabilization in the Australian context.)
Of the four broad levers listed above, the only one with a genuine concrete potential to actually stimulate growth is investment (including infrastructure investment, which was singled out in the G-20 statement). Other items listed are premised on the assumptions that more trade and more competition are indirectly good for growth (an assumption which is not ratified by real-world experience). Calling for more employment is a good thing, to be sure, but it is a byproduct of growth, not a cause of growth. Similarly, more labour market participation is in turn a positive byproduct of stronger employment (and could be boosted further by other worker-friendly measures, like higher minimum wages, better child care, and more).
Of course, neoliberals try to justify any policy as “growth-promoting” eventually, again on the assumption that creating a secure, profitable environment for business is all that’s required (since business will then invest more, create jobs, and generate wealth by the familiar trickle-down methods). So once again, just because they say their agenda is good for growth, hardly means that more growth will occur: the bitter experience of the last 7 years has proven that irrefutably.
So whatever we think of snapping our fingers to create a magic $2 trillion increment in growth, the reality is that there is nothing clear in the G-20 program (which Coalition spin-doctors have ostentatiously termed the “Brisbane Action Plan”) to actually make it happen. Economists around the world have in fact critiqued the Sydney declaration precisely for that lack of foundation. Moreover, the only mentioned G-20 policy lever that is clearly connected to growth (infrastructure investment) requires more spending by government, not less.
Abbott-Hockey Spin
The Coalition government is trying to take the G-20's agreement on this "target" (and its very vague underlying measures) as an international endorsement of their radical-right structural agenda for Australia. This is clearly false and unjustified.
Even worse, some in the government seem to be implying that the G-20 statement now constitutes some kind of "commitment" that Australia must keep, regardless of what the government promised during the recent election. This is also false, not to mention fundamentally anti-democratic. The government will imply that it must now do painful things that it never spoke about during the election, in order to “keep Australia’s international commitment” to this loose global summit process. But the G-20 has no real decision-making capacity, and certainly has no ability to overrule domestic democratic processes in any of its member countries.
The key structural changes which Abbot is working toward include:
* huge cutbacks in spending on health and welfare
* anti-union changes in industrial relations laws and practices
* big reductions in spending on industry policies and infrastructure
* raising the retirement age
There is nothing in the G-20 communiqué that could be interpreted as specifically supporting any of those measures. Nor could there be: remember, the G-20 represents a wide range of economic views (including from countries like Brazil, South Africa, India, Germany, Argentina, Russia, China) which partly or wholly contradict the hard-line neoliberal assumptions of the Abbott vision. To be sure, the destructive but unnecessary politics of austerity are on the rise in most parts of the world, so there is certainly an international dimension to the Abbott-Hockey plan. But many G-20 countries would never commit themselves to a hard-right program like the one the Coalition is preparing to implement. And none of them care what Australia does with its internal affairs. So the claim that as the G-20 host, Australia must “set an example” by radically fulfilling a neoliberal plan which the G-20 didn’t even commit to, is doubly false: the G-20 didn’t agree to that plan in the first place, but even if it did it has no power to hold Australia to account regarding its implementation.
Regarding the Coalition’s IR agenda, Matt Cowgill of the ACTU has pointed out that even IMF research (prepared for the G-20 meeting) indicated IR “reform” would have little positive impact on Australian productivity.
In fact, we could just as easily argue for a progressive strategy (increasing more spending on health care and other social investments, collecting fair taxes to stabilize the debt/GDP ratio, and strengthening collective bargaining as a way of achieving very high Scandinavia-style employment and participation rates, industrial policies to boost investment and exports in key value-added sectors), all using exactly the same vague criteria contained in the G-20 statement. In other words, the left could invoke the same G-20 commitments to investment, employment, participation, and even trade to justify a program diametrically opposed to the Coalition’s direction. This simply shows how vague the G-20 agreement actually was – and how its meaning inevitably depends on the eye of the beholder.
Progressives can deny loudly and energetically that the G-20 declaration (vague and motherhoodish as it was) gives any kind of support or legitimacy or endorsement whatsoever to the Abbott-Hockey plan (other than being an awesome photo-op for the Treasurer). The Coalition government is taking advantage of its good luck to host a major international event so soon after being elected, using it very opportunistically to promote its own domestic agenda. If anything, the principles of diplomacy might suggest Abbot is being very irresponsible, and risks the credibility of the whole G-20 process (which was meant to be a more inclusive and diverse body than the G-7 or G-8 summits) with his transparent effort to manipulate the process for his own domestic politics.
Australia Going Broke?
As always, the Abbott's coming cuts will be justified by fiscal necessity. And Abbott and Hockey will use the vague G-20 statement to further endorse their painful and unnecessary actions. None of this is valid. Countering the artificial fiscal alarmism being propogated by the government will be an important part of the left’s response to the coming cuts.
Australia's combined general government deficit equaled 3.5% of GDP in 2012 (all data in this section is from the OECD Economic Outlook). According to the OECD, that was the 19th largest deficit out of 34 OECD countries. Australia's deficit was one-third the size of the US deficit, and barely half the size of the OECD average deficit (which was just under 6% of GDP in 2012). By international standards, especially in the context of the GFC and the continuing slow recovery from it, Australia’s deficit is small, not big.
Measuring debt (instead of deficit), the relative strength of Australia's fiscal position is even more clear. Net debt as a share of GDP (remember, that's what the G-20 communique targeted, not the deficit itself) equaled just 10% of GDP in 2012. Compare that to over 100% for Italy, Japan, and Greece, and 80% (and growing rapidly) for the US. Australia's net public debt ranked 20th out of the 34 countries of the OECD. The OECD average for 2012 was 68%. Again, Australia’s debt is small, not large. And at a moment when there is enormous underutilization of labour and other productive resources, when there are glaringly unmet needs (including for more investments in physical and social infrastructure), and when the engine of private capital accumulation is clearly slowing down, it is irresponsible to elevate public debt reduction as an economic priority. This is a time when public debt serves a positive and productive function; Australia needs more of it, not less.
The true goal of eventually stabilizing debt relative to GDP does not require the deficit to be eliminated (and it certainly does not require it to be eliminated through huge spending cuts). Big spending cuts obviously eliminate employment (directly in the public sector, and indirectly through the spin-off contractionary effects). So in that regard, Abbott's cuts not only have not been called for by the G-20 – they could actually be portrayed as violating the G-20’s stated emphasis on growth and employment.
Australia could stabilize debt/GDP by accelerating growth and job-creation, and very gradually reducing (but not eliminating) the deficit as a share of GDP. For example, if nominal GDP growth rose to 5%, and the deficit was gradually reduced from 3.5% of GDP to 1% of GDP (or about $15 billion per year by then) over the next 5 years, the debt/GDP ratio would stabilize after that point at under 20% of GDP -- still very low by international standards. Faster nominal growth (due either to inflation or to real growth) allows the point of debt stabilization to be reached more quickly, or with larger ongoing deficits. That approach would be fully consistent with the G-20’s call to put debt/GDP on a “sustainable path.” At any rate, accepting that debt/GDP cannot grow rapidly forever (which is a reasonable conclusion) in NO WAY entails the shock therapy of deep cuts in social programs that the Coalition is preparing. Those cuts are motivated not by a need to limit public debt, but rather by a desire to discipline and restructure Australian society.
In reality, growth-worshipping dogma aside, the Coalition government is either not defining its economic program with the goal of maximizing GDP growth (no matter what the G-20 said, and no matter how inappropriate the goal of single-mindedly maximizing GDP growth may be), or else it is so misguided about the real mechanics of growth (believing its own “trickle-down” analysis) that it is implementing policies that would defeat that stated goal. In fact, there are already ample signs that Australia’s growth is ebbing dramatically. Huge layoffs at major private sector firms (Alcoa, Qantas, and the entire auto industry) are exacerbating the chilling effects of the long-expected downturn in mining investment. Throw in the enormous public sector downsizing expected in the Coalition’s first budget (and the resulting spin-off effects on employment and purchasing power), and it is entirely possible that Australia’s 25-year record of recession-free growth could actually be broken by the end of the Coalition’s first year in power. In this context, the government is surely vulnerable to a critique that its policies are not even meeting its own stated goals – let alone advancing the ultimate priorities of Australians for an inclusive, secure, sustainable economy.
Conclusion
There is nothing in the G-20 communique that should be interpreted as supporting the Abbott-Hockey austerity program. The government should be criticized strongly for manipulating an important international process for its own domestic political aims. Its coming actions could just as easily be argued to be inconsistent with the G-20’s communiqué, as somehow “mandated” by with it. Progressives in Australia can develop a more convincing (and more humane) vision for how to meet the same goals of investment, employment, and participation as were described in the G-20 statement.
Jim Stanford is an economist with Unifor, Canada’s largest private sector trade union. He is presently on sabbatical in Australia, based in the Political Economy Deptartment at the University of Sydney.
Disclaimer: Dr Stanford did not receive any funding from institutions, public or private, in the preparation of this post, and the views expressed are their own and do not necessarily reflect those of the Journal of Australian Political Economy, the University of Sydney or Unifor.
