By Satyajit Mohanan
In 2008, those in international circles echoed to one another, “never let a good crisis go to waste”; implying the need to radically transform the global economic governance structure which would otherwise not be possible. The Great Financial Crisis (GFC) of 2008 caused by bank failures in the United States caused a domino effect, which severely impacted the global economy. It was during this time that the spotlight was on the G20 to provide relief to countries critically affected, and reform the system. Many leaders in the G20, including British Prime Minister Gordon Brown, called for a “new Bretton Woods” or in other words a new governance structure. However, such a proposal was shunned by its members and they instead opted for internal reform of its Institutions and continued to pursue a quasi- multilateral form of governance through the G20.
The G20 was established in 1999 as a forum for the finance ministers and central bank governors of twenty countries after the Asian Financial Crisis of 1997. Later in 2008, it was elevated as a summit for Heads of States and became a primary forum for global economic cooperation. An expansion of the G7, the G20 aimed to develop a balanced representative multilateralism approach by providing a platform for Emerging Market Economies (EME’s) which altogether played a large role in the global economy.
The G20 undertook various measures such as coordinating fiscal stimulus plans and financial bailouts and successfully prevented the crisis from becoming a depression. It also coordinated and proposed the voice reforms and additional resources to the IMF and the World Bank as well as created the Financial Stability Board (FSB) to oversee global financial regulation. It did a fair job in combating the crisis; however, by retaining the problematic pre-crisis governance structure, it has remained non-transformative on the global governance front.
The first three summits held by the US and the UK were progressive; however, progress was stalled in the following four (held in Toronto, Seoul, Cannes and Los Cabos). The Washington, London and Pittsburgh summits witnessed measures such as the IMF reform, fiscals stimulus plans and many such ambitious goals. The Los Cabos summit in 2012 failed to address the European sovereign debt crisis and its impact on the global economy due to various disagreements between countries. Certain countries, such as Germany, preferred more austerity measures, whereas others in the EU preferred growth stimulating policies and these disagreements worsened the stalemate. Post 2010, as the crisis diminished, fault lines began to emerge, thereby hindering issue linkages, policy coordination and cooperation. Such fault lines emerged due to domestic and power politics, different radical visions among members, and dominance of advanced countries over emerging economies.
Martin Wolf argues that collective action problems arise as ‘the world’s economy is global but its politics are national’. Domestic politics contributes towards such imbalances and global economic governance is highly dependent on domestic considerations as it is bound by the principle of national sovereignty. Unfortunately, the G20, much like the G7, is not a treaty based institution in which it cannot implement its agreements and proposals.
The G20’s position reflects the pre-crisis global governance dilemma between the power-based economic order and a rules-based one. Prior-crisis, the governance structure was dominated by the ‘power relations of the G7 system’, and was largely based on US rules. It remained so even post-crisis. This is reflected by the rift between the G2 countries (US and China). America, fueled by its insecurity towards China’s steady rise, has time and again delayed and blocked reform and measures that benefits EME’s; keeping in mind its economic rivalry with China. From a realist lens, countries such as the US has primarily been focusing on its relative gains at the cost of the effectiveness of governance structures.
The G20 post-2008 crisis has experienced an inability to reach agreements on joint declarations. This is because the agenda for most of the summits are set by advanced countries such as the US. The EME’s have a secondary role in agenda setting. Despite five EME’s having held the G20 presidency, their efforts to shape the agenda have failed. For instance, the 2015 Antalya summit’s host Turkey intended to highlight the challenges faced by low income developing countries in climate change financing. However, in the final declaration, such issues were not addressed and instead shifted to the Paris Climate Change Conference causing disagreements. Finally, similar to the pre-crisis forums, the exclusion of countries from a primary forum for global economic governance, such as the G20, raises legitimacy issues. Some European countries are represented twice, once by its Head of State and second by the EU. In contrast, South Africa is the only country from the African continent, and there is not a single low-income country represented. Proponents of the G20 argue that organizations such as the African Union are invited as ‘special observers’. However, these initiatives are ‘symbolic rather than substantial’ as they participate on unequal terms and are excluded from important deliberations. Hence, with 173 countries being excluded from having their say on policies which determine their futures, the statement that G20 is nothing but an extension of “the old architecture”, expressed by the Ugandan Central Bank Governor Mutebile, holds true.
As the world battles a severe health and economic crisis, the G20’s past record suffers from legitimacy issues and a fractured multilateralist approach. The second virtual summit of G20 leaders in April was cancelled due to the recent row between the US and China over the role of the WHO in the coronavirus pandemic. America’s move to cut funding to the WHO, and China’s border conflict with India driven by its expansionist desires, pose a critical challenge towards policy coordination and issue linkages in the group. With the G20 being a mere extension of the G7, there is very little room for policy coordination, joint decelerations and a better deal for countries from the global south.
Countries should make use of this crisis and push for reform. As Multilateralism is key for post-Covid recovery, reviving it would be of great benefit. Perhaps, only then could one possibly rely on the G20 in the fight against the pandemic.
The opinions expressed in this article are the author’s own, and may not represent the views of The St Andrews Economist.