A century ago Pittsburgh was home to one of the greatest concentrations of millionaires on earth. Their names still rumble with authority: Carnegie, Mellon, Frick, Westinghouse, Heinz and Schwab.
This week the names descending on Pittsburgh are millionaires only in the sense that the global financial crisis forced them to bail out, and effectively own, some of the biggest financial institutions in their countries: Obama, Brown, Sarkozy, Merkel, Hu, Hatoyama and many others.
Their task is to take the measure of the Great Recession and, with more rumble than authority perhaps, reassure us that we are finally heading out of it. Look for them to proclaim that they are readying an overhaul of the global financial system to avoid the next crisis. Nicolas Sarkozy, the French president, recently was kind enough to say that “even the English” recognize the need for reform.
Some skepticism is in order, and nothing much is expected to be formally decided. But unlike many of these international confabs, this meeting could be an important one for both President Obama and his counterparts in moving the discussion toward some necessary adjustments in the global economy. A little background first:
Some 35 leaders are convening at the confluence of the Monongahela, Allegheny and Ohio Rivers under the auspices of the Group of 20—G-20 for short. The first thing you will note is that the numbers don’t coincide. This was a party where the 20 main organizers did not want to make too many colleagues feel bad for being left out. The invitation list kept growing and growing.
Why Pittsburgh?
Mr. Obama, who chose the site, says it’s because Pittsburgh “has transformed itself from the city of steel to a center for high-tech innovation—including green technology, education and training, and research and development.”
Could it also be that Pennsylvania is crucial to his presidential campaigns, and that its media outlets also extend to Ohio, another important state struggling to recover from the economic downturn? Just asking.
Here are five main issues to watch:
1) The Obama administration has leaked outlines of its proposal for the summit to approve an agenda of “sustainable and balanced growth” coming out of the recession. What this means for the U.S. is that it is telling China, Japan, Germany and other big exporters not to count on Americans to go into hock while they import foreign goods, as Americans have in the last decade. To some extent this issue is a proxy for the United States’s longtime effort to persuade China to switch from an export-driven to a consumer-driven economy, and to let its currency appreciate and not rely so heavily on flooding other countries with their cheap products, much to the ire of the Congress and the American labor movement. A second aspect of the growth strategy is what it will signal about the intention of the major economic powers to engage in an “exit strategy” from the recent binge of government intervention that was aimed at averting an even worse global meltdown. But not much specifics are expected on when the U.S. will raise interest rates, cut federal spending or reprivatize the American banking system.
2) Speaking of China, trade will be a big and perhaps contentious issue, because the Chinese are still furious over Obama’s recent imposition of tariffs on Chinese tires—and the implicit threat that such tariffs could be slapped on other products like steel, cement, aluminum, paper and many other things if China does not let the value of its currency, the renminbi, rise more than it has against the dollar. Obama has yet to convince global economic powers that he really is in favor of free trade. He’s yet to convince business interests in the United States either. Look for pressure on him in Pittsburgh and how he responds to it.
3) Global warming is another big issue, only a few months away from the big United Nations conference on that subject in Copenhagen. Europeans are alarmed that the Obama cap-and-trade legislation is stalled, while Congress tears itself apart over health care. They are also dismayed that the American legislation appears likely to include a package of protectionist measures to help American industries compete against Chinese and Indian products, if those two countries don’t sign on to a global warming pact. The world leaders also have to reassure poor countries that they will get the financing and development assistance to convert to low-carbon economies. That will come with a big price tag, just as everyone is trying to wind down from the crisis.
4) A deep rift has opened between the Europeans and the Americans over financial regulation, and it will be interesting to see how they resolve or paper over it. The Europeans want strict limits on compensation of banking executives. The Obama administration is resisting their call for pay caps and says the main problem is that institutions “too big to fail” had to be rescued. The administration’s solution: requirements on the minimum amount of capital each bank has to have in relation to its assets and liabilities, along with other limits on their activities. But the administration’s approach is widely viewed, even in Congress, as tepid and meanwhile Wall Street is back to many of its old tricks. Given that most of the world blames the United States for starting this crisis in the first place, look for complaints to be heard from other attendees.
5) The issue most dear to many participants, but not to us civilians, is the future global financial architecture. Should the G-20 become a permanent steering committee for the global economy, replacing the old G-8? Should the International Monetary Fund and the World Bank be given new responsibilities and be forced to give greater governing power to the emerging new economies, especially China, India and Brazil? Should they meet more often? Less often? Never again in Pittsburgh? There might be some signs of progress on this issue, with at least lip service given to the new entrants in the global picture. But of course the real question is whether any of these groups will ever have any power to do anything about the global economy, as opposed to rearranging the deck chairs on the international financial institutions that failed to foresee the crisis this time around.
It will definitely be interesting watching Mr. Obama showing world leaders the sites and sounds of Pittsburgh—which, truth to tell, is a city of many charms and much history. But it is unlikely to serve as more than a three-river diversion from the flood of problems facing him at home, from health care to Afghanistan to the economy. My sense is that on the above issues, some new signals can be sent to resolve the problems at other forums down the road. Meanwhile, the world leaders are no doubt waiting for Obama to emerge as a leader of real stature, more than a tour guide to a steel city with a great past and an uncertain future.
Steven R. Weisman, editorial director and public policy fellow at the Peterson Institute for International Economics, had numerous senior roles at the New York Times, including international economics correspondent, chief diplomatic correspondent, senior White House correspondent and editorial board member. He is the author of The Great Tax Wars: Lincoln to Wilson—The Fierce Battles over Money and Power That Transformed the Nation (Simon and Schuster, 2002).
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