Australia will host the 2014 G20 meeting at a time when the usefulness of the G20 will be in question. We don't want this meeting to be a damp squib. How can we give it meaning?
G20 began as a meeting of finance ministers and central bank governors in the aftermath of the series of crises in the 1990s: Mexico, Asia, Russia, Brazil and Argentina. Ten years later, the 2008 global financial crisis brought the realisation that disruption was not just a developing-country problem. The meeting was upgraded to leaders' level, with the summits in 2008 and 2009 encouraging a widespread fiscal response and discouraging protectionist trade measures.
It's been hard to maintain the momentum of international economic policy coordination. The bold reform agenda of the early meetings has been only partially met. One of the early promises was to fix the ossified governance structure of the International Monetary Fund, giving emerging countries a greater say. But Europe still has one third of the votes and monopoly rights on the managing director's position. The Mutual Assessment Process to monitor external balances is a limp procedure without an enforcement mechanism. Financial market coordination fared better, with Basel III and the formation of the Financial Stability Board, but the promised actions on derivatives and credit-rating agencies has come to nothing. On trade, the Doha Round has fizzled.
It's not that the economic problems have lessened – far from it. Five years after the onset of the GFC, the US and Europe are still mired in its aftermath with no prospects of early recovery. Japan has still not emerged from its lost decades. The emerging countries do not have enough heft to maintain the momentum of world growth: India and Brazil are running out of steam and even China can't sustain its pace of growth in a slowing world.
G20 seems to be a bystander in all this. The problems are seen as domestic, off-limits for international efforts. In the face of a clear need to develop uniform rules to guide greatly increased international interactions (an element of Tom Friedman's Golden Straitjacket), countries have resorted to their own approaches on financial structures (with the US, the UK and Europe all tackling 'too-big-to-fail' banks in different ways).
Europe is torn in two directions, wanting on the one hand to control the fate of the euro and on the other to get others to help in the gargantuan rescue costs ahead. Europe missed the chance to cauterise the Greek problems early on and the possible responses have now become so politically charged that outside advice is irrelevant.
Earlier groupings (notably the G7) have ceded policy space only reluctantly. As well, there are constant attempts by those excluded from G20 to join, threatening to overburden the numbers. In any case, the big countries have never been very ready to devolve much power to international fora, or even accept advice.
In response to these intrinsic problems, each subsequent G20 host (UK, France, Korea, Canada, Mexico) has searched for alternative initiatives to ensure that its meeting can be seen as a success, with 'announcables' and even the hope of some 'deliverables'. Mission creep is exacerbated by the host of ideas waiting to be brought before the 'pre-eminent forum for international cooperation': poverty, food security, climate change. Each new initiative leaves a residue of distracting unfinished business.
By the time we get to 2014, the world outlook is still likely to look bleak. Europe's mess is so comprehensive that it will probably still weigh the continent down. The US will still be wrestling with its fiscal problems. Japan will still be staring at its public debt mountain, with action constrained by its demographics.
In this fragile and introspective world, the unfinished business of the first G20 will be even more vital. There will be a need for internationally consistent rules covering sustainable external balances, international capital flows, financial sector stability and international trade. It was never envisaged that G20 would do the detail of all this. But its over-arching authority is needed to oppose the inertia, beggar-thy-neighbour policies, parochial self-interest and petty jealousies that prevail. Its job is to cajole, entice and embolden those at the next level down in the hierarchy of international institutions (the IMF, FSB, WTO) to ensure that international institutions are effective in fostering the benefits of globalisation. G20 participants should be sufficiently vocal to influence the domestic debate on these issues.
Australia might do well to announce its agenda for 2014: to return the G20 to the core issues identified in 2008 and keep pounding away at them, rather than introduce the distraction of new initiatives.
Originally published by The Lowy Institute publication The Interpreter. Reproduced with permission.