Will the G20 supplant the G8?
by Susenjit Guha
Summits are a success only when the participants unanimously agree on certain changes in the system they wish to make and set about immediately to work on their pre-defined tasks.
Did the G20 meeting in Washington D.C. last weekend achieve anything like that?
Not at all. It seems the only outcome was that the leaders of the 20 participating nations agreed to hold another summit and carry on with the discussion.
The one significant change that occurred with this meeting was that, instead of the usual G7 or G8 groupings, this time it was the G20, with fast-developing nations represented by their heads of state rather than their finance ministers or central bank governors, as was the case earlier. Russia was taken into the G7 during the 1990s for global political reasons rather than to give them a voice on pressing economic problems. Greater presence in the international arena had earlier been granted to the BRIC nations – Brazil, India and China – by taking them on board the Financial Stability Forum, considered the bedrock of the elitist G8. Well ahead of the G20 summit, the BRIC nations had set about framing their own goals, which they had not done earlier.
As Brazilian President Luiz Inacio Lula da Silva said, "We are talking about the G20 because the G8 doesn't have any more reason to exist. The emerging economies have to be taken into consideration in today's globalized world." He was trying to bear upon the eight nations used to speaking for the entire world to factor in the gnawing reality of the 21st century. As chairman of the G20 this year, da Silva is responsible for getting the agenda up and running. The chairmanship will pass to British Prime Minister Gordon Brown next year and to South Korea's Lee Myung-bak in 2010.
Though no major decisions were made, the summit in Washington was perhaps the first step in a paradigm shift that will bring more global players to the table to discuss issues that affect them all. Suggested tax cuts and increased spending were thorny issues for nations teetering on the financial brink, but the meeting did offer the safety net of cooperation in economic policy among the 20, which could be a face saver if leaders face flak from their own people.
Mere coordination between central banks, however, will not limit the risk of a bleeding Wall Street lacerating lesser streets in economies around the world.
Can the G20 really effect changes, like coming up with financial regulations to dissuade financial markets form running amuck in future? It is not likely now, as the current players are poles apart. French President Nicolas Sarkozy’s plan for reining in global financial markets is not shared by an apprehensive U.S. President George W. Bush and British Prime Minister Gordon Brown, who are unwilling to pull at the reins. The two sides showed no signs of meeting and were in no mood to even nod at each other.
It is not capitalism that is being blamed for the crisis. It is rather the executives of financial institutions, who were ready to leave millions homeless and without security. These companies’ CEOs take robber barons as their role models and cut deals as if they were out to win the West. Sadly, President-elect Barack Obama was not at the G20 summit, while Bush, as usual, didn’t seem to know what the G20 was all about before the summit.
Still, hope lies in the U.S. president –elect. Hopefully he will make up his mind over issues like changes in financial regulations and come up with a course of action before the next summit, scheduled for next April.
One of the issues to be discussed is executive pay packages. Incentives need to be linked to outcomes to minimize unwise risk taking and eliminate impunity. This is one of the path-breaking steps that could help fine-tune the banking system and immunize it from boom-and-bust cycles couched in jargon like “countercyclical fiscal policy.”
Another idea is Spain’s system of building a cushion in good times to help absorb losses in bad time. But most likely, those who brought the global economy to its current pass will masquerade as its rescuers, and the interests of the creditors will be protected by Washington.
The Committee for the Abolition of Third World Debt complained that the meeting was held not in the context of the United Nations, but in the limited context of the G20. “The G20 summit … is a dismal failure," it said.
Still, it is too early to judge the G20 process a success or failure in terms of the current crisis. It will depend on what happens in the year ahead, whether or not the new U.S. leadership will be able to get change going, and whether the decision makers are really prepared to move away from exclusivity to a more universal approach. This will be increasingly important as the freeway from developing to developed-nation status becomes more crowded.