Obama and the G-20: Is It 1933 All Over Again?

World economic leaders again will meet a new U.S. President amid a deep slump. But today they have more tools than they had in the Great Depression

By Steve LeVine

The newspapers these days say you have to go back three-quarters of a century to grasp the significance of this week's Group of 20 summit of world leaders. Reminiscent of the meeting of leaders of the world's largest industrial and developing nations set for Apr. 2, the June 1933 World Economic Conference assembled 20 foreign ministers, eight prime ministers, and one king from 66 countries to present a common front against the Great Depression.

Is 1933 apt? And if so, are there any lessons are to be learned?

There are surface similarities. Both conferences were held in London. In 1933 world leaders filtered through Washington to confer before the conference with America's new President, Franklin D. Roosevelt. Today, Washington has been a traffic jam of world leaders. British Prime Minister Gordon Brown, Australian Prime Minister Kevin Rudd, and French Prime Minister Francois Fillon all arrived to try to influence President Barack Obama ahead of G-20. German Prime Minister Angela Merkel talked to the U.S. leader by video conference.

Dig deeper, and there are eerie reminders of the challenges leaders faced in the Great Depression. Then as now, the prevailing wisdom was that they needed to make a show of cooperation, or risk even worse global pessimism. In both cases, Europe and the U.S. had starkly different agendas (today, the U.S. wants more stimulus while Europe wants to focus on regulation; FDR was focused on economic recovery, and the Europeans wanted to stabilize their currencies around the value of gold). And before both conferences, credible voices suggested the establishment of an international reserve currency (currently it's China and Nobel economist Joseph Stiglitz; back then, it was the voice of John Maynard Keynes, who nominated the gold equivalent of the dollar as that currency).

Similar, but Minus the Geopolitical Bad Guys

And it wasn't just economics—in 1933, too, the world was attempting to reset its relationship with Moscow, which had remained isolated for 16 years after the Bolshevik Revolution.

"It's the best analogy," Simon Johnson, a former chief economist for the International Monetary Fund who now teaches at Massachusetts Institute of Technology, says of the 1933 conference.

Earlier this month, University of California at Berkeley economic historian Barry Eichengreen told Agence France-Presse that in both cases "political constraints [got] in the way of doing the right thing." One such example he cited: "congressional opposition to more money for Wall Street."

Yet the comparisons go only so far. The absence of an International Monetary Fund, a World Bank—or the Group of 20 nations itself—made a restoration of stability and growth more difficult, says Paul Kennedy, the Yale economic historian who wrote The Rise and Fall of the Great Powers: Economic Change and Military Conflict from 1500 to 2000. And politics created a more menacing backdrop, he says.

"For those getting too alarmed, by 1933 you already had bad guys who were in power," Kennedy says in an interview. "In Japan you already had a regime that had invaded and controlled Manchuria. Mussolini was in power in Italy. The Nazis were already assuming autocratic power.…[Today] I don't think anyone is busy with revengeful, prowar militaristic feelings. Certainly not any in the G-20."

Lessons from 1933's "Complete Fiasco"

In terms of lessons, Harvard economic professor Dani Rodrick cautions the G-20 leaders on his blog not to repeat the main failing of the 1933 conference, which "focused on an outdated goal—restoring the rules of the classical gold standard." Today, Rodrick says, "European obstinacy" has resulted in nixing fresh financial stimulus that he says "can make a real difference to the world economy." Rodrick also says that more money for developing nations would make a huge difference, but that it's not clear this "is being pushed hard enough by any of the rich countries."

Liaquat Ahamed, the former head of the World Bank's investment division, who writes about the 1933 conference toward the end of his economic history, Lords of Finance: The Bankers Who Broke the World, agrees. The 1933 conference, he says, ended in "a complete fiasco" when FDR refused to go along with Europe's push for currency stabilization based on the gold standard. Yet, he says, the Western economies ended up "pursuing the right policies in uncoordinated moves"—all of them ended up using expansionary monetary policy.

"The basic moral of the story is that it is better if you don't have international coordination if it's the wrong policies. It's far better to have uncoordinated good policies," Ahamed says.

LeVine is a correspondent in BusinessWeek's Washington bureau.