The world deserves a more effective G20
As the presidency shifts from Argentina to Japan at Buenos Aires (and then to Saudi Arabia) it is worth asking why the G20 has endured this long and what it needs to remain relevant in a dramatically changed world.
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When the Group of Twenty (G20) leaders meet in Buenos Aires at the end of this month, it will be a decade since their first meeting in Washington. As the presidency shifts from Argentina to Japan at Buenos Aires (and then to Saudi Arabia) it is worth asking why the G20 has endured this long and what it needs to remain relevant in a dramatically changed world.
The G20 encompasses a much more diverse group of actors than the Group of Seven (G7) countries that preceded it, and that brought it into being. In a review I have just completed for Bruegel, the Brussels think tank, I ask in what ways global economic management has been affected by this greater diversity.
The record is mixed. The collective response by G20 members to the 2008 crisis was coordinated and admirable, and quite likely saved the world from a second great depression. Among the emerging and developing economies (EDEs) the enormous stimulus package of China was globally important, an indication of its economic size even a decade ago.
As the crisis started to recede, divisions among the advanced economies (AEs) – particularly on the role of fiscal policy – became central to shaping the recovery, with the EDEs featuring less prominently even as they remained locomotives for global growth.
Today, a decade after the first summit, China and India are the world’s second and third-largest economies (measured at purchasing power parity). The G20’s EDE members now contribute as much to global output as do their AE peers.
There are several explanations for the diffidence of the EDEs. The more populous ones, India and China in particular, remain very poor countries when compared to the G7. Unsurprisingly, they are wary of accepting the obligations that come with being considered systemically important largely on account of their large populations. Collectively, the habits of cooperation across the EDEs are not as well-honed nor as dense as those within the G7 (which has continued to meet as a leaders’ group in parallel with the G20). To the extent this caution reflects inexperience, it should abate with time.
The deep economic interdependence across all G20 economies produced by globalisation creates a shared interest in steady, sustainable and balanced global growth. Yet, in practice, coordinating economic policy across sovereign governments is always difficult – except in times of crisis. Indeed, the G7 countries had abandoned the effort in the 20 years before 2008. In a triumph of hope over experience, and despite these past disappointments, the G20 leaders have repeatedly directed their officials to raise their game.
An impressive analytic apparatus has been developed with international organisations supporting peer-reviewed commitments made by G20 countries, but its impact on country policy choices remainsawork in progress. At the same time,it would be wrong to be too dismissive: there is ample evidence that countries take commitments made at the G20 seriously.
The aftermath of the financial crisis seems to have worsened the medium-term growth prospects of the EDEs more than the AEs. Restoring productivity growth is of cardinal importance for the former. This will be more difficult,given the structural decline in political support for globalisation across the AEs. The wide gap in financial openness between the AEs and the EDEs also implies different priorities for the financial reform agenda in the years ahead. As an example, the EDEs have a deeper stake in international monetary reform than the AEs. Trade governance is also anarea where the EDEs have specific interests that might well differ from those of the AEs.
The fragmentation within the G7, as well as economic divergence within the BRICS countries (Brazil, Russia, India, China and South Africa), will likely make it more difficult for the G20 to agree priorities in the coming years. Meanwhile, the scale of organisational and bureaucratic resources consumed by the G20–and activities surrounding it – continues to balloon. Yet at a time when multilateral institutions are themselves under siege, a more focused and efficient G20 may actually have a more important role to play.
These arguments lead to two conclusions. First, the EDEs will need to become more focused and assertive as to their specific priorities within an overall framework of balanced global growth. Second, reform of the G20’s own processes is essentialin order to create a better balance between resources consumed and economic impact. The Eminent Persons Group on Global Financial Governance report, presented to the G20 Finance Ministers in Bali last October, makes specific proposals on both sets of issues. If the G20 is to thrive over the next decade, taking these proposals seriously is a good place to begin.
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