The Group of 20 Limps Along

June 28, 2016
The Group of 20 Limps Along
Richard Woodward
Richard Woodward Non-Resident Fellow - International Economics

At the height of the global financial crisis in 2008, the Group of 20 (G20) was elevated from a group of finance ministers to a heads of state meeting. The G20 won plaudits for effectuating a coordinated response that helped to mitigate the crisis and for seizing the opportunity to set in motion a raft of reforms designed to avert a future financial meltdown. As the existential threat to the global economy receded the G20 evolved from a ‘crisis committee’ into a ‘global steering committee’. Unfortunately the removal of the imminent threat of economic calamity also dampened the imperative to cooperate and the G20’s initial momentum dissipated. In the intervening period these problems have multiplied with a series of pedestrian communiqués revealing the G20’s underwhelming progress. While there are no immediate indications of the G20’s demise doubts persist about its value to the architecture of global governance.

In the G20’s defence, it is not a tale of unalloyed failure. In addition to the initial crisis response the G20 did deliver on many of the promises made at their formative meetings helping to push through revisions to the Basle Accord on international banking standards, expanding the Basle Committee on Banking Supervision and launching the Financial Stability Board. The G20 has also moulded the reform agenda by legitimising and invigorating the initiatives of other international agencies. The Organisation for Economic Cooperation’s (OECD’s) efforts to clampdown on international tax avoidance and evasion through its Base Erosion and Profit Shifting (BEPS) and transparency and automatic exchange of information initiatives for example have received an enormous boost from the support of the G20. Indeed, as with the G7, the G20 needs to be situated within the wider circus of international summitry and diplomacy. Through personal meetings at the G20, national leaders can often overcome the diplomatic or bureaucratic logjams that may be afflicting discussions in other international forums.

The abatement of the financial crisis also freed the G20 to broaden its agenda and turn to medium or long-term issues. Of the 95 commitments made at the inaugural G20 Summit in Washington in 2008, 84 were concerned with macroeconomic policy, financial regulation, trade and reform of the international financial institutions. Contrast this with the 2015 Summit in Antalya where commitments to these issues (45) were outnumbered overall by those pertaining to climate change, development, employment, social policy, information and communication, energy, health, terrorism and food and agriculture. Despite not having a permanent apparatus to monitor performance, countries are reasonably diligent in keeping their G20 commitments. An analysis by the University of Toronto’s G20 Information Centre of 130 G20 commitments claimed a 71% compliance rate. Evidence from G20 sherpas suggests corroborates the compliance story and suggests that this reflects a combination of peer pressure and garnering domestic support through the Summit meetings placing issues in the spotlight.

The G20 may also yield less tangible and longer-term benefits to global governance. Institutionalising dialogue between developed and developing economies has started to thaw institutions and processes of global governance that, by and large, remain frozen in the ‘1945 moment’. Despite their growing economic weight the ability and preparedness of emerging powers to influence global governance remains relatively constrained. The G20 serves as a venue through which rising powers can learn from their developed counterparts about constructive engagement in global governance processes and the risks arising from it. In particular, the G20 can be a proving ground for these countries to test out ideas, policies and approaches in preparation for the expanded role they are likely to have.

Regrettably the G20’s achievements and advantages are progressively outweighed by its shortcomings. Modelled on the G7 the G20 seeks to replicate the advantages of its predecessor while tempering, through a more inclusive membership, criticisms about legitimacy and effectiveness. Sadly the G20 also imitates the G7’s defects. First, by continuing to exclude the majority of countries the G20 is still charged with being unrepresentative and illegitimate. This is exacerbated by the G20’s status as a self-selecting club with no clear membership criteria or process for evolution. Curious inclusions (Argentina) and exclusions (Nigeria) and regional imbalances (a quarter of the memberships is European) continues to incite the G20’s critics. Second, assertions of high compliance rates often meet with derision. Naysayers point to a mushrooming pile of stillborn initiatives and forsaken oaths including the failure to complete the Doha Round of Trade negotiations, continued resort to trade protectionism, and reneging on commitments on corruption and ending subsidies for fossil fuel production. Similarly the G20 has not delivered the ‘strong, stable and balanced growth’ that is the fulcrum of its work. Third, the G20 process and agenda has become too flabby. Whereas the agenda for the debut G20 Summit was, of necessity, amassed in a matter of weeks no fewer than 86 G20 meetings were held during Turkey’s 2015 Presidency including 41 working group or ministerial gatherings. The accretion of items on the G20 agenda was perhaps inevitable in order to preserve the interest of leaders once memories of the financial crisis faded, especially when possession of the G20 Presidency spurs states to identify their own priorities. Today the G20 has eleven work streams encompassing macroeconomic cooperation, climate change, corruption, energy, economic growth, trade, investment, energy, tax, development and financial regulation. The proliferation of G20 work streams is in danger of overwhelming the Summit’s capacity to meaningfully address these subjects. Furthermore the G20 has started to dabble in more controversial areas related to security, matters which tend to expose the fissures amongst the G20 and which can detract from economic cooperation. The 2013 Saint Petersburg Summit for instance was derailed by discord surrounding the Syrian civil war generating “a public perception of the G20 as a hopelessly ineffective agency of global governance” from which it is arguably yet to recover.

The G20s larger and more diverse membership is also a source of difficulty. The size of the membership was always likely to make the quest for consensus more protracted. Besides the member states, plenipotentiaries to G20 Summits include heads of international and regional organisations and invitees selected at the host’s behest (for example the UAE was invited to represent the Gulf Cooperation Council at the 2011 Summit in Cannes). The upshot is that as many as 50 people may be seated around the G20 table. These problems are aggravated by a heterogeneous membership with sometimes irreconcilable philosophies and objectives. Compromises result in lowest common denominator agreements (which may help to account for the high compliance rate with G20 commitments) and may even inspire countries to pursue their cooperative results elsewhere (which could explain the recent reinvigoration of the G7). In short, the G20’s inclusivity comes at a cost of ineffectiveness.

These irritants could be soothed by the salve of leadership but presently this is in dismally short supply. Despite the hype surrounding emerging countries, the power of the US will outstrip its rivals for some time ahead. Thus, there are no concerns about the US capacity to lead (indeed the existence of the G20 leaders Summit owes to an act of US hegemony) but there are serious doubts about its willingness to do so. Far from leading the G20 too often the US has displayed a penchant for unilateral action or, as with the Transatlantic Trade and Investment Partnership, supporting schemes that divide the G20. Domestic policy preferences have frequently trumped collective action. Not until December 2015 did the US Congress pass a bill to allow reforms to the IMF agreed at the G20 in 2010. These trends seem unlikely to be reversed by the presumptive candidates for the 2016 US Presidency. Granted there have been flashes of inspiration from other leaders such as Gordon Brown’s brokering of the stimulus package at the London Summit of 2009 but likewise wracked by domestic concerns, other countries have not taken up the slack. The rising powers dine at the top table but appear reluctant to switch the menu. Tentative institution building led by one or more BRICS country in the form of the Asian Infrastructure Investment Bank and the New Development Bank indicate this is slowly changing and there are high hopes for Chinese leadership of the G20 in 2016. For the moment however the BRICS seem more concerned with guarding their sovereign prerogatives rather than sacrificing them in the name of international leadership.

The opaque nature of the G20 process continues to undermine its legitimacy. At a time when many citizens feel alienated from elites whom they accuse of being detached from everyday realities holding secretive meetings in obscure locations does little to bolster support for G20 ordinances. To address this the G20 has conjured a litany of consultative groups and summit meetings for business (the B20), civil society (C20), labour (L20), think tanks (T20), women (W20) and youth (Y20) whose deliberations feed into the leaders’ meeting. According to one report, there was a ‘dramatic improvement in meaningful engagement of CSOs with the G20’ during the 2015 Turkish Presidency. Nonetheless there is a feeling that this is a piece of window dressing that tends to privilege the voice of business and others supportive of the neo-liberal creed. The G20’s repeated recourse to ‘orthodox prescriptions’ despite their failures is draining the organisation of credibility in the eyes of the L20 whereas the foundation of the W20 appears to be motivated more by the belief that reducing gender inequality could stimulate economic growth rather than a desire to protect and promote the rights of women.

It is always tragic to see obituaries for those still in the flush of youth, especially one for whom greatness was predicted. At the moment, however, it is difficult to see how the G20 can be rescued from a terminal decline. Akin to the G7, the G20 is hampered by excessively optimistic views about what it can achieve within the constraints of the international system. In this sense the G20 may have been the victim of its own success. The G20’s impressive initial accomplishments were the outcome of exceptional historical circumstances where the interests of virtually all leading states converged. Having raised expectations about the its potential as a steering committee for the global economy the G20 was always prone to disappoint once the normal rough and tumble of global politics resumed. There are no straightforward solutions to these problems, not least because countries cannot agree on workable changes. Probably only another crisis will create the impetus for G20 reform. Paradoxically this is precisely the thing the G20 was born to deter.