Local difficulties? – The G20 confronts de-globalisation

September 20, 2016
Local difficulties? – The G20 confronts de-globalisation
Richard Woodward
Richard Woodward Non-Resident Fellow - International Economics

Earlier this month the world’s leading politicians and their entourages descended on the eastern Chinese of city of Hangzhou for the G20 Summit. Looming large in the background was a series of events, not least the British referendum result in favour of exiting the European Union, symptomatic of a growing backlash against globalisation. The vision of an “open world economy based on market principles” repeatedly extolled in official G20 pronouncements appeared under siege from isolationist and protectionist sentiments emanating from many of the world’s leading countries. Prior to the Summit, several G20 leaders expressed a desire to take action to address dwindling public support for globalisation. This apprehension is reflected in the subtly different tone of the final communiqué, which acknowledges the dangers to the globalisation project posed by the simmering discontent amongst the general populace. Nonetheless there are question marks over the G20’s ability to address these concerns in a serious way.

Since beginning as a meeting of finance ministers and central bank governors in 1999 the G20’s mission has been, to quote its co-founder Paul Martin, ‘to make globalisation work for everyone’. For the G20 globalisation was inevitable and, so long is it is governed appropriately, desirable. Thus the G20 sought to enhance the governance of globalisation through building better international institutions, enhancing policy coordination, and identifying and encouraging members to pursue appropriate domestic policies. Unfortunately, the G20’s calls for globalisation and economic growth to be inclusive have gone unheeded. While the kinds of policies advocated by the G20 may enhance overall welfare, the evidence suggests the bulk of the benefits accruing to a small fraction of the global population. The stagnating or declining income levels of many people is now being preyed upon by populists who urge them, in the words of the Brexit campaign, ‘to take back control’ of national borders. In short, these campaigners see globalisation as part of the problem and advocate policies designed to limit international interdependence.

Placating popular antipathy towards globalisation pervaded the Hangzhou Summit. According to officials who witnessed the closed-door Summit meetings several leaders endorsed Australian Prime Minister Malcolm Turnbull’s pleas about the urgent need to ‘civilise capitalism’. Such concerns were also reflected in delicate changes of emphasis in the final communiqué. At first glance, the communiqué rehearses the usual homilies about economic growth, the necessity of ‘effective and efficient global economic and financial governance’ and a ‘rules based, transparent, non-discriminatory, open and inclusive multilateral trading system’, and effective policy coordination. Yet the communiqué also recognises that “the benefits of trade and open markets must be communicated to the wider public more effectively and accompanied by appropriate domestic policies to ensure benefits are widely distributed”. In other words, G20 countries need to demonstrate rather than merely assert the benefits of globalisation if they are to convince an increasingly sceptical public. Perhaps reflecting the host’s desire to shore-up the principle of sovereign non-intervention, the communiqué is also peppered with references to pursuing policies “in line with”, “based on the specific needs of”, and “in accordance with” “national circumstances”. This reflects the increasing difficulty of reaching a consensus amongst the G20 but also affords members greater leeway to interpret G20 agreements and implement them in a way that avoids whipping up further anti-globalisation sentiment.

These concessions are unlikely to staunch the anti-globalist tide. First, by pandering to the populist panjandrums the G20 may legitimise the anti-globalist policies they seek to deter. Faced with a choice between a bashing at the ballot box or censure from their peers at the G20, many leaders already plump for the latter. For instance, despite explicit commitments to avoid turning to protectionism, a report from the Centre For Economic Policy Research noted that G20 countries imposed 443 new trade distortions in the first ten-months of 2015 a 40% increase on the previous year. Flouting G20 promises will become even more enticing if leaders know that condemnation from their peers can be nullified by recourse to the argument that national circumstances inhibited the pursuit of an agreed course of action.

Second, finding compelling evidence to defang the claims of the anti-globalists is difficult. For too many people the G20’s claims about the benefits of globalisation ring hollow. Trade between China and the West may have rescued millions of people from poverty and yielded enormous benefits to Western consumers. This is little solace however to Western workers who have lost their jobs as a result. And herein lies the dilemma. The benefits of globalisation tend to be long-term, difficult to quantify and diffuse. In contrast, the costs of globalisation are often immediate, obvious and inflicted on distinct and concentrated groups who can mobilise in opposition. Worse the G20 seems bereft of ideas to help the losers. Indeed, by clinging dogmatically to the need for austerity that often hurts the poorest the G20 is helping recruit to the ranks of the discontented and the marginalised.

Third, the G20 exemplifies the establishment against which many populist politicians and their supporters are railing. The secretive nature of G20 meetings plays into narratives about a conspiracy against ordinary citizens by an undemocratic, unaccountable and self-aggrandising global elite. As previously argued within this blog, attempts to address this by creating a cast of consultative groups representing business, civil society, labour, think tanks and women has done little to assuage these concerns.

The Hangzhou Summit has demonstrated that the G20 is not deaf to growing anti-globalisation sentiment. Nevertheless, its proposed solutions may augment rather than attenuate support for those determined to halt globalisation. The G20 is on the right track in affording countries more flexibility to ensure their commitments are met in a manner compatible with national circumstances. It is vital however that this does not simply become a protectionist’s charter. In this regard the G20 would do well to revisit the experiences of those who laid the foundations for the present liberal, multilateral order after 1945. They recognised that the allegiance of states and citizens to international liberalism was contingent on it being ‘embedded’ in national structures of democratic control. While national economies were liberalised to enable countries to capture the benefits of international commerce this was within limits that permitted states sufficient autonomy to alleviate the adverse societal impact that sometimes resulted. This requires policies that are anathema to many in the G20 including strict limits on short-term capital movements. Nevertheless, if the G20 is serious about saving globalisation it may need to go back to the future.