Perspective matters

Critics (such as Johnson, or Stiglitz) maintain that what the G20 did in phases one, two, and three does not amount to the outline of a meaningful paradigm shift, that the changes do not go far enough, that the same actors are in charge, and that the adjustments are not radical enough. This ultimately depends of the perspective and the time frame through which events are viewed. Looked at from a greater distance, there does appear to be a real shift in the policy consensus, and in the underlying re-regulatory narrative, a partial

rejection of the laissez faire neo-liberal worldview amongst leaders and the elite level technocratic community. The structures and actual policy outcomes that flow from the new narrative during the evolution of the G20 reflect this shift. These architectural and policy changes commenced in phases one and two, are being tested in phase three. The changes are not yet complete; they remain partially formed and are being disputed by opponents. Taken as a totality, however, the change in worldview and the reforms commenced are indicative of a paradigm shift in approach to international economic diplomacy and re-regulation that is visible and actual in ongoing processes and summitry. As a result, ‘whether the task is developing ideas, reaching consensus on their

desirability, or moving from ideas to implementation, the G20 which has working groups active in all these areas is where the action is’ (Eichengreen, 2009).

The outline of a new financial regulatory worldview and associated new and rebuilt structures (G20-FSB-IMF) are becoming visible. If the scope of the shift is still somewhat indistinct to critics, this is because they are viewing events from the wrong perspective and over too short a time frame.

Previous international and national shifts are instructive. International and national economic paradigm shifts take a long time to become fully apparent. Just as the ‘Bretton Woods system did not emerge from a single moment but rather from a much more extended historical process’ (Subacchi and Cooper 2010, p. 607), so a similar pattern is observed in this case. National paradigm shifts are similar in their pace of evolution.

The Thatcherite revolution ‘did not spring upon the world fully formed and fully armed’ (Payne, 2005. p. 74); it took years to be ideologically conceptualized (by thinkers such as Milton Freidman, Sir Keith Joseph and others) it was then gradually realised via policy shifts. The winter of discontent, 1978-1979, in the UK created crisis conditions that set the stage for the election of Mrs. Thatcher. She was swept to power and began

contentious reforms. But the extent, scale, and long-term impact of her changes in Britain were not immediately apparent. Mrs. Thatcher tackled some policy areas (the trade unions) and not others (the National Health Service). But a new consensus did take shape. Looked at in totality over a longer period, it is now widely recognised that there was a Thatcherite revolution, a neo-liberal paradigm shift in certain economic ideas and policies sparked in 1979 (Blyth, 2002; Gamble, 1998; Hall, 1993).

A partial answer to critics of the G20-led process is, therefore, to suggest they look at the process and reforms underway with a different, longer, and broader, perspective. When one does so the paradigm shift can be seen to first emerge as a change in the ideological stance of G20 leaders and to a greater extent policy making technocrats vis-à-vis the merit of regulation of global markets and firms and application of collective state power to that task. That narrative consensus is then applied to the difficult task of policy making.

Drawing on Kuhn’s work, it is useful to view the crisis and the G20-led paradigm shift as waves (see Figure 3.2). The crisis peaks first in 2008. Policy makers rush to react in Washington, London, and Pittsburgh, creating their own wave of reformist shift in worldview and policy actions through 2009, 2010, and beyond, the full outlines of which are not yet visible. The peak of the economic disaster is now past. The amplitude of the reform wave is greater still and may not be fully appreciated at this point in time, for that is the nature of a large wave that has yet to crest. The lone surfer cannot fully determine the size of the wave when they are riding it.

Note: LTCM = Long-term Capital Management collapse.

In case A in the figure, the paradigm worldview and policy shift continues beyond 2013, and the G20 and its regulatory surrogates maintain vigilance and continue constructing the new architecture, not as frenetically as in phases one and two, but still in a diligent manner in phase three. The central banking technocrats leading the FSB, which direct much of the policy implementation of financial reform, continue the work started in 2009 and act to maintain and defend the paradigm. This is, in fact, what the evidence discussed in this chapter suggests is happening throughout phase three and through 2013.

Certainly in phase three there is evident public discord at the G20 summitry level. But paradigm maintenance continues nonetheless. In phase three, leaders are determined to maintain the G20’s flexibility as an informal state-led forum controlled by themselves and their finance ministries (i.e., not to institutionalise the forum or extend its membership too far). At the same time, however, G20 leaders also back a further series of measures that strengthen the institutional structure of the FSB and processes below them. Thus, leaders retain flexibility for the political forum while they are engaged in institution building, which continues led by the epistemic central banking community backed by the G20.

In case B, the policy paradigm and policy outcomes its produces lessen in strength beyond 2013, and the reform wave weakens in response to various factors, including G20 discord, national-political-economy-driven clashes, slow global growth and, potentially poor

implementation of agreed standards. Outcome B cannot be dismissed at this stage. However, the indicators are that the paradigm shift and policy reform wave and redesign begun in 2009 is continuing today if measured by regulatory impact and other indicators, within certain boundaries.

It is important to recognise the limits of the new paradigm. All such shifts take place within particular science or policy universes and are subject to constraints based on the strength of the discoveries and the consensus narrative that compelled their adoption in the first place, and supports their maintenance once a shift has occurred. It should not be expected, and the evidence does not show, a G20 paradigm shift that is constantly growing in size and volume; this is not an economic big bang and ever accelerating policy universe.

What is seen are clear limits to the expansion of the G20 and FSB-led paradigm shift. The shift is a rejection of laissez-faire neo-liberal truths and the adoption of a state-power-backed

free market structures and economic norms. According to Padoa-Schioppa, ‘If the years before the crisis were years of overreliance on markets and mistrust in government – or, more simply put, too much market and too little government – what we have seen in 2008 and 2009 has been a spectacular comeback of government’ (Padoa-Schioppa, 2010a, p. 8). That

comeback, that reassertion of collective state oversight and control, is real, but the shift has limits.

It does not extend to include perennial global macroeconomic issues such as imbalances or national economic or currency policies. As this chapter has shown, there is no G20 policy consensus visible there, only discord. And, as has been shown, a paradigm shift does not occur if there is a lack of consensus on anomalies, failures, and solutions. Instead, what occurs are disputes and the maintenance of the status quo. Such clashes are not necessarily a weakness of the G20-triggered shift itself, but are instead the outer limits of it. Beyond that boundary, elements of ‘paradigm wars’ and paradigm conflict still exist.

What is notable in the case of the G20’s creation, process, and evolution is not how limited its policy effect may become, but how fast it has proceeded and how many areas it is impacting. Bankers themselves (admittedly self-interestedly) complain of the huge effect of the multiple national and international regulatory processes started by the G20. But they are correct that this is a significant multifaceted and possibly durable re-regulation process; central bankers deliberately designed it to restrict risk taking and decrease the danger of another crisis; it is meant to make banking and risk taking more costly and less appealing, and it is not meant to be temporary.

It is to be expected that the impact of actual policy changes begun by the G20 and FSB fluctuate and currently lack consistency area to area and country to country across the globe in mid-2013. Policy making is a messy process, after all. Viewed in isolation, individual policies promulgated as a result of the G20-led and FSB-championed shift may look more or less strong. But viewed in totality and within the wider cultural context, the fundamental hypotheses that what we see is underway is a G20 directed, central bank-designed, and still being constructed series of concrete policies underpinned by the narrative and policy

consensus paradigm shift among regulators and central bankers . In 2013 the new consensus is being translated into first, second and third order changes in coordinated international financial regulatory policies (Hall 1993). Once again, perspective matters, and the observer

may be too close to events that continue to unfold to fully appreciate the nature of the change in worldview started by the G20 and the FSB leadership in 2008–2009.