By Alex Callinicos
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A class divided by money and power

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Issue 2370

THE G20 summit has been dominated by the divisions among the Great Powers over Syria. The line-up has been predictable. A joint statement signed by the US, Britain, France, Australia, Canada, Italy, Japan, South Korea, Saudi Arabia, Spain and Turkey called for “a strong international response” to Bashar al-Assad’s alleged use of chemical weapons.

Among those states refusing to sign up were Brazil, Russia, India, China, South Africa, Germany, Indonesia, and Argentina. This is pretty similar to the division over the Nato military intervention in Libya in 2011.

Roughly speaking you have the main Western imperialist powers and their closest allies opposed by the so-called “emerging market economies”, including all the members of the BRICS grouping of leading Southern states. 

Germany is the odd one out—and not just because chancellor Angela Merkel faces elections. Berlin also opposed the Libyan intervention.

What’s interesting is that this geopolitical split roughly matches up to a divergence in economic fortunes. 

After the 2008 crash, the G20 was supposed to have supplanted the Western-dominated G7 as the main forum for coordinating economy policy among leading capitalist states. This hasn’t exactly worked out, partly because the G7 has much better organisational resources supporting it, partly because of the different economic trajectories taken by the member states of the G20.

Since the Great Recession of 2008-9 the key zones of advanced capitalism—the US, the European Union, and Japan—have, at best, stagnated.

Meanwhile, the leading economies of the global South have recovered relatively strongly. Initially, this was because the Chinese government ordered a massive programme of bank-financed investment. 

This revived not only China but also those countries supplying it with energy, raw materials, and complex manufactured goods. 

This pulled up the other “emerging market economies” but also Germany, which specialises in exporting high-end manufactures. But a second factor soon came into play.

This was the policy of “quantitative easing” (QE). The US Federal Reserve Board embarked on this policy, followed by the Bank of England and, more recently, the Japanese central bank. 

This involves central banks buying government and corporate bonds with money specially created for the purpose.


The idea was that QE would, by pumping money into the economy, encourage companies to borrow and invest. This didn’t work—big corporations are sitting on huge cash reserves that they are not investing. 

So much of the new money was used to make speculative investments in the bigger economies of the global South, encouraging relatively rapid economic growth.

Now this is unravelling. The Chinese authorities are desperately trying to slow down an economy that has been driven by the accumulation of vast quantities of unmanageable debt. And the influx of capital elsewhere created more speculative bubbles that are now deflating in countries such as India, Indonesia, and Turkey.

Add to this the fact that some Western economies—notably the US and Britain—have finally begun to grow a bit. This has prompted financial markets to start betting that the Federal Reserve and other central banks will end QE and allow interest rates to rise much earlier than they are claiming they will. 

This is a self-fulfilling prophecy that is already pushing up interest rates. And this in turn is attracting speculative money to shun the South and return to the US and Europe.

Just before the G20 summit the International Monetary Fund admitted that it had got it wrong yet again. The “emerging market economies” have not, as it had predicted, become the driver of global growth, and “momentum is projected to come mainly from advanced economies”.

Tensions about US plans to “taper” QE surfaced at the G20 summit, though they were papered over it in the final communiqué. But St Petersburg confirmed the disharmony among the leading capitalist states is as much economic as it is geopolitical.

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