A new beginning for the G20
- By Dan Steinbock
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E-mail China.org.cn, August 25, 2016
The G20 is the premier forum for global economic governance. It accounts for two-thirds of the world population, 85 percent of global GDP and 80 percent of international trade. As a result, it offers a comprehensive indicator for the health of the global economy. Nevertheless, in the past, the G20, like many other comparable groupings, has operated mainly under the interests of major advanced economies.
As the world turns its eyes towards the G20 in Hangzhou, China will set a different tone. It is one that the developing world has wanted since the postwar era: one that does not seek to threaten the existing multilateral organizations, but to complement them.
Cautious optimism
There is reason for cautious optimism. While G20 heads of government, or heads of state, have periodically met since the fall of 2008, this is the first time that the G20 Summit will be hosted by the largest emerging economy in the world; one in which living standards on average remain far behind those in advanced economies.
The role of the living standards matters. People who are subject to similar life conditions tend to share similar needs, interests and goals, across national boundaries. Until recently, they have lacked a representative voice in most international multilateral organizations, including the International Monetary Fund (IMF), World Trade Organization (WTO) and World Bank. In the latter, advanced economies dominate financing, voting quota, leaders and thus effective policies.
Despite the sincere idealism of many in their work force, these organizations have not been truly international, but driven by the interests of, by and for major advanced economies.
Yet, a new, more multipolar world order has begun to emerge in the past few years, not least because the initiatives of China and other large emerging economies. One of the first signs was the creation of the BRICS New Development Bank (NDB), which was followed by the institution of the Asian Infrastructure Investment Bank (AIIB). In October, the Chinese renminbi (RMB) will join the IMF's international currency reserves, perhaps paving way for Indian rupee sometime in the future.
The lesson to be learned, however, is that none of these critical initiatives came about automatically, or through advanced economies' initiatives, or without significant behind-the-scenes friction.
In effect, G20 is a case in point.
Struggle for representative global governance
In his remarks at the media briefing on the G20 Hangzhou Summit on May 26, Foreign Minister Wang Yi noted that the G20 is different from previous cooperation mechanisms. "Here, developed countries and developing countries sit at the same table as equal partners and discuss and decide on international economic matters on an equal footing," he said. "This reflects a major change in the world economic pattern and represents historical progress in keeping with the trend of our times."
International media, I am afraid, did not entirely catch the subtext of Wang's comment. What he did not say is that even G20 cooperation began only when advanced economies had exhausted all other alternatives.
That moment occurred in fall 2008, when for a few weeks the G7 economies faced the threat of a global depression that could have proven far worse than the Great Depression in the 1930s. In this sense, global cooperation did not begin in the previous decade when there were many opportunities to do so. Nor did it begin after the Cold War when military budgets were slashed and the so-called peace premium was within the reach of major advanced economies.
In effect, even though "emerging states" have been in the effective policy agenda of the advanced economies since the 1950s, reforms in global political governance have not.
G20 as G7 creation
Even the establishment of the G20 was not the result of a truly global multilateral consensus. It superseded the old G33 and was formally established by the G7 finance ministers in Berlin in 1999, mainly at the initiative of then German finance minister Hans Eichel.
Initially, the G7 created the G20 in its own image. Consequently, some large economies, such as Spain, Netherlands and Switzerland, were not included because the stated goal was global representativeness. Other motivations may have been geopolitical, which is why Iran was not included.
The only reason why the 2008 abyss was avoided was cooperation between the leading advanced economies and large emerging nations, which recognized their inter-dependency and need for collaboration. In return for cooperation, the major advanced economies pledged to speed up structural reforms in global governance to make the key organizations more representative of the world they claim to represent.
Nevertheless, as the reforms did not follow, China and other large emerging economies, particularly Brazil, India, Russia and South Africa began to promote complementary – not substitutionary - inter-governmental multilateral organizations.
Being on the right side of history
In the past two decades, we have witnessed a massive transfer of relative economic power from advanced economies to emerging nations. Yet, economic power is only remotely associated with the size of a population.
In brief, the G7 economies comprise less than 9 percent of the world's total population but continue to account for more than 47 percent of the world economy. Despite all the rhetoric of development in advanced economies and international multilateral organizations since 1945, barely one-tenth of humanity dominates almost half of the world economy.
It is thus hardly surprising that in many low- and middle-income nations development practitioners see China, given its rising economic and political position in the world economy, as a more credible "broker" to leverage power between advanced, emerging and developing countries, including the least developed countries.
It is time for emerging economies and international multilateral organizations to complement the incumbent ones. Why shouldn't these organizations look like the people they are supposed to represent?
That's why I believe this G20 summit will be different. Starting in Hangzhou, for the first time, emerging and developing economies can have a bigger voice in the global economy. It is a symbolic start of a long, complex and belated effort to shift global governance to better represent the world itself.
Dr Steinbock is an internationally recognized expert of the nascent multipolar world. He is also Guest Fellow of Shanghai Institutes for International Studies (SIIS) and the commentary is based on his SIIS project on "China and the multipolar world economy." For more about Dr Steinbock, see http://www.differencegroup.net/ For more about SIIS, see http://en.siis.org.cn/
The author is a columnist with China.org.cn.
For more information please visit: http://www.china.org.cn/opinion/DanSteinbock.htm
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