- The core negotiations seem set to finalise agreement over a “framework for balanced and sustainable growth” – particularly critical from US and Chinese perspectives – that seeks to give the IMF a greater reporting role in policing global imbalances. The FT’s Money Supply blog offers a sceptical comparison of the leaked draft agreement with the IMF’s current role.

- As to the Europeans: Gordon Brown seems to be adopting a broader focus, calling in an NYT op-ed for “a new system of governance” to form the “next common economic goal”. (He also announced that UK Business Minister Shriti Vadera would be going on secondment to the South Korean government to help develop proposals on global financial architecture ahead of their G20 presidency next year.) For Angela Merkel, the “most important subject” is financial regulation; she argues that “we must not search for substitute issues”; and for Sarkozy too, the top priorities look to be bankers’ bonuses and agreement over capital requirements for banks.

- Trade and protectionism are sure to form another important aspect of negotiations, particularly for China and India. VoxEU takes an interesting look at trends in world trade since the November 2008 Washington Summit,  highlighting how G20 states’ oft-proclaimed commitment against protectionism has been broken by member governments approximately once every three days since last year’s commitments. “No other statistic”, Simon Evenett argues, “better demonstrates the paucity of global leadership on contemporary protectionism”.

- Robert Zoellick, President of the World Bank, calls for the summit to focus on the world’s developing economies, highlighting the positive contribution they can make to the health of the global economy. Pittsburgh, he argues, can mark the advent of a more “responsible globalisation” founded on “multiple poles of growth”. Brazilian President, Luiz Inácio Lula da Silva, meanwhile, presents his take on the G20 grouping in the LA Times.

- Around the think tanks, finally: Brookings has an in-depth report focusing on some of the broader implications of the G20 agenda, from the protectionism issue to African and Latin American perspectives, as well as assessing the G20’s approach to climate change. The Carnegie Endowment, meanwhile, has an interesting take on Saudi Arabia’s approach to the summit, given its increasing exposure to instability in the financial markets and vulnerability to shifts in oil and food prices.

Elsewhere, Chatham House has analysis of some of the key short-term economic indicators, as well as long-term GDP forecasts – arguing that it is still to early too be coordinating exit strategies. The Canadian-based Centre for International Governance Innovation, meanwhile, takes a comprehensive look at some of the challenges facing the G20 as a forum for global economic governance, with contributions from policymakers and academics alike.

Enshrining a principle of equity in a global deal would do much to dispel such concerns and generate trust. A long-term goal of per capita emissions converging to a band could ensure that no country is locked into an unequal share of the atmospheric commons. India has recently stated that it would never exceed the average per capita emissions of high-income countries. So drastic action by high-income countries to reduce their own carbon footprint to sustainable levels is essential. This would show leadership, spur innovation, and make it feasible for all to switch to a low-carbon growth path.

Hey, did the Bank just endorse Contraction and Convergence? Not quite. As I explained a few weeks back, converging to equal per capita emission levels is not the same as converging to equal per capita emission entitlements – the difference being the small matter of whether poor countries get to benefit from emissions trading markets worth, oh, a few billion dollars. Shame the Bank missed that trick. Not so UNCTAD, on the other hand, as we saw a couple of weeks ago:

… if population size were to be given an important weight in the initial allocation of permits across countries, many developing countries would be able to sell their emission rights because they would be allotted considerably more permits than they need to cover domestically produced emissions.

Interesting coda: I was having lunch the other day with a senior official from an international agency that shall remain nameless.  I was saying I couldn’t figure out why low income countries didn’t get out there and demand quantified emission targets – allocated on the basis of immediate convergence to per capita convergence in emission entitlements. His answer: because they lack an equivalent to the OECD  – i.e. a think tank that supports them as a bloc.

Back in the 1970s, he continued, UNCTAD was increasingly showing signs of fulfilling this role; but it started to get too good at it, so major donor nations deliberately scaled back its funding. All the more welcome, then, to see UNCTAD punching above its weight on the biggest development issue of the 21st century.  Bravo.

(PS. You might think that the G77 performs the role of an OECD for poor countries, on climate as on other issues. But you’d be wrong, on two counts. First, there’s the point that G77 lacks a secretariat – in contrast to OECD’s small army of extremely smart people in Paris. But second and more fundamentally, there’s the point that however cohesive G77 might look like from the outside, the fact is that low and middle income countries have increasingly divergent interests on climate change.

Partly it’s a question of where climate finance goes: middle income countries want to see lots of cash being pumped into low carbon development programmes that will help them to grow and to access clean technology, whereas low income countries are far more concerned with adaptation.

But more fundamentally, it’s about the emission entitlements issue. Pretty much all low income countries have per capita emissions far below the global average – so if emission permits were shared out on an equal per capita basis, they’d be making real money.  Not so most of the major emerging economies – above all China, which already has per capita emissions above the global average, and would hence be a net purchaser of permits from the get-go, whenever the convergence date might be.  No surprise, then, that G77 skirts around the issue, preferring to lead on the need for developed countries to cut their own emissions and cough up more climate finance…)

As its title would suggest, the report focuses on the impact of the financial crisis on international development efforts. It opens on a grim note with the news that DFID estimates that by the end of next year 90 million more people will be living in extreme poverty as a result of the crisis. Moreover, the WHO believes that up to 400,000 additional children could die as a result. The International Development Committee adds that progress towards the MDGs may have been set back by up to three years.

A major point made in testimony given to the Committee was that initial expectations that the developing world would be insulated from the impact of the crisis have proven false. Whilst the contagion effect of the crisis has only directly harmed western economies, the indirect knock-on effects have applied pressure to transnational business flows worldwide. The World Bank reports that of the 107 counties it categorises as ‘developing’, 40% are ‘highly exposed’ to the downturn.

Unsurprisingly-though quite rightly-the International Development Committee’s response to all this is to insist on the importance of maintaining ongoing aid commitments, as agreed at the G20 summit in July.

Aside from that, the issue of tax havens is highlighted and it would seem that the British government is increasingly committed to making progress in this respect. Gordon Brown in particular has been forthright on this issue, but his government seems somewhat hamstrung at present and we shall have to await developments.

In the wake of the London Summit, institutional reform is back on the agenda. The need to overhaul the IMF and World Bank, particularly in regard to apportionment of votes within those organisations needs to be a priority for the post-crisis politics of global governance. Indeed, reform has been presented as a condition for the boost to IMF funding that the G20 agreed upon earlier this year. Broader questions of operational versatility are also important. In these respects, the Committee’s report is strong on good ideas and analysis, but light on suggestions for how Britain can help bring about the desired changes. For that perhaps we need to wait for the DFID White Paper due later in the summer.

On a seemingly superficial note, the Committee proposes that DFID’s name be changed and puts forward ‘British Aid’ and ‘DFID UK’ as possibilities. The intention, it seems is to increase the ‘visibility’ of UK international development spending. Of course, DFID does a lot more than aid, so I think we can immediately dismiss the first suggestion. As a reserved Brit, the idea of being so brash as to use ‘UK’ on international development work is too reminiscent of the US tendency to splash the Stars and Stripes on aid parcels. It seems… immodest, somehow. But it might be a good idea all the same – US aid is part of its soft power and in the same way, the work of the Department for International Development has the potential to be a significant contributor to British attempts to win ‘hearts and minds’, particularly in countries like Afghanistan. After all, the Committee’s report points out that DFID is the largest donor to the World Bank’s International Development Association. Maybe blowing our national trumpet more boldly isn’t such a bad idea. Though one wonders if there isn’t a snappier name out there somewhere – suggestions welcome, of course.

reports how Nigerian officials charged $2,200 for 18 cups of tea and snacks at a roadside stall under a World Bank loan (and got away with it). A project office with eight staff in the same country charged a switchboard for 60 telephones, 48 air conditioners, 14 shredders and 12 refrigerators to the operating expenses of another Bank project – all at prices well above the going market rates. They also claimed expenses for television and video sets at 249,999 Naira apiece – more than ten times the equipment’s street value, but just one Naira less than the amount which triggers stricter controls.

Few will be surprised to hear about World Bank money disappearing – Berkman quotes an internal report which found that ‘stealing from Bank funds is the rule, not the exception’. But all the same (and perhaps I’m being naïve), one would have thought that World Bank employees would have enough problems with the endemic low-level fraud that their organisation is known for, without contributing to it themselves. Of course, unlike British parliamentarians, World Bank officials aren’t politicians and being insulated by their institution, will never have to face the wrath of the public.

Whether or not that’s right (and like Willem Buiter, Martin Wolf is also a good deal more downcast than the Lex team), it’s interesting to compare today’s Lex column with what they had to say about capital flows to emerging markets just a couple of days ago.  Here’s the bit that made me sit up:

Take Brazil and India, the globe’s ninth and 12th biggest economies, according to the International Monetary Fund’s latest estimates. While the developed world is expected to shrink by 2 per cent this year, the IMF reckons Brazil will grow by 2 per cent, and India by 5 per cent. Why? One answer is that they have stable banks, relatively closed economies, and large internal markets. This has insulated them from much of the global turmoil.

The contrast with East Asia is stark. Singapore’s economy shrank at an annualised 17 per cent rate at the end of last year, South Korea by some 20 per cent. Yet this is not for lack of capital. Asian economies, after all, are global creditors. Their economies have shrunk instead because they are heavily oriented towards collapsing international trade. Meanwhile, their local markets are undeveloped and weak. Asia’s challenge is how to best deploy its accumulated surpluses to boost domestic demand.

None of that amounts to a rationale for protectionism as a response to the crisis, of course; Buy America is still a stupid plan.  But the data does seem to me to put a question mark over a core plank of current orthodoxy in international development thinking.

For one thing that everyone agrees on in the development world is that integration in the global economy is a central route out of poverty.  (The disagreements have been about the extent to which such integration necessarily implies trade or financial liberalisation, not the more basic point about integration per se – hence the old argument over protection of infant export industries a la China or South Korea, where the subject of dispute is ‘how’, not ‘whether’).

There’s a kind of parallel here with last summer’s panic over export restrictions on food, when import-dependent countries that had placed their trust in the reliability of liquid international markets for food (like the Philippines) suddenly felt very burned when export restrictions appeared in over 30 countries.

In both examples, the underlying analytical issue is the apparent trade-off between growth and profitability in the good times and resilience when the shocks and stresses start to pile up.  Unfortunately, for countries that lack the benefit of Brazil and India’s insulation, it’s probably too late to think about putting buffers in place.  (If you wait until the panic buying is already underway before you start assembling a stash of canned food under the stairs, then you’re just making the problem worse…)

Thanks to Flickr user Oliver Ingrouille

Prepare to heave at this New York Times screed on how tough life is for bankers these days.

“Nobody in the investment banking world is expecting pity, or even a sympathetic ear, these days,” the article begins, before quoting banker after banker who not only feels  ”unfairly singled out“, but wants destitute home owners to accept the lion’s share of the blame:

Financiers tell their not-for-attribution account of the mortgage crisis like this: Americans undersaved and overspent for decades, relying on rising property values to bankroll their lifestyles.

But nobody on Wall Street forced United States homeowners to take out loans on houses they couldn’t afford, or refinance mortgages to spend money on cars they shouldn’t have bought.

Of course, others are at fault too. Ratings agencies failed to warn innocent financiers of the risks they were taking, while regulators… well, they should be ashamed of their many failings. Bankers did just one thing wrong. They trusted us too much – and we let them down.

Now they are spat on as they cross the sidewalk from their limousines and are too embarrassed to admit what they do at champagne receptions. “I’d almost rather say I’m a pornographer,” says one poor soul. “At least that’s a business that people understand.”

Then there’s the last devasting blow – having their bonuses cut:

“Fact is that this is a terrible way to make a living — except for the money,” Ken Miller, a former vice chairman at Credit Suisse First Boston and now a private investor, said. “The lifestyle is terrible — the hours, the sucking up. These guys must feel like they’re the victims of a capricious god.”

Yes indeed, Ken, it seems they do.

I’ve interviewed Lebedev in Moscow. He is a strange man. Not your typical Russian oligarch at all. He’s something of an outsider in Putin’s government, despite having worked as a spy abroad (he was based here in London during the 1980s, and his job was to monitor capital flows from the USSR).

He’s much closer to Gorbachev, and the two own one of Russia’s few independent newspapers, Novaya Gazeta. People were worried Novaya Gazeta would lose its teeth when a KGB man bought it, but no, it still seems full of brave journalists -  one of which was gunned down in Moscow in mid-January, while walking with a human rights lawyer.

The thing that struck me about Lebedev was how wowed he was by British society. He enthused about a dinner he was at in London, where he sat between Tom Stoppard and Tom Wolfe. His son Evgeny is even more of a butterfly, and he could be the one in the driving seat at the Standard.

What will be interesting is how the paper will report UK-Russian relations, next time Russia is in the news for some aggressive action (shouldn’t be long now), particularly if it took place in London, like the Litvinenko killing. I don’t think Lebedev would sit by and let the Standard slag off the Kremlin, as one previous editor, Max Hastings, is fond of doing – he referred in passing to Putin as ‘Russia’s chief Mafia capo’ in a Mail article last week. Not sure that would wash with the new proprietor of the Standard.

But London will be the big one. Gordon Brown – tired of saving the world on his lonesome – will slip into the role of Robin. Obama will play Batman and kick the world back into shape. The role of Joker is yet to be cast.

But will the summit be a success? The British PM has a lot riding on it, and not just because he believes he can use the event to transform his electoral prospects. We’re in the midst of “the first financial crisis of the global age,” he says, and the best solution is try to bind all the key global issues (economy, trade, climate change, energy, development etc) into a new vision for a  “global society”.

“This is not like the thirties,” Brown told a Davos audience (slightly plaintively, perhaps). “The world can come together.” But will it? And more to the point, will Obama reserve sufficient bandwidth to global coordination? Or will he be sucked into further America First policies, as the mess at home hoovers up a growing proportion of his time, energy and political capital?

The past does not dictate the present of course, but the historical precedents are not so good. The nearest equivalent to the London Summit in the thirties was World Monetary and Economic Conference, which was held in the summer of 1933.

This meeting, which bought 66 countries together in last ditch attempt to trigger global economic recovery, was derailed by a new US President – Franklin D Roosevelt – who had recently been elected in a landslide. Roosevelt rejected a compromise deal that had been hammered out by his own delegation.

The result was humiliation for a weakened British Prime Minister, and a furious reaction from the other European nations, led predictably enough by the French. The Germans, meanwhile, were left out on a limb. Hitler – just settling in as Chancellor – was forced to disown his Economic Minister mid-summit. It was an early setback for him on the international stage.

Time Magazine had a great contemporary report:

Not since Wartime has short, narrow Downing Street been so jammed with reporters from wall to wall. A message from President Roosevelt was expected and delegates of the World Monetary and Economic Conference had been waiting all day for it.

Suddenly the Prime Minister’s motor car was sighted and word whipped round that the message had come. Scot MacDonald, alighting hatless in full evening dress, stepped inside and tried to calm the delegates, urged them by inference to go home.

“I will wait up for a message from President Roosevelt,” he cried, “even if I have to sit up until four in the morning…The moment I hear I shall let you all know…Goodnight…Goodnight all.”

The American delegation had been noticeably weak at the summit, refusing to make any decision without referring back to its President at home (a bad habit that persists to this day, driving other negotiators up the wall). So tempers were already wearing thin when they gave provisional approval to a plan to shore up the global currency system, maintaining its fraying link to gold (at least for a while).

The UK had been forced off the gold standard in 1931, after a series of runs on the pound, thus increasing pressure on both the US and the other European countries. Now Roosevelt had confiscated all bullion held by US citizens and had started what would be a 40% devaluation against gold.

Relishing the limelight and playing to an adoring domestic audience, Roosevelt kept the British PM, Ramsey MacDonald waiting all night and well into the next day, before unleashing a bombshell telegram, which denounced “the fetishes of so-called international bankers” and vetoed US involvement in an global deal.

“I do not relish…continuance of the basic economic errors that underlie so much of the present worldwide depression,” he said. His priority was building a “sound internal economic system” at home, not global currency systems. The World Economic Conference was dead despite some attempts to revive it.

Will history repeat itself? If it does, as I argued in a recent paper, it could well be the result of tit-for-tat currency devaluations. The US’s Tim Geithner has since sized up to China, accusing it of manipulating its currency. Wen Jiabao’s responded sharply in public and, we are told, furiously in private. If US-China friction grows, the London Summit will prove very chilly indeed.

Obama, of course, has strong cosmopolitan instincts and probably imagines himself at the G20 cutting a visionary and far-sighted deal. But history shows that domestic pressures are hard to resist for a new US President. Remember Smoot-Hawley, which crept up on Herbert Hoover shortly after his election, and which he signed into law despite protest from virtually the whole economist profession.

In the wake of the failed summit, Roosevelt had some success with his policy of focusing exclusively on domestic solutions to the US’s economic problems. But the impact of the New Deal has often been exaggerated. Niall Ferguson argues that his efforts were little better than Hoover’s:

Roosevelt wanted to raise agricultural prices and to cut government spending, an unpromising combination at the best of times; the majority of his schemes merely tended to increase the power of the federal government by demanding stricter supervision on banks, national planning for public utilities and centralized control over relief efforts. The resulting jobs for bureaucrats made only a modest dent in the unemployment numbers.

It took the Second World War that finally put paid to the Great Depression. It was a global solution to a global problem, of course. Just not the kind of solution that I think Gordon Brown has in mind…

Addendum: Was Roosevelt right to dump the gold standard and let the dollar devalue?

Almost certainly – yes. Keynes was a huge supporter,believing the world desperately needed to escape the straitjacket imposed by gold. But just nine months later, he was left wondering whether the President really knew what he was doing. In an open letter, he told Roosevelt  that “the recent gyrations of the dollar have looked to me more like a gold standard on the booze than the ideal managed currency of my dreams.”

The President had the right instincts, Keynes thought, being the only world leader who “sees the necessity of a profound change of methods and is attempting it without intolerance, tyranny or destruction.” But like leaders today, he was facing a completely unfamiliar set of dilemmas and was left “feeling [his] way by trial and error.” (Expect Obama to be getting the same critique in a few months’s time.)

Ben Bernanke, however, is more sympathetic. A noted expert on the causes of the 1930s Great Depression, he argued a few years ago that devaluation put a quick stop to US deflation and led to one of the best ever years for the stock market in 1934.

Back then (2002), Bernanke thought the lessons of the thirties were mainly academic ones. The chances of the US experiencing deflation in the foreseeable future were ‘remote indeed’, while if deflation did come calling, the Federal Reserve had plenty of tools to head it off and, if the worse happened, cure it.

Now, of course, he leads the Fed, which now sees US deflation as an increasingly immediate risk. I wonder if he’s still confident that he has all the tools he needs. And if a devaluation of the dollar – to raise the price of imports while boosting exports – might eventually be one of them…

Click for more Global Dashboard coverage of the G20 and the London Summit.