Straight thoughts 177

What did the G20 achieve in London?

On April 2, 2009 the G20 issued the expected Declaration document, summarizing the substance of the agreement achieved at the London Summit. Although the wording of any document prepared by a committee is less important than the actions actually taken by the individual countries, the wording of the document usually discloses a trend.

Unfortunately, the governments of the G20 nations display a trend towards more regulation and less open, free market competition. Obviously these governments believe that they can improve the economy. Many of us think that entrepreneurs in a free market can do better than governments.

The wording of the 2009 document differs from the previous G20 declaration in the following respects:

The opening paragraphs: 

2008: “We, the Leaders of the Group of Twenty, held an initial meeting in Washington on November 15, 2008, amid serious challenges to the world economy and financial markets. We are determined to enhance our cooperation and work together to restore global growth and achieve needed reforms in the world's financial systems.”

2009: “We, the Leaders of the G20, have taken, and will continue to take, action to strengthen regulation and supervision in line with the commitments we made in Washington to reform the regulation of the financial sector.”

The 2008 document mentions “open trade”. The 2009 does not.

The 2008 document mentions “open global economy”. The 2009 does not.

The 2008 document mentions “competition”. The 2009 does not.

The 2008 document mentions “free market”. The 2009 does not.

The 2008 document mentions “bank secrecy”. The 2009 does not.

The 2008 document includes: 

“Regulators must ensure that their actions support market discipline, avoid potentially adverse impacts on other countries, including regulatory arbitrage, and support competition, dynamism and innovation in the marketplace.” 

The 2009 document does not contain the idea of supporting the market, and does not contain any of the words: “competition”, “dynamism” or “innovation.”

The 2009 document introduces the “principles” of “pay and compensation” expecting the FSB to regulate the compensation structure in financial institutions. The 2008 does not use the word “pay” and uses the word “compensation” only in the following context: “Reviewing compensation practices as they relate to incentives for risk taking and innovation;”

The 2009 document introduces a Financial Stability Board (FSB) in addition to the Financial Stability Forum (FSF).

Four and a half months, and a new US president, apparently do make a difference.