While the G20 communiqué mentions “corporate social responsibility”, the real blow to irresponsible business emerges when you take a step back.

Reining in corporate excesses has proved increasingly difficult in a global economy.

Faced with threats of tighter regulation regarding, say, tax avoidance, or financial market opacity, or labor rights, corporations have threatened to relocate to countries that are prepared to cut them ever more slack.

In the knowledge economy exemplified by investment banking, the problem is even worse. Attempts to rein in remuneration that rewards failure, the taking of system-threatening risk positions and ever greater focus on ever shorter time horizons, bank executives have warned of an exodus of mobile “talent” to jurisdictions maintaining a lighter touch.

Grown-up nations with substantial economies have plunged like lemmings into a race for the regulatory bottom. While ideologues rail against the persistence of big government, the reality is that government power has been ebbing away to big business, particularly to the inflated financial sector, without any of the checks and balances underpinning the legitimacy of power in democratic government.

National governments have been failing their citizens for decades, exposing them to risks of environmental damage, human rights abuse and economic rollercoasters. The endeavour is dressed up as a conscious policy choice – the comfortably titled “Washington consensus” – when in reality it is a gargantuan case study in game theory where the prisoners are flipping coins each night to see who gets to share a cell with their large, sexually aggressive fellow inmate.

Until last week, that is.

Breaking out

Last week at the G20 summit in London, for the first time in the modern global economy, the world’s major economies showed signs of a collective will to rein in rising corporate power.

That will was evidenced by two groups of measures that together threaten the global risk-rigged edifice of today’s financial capitalism.

Firstly, the Basel-based Financial Stability Forum is to be reinvented as the Financial Stability Board with broad powers of oversight of banks and international markets. This new global regulator will aim for a "stronger, more globally consistent, supervisory and regulatory framework for the future financial sector, which will support sustainable global growth and serve the needs of business and citizens." Such consistency, if achieved, will undermine regulatory arbitrage whereby jurisdictions compete against each other to attract businesses with ever lighter responsibility requirements.

Of course, the content of that consistency is important too, and the signals from the FSB’s initial announcements indicate among other things a sensible approach to bankers’ remuneration – that it should reflect the risks being taken and focus on long-term performance – and greater transparency in the credit derivatives market and hedge funds.

In case financial institutions fighting these measures wanted to bolt for some palm tree dotted idyll, the second group of measures holds out the promise of closing down the offshore financial center and tax haven bolt hole option for good. This also restricts’ corporations ability to punish responsible governments by placing yet more of their profits out of taxable reach.

The G20 expressed readiness to employ sanctions “to protect our public finances and financial systems. The era of banking secrecy is over.” The OECD straight away published a list of countries assessed against the international standard for the exchange of tax information, indicating the varying degrees of commitment evidenced by each jurisdiction.

This represents an unprecedented commitment to rein in tax evasion, supported by a broader plan to unwind regulatory and tax competition.

An unfinished revolution

The G20 has done far from everything that needs to be done to rein in corporations in general and the financial sector in particular.

The summit reaffirmed a commitment to free trade even though, as Mark Weisbrot, Director of the Center for Economic and Policy Research observed, “the WTO's Financial Services Agreement seeks to establish rules that would make it more difficult for countries to undertake the financial regulations that this crisis has so painfully demonstrated are needed.”

The stated commitment to free trade flies in the face, however, of what most G20 members are actually doing.

We still need to undo the repeal of the banking reforms within the Glass-Steagall Act of 1933 – a legislative action that now permits the high-oxygen, provisional wing of the financial system to play with the asset bases of boring old institutions that bring in deposits from risk averse people like our parents - current and prospective retirees.

We still need to address the ridiculous moral hazard created by bailing out banking institutions without replacing the management and penalising their equity owners. Expect further calls along those lines this week from Elizabeth Warren, a Harvard law professor and chair of the congressional oversight committee monitoring the government's Troubled Asset Relief Program (Tarp). Applying such strictures only to new bailouts is unlikely to satisfy anyone but the Wall Street oligarchs.

We still need country-by-country reporting of accounts by corporations to make it hard to hide any money in tax havens. The seriousness with which G20 host and UK prime minister Gordon Brown is approaching the tax haven issue has, however, been reaffirmed post-summit by the writing of a letter to the OECD urging urgent action.

Love in a cold climate

Commentators have complained loudly that the G20 summit represents a missed opportunity, too, for linking new economic growth to clean technology development. I don’t agree.

Firstly, for all the numbers being thrown around, there was no new global stimulus package under discussion that could have been turned into a Green New Deal.

Secondly, neoliberalism had to be knocked off its perch before progress could realistically be made on climate action in the face of corporate opposition.

The unity achieved by this summit represents a significant step in this direction, as leaders of the largest economies built a couple of foundational stones for the new kind of capitalism they would like to see emerge: not a short-term opaque global ponzi scheme, but a transparent, long-term value building, responsible capitalism.

This will only assist the tenor of negotiations on climate action that will dominate the second half of the year.