Obama on Complex Interdependence

From his speech in Cairo today: “Given our interdependence, any world order that elevates one nation or group of people over another will inevitably fail. So whatever we think of the past, we must not be prisoners to it. Our problems must be dealt with through partnership; our progress must be shared…”

Ignoring some of the cheesy themes in the first 10 minutes (the Arabs invented algebra!), it was a ground-breaking and honest speech.  As others have noted, however, it did not provide new or detailed solutions to problems in the Middle East.  My favourite commentary about the speech was actually printed before the speech: an excellent column by FT commentator Gideon Rachman, who pointed out that while Obama is a “soft power” president, he faces “hard power” problems.

But given that Obama gets the soft power messages so consistently right on (I was reminded of his speech on race while listening today), one is hopeful that he will apply the same rational thoughtfulness to the hard power problems the US government faces.

Seven Flags Over Texas?

A funny thing happened on my way to Texas late last week:  I heard that an astonishing 30% of Texans want to secede from the Union (and more than 50% of those that are registered Republicans) and that Governor Rick Perry was encouraging this tomfoolery by sympathising with the rebels.  I learned this by reading the New Yorker I bought during my layover in Charlotte, while I was en route from London to Austin (the Texas state capital).  Having thus already cleared customs and immigration once when I landed in North Carolina, it was theoretically possible that I would have had to show a passport again to enter the sovereign state of Texas.

When the heck did this happen?  I live in a little Euro bubble, where everyone is ecstatic that Obama is the president, and is pursuing climate change and economic stimulus at the expense of the heath of the Federal budget.  But I can attest, based solely on the two gentleman sitting next to me on the plane from London to Charlotte and then from Charlotte to Austin, that not all Americans are equally pleased.  They are throwing “tea” parties: “taxed enough already”, they are talking about secession, they are worried about hyper-inflation (huh?) and think that Obama is “killing the innovation that makes America work.”   I tried to rationally talk these people down (mentioning my credentials at LSE helped somewhat – thankfully they didn’t know that the place was founded by a bunch of socialists), but they were convinced that Obama was running the country into ruin and that secession was a good alternative.

Never again will I just scan the domestic news reported in the New York Times.  My parents might end up living in another country while I’m not looking – and a petro-state at that.

The rebirth of the economy

In the autumn, I made a little forecast about the potential duration of the financial crisis, the severity of which I have always been a bit skeptical about. Essentially, I predicted that the crisis would be over by early April, on the basis that several close friends were expecting babies around that time, and that parents wouldn’t want to bring babies into a world of financial meltdown.

While the forecast was of course tongue in cheek, I’m happy to report that there are signs that it appears to have been correct. Bernanke  and Obama were out last week talking about “green shoots” and “cautious optimism,” saying that although the recession would continue to cause some pain, there were signs that things were already getting better. Today, Bank of America announced that their profits have tripled, which was a good sign that the banking sector has started to recover, especially when coupled with news that JPMorgan, Goldman Sachs and Wells Fargo are also expecting to make big profits this quarter. All of those who drank from the tap of public funds plan to pay them back early. It’s true that these might prove to be temporary upticks in the economy, but they seem pretty robust signs that the critical element of the economy affected by the crisis – the banking sector – will begin to resume lending and therefore prevent the economy from going into further recession.

While all of this is good news, I’m even happier to report that four baby boys have been born to my friends, on March 11th, April 4th, April 10th and April 15th. Two more are expected on April 30th (one girl amongst all these boys!) and in early May.  Let’s hope that their arrival continues to augur well for the economy, not just for their parents and families.

Will the G20 be a success?

While we sit and wait to see whether world leaders can come to some sort of agreement about coordinated fiscal stimulus, enhanced financial regulation, IMF reform and trade protectionism, I thought that I would do a bit of speculating about whether what’s going on inside London’s ExCel Centre today is likely to lead to a break through.   Of course, having never had the pleasure of being involved in such a high level meeting, I’ve had to rely on some other experts to give a sense of what’s going on and whether the summit will be a success.   Here, rather than focusing on the things that are in the news about spats between the French / Germans and the British / Americans / Chinese, I’m looking at some larger aspects of the summit to predict whether it will be successful.

The G20, and it’s predecessor the G7 /8, are unique because they are informal gatherings of finance ministers, foreign ministers and heads of state which allow leaders to seek agreement on major international issues.   But it is not always organised the same way, and the way that it is organised helps to determine it’s likely outcome.  This has been one of the key themes in a class I taught this year at LSE, Economic Diplomacy.

One of the things that Sir Nicholas Bayne (former British diplomat, LSE academic and one of the foremost experts on the G8) has stressed is that successful summits come about when finance and foreign ministries are extensively involved in the preparation of the negotiations prior to the leaders meeting.  He describes this as the ministers making the policy, with the leader giving authority to approve it / improve on it.  When this happens, the more technical aspects of the communique are likely to be agreed on in advance, leaving only the most sensitive political decisions for last minute negotiation amongst leaders.  That is when the informality of the G20 / G8 grouping is most effective: when sitting President Sarkozy next to President Hu Jintao at dinner (which Gordon Brown did last night) is actually likely to lead to some breakthrough.

However, as Sir Nicholas has noted in lectures at the LSE, there was only weak coordination between finance ministers and leaders in the case of both of the G20 summits (in November and at present).  The meeting of finance ministers held on 13-14 March appears to be lightly tied in to today’s summit.  This is perhaps understandable given how new the G20 is as a format for leaders: while it’s been around since 1999 for finance ministers, it’s ability to coordinate at leaders level is actually much less established and they are still ironing kinks out of the process.  But that might mean that the gaps left are too large to bridge by the end of the day, and no amount of face to face contact between Obama and Sarkozy will be able to help facilitate cooperation.

Additionally, by being so inclusive (the UK has invited leaders of NEPAD, the African Union, ASEAN, the World Bank, IMF and other regional development banks to the talks in addition to the 20+ heads of state), the British will have lost the sort of “clubby” atmosphere of the summit which is supposed to facilitate agreement.  The expansion to the G20 already compromises the extent to which the leaders feel some sort of connection and common understanding of global problems, and the inclusiveness of the invitations, while laudable from a global governance and equity standpoint, may actually compromise the effectiveness of the summit.  In fact, social theorists of economic diplomacy argue that such small groupings are effective because they allow actors to be persuaded, rather than forced to go along through more coercive socialisation methods.

But even when things go well at the summits themselves, the G8 and G20 are not super-effective at getting heads of government to change domestic policy.   This has been noted recently regarding the surge of protectionism after the November summit: while leaders pledged to not increase trade protectionism, 17 out of 20 G20 members implemented some sort of protectionist measures between November and April.    Research actually indicates that less than 50% of what is promised at summits is actually carried through on.  That seems to imply that the longer the list of to-do’s the communique presents, the less the chance that it will be implemented in full.   The November communique contained more than 40 items on the to-do list, which were not fully prioritised.

So what do all of these insights mean?  That the summit is doomed to failure?  I don’t think so.  As I said several times over the past couple of days in the news, I think that in the end, a spirit of cooperation will prevail given that the stakes for showing international unity on the financial crisis are so high.   But that doesn’t mean that the summit will produce stunning outcomes – the very fact that there is likely to be agreement means that there will be a sort of least common denominator feeling to the eventual communique.    A disappointment, perhaps, but not a complete failure.

Stepping on toes

The global infatuation with President Obama, universally loved by world leaders, was bound to wear off once the two got to know each other a bit better.  Those growing pains of getting involved in a long-term relationship have started to show up.   You can imagine the exchanges… “Darling, I love what you are doing on climate change and gender equality, but really, protectionist trade policy?”   The realisation that, alas, Obama represents American interests, and that those interests do not always dove-tail with those of foreign countries has hit today.

Look at the symmetry of headlines in two of today’s news items: “Brussles warns US on ‘Buy American’ Rule” and “India warns Obama over Kashmir.”  Oh Obama, how short the honeymoon has been.  The Europeans, who have never been particularly keen on the protectionist slant of the Administration’s promised trade policy, warn that clauses in the new economic recovery package requiring that manufacturers source American is, well, Anti-American.  The US has signed a number of agreements promising not to do just that, not to mention running afoul of WTO rules.  The Indians warn Obama on foreign messiah syndrome: the tendency of American presidents to think that they can single-handily solve entrenched global problems like Palestine or Kashmir.

And it wouldn’t truly be a testy day in the international news if Kim Jong-il wasn’t up to something.   In case the day wasn’t busy enough with major democratic allies sending warning signs, the North Koreans have a new super-missle to test.  Kind of makes you want to go back to the heady days of the transition, no?