Doomed From the Start

20 November 2008

We can say three things with certainty regarding reforms to international financial structures: They are necessary, inevitable and doomed to fail.

The Group of 20 summit held in Washington was destined to fail from the start because the participants held such widely divergent interpretations of the problem. It was also doomed because nobody had a solution plan that was clear or concrete enough.

The only thing that the G20 members could agree upon is the date of their next summit.

We can say three things with certainty regarding reforms to international financial structures: They are necessary, inevitable and doomed to fail.

The Group of 20 summit held in Washington was destined to fail from the start because the participants held such widely divergent interpretations of the problem. It was also doomed because nobody had a solution plan that was clear or concrete enough.

The only thing that the G20 members could agree upon is the date of their next summit. Ideally, the participants would have become acquainted with each other's positions as a first step toward unified action. But even that would not have been enough because even if the participants had agreed on all of the issues and even if a coordinated solution had been developed, nothing useful would have come of it.

The old financial system is falling apart before our eyes, and it is impossible to build a new one its place. But no matter how hard the politicians and experts might try, a new and effective international financial model can be built only after the world's most developed countries institute radical social and economic reforms.

That new system would institutionalize on a global level the new principles guiding the lives of its member states. But none of today's world leaders is proposing any fundamental changes to their societies. What's more, politicians never address such questions at summits and conferences.

At the end of World War II, the Bretton Woods agreement reflected the economic conditions in Europe and the United States at the time. The unbridled free market economy was subjected to new government regulation, and the domination of the bourgeoisie was replaced by a historical compromise between labor and capital. It was no coincidence that the chief architect of the Bretton Woods agreement was the eminent British economist John Maynard Keynes, whose name is connected with the era of mixed economy and the welfare state.

By the end of the 1980s, however, neoliberalism had replaced Keynesianism as the dominant economic model in Western countries. This paradigm was also adopted at leading international institutions, such as the International Monetary Fund and the World Bank, whose origins date back to the Bretton Woods era. If their initial task had been to regulate markets, stop reckless financial speculation and promote socially responsible government policies, by the end of the 20th century the IMF and the World Bank had largely become libertarian tools for deregulation and privatization.

At the same time, these institutions underwent a radical and seemingly irreversible transformation. Although in a formal sense, they remain a part of the public sector and exist on funds from their founding member states, in reality they are becoming instruments of the global financial oligarchy. Most central banks have become independent of their respective governments, and they have shown more loyalty to the directors of private banks.

Therefore, until each country reforms its own central bank, it will be pointless to even discuss the emergence of a new international financial architecture. Over the past 20 years, the public sector has been destroyed and privatized. If that situation does not undergo radical changes, trying to reform the global financial system is a useless endeavor.

It is not the world's financial structures that needs to be reformed but society. If this were to ever happen, however, it would remove the need of having most of today's international institutions. In addition, the leaders who gather at the G20 and other global summits would become irrelevant as well.


Boris Kagarlitsky, a fellow of the Transnational Institute, is a Director of the Institute of Globalization and Social Movements, Moscow. His latest book is Empire of the Periphery: Russia and the World System (2008)

About the authors

Boris Kagarlitsky

Boris Kagarlitsky is a well-known international commentator on Russian politics and society. Boris was a deputy to the Moscow City Soviet between 1990-93, during which time he was a member of the executive of the Socialist Party of Russia, co-founder of the Party of Labour, and advisor to the Chairperson of the Federation of Independent Trade Unions of Russia.  Previously, he was a student of art criticism and was imprisoned for two years for 'anti-Soviet' activities.

Boris' books include Empire of the Periphery: Russia and the World System (Pluto Press, February 2008, Russia Under Yeltsin And Putin: Neo-Liberal Autocracy (TNI/Pluto 2002) and New Realism, New Barbarism: The Crisis of Capitalism (Pluto 1999).

Recent publications from Alternative Regionalisms

Susan George Classics

The Transnational Institute brings together Susan George’s oeuvre in this beautiful handmade boxed set of her six classic books.

Doing away with ‘labour’

Conventionally, the concept of ‘labour’ is understood as referring to waged labour – the capacity to labour as exercised through a market. It was precisely this narrow understanding of labour that the discussions in this stream challenged from several angles.

Rethinking regionalisms in times of crises

The demand for people-centred regional alternatives has been at the core of people’s struggles in Latin America, Asia, Africa and Europe. This reader pulls together perspectives of social movement activists, describing the restrictive regional spaces within which they work and propose regional alternatives.

Crisis and alternatives

In the long term we have to transcend capitalism as it cannot ensure a decent livelihood for all nor is it compatible with preserving necessary ecological balances. In the short-term we must start out with basic social democratic demands.