When the British celebrity chef Jamie Oliver went to the United States earlier this year to encourage obese Americans to eat a healthier diet, one irate West Virginian demanded to know who “made you king”.
Now some policy-makers and campaigners are asking the same question about the Group of Twenty nations.
The G20, once an informal grouping of the most powerful industrialized and emerging economies, has come a long way since its formation 11 years ago. Today it leads the charge for tough action on deficit reduction and banking reform in the wake of the financial crisis.
But until very recently the G20 – set up to bring together systemically important industrialized and developing economies to discuss key issues in the global economy – has existed happily below everyone’s radar. Big decisions on global macroeconomic policy and international financial architecture were left to the leaders and finance ministers of the G7 – Canada, France, Germany, Italy, Japan, the UK and the US.
But in the wake of the spectacular 2008 collapse of leading financial institutions and the attendant recession, it was clear the once-magnificent seven were too economically weak and weighed down by debt to coordinate a global response on their own.
The US, led by then-president George W Bush, swiftly moved the G20 Summit to the top of its political agenda to encourage the fastest-growing nations, including China, India, Brazil, Turkey and Australia, to back a global effort to avert a depression.
The London Summit in April 2009 and the Pittsburgh Summit five months later were widely hailed as achieving concrete progress towards an economic recovery and a more sustainable financial system. Jean-Claude Trichet, president of the European Central Bank, now describes the rise of the G20 as “one of the major structural transformations of global governance over the last three years”.
But with the global economy heading for recovery, albeit an anaemic one; major banks returning to old patterns of behaviour, and delays hitting financial reform, the key issue is whether the G20 can still serve a useful role. “It seems to be running out of steam,” says Jesse Griffiths, coordinator of the Bretton Woods Project, a civil society organization. “A lot of the things that it said would happen have not happened.”
However, Pranab Mukherjee, the Indian finance minister and one of the leading non-G8 members, strongly rejects the criticism. He says leaders of emerging market and developing countries are – for the first time – part of a forum with rich nations that is more representative than the G7.
“The G20 has been effective, both because it represents economies that make up about 75% of the world economy and trade, and because it continues to be manageable in terms of numbers for meaningful deliberations and for quick actions,” he tells Emerging Markets in an interview.
Even among the sceptics there is a broad consensus that the G20 is a vast improvement on the G7. “It is clear that the world needs a steering group for the world economy, and frankly the G8 had not been able to play that function because their share of global growth had slipped to half,” says Homi Kharas, a veteran World Bank economist now at the Brookings Institution.
He says that the G20 is a happy medium between the G8 and the idea of having an inclusive body on the lines of the United Nations would be “too unwieldy”.
Barbara Matthews, a former US Treasury attaché to the European Union and now managing director of BCM International Regulatory Analytics, believes critics of the G20 need to understand its true purpose. “The G20 was never intended – either at its foundation or at its rebirth in 2008 – as a normative rule-setting body,” she says. “It was designed as a political body to generate momentum but not necessarily convergence
“I would suggest that the G20 is a strong entity as long as sovereign states turn up and negotiate. The good news is that they are talking to each other. The moment they stop turning up or fail to agree on major initiatives is when we have to worry.”
G7 MARK II
Danny Bradlow, a professor at the University of Pretoria in South Africa and American University Washington College of Law in the US – two G20 nations from each side of the rich/poor divide – believes that some people overestimate the extent of a shift in power. “The old G7 countries have not surrendered control of the agenda. The issues that matter most to the G7 continue to dominate discussions at the G20,” he says.
“The shifting balance of power simply means that G20 members can participate in the discussions and work to influence their prioritization and their outcome.”
So while the poorest countries have been shut out of the discussion, even non-G7 members of the G20 have at best only got one foot in the door.
Griffiths at the BWP says the G20 has failed to dispel the longstanding concern shared by many NGOs about the lack of voice given to the “G171 of countries that are not in it. “There does not seem to be a process for rectifying that other than some ad hoc invitations to countries like Spain and the Netherlands that are already represented through the European Union,” he says.
The African Union and Asean (Association of South-East Asian Nations) have been invited to all post-2008 summits and will attend the Seoul summit as invited guests.
Bradlow believes one way to fill the gap is for what he calls “middle power” countries – South Africa, Brazil, South Korea and others – to base their contribution on their own long-term vision about how the world should be governed. He suggests a number of core principles, including a more holistic attitude towards development and the inclusion of all stakeholders in the global economy in the discussion.
If they succeed in this, they will have a positive knock-on effect for the 90% of countries with a third of the world’s population not represented at the G20 table.
Mukherjee insists that India has acted to ensure that the G20 has taken up development as a major issue. “India, which still has a large population of the world’s poor, is actively participating in the G20 agenda and bringing developing economy perspectives to the table,” he says.
Bradlow says South Africa too has made an effort to integrate the view of its neighbours through the Committee of 10, made up of finance ministers and central bankers from countries ranging from Algeria to Tanzania.
The problem is that when it came to issues such as financial regulation, Bradlow says it is unlikely that South Africa will be able – or want – to talk for the continent. “South Africa’s banking system is so much more sophisticated than the rest of Africa that its requirements for regulations will be very different,” he says.
GLOBAL COORDINATION
Jesse Griffiths says there is a clear need for a properly constituted international body with the scale of resources that the United Nations and World Bank have. He supports the proposal by Joseph Stiglitz, the Nobel Laureate economist, who last year called for a global economic coordination council.
Although it is highly unlikely to happen, Griffiths believes only such a body would have the power to force through reform of the international financial architecture and commitments on development that the G20 has failed to achieve.
He points to the appointment of a succession of senior officials at the IMF and World Bank over the last two years as revealing the “weakness” of the G20’s commitment to an open and merit-based system.
Kharas believes that the Seoul summit on November 11–12, gives the G20 the ideal opportunity to fulfil the ambition set out by Korea to take up the development agenda as a priority. “The first order of business was to pull the world out of recession, and it has earned its spurs as a fire-fighting crisis institution,” he says.
“The larger question is whether it can maintain that sense of cooperation and determination to get things done during the longer term, when there won’t be the imperative of dealing with the crisis.”
Seoul presents the ideal opportunity to set out a development agenda for the next two or three years, Kharas says. He accepts the meeting will need to make decisions on the Basel III framework for banks’ capital requirements and other proposals from the Financial Stability Board.
“What I would like to see is a menu-driven approach, where they lay out a series of topics which they call the development agenda that they will follow,” he says.
The weakness of the G8 process was that it jumped from issue to issue between each meeting. So while the 2009 Italian G8 summit in L’Aquila focused on food security, Toronto this year chose maternal health.
“It is really difficult to keep a focus on development if you jump from topic to topic,” Kharas says. “Long term, we need a more comprehensive development agenda, and more coherence between aid and other development policies.”
One area where the G20 could combine the financial and development agenda would be to ensure that the multilateral banks have the resources and respect needed to implement a new G20 development agenda.
Kharas says the G20 should back up its development agenda with a commitment to boost the funding of IFIs (international financial institutions) via recapitalizations and replenishment of the concessional lending windows. “The multilaterals are the executing arms for the directions in which the G20 wants to take the global economy,” he says.