Dissension and the dialectic of crises response and reaction

The recent history of the creation and early growth of the G20 follows a similar trajectory as responses to past national financial crises. There is a crisis response phase in 2008; a concrete reform phase in 2009; and a tension between the new consensus and dissention among states' leaders from 2010 to 2013. Today, the evidence suggests that, at the G20 level, but not yet at the technical level, public disputes have become increasingly vocal and strident. As a degree of economic normalcy returns, in part thanks to actions in stages one and two, the benefits of collective action seem less compelling to G20 leaders. This, too, should be expected. The limits of the paradigm have been reached.

The issues left on the table are those that are not part of the agreed crisis-formed policy consensus. They are grounded in competing national paradigms of growth and economic policy. Still, the negotiators grapple with the issues, almost always unsuccessfully,

particularly as regards imbalances. Historical antecedents can be seen, with similar disputes occurring repeatedly over time—especially over currency, trade, and surplus matters. With no consensus on causes, solutions, and actions in these areas, no progress is possible. Now, with the crisis behind them, G20 leaders grapple with difficult, potentially insoluble, global political economy issues. The very state power that was centripetal in the crisis and reform phases now is centrifugal in phase three because their macroeconomic and currency goals cannot be reconciled.

Thus, we have the dialectic: crisis management, reform and results, leading to a consequent return to nations pursuing their own national interests and the consequent increase in public disunity due to this greater economic stability. So the cycle continues. A period of some years of relative calm may occur. A gradual amnesia will occur amongst the regulators and (certainly) amongst the regulated banks as to the lessons of this most recent crisis. Troubles

will build once again. An unanticipated crisis will occur, and the cycle of crisis management, concrete reform, redesign, and eventual dissension amongst actors will commence again.

Putnam’s model (Putnam, 1988) applied to the crisis and to the G20 and its evolution follows a similar fluctuating rhythm. In phase one, national negotiators are forced together by the severity of global economic events. Level-one goals overlap. Level-two blocking interests of each side are muted or overlap. Win sets are enlarged and accessible. Thus, there is the basis for a policy consensus and swift action post-crisis. In phase two, there is construction of the policy consensus and continued overlap of level-one goals. At this time, regulators

collectively move swiftly without reference to their level-two goals and constituents. Win spaces are still clearly seen and seized by the central banking community to make the new consensus concrete via specific policy changes backed by level-one actors. In phase three, as economic normalcy returns, in part because of the effective and aggressive collective steps taken in phases one and two, reforms already agreed continue at a technical level, but disputes driven by level two domestic issues and lobbies reemerge. National actors begin to reassert their own distinct goals, blocking further consensus or further adding to the still new re-regulatory paradigm. Policy consensus and overlap disappears (for new macroeconomic and nontechnical issues). It is back to business and bickering as usual.

The changes wrought as a result of the 2007-2008 crisis are real. The severity of the crisis forced the beginning of a paradigm shift worldview among technocrats and in certain regulatory areas and a series of interrelated reforms that continue today. But the economy goes through boom and bust cycles, and the response by policy makers operates in cycles, as well.

Eventually, as in previous lesser economic crises, when the crisis dissipates, the urgency evaporates and state commitment to the process will tend to weaken. It is unlikely, therefore, that a further extension of the policy consensus is possible post-crisis. To the contrary, completing national narratives, national interests, and national objectives are again becoming the norm, and the G20 is becoming hamstrung. In addition, when external pressures are removed, or a summit’s leadership proves ineffectual, summitry is less effective. Since it is a non-rules-based, ad hoc, consensus-driven forum, the G20 is most effective in a crisis. It will tend to lose focus and drive in normal, less economically fraught periods, and disputes at summits will increase. This is the nature of the forum and of episodic global summitry that responds to external crises and events.

The G20 is, however, a permanent addition to the top of the architecture of international economic and financial diplomacy. State-to-state, power-based diplomacy is back and is here to stay. Critics of the process therefore need to seek other ways to impact policy making indirectly, (through the IMF, for instance), rather than just demanding admittance, or they should look to the policy process below the G20 summit declarations—that is to say, inside the FSB. It is this new institution which has taken the consensus in the G20 and made the paradigm shift real and potentially long lasting. It is this body, a direct creation of the G20 in 2009 and their central banking community, which acts as the central contractor of financial reform and whose decisions and policy pronouncements change the financial rules and reality for banks and investors across the globe, developed and developing, North and South, East and West.

The following two chapters analyse the FSB and its policy output. It is this forum and its community which is the most important actor and institutional product of the G20-led response to the 2008 financial crisis. It is at the heart of the G20’s crisis response and reform drive. The success and resilience of the elite driven focused re-regulatory paradigm shift depends on the actions and output of the FSB-coordinated process begun in 2009 and which is still underway. Such shifts are indeed ideologicial shifts. To become real and lasting, however, they require that actual third-order policy changes be constructed, defended and, when necessary, further added to. It is for this reason that the role of the FSB is pivotal in any attempt to judge the long-term impact of the creation of the G20 and its policy agenda since 2008.