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A Little Patience, Please, for the Group of 20

SOURCE: AP/Cliff Owen

The finance ministers and central bank governors of the International Monetary and Financial Committee pose for a group photo during the G-20 meeting of Finance Ministers and Central Bank.

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After last week’s meeting of the leaders of the Group of 20 developed and developing nations in Toronto, Financial Times columnist and Associate Editor Philip Stephens summed up his criticism of the G-20 summits in Canada by posing two questions and then dismissing the whole exercise. “Whatever happened to global governance?,” he asked. “The Group of 20 was supposed to answer the question of our times – how do rich and rising nations manage competing and coincident interests in an interdependent world? The best that the G-20 leaders could come up with the other day was polite agreement to disagree.” 

It looks like the G-20 is a victim of its own early success. When the world economy was going to fall off a cliff back in 2008, the G-20 countries came together and coordinated a response to prevent that catastrophe. Now faced with very difficult questions about how to best grow the global economy—questions on which politicians cannot agree even within the United States—they found no silver bullet.

The question Stephens posed—how do rich and rising nations manage competing and coincident interests in an interdependent world—is, as he acknowledges, the question that will be asked throughout this decade and this century, which is why it is expecting a bit much for a group that has not yet celebrated its first official birthday to answer it. Yet the G-20 leaders did, in fact, make concrete progress on some very important global issues, among them a pledge to end subsidies for fossil fuels; tough language on new bank capital standards that are to be completed later this year; a new maritime security initiative; and, through the G-8, a $5 billion financing commitment for maternal health (even though it includes no specifics about how the funds will be spent and whether abortion services will be covered).

Then there’s China’s move on the value of its currency. Without the looming pressure of this summer’s G-20 meeting, China might not have felt the international heat keenly enough to announce new flexibility in managing the exchange rate between the yuan and greenback just days before the summit. Finally, the Toronto summit gave President Barack Obama a chance to clear to the assembled leaders that it will not be business as usual with the American consumer.  “After years of taking on too much debt, Americans cannot—and will not—borrow and buy the world’s way to lasting prosperity,” he explained. “No nation should assume its path to prosperity is simply paved with exports to the United States.”

Indeed, breaking this unsustainable global imbalance between the United States and “debtor” nations on the one hand and key “surplus” export-driven nations, especially China, on the other is what the so-called “peer review” process is all about. This macroeconomic policy review procedure, which the G-20 leaders formulated at the last summit in Pittsburgh and which the International Monetary Fund is now beginning to develop, is a potentially promising way to rebalance global trade and finance. Of course, peer review of individual country’s macroeconomic policies is not going to deliver results right away, but nothing like this has been done before. It is the right framework for critiques of China’s policies, though the United States is getting its share of criticism, too.

Despite these accomplishments, the G-20 still needs some structural reforms in order to ensure its longevity and efficacy, as the Center for American Progress recommended in a recent report. No amount of reform, however, can save the Group of 8 industrialized democracies from irrelevance. The G-8 summits are poster children for the arguments from the world’s emerging powers that the West does not understand that power in the world has shifted.

While it is impressive that the leaders of the G-8 have belatedly tried to take stock of the group’s progress, or lack thereof, in a new accountability report, one cannot hide the fact that the G-8 has little to offer now other than a forum for the United States and Europeans to disagree—and there are other places for that. As Bruce Jones over at the Brookings Institution points out, discussions on issues such as development policy will be more difficult in the G-20 context, but a relevant, challenging conversation is better than a feel-good, outdated one.

The members of the G-20 are divided in every way imaginable—developing versus developed, east versus west, and export-led versus domestic consumption driven. It should come as no surprise, then, that as the immediate global financial crisis fades, there is less progress from the G-20 nations. But global cooperation is a process, and that process is moving slowly forward.

Nina Hachigian is a Senior Fellow at American Progress. Based in Los Angeles, she is the co-author of The Next American Century: How the U.S. Can Thrive as Other Powers Rise (Simon & Schuster, 2008).

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