A little more than a decade after the Group of 20 (G20) appointed itself as the custodian of the global economy, effectively a board of directors for international finance, we are reaching the same crisis point that began this journey. If the 2008 economic crisis was a function of loose regulation in the US, the 2019 crisis in the making will be driven by the US trade war against China, the Chinese response to that trade war, and the crumbling economies of smaller nations, squeezed between the aspirational and settled powers of the West or the fast-growing and emerging powers of the East. The G20 is slowly revealing its non-binding architecture and unaccountability cracks. It is, in a way, imploding. What began well and delivered results in being able to collectively ward off the global economic crisis of 2008 has now become an institution that serves little more than a networking dance playing to a frozen economic tune for leaders, finance ministers, central bank governors. According to critics, “the G20 has lost not merely the plot but along with it the fig leaf of its legitimacy. The irrelevance of G20 has been slow, steady and certain, one Summit after another, one city at a time”1. This article analyses the changing relevance of the G20 as India prepares to take over the reins of the Group’s Chairmanship in 2022.
By the fall of 2009, after confidence was restored, leaders declaring victory said the G20 would be “the premier forum for our economic cooperation”2 and turned their focus from the crisis to the medium term, establishing a Framework for strong, sustainable and balanced growth with the Group being conceived as a bloc that would bring together the most important industrialized and developing economies to discuss international economic and financial stability. The group acquitted itself well in responding to the global financial crisis, and, for a while, its emergence as a forum for international policy coordination seemed like one of the only silver linings behind this monumental muddle. However, the G20 was slowly but surely allowing distractions to take charge of its primary mandate of ensuring economic stability and growth. Hosted by the UK Prime Minister Gordon Brown, the London Summit expanded on the pledges to “build an inclusive, green and sustainable recovery”3. By the Seoul Summit, the economic crisis mandate was lost on the leaders, where discourse moved onto millennium development goals, global marine environment protection, climate change, and anti-corruption. Finally, with the introduction of a G20 Business Summit, it was clear that now lobbies from the not-for-profit as well as for-profits were in action, with host governments becoming tools in their hands, and the G20 Summits degenerating into networking opportunities and populist fluff.
Since the G20 is not a permanent institution with a headquarters, offices, or staff, its leadership rotates on an annual basis among its members, where decisions are made by consensus, the implementation of agendas depending on the political will of the individual states. On the one hand, the group looks like an appropriate vehicle for facilitating global dialogue while on the other hand, it has proven itself to be utterly incapable of advancing any solutions to global challenges. Since the group’s initial success a decade ago, its agenda has been fluid with each host country adding something new to the mix at every annual gathering. The Korean G20 Presidency in the second half of 2010 started to broaden the G20 agenda. They moved beyond issues such as economic recovery and international financial reforms by establishing the Seoul Development Consensus. Consequently, the G20 has become involved in diverse policy areas, augmenting multilateral cooperation on core issues such as the Basel III Accords on financial sector reform. The G20 has also increased policy coordination and dialogues on anti-corruption, tax evasion, employment, gender issues, and sustainable development while supporting the United Nations’ agenda on climate change.
While it is true that countries operate with differing political timetables and priorities, in the absence of an overriding crisis, it is difficult to maintain a clear focus in the global fora. What the world needs now is action, not empty words. The broadening agendas, expanding engagement groups and lengthening communiques are creating a sense of adroitness within the G20 with it taking on more responsibilities every year without having found concrete solutions to the previous problems. In the case of the Osaka summit, the Japanese government introduced the goal of universal health care. No one doubts that universal health care is a worthy cause. But the G20 has actually done nothing to help individual member states expand the provisions on health care. Worse, the time spent paying lip service to this new objective could have been used to discuss outstanding issues such as antimicrobial resistance, which was added to the G20 agenda in 2016. The language about AMR in the latest communiqué was notably similar to that of previous summits, which suggests that little progress has been made.
Another reason behind the G20 losing its relevance today could be attributed to the fact that it has a static membership that does not reflect the change in political and economic realities. The G20 membership was reputedly chosen in 1999 by Caio Koch Weser and Timothy Geithner, the deputies of the German and US Finance Ministers. There were no formal criteria but only the importance that these economies commanded over the world that led to their induction. According to the political economist Robert Wade, Geithner and Koch Weser went down the list of countries arbitrarily including and excluding countries. However, the changing nature of the world economy has seen growth and markets shift towards developing nations with wealth and investment remaining in advanced countries. The continued dominance of the G7 (Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States) is increasingly out of step with the barely balanced still heavily Eurocentric world. The inclusion of 10 emerging economies such as South Africa, Mexico, Argentina, Brazil, China, South Korea, India, Indonesia, South Arabia and Turkey in the consultative process has broadened the scope of the dialogue although it still excludes 170 nations from direct participation in this forum. The questions of the legitimacy, representative character, governing structure, voice, and accountability of the G20 remain and pose certain dilemmas. While it is true that the number of seats in this organization should remain limited to ensure the effectiveness and continuity of its activity, the lack of transparency in the process and the choice of countries invited to become members of the group cause some serious concerns. The forces of globalization are spreading so widely and rapidly and the importance of international public goods is becoming so palpable that a new international governing system is overdue. It is not obvious and not entirely convincing that the G20 can fill this gap. The interests of the majority of countries are neither taken into account nor given due weight in the decision-making process. 4
Furthermore, there is an asymmetry between wealth, which is held by advanced economies, and production and markets, which are primarily based in the developing and emerging economies. As advanced economies attempt to use this as a stick to insist on political and economic adherence to their ideology and acknowledgement of their supremacy, emerging and developing economies have started seeking ways to protect themselves from their shadows by maintaining and encouraging the continuation of the existing international order while building new regional policies, trade organizations, and bodies.
Protectionism has been on the rise ever since the global financial crash of 2008 shook the world, disrupting trade and financial flows. The ongoing skirmish between the US and China over tariffs only marks a new phase in the global lurch towards protectionism. Moreover, the collapse of the global banking system, a deepening global recession, and the massive intrusion of influential countries into foreign economies – a trend that cannot help but politicize economic policy decisions – have all added fuel to the fire. Protectionism appears to have been more enthusiastically adopted by advanced countries, which have struggled to grow their economies in the wake of the global financial crisis. Among the largest economies in the G-20 group, China, the USA, and India have been hit the hardest by protectionist measures in the past year. Trade financing, the essential lubricant of the entire commercial system, has dried up.
In this scenario, leading global players have been able to force the Group into dropping its usual commitment to “resist all kinds of protectionism”5, merely noting that the global trade “system is currently falling short of its objectives and there is room for improvement.”
At a time when these countries should ideally have served as a bulwark in the fight against protectionism and could have worked to further the agenda of globalization, their own protectionist tendencies have precluded such a role for many of them. These measures have not only been counterproductive but have also invited a further backlash. There is therefore a widening gap between the two economic groups in their demands and interests for which effective solutions have yet to be found.
Finally, populist leaders and policies are on the rise as the middle classes in advanced and some emerging economies shrink due to a lack of real income growth. Despite the fact that over the last 30 years advanced countries took home nearly 2/3rds of the world’s profit, the middle classes of these countries have languished. In 45 years, the size of the American middle class has shrunk from 61% in 1971 to 52% in 2016. Middle-class voter-anger in advanced countries, rather than corporations that made profits but did not share them has been pointed and aimed at by populists in multilateral agreements and bodies set up by developed economies, striking the G20 at its very core.
For the G20 to safeguard its relevance in the current scenario, it needs to challenge itself. To become more effective as a forum for economic policy coordination, the G20 needs to improve its working methods and resist the temptation to look continuously for new topics if it is unable to deliver concrete results in terms of economic policy coordination. It must refocus on its core business, namely economic policy coordination, to ensure a strong, sustainable and balanced growth which must also include the “new narrative” regarding the regulation and supervision of financial markets, tax agenda and reformation of the international financial architecture. At the same time, a number of aspects which have been added lately should be dropped.
The G20 has considerably strengthened capital standards with Basel III; it has moved forward on systemically important financial institutions. While global financial stability has been significantly strengthened with the EU leading in policy implementations, the G20 needs to continue the necessary reforms and maintain its existing framework to ensure a sustained and permanent international cooperation in the area. Looking forward, it is important to make sure that financial reform remains a key plank of the broader G20 agenda and that G20 members remain committed to finishing the job that its leaders set out to do.
Another area that needs attention is the issue concerning the strengthening of the G20’s legitimacy. While the repercussions of its decisions have a global dimension, the majority of countries are not represented in the forum. Moreover, at least initially, non-governmental economic and social representatives were excluded from its boundaries. Since 2010 however, all G20 Presidencies together with its wider membership made important efforts to increase the legitimacy of the G20 in numerous ways, including a rotating system of guest countries, and the preparation of outreach groups. Efforts to increase the transparency of the G20 and to deepen outreach need to continue with the aim of taking into account more thoroughly the positions and views of the non-members as well as the civil population across nations. The G20 can also revalidate its relevance by building a sustainable growth regime. Here sustainability has two meanings: one related to the economy and the other to the environment. From an economic standpoint, the G20 needs to bring under control at the global level the imbalances created before and during crises, in primis the burgeoning of government debt in advanced economies. It has also to put in place mechanisms able to avoid situations in which financial markets again bring the global economy in a tailspin, without unduly hampering financial innovations. Last but not the least, the G20 must help and support emerging and developing economies to redefine their growth models, which, despite the successes of the last two decades, are not any longer viable in the post-crisis world. From the environmental perspective, it is essential to provide new momentum to the “Green Economy”, to make it an engine of growth both in advanced and emerging economies and reduce significantly the costs of investments in environmental alternatives there.
Long-term solutions to global economic imbalances, checks in global demand rotation, incentives and investments on economically and environmentally sustainable growth, job creation, and the rebuilding of a resilient and stable financial sector are the key challenges that still require international economic cooperation – issues that the G20 will have to address. In the end, the future of the G20 will depend on the answers it provides to these challenges.
G20 Leaders’ Statement: Pittsburgh Summit, 2009 ↩
G20 Communique: London Summit 2009 ↩