Wednesday, November 26, 2014

The Snowden Time Bomb

PRINCETON – In the aftermath of the global financial crisis, world leaders repeated a soothing mantra. There could be no repeat of the Great Depression, not only because monetary policy was much better (it was), but also because international cooperation was better institutionalized. And yet one man, the American former intelligence contractor Edward Snowden, has shown how far removed from reality that claim remains.

Prolonged periods of strain tend to weaken the fabric of institutional cooperation. The two institutions that seemed most dynamic and effective in 2008-2009 were the International Monetary Fund and the G-20; the credibility of both has been steadily eroded over the long course of the crisis.

Because the major industrial economies seem to be on the path to recovery – albeit a feeble one – no one seems to care very much that the mechanisms of cooperation are worn out. They should. There are likely to be many more financial fires in various locations, and the world needs a fire brigade to put them out.

The IMF’s resources were extended in 2009, and the organization was supposed to be reformed in order to give emerging markets more voice. But little progress has been made.

The Fund was the centerpiece of the post-1945 global economic system. It subsequently played a central role in the management of the 1980’s debt crisis and in the post-communist economic transition after 1989. But every major international crisis since then has chipped away at its authority. The 1997-1998 Asian financial crisis undermined its legitimacy in Asia, as many governments in the region believed that the crisis was being exploited by the United States and US financial institutions.

The post-2007 Great Recession discredited the IMF further for three reasons. First, the initial phase of the crisis looked like an American phenomenon. Second, the IMF’s heavy involvement in the prolonged euro crisis looked like preferential treatment of Europe and Europeans. In particular, the demand that, because the world was focused on Europe, another European (and another French national) should succeed the IMF’s then-managing director, Dominique Strauss-Kahn, was incomprehensible to the large emerging-market countries. Eventually, as in the Asian crisis, European governments and the European Commission fell out with the Fund and began to blame its analysis for having confused and unsettled markets.

On the big issues underlying the global financial crisis – the problem of current-account imbalances and deciding which countries should adjust, and reconciling financial reform with a pro-growth agenda – the IMF cannot say much more, or say it more effectively, than it could before the crisis.

The G-20 was the great winner of the financial crisis. The older summits (the G-7 or, with the addition of Russia, the G-8), as well as the G-7 finance ministers’ meetings, were no longer legitimate. They consisted of countries that had actually caused the problems; they were dominated by the US; and they suffered from heavy over-representation of mid-sized European countries.

The G-20, by contrast, brought in the big emerging markets, and its initial promise was to provide a way to control and direct the IMF. The new mood of global economic regime change was captured in the official photograph that was widely used in coverage of the most successful of the G-20 summits, held in London in April 2009.

In the short term, the London summit mitigated financial contagion emanating from southern Europe; gave the World Bank additional resources to deal with the problem of trade finance for emerging-market exports; appeared to give the IMF more firepower and legitimacy; and seemed to catalyze coordinated fiscal stimulus to restore confidence.

But only the more technical of these four achievements – the first two – stood the test of time. Everything else that was agreed at the London summit turned sour. The follow-up summits were lame. The idea of coordinated fiscal stimulus became problematic when it became obvious that many European governments could not take on more debt without unsettling markets and pushing themselves into an unsustainable cycle of increasingly expensive borrowing.

And yet, however limited the London summit’s achievements proved to be, the summit process itself was not fully discredited until Snowden’s intelligence revelations. It may be that leaders and their staffs were naive in believing that their communications were really secure. But Snowden’s revelations that the London summit’s British hosts allegedly monitored the participants’ communications make it difficult to imagine that the genuine intimacy of earlier summits can ever be recreated. And, with the espionage apparently directed mostly at representatives of emerging economies, the gulf between the advanced countries and those on the rise has widened further.

World leaders appear partly ignorant and partly deceptive in responding to the allegations. They are probably right to emphasize how little they really know about surveillance. It is in the nature of complex data-gathering programs that no one really has an overview.

But the lack of transparency surrounding data surveillance and mining means that, when a whistleblower leaks information, everyone can subsequently use it to build their own version of how and why policy is made. The revelations thus encourage wild conspiracy theories.

The substantive aftermath of the London summit has already caused widespread disenchantment with the G-20 process. The Snowden affair has blown up any illusion about trust between leaders – and also about leaders’ competence. By granting Snowden asylum for one year, Russian President Vladimir Putin, will have the bomber in his midst when he hosts this year’s summit in Saint Petersburg.

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    1. CommentedStepan February

      The American government has been under a lot of pressure in the past 10-15 years. From the welling up of the ongoing constitutional crisis - Clinton's impeachment, 2000 election, Obama's election, Congressional stalemate, to serial "bubble and pop" economy - dot com, housing, government?, to rolling international challenges - Iraq, the difficult marriage with China, halting climate change efforts, European malaise. The pot is boiling over. While America has always been a pressure cooker, its not a bomb.

      With a substantial portion of the new generation who are entering American public service being tech- and network-savvy, a new whistle valve has been added to the already screaming pot of democracy. The internet generation has started reshaping US politics and will thoroughly do so in the decades to come.

      What is encouraging about Bradley Manning and Snowden is that idealists are still coming to serve the government, that they have thoroughly absorbed the lessons of freedom they have been taught since elementary school, that they believe the government should reflect their values, and that they are not cynical about America as an idea. That is very healthy.

    2. CommentedEdward Ponderer

      Governments make evermore treaties, evermore speeches, and evermore complex set of rules. Enter the countless lawyers, lobbyists, and spin-writers. And where this fails, comes tunneling the whole infrastructure, unabashed thanks to limits of policing manpower, devotion, and integrity -- similarly at the judicial level, and most certainly the political.

      Then the matter festers, and it is just a matter of death by bureaucratic ice, or revolutionary fire.

      The almost 2000 year old question of the poet Juvenal remains today, only evermore bitter, raw, and sardonic -- quis custodiet ipsos custodes? -- "Who guards the guardians?"

      The only guardian for human society is the inner being of the human him or herself -- and their relationships with others. Can we defeat the evergrowing monster of the ego, and evergrowing hollowness of our connections with others?

      Yes--the answers stand before us if we've still the will to grasp them: Integral education, and a media-induced culture of values steeped in mutual responsibility and guarantee.

      But, these are the only real answers. How many towers of cards must collapse before we take the pill? It only appears bitter--but will prove the sweetest imaginable repast. This, especially compared with our present world, evermore so, its present course.

    3. CommentedNeil Patel

      is it not implicitly expected that every country is spying on every other. I thought that what matters most is the commitment of each G20 country to macro changes in the current account imbalances. with every country printing and stimulating seems like that commitment was a false promise.

    4. CommentedOli Ver

      In answer to Mr Beck, doesn't the G20 include a major power that incarcerates detainees indefinitely without trial, commits extra-judicial killings by remote control in foreign countries (some of them allies), illicitly surveils its own citizens as well as internet and communications users worldwide, rewards and celebrates the perpetrators of the 2007/8 financial crash, consumes 25% of the world's declining fossil fuels despite having only 4.6% of the world's population, promotes patented biotechnological agriculture that impoverishes foreign farmers, violates international law by proxy (one example: Bolivian president's jet impeded), airbrushes dubious general elections (e.g. 2000), renders inconvenient suspects for overseas torture, condones torture by waterboarding among other techniques, inculcates a supine national news media, instals and perpetuates convenient foreign dictatorships while working to topple other dictators who don't play ball, whips up fear incessantly as a smokescreen for the dismantling of its own constitution, and generally stomps on foreigners' human rights while lauding its own exceptionalism? Those who live in glass houses ...

        CommentedZsolt Hermann

        I fully agree with you.
        And the US is just continuing in a much more obvious and widespread manner what the British started before them, and what most probably any other nation is doing just not as "up in your face" as the Americans.
        It is the typical case of the "emperor without clothes" talking about promoting democracy and freedom when those "promoting it" have neither true democracy nor true freedom.
        What Snowden revealed is much more serious than what Nixon was impeached for, it is not even the same magnitude.
        But today nobody is truly surprised or want to do anything serious about it, we already quietly swallowed up the "artificially created" Iraq war, the British phone hacking scandals, dismantling democracy in Europe and the US in favor of the markets and the financial institutions and many other similar events.
        The whole global human society is paralyzed watching helplessly as the train is running towards the broken bridge.
        The ongoing revolution in Egypt is a very good case study to show it is irrelevant who the desperate public tries to lift into power.
        It does not matter today if a dictator, a religious organization, military or even seemingly democratic parliament rules.
        The end result is always the same, because the main, root cause does not change.
        It is our inherently egoistic and self-centered human nature that drives us to corruption, exploitation and ruthless competition, and until we figure out how to adjust and ride on top of this nature as a rodeo rider so we can use it for positive mutual goals, we have no chance.

    5. CommentedShane Beck

      Isn't this year's G20 summit hosted by a country that puts dead corpses on trial and successfully convicts them? (shades of the Cadaver Synod).