G20 must live up to its crisis-solving legacy

The relevance of G20 is in question amid waning internal cohesion, but emerging economies could inject the group with inclusive ideas and greater legitimacy.

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Published 29 October 2021 Updated 21 December 2021 3 minute READ

‘If we didn’t have it, we would have to invent it’ might well be the catchphrase for the Group of 20 (G20) as the international community rethinks global institutional architecture in the face of shifting power dynamics and geopolitical strife.

To be fair, the same is often said of other venerable institutions such as the World Trade Organization (WTO), or even the United Nations (UN), often as a line of defence when questions are raised over their relevance or effectiveness.

According to former Goldman Sachs Asset Management chairman and UK treasury minister Jim O’Neill, size also matters because the G20 is both too big and too small to be on the ball consistently. While he might be right, numbers alone suggest the G20 should be the room where it happens when it comes to fixing global challenges such as post-pandemic economic recovery, tackling climate change, or getting the world vaccines.

Of all the international groupings, it boasts the most diverse and compelling mix of nations. It has 80 per cent of global income, three-quarters of global exports, 60 per cent of the global population and 80 per cent of global emissions.

Coming of age

The G20 was a forum of central bankers and finance ministers created when the 1997 Asian financial crisis laid bare the insufficiency of the G7. It came of age in 2008 when elevated to a leaders’ level summit two months after the Lehman Brothers collapse that precipitated the global financial crisis.

The seeming parallel to 2008 this year, as the world faces the common threat of the COVID-19 pandemic amid a series of extreme weather and supply crunches, explains why expectations are running high for Rome

Perhaps distance did make the heart grow fonder, or at least hindsight rosier. While the G20’s response to the 2008 global financial meltdown is often lauded as an exemplary economic crisis response, the reality is less straightforward.

Barely two days after solemn promises were made in the 2008 communique, Russia broke rank and raised tariffs on imported cars. India followed by applying import duties on several iron and steel products.

Even though the 2008 summit did not immediately result in a coordinated fiscal boost, the common threat of a global financial meltdown helped conjure a display of global unity and rally much-needed market confidence. It also resulted in a set of practical action plans unheard of to that point and specific tasks for several international organisations as a follow-up to summitry.

The seeming parallel to 2008 this year, as the world faces the common threat of the COVID-19 pandemic amid a series of extreme weather and supply crunches, explains why expectations are running high for Rome and for G20 president Mario Draghi, the Italian prime minister.

There is pressure to solve myriad global challenges, whether scaling climate action before the UN climate change conference in Glasgow or delivering vaccines and debt relief for developing countries, to name a few.

Effective crisis response is how the G20 has cut its teeth, and the world is handling several emergencies right now. Draghi himself was chair of the Financial Stability Forum back in 2008.

Inflated expectations also abound because the Rome gathering is a G20 summit without the long shadow of Jamal Khashoggi’s death over the Saudi G20 presidency. It also lacks former US president Donald Trump, who tried his best to put many international organisations and the spirit of global cooperation in deep freeze since 2016.

If defrosting multilateralism was also a shared goal, in addition to economic recovery, general rustiness in the business of international cooperation – an understandable hangover from the Trump years – has also gummed up the works.

Hence, the G20 will have to do much in the coming days to prove that, unlike the G7 in 2008, it has yet to outlive its usefulness, even when some have decried it as being missing in action over the COVID-19 crisis. Amid rising US-China tensions and at a critical juncture for the global economy, countries are wondering if the G20 will survive such a tense geopolitical atmosphere and whether the agenda will be overloaded with challenging foreign policy issues such as the plight of Afghanistan.

Customary language aside, the G20’s problem-solving reputation can be oversold. Not surprisingly, it has worked best when members already agree on the next steps. Looking to the future, more hostile power plays are likely to further weaken the cohesiveness and effectiveness of institutions such as the G20.

Looking to the future, more hostile power plays are likely to further weaken the cohesiveness and effectiveness of institutions such as the G20

Reviewing its track record would also suggest the institution’s prowess in crisis response tends to wane with the distance from the realm of monetary policy coordination. Not all areas of macroeconomics are created equal, in part because of the professional camaraderie and insularity of the central banking technocracy.

As was evident even in 2008, the G20 was less effective where there were more actors and domestic political dynamics at play, such as in the arena of trade. The recent deal struck on corporate tax is an encouraging but notable exception.

Gap between words and deeds

As The Economist said in 2011: ‘the G20 … is a big improvement over the G7 because it takes emerging economies seriously. But do the emerging economies themselves take the G20 seriously?’ Any scorecards would point to severe gaps between words and deeds, most notably but not limited to the emerging economy members.

If the G20 was born out of the need to increase the number of seats at the table, the next three years – with the G20 helmed by Indonesia in 2022 followed by India then Brazil – might prove to be the coming-out party for emerging economies.

Gap between words and deeds contd.

 

They might value the opportunity to wrestle the steering wheel from the old powers and imprint the international community with their own experience and delivery plans for economic development, alongside new and more pro-poor, pro-climate growth models and new models of multilateral cooperation.

Should this happen, it would make the G20 the room where it all happens.

This article was originally published in the South China Morning Post.