More than $1bn is predicted to be spent on security for the summits, with
demonstrations on climate change and poverty, among others, expected [AFP]
 

As world leaders gather in Canada for the G8 and G20 meetings, they are divided on what is to be done about the global economy, with debates over banking reform and stimulus spending taking centre stage.

On stimulus spending, initially everyone wanted to borrow to make sure the great recession did not become another great depression.

Today, Europe wants to cut, while America and China want to spend.

Jan Randolph, head of Sovereign Risk Country Intelligence at Global Insight, said the US worries that leading economies will "collectively withdraw these supports too soon there could be an economic relapse, just like what happened in the 1930s that extended the great depression."

When to spend and how much? These are not new debates.

Politicians in the great depression of the 1930s and the stag-flation period in the 1970s fought elections on these very questions.

Academics and economists have been arguing about this stuff, without pause, since the depression.

But today’s G8 show-down reverses a general trend in economic history.

Obama wants governments to stimulate economic growth [AFP]  

Typically, the US preached rugged individualism and power for private business over government spending.

Europe is known for embracing the welfare state.

But this new recession is a game changer.

Friedman vs Keynes

At its core, the transatlantic divide on stimulus spending looks like a battle between Milton Friedman and John Maynard Keynes, with the US and Europe reversing their traditional roles.

Friedman, an American economist based at the University of Chicago, believed that governments should not interfere in financial markets.

His views have come to define the policies advocated by much of the American right, although massive public spending on the military does not seem contradictory to this crowd. 

Keynes, an Englishman based at Cambridge University, argued that governments should borrow money to finance growth in times of economic contraction.

In the great depression, Keynes' views became policy, with governments, particularly Roosevelt's America and Hitler's Germany, making massive investments in infrastructure, and later in war, to kick start their economies.

Keynes may have won the first battle. But in debates over stimulus spending this time around, he may lose the final war in favour of Friedman's public austerity and market orientated shock-therapy.

That is because governments today seem more likely to respond to bond traders than the people who elect them.

Voters generally support social services and state spending for job creation, while the markets favour austerity.

Cameron, Britain's PM, has announced an austerity programme to combat debt [AFP] 

And, there is a spectre haunting Europe: the spectre of an angry bond market forcing a Greek style meltdown in sovereign debt.

The US is not so fearful of incurring wrath from the electronic hoard of bond traders because the US dollar still acts as the world's reserve currency.

If a country wants to buy oil or other commodities, they usually make the transactions in US dollars.

This, in part, allows the US government to borrow at low interest rates.

Policy makers in London, Paris and Berlin fear that international bond traders will not be so kind to Europe.

That is why Germany, the continent's biggest economy, has committed to budget cuts of $98bn over the next four years, and the French government also wants to pursue conservative fiscal measures to reduce existing debts.

The UK announced significant spending reductions this week, including a planned $16bn reduction in the national welfare bill and a rise in goods tax by 2.5 per cent

Roles reversed
 
The transatlantic divide continues when it comes to bank taxes.

But on this issue, the roles are reversed, with Europe taking a position associated with state intervention and the US opposing it.

Germany and France have expressed support for some kind of a banking tax, although the exact details are unclear.

The US, despite its touted financial reform package negotiated on Friday, does not want serious new taxes on the financial sector.

"Once you try to tax profits, bankers can move to tax havens"

David Hillman, Robin Hood tax campaigner

Stamp out Poverty, a coalition of trade unions and development organisations in the UK, is pushing for a global transaction tax or what they call a "Robin Hood tax".

"Since the Pittsburgh [G20] summit, the whole thing has been opened up from 'shall we tax the banking sector' to 'how should we tax the banking sector'", David Hillman, the group's coordinator, told Al Jazeera.

"The Robin Hood tax campaign favours a transaction tax and it is extremely difficult to avoid because it is automated, for selling bonds, derivatives or foreign exchange. Once you try to tax profits, bankers can move to tax havens," Hillman said.

European leaders have said that a global transaction tax needs to be investigated.

The US and Canada oppose such a policy.

"The banks caused the crises, there should be some pay-back. We need to make sure that there aren't as many jobs lost and [that] are we going to meet our climate change [obligations]," the campaigner said.

Despite all this tax talk, two of the largest US based hedge funds, the Citadel Investment Group and the Blackstone Group, people who have the most to lose from a transaction tax, refused interview requests.

It seems these organisations, whose destabilising, speculative activities are almost universally loathed, want the whole transaction debate to just go away.

That seems unlikely. But a global deal on a new financial tax at the G8 or G20 is even more doubtful.

Anti-globalisation movement

Regardless of what the G8 leaders decide, thousands will gather to protest.

The poorly named "anti-globalisation movement" had its coming out party in Seattle against the World Trade Organisation (WTO) in 1999.

The world has changed a lot since then.

Like the International Monetary Fund and World Bank, the WTO was seen as an instrument of western economic imperialism, preaching a 'do as we say, not as we do' logic to the global south.

The 'anti-globalisation' movement has become a fixture at international summits [AFP] 

And, while some protesters take credit for undermining the WTO's hegemony, the real threat to the organisation came from changing dynamics in global power.

The WTO's push for increased influence and scope collapsed after negotiations in Doha, Qatar and Cancun, Mexico, but not because of protests.

Rather, divides between the weakening north and a more confident south meant that the status quo was untenable.

The US and Europe preached open markets and an end to protectionism while massively subsidising agricultural products, steel and other politically connected industries.

Delegates from the south, particularly emerging giants India and Brazil, said "no deal".

Despite the growing political clout of emerging economies, much of the anti-globalisation movement sees international affairs in a unipolar framework: arguing that the US and Europe exploit the economies of poorer nations for their own benefit in a neo-colonial fashion.

This exploitation remains true, in some sectors at some times.

But the west's general influence is slipping and new alliances are being built.

In 1999, protesters chanted "another world is possible".

Today, after the relative failure of the WTO, the invasions of Iraq and Afghanistan and China's sustained rise, it seems like another world is here, compared to the one that existed in 1999.

This new world, however, may not be the one that demonstrators wanted to see.

The views expressed in this article are the author's own and do not necessarily reflect Al Jazeera's editorial policy.

Source: Al Jazeera