The Group of 20’s response to global economic governance challenge was effective and the expansion of its scope to include socio-economic issues affecting developing counties is logical; however, it needs to take three decisive actions to become a guardian of global welfare.
The G-20 summit took place in Hamburg, Germany, from July 7 to 8 under the slogan of “shaping an interconnected world.” Expanding on the results of previous presidencies, the summit leaders — the heads of 19 countries plus the European Union — decided to take concrete action to advance the three aims of building resilience, improving sustainability and assuming responsibility. They resolved to tackle common challenges to the global community, including terrorism, displacement, poverty, hunger and health threats, job creation, climate change, energy security and inequality as a basis for sustainable development and stability.
The G-20, which accounts for 85 percent of the world economy and 80 percent of global trade, successfully controlled the damage from the 2008 financial crisis by macro-level economic policy coordination. The coordinated actions by the G-20 countries from 2009 to 2012 helped inject liquidity into markets and recapitalize international financial institutions, as well as provide a formula for global economic recovery and future crisis avoidance. Its efforts during that period were also hailed as an exemplar of cooperation between developed and emerging economies. The G-20 was also given credit for moderating trade conflicts and averting currency wars.
The rotating presidency of the grouping also forced developing countries to build capacity to contribute to the process of global economic governance. For countries such as Brazil, China, India and South Africa, which for decades have been at the receiving end of global economic policies set by institutions like the International Monetary Fund and the World Bank, this opportunity is invaluable. China’s G-20 presidency in 2016 brought issues that are vital to developing countries, such as trade in services, climate change and innovations, into the global economic governance framework. With five Asian countries as part of this group, namely China, India, Indonesia, Japan and South Korea, the G-20 now wants to steer the global economy toward strong, sustainable and balanced growth.
Critics have voiced concern over the fundamental lack of legitimacy for the self-appointed group of global powers. They question the effectiveness of the G-20 in balancing the national interests of countries that preside over the management of the world economy. Due to conflicting interests among members, particularly the United States, and rising powers of Asia and Africa, the G-20 has not shown much ambition to stop the erosion of the multilateral trade system through the emergence of mega-regional trade agreements like the Transatlantic Trade and Investment Partnership (TTIP). Critics cite the lack of support from the G-20 for global public goods, such as the stability of the ecosystem that supports economic fundamentals.
Some also doubt the merits of the G-20 going much beyond its original mandate of fixing the global financial architecture to noneconomic issues like climate change, health care, migration and terrorism. Issues on the finance track, typically led by finance ministers and central bank governors, were overtaken by the prioritization of issues on the “other track,” typically led by officials outside finance ministries. Both arguments have merit.
As the G-20 enters the ninth year of its formation in a world that is in geopolitical turmoil, it is appropriate to assess what has worked, what has not, and why. Over the years, and under pressure to address the larger socio-economic needs of member countries, the G-20 in a logical evolution began to address issues such as economic inequality, jobless growth and sustainable development challenges — issues that are particularly important for developing countries.
Looking at the G-20 from the perspective of effective global economic governance, the big question to ask is: Do the member states see their group as a constellation of great economic powers or are they ready to act as guardians of global welfare? There are three ways the G-20 needs to concentrate so they can achieve both objectives.
First, due to the group’s unique economic and political weight, member countries hold a particular responsibility for implementation of free trade and anti-protectionism measures. Sustainable economic growth cannot be achieved globally if these are not realized in all G-20 countries — high-income and middle-income countries alike. To demonstrate the sincerity of their commitment, the G-20 countries should ensure coherence across all of its work streams, emphasizing free trade, investment and finance that nudges private business toward the well being of global citizens. This will have the effect of boosting domestic employment and reducing account surpluses, which will help overcome global imbalances.
Second, the G-20 governments should signal their collective support for a transformation of the world economy toward new models of low-carbon and resource-efficient growth. They need to establish coherent policy frameworks for inclusive growth anchored on the 2030 sustainable development agenda and the Paris climate agreement. The G-20 should use its collective voice in directing multilateral development banks and other international financial institutions to make sure these institutions fully support social and environmental standards set by the global community.
Third, the G-20 governments should support the evolution of new global formats and institutional arrangements for North-South joint knowledge creation and South-South knowledge sharing to address global economic and social challenges. International knowledge networks are mostly dominated by representatives from major OECD countries. Innovative knowledge solutions can only become effective on a global scale if they are co-created by participants from different regions, and if they reflect ideas and approaches from a pluralist perspective. The G-20 should initiate a process of establishing an inclusive knowledge network to support future actions.
The G-20 is now a mature institution with a depth of experience in global economic governance. China, Germany and Mexico, holders of the G-20 presidency last year, this year and next year respectively, have a unique opportunity and responsibility to expand the grouping’s role. They should join hands in transforming the G-20 from a club of economic powers into a genuine guardian of global welfare.
Venkatachalam Anbumozhi is a senior economist at the Economic Research Institute for ASEAN and East Asia (ERIA).