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Global Leadership in Transition
Making the G20 More Effective and Responsive
BROOKINGS INSTITUTION PRESS
Copyright © 2011 KOREA DEVELOPMENT INSTITUTE AND THE BROOKINGS INSTITUTION
All right reserved.
ISBN: 978-0-8157-2145-1
Chapter One
The G20: From Global Crisis Responder to Global Steering Committee PAUL MARTIN
There have been three steps in the evolution of the G20 to date. The first, not surprisingly, was its founding during the turmoil of the Asian crisis over a decade ago, when the G20 finance ministers met for the first time. The second was the series of G20 leaders' summits that began in Washington in 2008, arising out of the current financial upheaval. The third step, which occurred in 2009, was the announcement that Korea would be the first non-European, non–North American country to host a G20 summit. This decision spoke in a way that no communiqué ever could to the fact that the G20 had come of age and that its perspective extends to a horizon far beyond that of the G8.
This became immediately evident when Korea championed the need for global financial safety nets, a need experienced by those economies sideswiped by the 2008 financial crisis. In this context the enhancements to the IMF's crisis prevention instruments and the discussions on a global stabilization mechanism are most welcome. Korea's initiative was evident again when the host, one of the few international aid recipients to become a donor, put development on the G20 agenda. What Korea has done within a generation is virtually unprecedented. This is not an idle statement. Its focus on education, infrastructure, and the synergy between government and the private sector—the three pillars of Korea's economic growth—carries with it a lesson that is irrefutable for both recipients and donors alike.
Furthermore, if, in parallel with Korea's economic model, the G20 confirms a renewed and enhanced commitment to the Millennium Development Goals, I believe the positive effect will be incalculable.
All of this is to say that as the G20's evolution continues apace, it is now critical that it complete the cycle from global crisis responder to global steering committee, for that is what is required if globalization is to work. This is the challenge of the G20. Its success in this role depends on three things. First is the breadth of issues that it addresses and the results that it achieves. Let me be clear. The G20 must pick its spots, and they must be the ones that count. But there can be no upfront restrictions placed on its scope. The reason that the G20 came into being was that the G8, without the resurgent or emerging economies at the table, was no longer able to function as the world's steering committee. Thus the only restrictions on the issues that the G20 can accept should be those that arise from the priorities that it sets for itself at any given point in time.
Nor is it mandatory that each meeting result in symbolic agreement. There must be true commitment to whatever is agreed. The reason for creating the G20 was not simply to have more people in the leaders' photo-op. There are real differences between nations, and they must ultimately be bridged if globalization is to work. But that will not happen if instead of being confronted those differences are perpetually papered over by pretty words signifying nothing.
The second key to the success of the G20 will be its capacity to coordinate the response to the crisis of the day, whatever that may be, while at the same time organizing to mitigate if not prevent the crises on the horizon. The needed economic recovery, with unequivocal bank regulation at its core, is a priority of today's crisis; climate change and food security are the most immediate examples of the next crises that must be dealt with.
The third key is the G20's preparedness to reach out to those who are not at the G20 table. Here again Korea took the lead, and for that it is to be congratulated. G20 multilateralism demands more than a camouflaged concern for what is all too often little more than a country's narrow national interests. The world's new steering committee came into being because the interdependence of nations has changed the paradigm. The G20's members are members because they have power and position, but they also have a responsibility to the rest of the world, a responsibility that they must live up to, a responsibility that begins by listening to what others have to say. For example, the failure of adequate financial regulation in the United States and Europe, the moral hazard that it represented, and the devastating contagion that ensued was an infringement on the sovereignty of every country on every continent in the world. Those populations have the right to be heard.
In summary, what is the measure by which the new steering committee should be judged? The answer, I believe, is the degree to which it improves the way that globalization works in the here and now and in the way that it prepares for the road ahead. This is not an academic yardstick. The goal is to relieve the gridlock that is paralyzing the international system; how well the G20 achieves that, on issue after issue, is the litmus test it will be called upon to pass.
The future of globalization is the great issue of our time. The challenges that the G20 has before it now are all manifestations of the need to make the world work better. Even more to the point, how the summit deals with them will provide an indication of how the G20 will deal across the board with the interdependence of states in the future. Over the years to come the issues that the G20 will have to confront will be as varied as the pebbles on a beach. But whether they will be successfully dealt with is another question, one that will depend on a fundamental truth.
Bargaining at the G20 will inevitably begin as it does everywhere else, on the basis of the self-interest of nations. No one who witnessed the disarray at Copenhagen or the never-ending disagreements over bank regulation between and within the United States and Europe over the last two years should hold any other expectations. But in the end, success can and will be achieved if the member countries recognize that in today's highly interdependent world, the furtherance of a country's self-interest depends more than ever before on the degree to which it furthers the global interest. That, I would submit to you, is the message that the world looks for as the G-20 completes its evolution from crisis responder to steering committee.
Chapter Two
The G8: Legacy, Limitations, and Lessons JOHN KIRTON
On June 21, 1997, at their Denver summit, the Group of Seven (G7) leaders confidently proclaimed:
We have been encouraged by the many positive indicators in our economies: inflation remains low, growth continues at a solid yet sustainable pace or is increasing, and fiscal actions are reducing budget deficits. We welcome the impressive gains of the emerging economies, which have contributed significantly to global growth.
Less than two weeks later the Thai baht collapsed, catalyzing what turned from an Asian to a global financial crisis that spread to consume Indonesia, Korea, Russia, and Brazil and even afflicted the United States over the subsequent year and a half. Over a decade later, on July 8, 2008, at their Hokkaido-Toyako summit, the Group of Eight (G8) leaders also confidently declared: "We remain positive about the long-term resilience of our economies and future global economic growth. Financial market conditions have improved somewhat in the past few months." Less than two months later, the U.S. government seized bankrupt mortgage lenders Fannie Mae and Freddie Mac and then let investment bank Lehman Brothers collapse, catalyzing the American-turned-global financial and economic crisis, which spread within months to generate the greatest global recession since the Great Depression eight decades before.
The G8 was by no means alone in its failure to predict or prevent those expanding financial crises, bred by a globalizing world. Indeed, even when professionals within leading international organizations such as the Bank for International Settlements (BIS) saw the 2008 crisis coming, they were unable to get the members to act in any serious way. Perhaps the greatest failure came from the Group of Twenty (G20) finance ministers' forum, for it had been created in 1999 to preserve global financial stability in the wake of the inability of the multilateral economic institutions established in the 1940s and their subsequent plurilateral supplements to comprehend and cope with the new era of interconnected, complex, uncertain, private sector–driven finance. But the blame had to be shared by the G7/8, which, since its start as a forum of the G5 finance ministers of the United States, Britain, France, Japan, and Germany in 1973, had been governing global finance.
In its performance as a global financial forecaster and economic governor in the twenty-first century, the G7/8 was in part a victim of its striking success in accomplishing the historic mission that it had been created to achieve. As it declared at its first summit in Rambouillet, France, on November 17, 1975, that mission was to preserve within its members and promote on a global basis the values of "open democracy, individual liberty and social advance." The G7 accordingly led the peaceful destruction of the Soviet Union, bloc, empire, and ideology; its replacement by democratic alternatives in much of the world; and the inclusion of a reforming Russia as a full member of its democratic concert club. In 1999, the G7 politically initiated at the leaders' level the war that saved Kosovo from an erupting genocide, with the G7-led North Atlantic Treaty Organization (NATO) delivering the required military force. In 2009 the G8, now with Russia, condemned Iran's leader, Mahmoud Ahmadinejad, for his denial of the holocaust. In 1978 it initiated the campaign against global terrorism, with a new regime to stop skyjacking. In 1979, long before the UN became politically active, the G7 invented global climate change governance by producing the most ambitious and effective control regime that the world has seen to this day. It came to consensus that carbon concentrations in the atmosphere must immediately be stabilized at existing levels and acted to ensure that G7 members reduced their emissions into the atmosphere for the following five years.
In the twenty-first century, through its dialogue with the Group of Five (G5)—China, India, Brazil, Mexico, and South Africa—and then through the broader Major Economies Meeting (MEM) and Major Economies Forum (MEF), it moved all consequential carbon powers to agree to contribute to the cause of controlling emissions. In 2005 it eliminated the debt of the deserving poorest countries, pledged to double official development assistance (ODA) by 2010, and did much to meet that pledge, even during economically contracting times. In 2001 it launched the Global Fund against HIV/AIDS, Tuberculosis, and Malaria. In 2010 the G8 raised $7.3 billion at its Muskoka summit to help the UN save the lives of millions of poor children and mothers around the world. In its early years, the G7/8 also produced several successes in the finance and economics field. It oversaw the post–Bretton Woods regime of floating but managed exchange rates and launched and concluded successive rounds of multilateral trade negotiations.
Yet as the twenty-first century approached and the Asian-turned-global crisis struck, the G7/8 acknowledged its own shortcomings by creating the broader G20 of both established and emerging systemically significant countries to lead the required reform of global finance. When the American-turned-global crisis erupted a decade later, the G7, led by the leaders of the United States, France, and Britain, reluctantly went beyond its own elite club to elevate to the leaders' level the broader G20, which had worked well in most respects since its start. This leap of faith was fulfilled by the successful performance of the G20's first summits: Washington with its large-scale stimulus and stronger financial regulation; London with its mobilization of $1.1 trillion for stimulus with a pro-poor tilt; Pittsburgh with its Framework for Strong, Sustainable, and Balanced Growth and its agreement to eliminate inefficient fossil fuel subsidies; and Toronto with its credible message for containing the Euro-crisis—stimulus now, exit soon, and fiscal sustainability over the medium term.
How and why did the G8 succeed so well from 1975 to 1999, and why did it increasingly cede center stage to its G20 offspring as the global economic governor from 1999 to 2010? The G8, as a major democratic concert, combined globally predominant power with the shared social purpose of promoting democracy in a world in which the relative capability of self-contained sovereign states defined power and in which democracy had the decisive soft-power advantage in the ideological struggle that defined polarity in the world. The G7 completed its success in the quest that it was designed for by acting from 1989 to 2006, in accordance with the concert principle, to include a defeated, democratizing Russia as an equal in an expanded G8, even though Russia's declining power put its relative capability in a class below that of the rest of the members of this exclusive club of major powers.
But then a self-confident G8 stopped expanding, just as twenty-first-century globalization and democratization placed a premium on connectivity rather than relative capability and on systemic significance rather than major power status in a world in which many more politically open, well-connected, rising democracies were available to help supply the new needs for global governance. Only after their political victory in the cold war had turned into economic defeat from post–cold war globalization did all G8 leaders learn that they needed the newcomers in their club, at the hub of a network to govern an open, tightly wired world. The G8's legacy and limitations suggest that the G20 will succeed if it becomes a club with a comprehensive agenda, with social and political as well as economic openness and progress as its defining principles, with leadership from its emerging members that are most advanced in that regard, with a dense network connecting it broadly with civil society, with stronger accountability, and with a willingness to hold longer and even intersessional summits at critical times.
The G8's Legacy, 1975–2010
The G8 was conceived and created to deal with the concentrated, comprehensive, interconnected cascade of global crises that assaulted the major democracies from 1971 to 1975. On August 15, 1971, U.S. president Richard Nixon unilaterally imposed a 10 percent import tax on America's closest friends and ended the currency convertibility that had made the U.S. dollar as good as gold. Post–World War II progress in opening trade ground to a halt after the launch of the Tokyo Round in 1973. In October 1973 the oil shock from a new war in the Middle East suddenly made Americans and many others pay much more for their sometimes suddenly unavailable oil and gas. Further south, it led India to claim that it needed alternative energy and therefore to explode its first nuclear device, in May 1974. As Euro-communism swept the southern tier of Europe from Greece to Spain, Christian Democratic Italy, facing bankruptcy, considered letting the Communist Party into a coalition government. The Soviet Union accumulated loans from Western banks, which it might bankrupt by refusing to repay. And New York City itself faced bankruptcy, with President Gerald Ford refusing to bail it out. With these compounding crises, America alone could not cope, especially as its Watergate-catalyzed constitutional crisis reached its climax and its last helicopters lifted off from its embassy in Saigon in April 1975, marking the final defeat of the United States in its then longest war.
This cadence of crises led the leaders of the Atlantic Alliance's "Berlin dinner four" to meet at the British embassy in Helsinki in July 1975, on the margins of the summit of the Conference on Security and Cooperation in Europe (CSCE), to discuss the economic dimensions of the democratic West's relationship with the communist East (Putnam and Bayne 1984). They met again, with their finance and foreign ministers at their side, at Rambouillet, France, in November, joined by Italy and Japan. The finance ministers, save for Italy's, had been meeting separately in the "Library Group" at the White House in Washington since 1973. When two of them, Valéry Giscard d'Estaing of France and Helmut Schmidt of Germany, became their country's leaders, they wished to continue their intimate dialogue at the leaders' level.
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Excerpted from Global Leadership in Transition Copyright © 2011 by KOREA DEVELOPMENT INSTITUTE AND THE BROOKINGS INSTITUTION. Excerpted by permission of BROOKINGS INSTITUTION PRESS. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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