When the 19 heads of state and a representative
of the European Union met in Pittsburgh in September and declared that
from now on it would be the G20 and not the G8 that would be responsible
for managing global capitalism they were merely recognising the unavoidable.
If global economic cooperation was to be effective at all in the changed
circumstances of the last two or more decades, the presence at the table
of countries like Brazil, China, India and South Africa was imperative.
The need for such cooperation was driven home by developments since the
Asian financial crisis of 1997-98, when it became clear that leaving markets
unregulated and market players alone in a more economically integrated
world would only precipitate crises of global proportions. Not surprisingly
the G20 was born in 1999, even though the G8 nations and the IMF they
controlled were principally responsible for designing the response to
the 1997 crisis to the detriment of growth, stability and welfare in the
developing world.
The crisis that erupted a decade later in 2007 was different in at least
two senses. First, it originated and affected more adversely the US, UK
and the EU. And, second, underlying this crisis are global imbalances
that partly resulted from the effort of the developing countries to insure
themselves against a 1997-type affliction or a post-1997-type correction.
Those imbalances, reflected in the use of foreign exchange surpluses accumulating
with developing countries to finance deficits in the US, made it impossible
for the G8 countries to resolve the crisis by themselves.
Once nations outside the G8 had to be brought into the collegiums managing
global capitalism, the choice of the G20 as a forum recommended itself.
Besides the fact that it already existed and did not require any new selection
of members, there were three features of the grouping that made it the
forum of choice to manage the new situation even from the point of view
of the US, UK and the EU. The first was that putting the G20 at the centre
of the global economic architecture did not constitute a radical restructuring
of that edifice, but merely an expansion of the G8, even though, as widely
recognised, countries like Canada and Italy had no reason to be included
in a selective grouping of self-styled global managers. The second was
that having the European Union (represented by its rotating Council presidency)
as a member along with individual European countries like France, Germany
and Italy helps mollify other European aspirants. Third, by having the
Presidents of the IMF and the World Bank as ex-officio invitees, without
prior completion of the much needed restructuring of their unrepresentative
management, ensures that the agencies that would be chosen to implement
decisions on global economic management would be entities controlled by
the US, UK and EU. It has been widely noted that an IMF that had lost
its relevance before the current crisis, has won itself a new lease of
life and substantial influence after the London G20 summit, even though
it still advocates the same policies that drove it to near-irrelevance.
Finally, it is noteworthy that the restriction of membership from West
Asia to Saudi Arabia (excluding Iran) and the exclusion of a country like
Venezuela from Latin America (when Argentina, Brazil and Mexico are at
the table), keeps out countries from these regions which the US would
be uncomfortable with.
In sum, if expansion of the club responsible for managing global capitalism
was unavoidable, the G20 reflects the combination which would be preferred
by the leading powers, taking account of the reality that excluding China
and Russia would have robbed the G20 of all significance. Thus, the fact
that the last three summits in which the G20 was revived and given new
stature were held at Washington, London and Pittsburgh respectively is
perhaps of more than symbolic value.
In fact, the economic architecture that has the G20 at its centre though
seemingly more democratic than the one that had the G8 seeking to manage
global affairs is top-down in nature in two senses. It has a few developing
country members who claim to speak on behalf of the developing countries
as a whole, though they are clearly engaged in seeking symbolic equality
with the developed (through permanent membership in the United Nations
Security Council or special exemption from the guidelines of the Nuclear
Suppliers’ Group, for example). Further, the G20 as a group cannot fundamentally
challenge the increasingly anachronistic leadership role of the G8 in
general and the United States in particular when it comes to redesigning
capitalism. It is to conceal these features that support for the G20 is
canvassed on the grounds that it includes countries accounting for 85
per cent of world GDP and two-thirds of the world’s population, while
underplaying the fact that the grouping includes only 19 of the United
Nations’ 192 members.
The argument in favour of a more selective club is of course the fact
that it facilitates reasonable discussion and debate and aids decision
making. But the correctness and effectiveness of those decisions from
the point of view of the global community depends on the extent to which
these members represent the combined or common interests of that community.
Since the current members of the G20 were not elected to their self-assumed
roles, there is reason to believe that their membership and participation
is driven by their own self-interest. This could be of three kinds. Countries
could feel that their voice in global affairs does not reflect their weight
in the global economy. Countries could feel that they are so involved
in global trade and capital flows that global developments affect them
substantially, though they have little or no role in influencing those
developments. And countries, could feel that their participation in global
decision making is a part of a competitive strategy to benefit from global
economic development and enhance their position within the global economy.
If it is the last two of these three objectives that makes a country accept
membership of the G20, then it would not be seeking to represent others
but attempting to advance its own interests. With the whole of Africa,
excepting for South Africa, excluded, for example, this can hardly deliver
any economic justice globally. In the event, the G20 would not serve as
a platform to manage global capitalism through consensus, but merely as
an arrangement that wins legitimacy for a minor modification of the existing
international economic architecture despite its failure on many fronts.
This is the direction in which the world seems to be moving. Consider
what has been achieved at the end of the third summit of the G20 held
over a period of less than a year, other than for its elevation to the
role of global economic manager. There was agreement that it is as yet
too early to roll back the fiscal stimulus that helped stall the economic
decline and begin a slow recovery. There were statements against protectionism,
but no concessions such as withdrawal of the punitive measures adopted
by the US against imports of tyres and steel pipes from China. There was
little concrete progress on restructuring the financial architecture other
than for many pious declarations promising to push ahead with and some
much-needed reforms of the international financial system. The oft-repeated
verbal commitment to institute limited banking reform, in the form of
‘improved’ capital adequacy standards and regulation of derivatives trading,
was combined with a concession to popular sentiment with references to
bonuses of bank managers and the need to avoid excessive risk taking.
Actual financial reform was focused on “old agendas” like winning US agreement
to Basel II standards, generating consensus over a crackdown on tax havens,
and reducing bank leverage. In terms of global economic supervision, while
continuing with another name the existing (and as yet ineffective) practice
of IMF surveillance, the summit has promised to redress the power imbalance
in global management by transferring at least 5 per cent of the shares
in the IMF and at least 3 per cent of the vote share in the World Bank
from over-represented nations to emerging economies. The US would, of
course, retain enough shares to exercise a veto in the IMF. As for the
global poor, an already existing World Bank-led programme to promote food
security in the world’s poorest countries was endorsed to signal a concern
for those excluded from the G20 club. And a diversionary reference to
an inadequately discussed initiative on phasing out fossil fuel subsidies
was made. There is much more in the lengthy Communiqu, but nothing that
constitutes a fundamentally new thrust. These might reflect diplomatic
success, but is nothing when it comes out of a third summit to frame a
cooperative response to the worst economic crisis the world has seen after
the Great Depression.
In practice, contentious issues like trade and climate change were largely
or completely sidestepped and financial system reform was touched very
lightly. This points to the fact that the transition from G8 to G20 tutelage
over the world economy has done little other than slightly modifying and
strengthening the pre-existing global order, while increasing the money
spent on marketing the new framework. There are deep structural reasons
for this. Increased integration through trade has made developing countries
more dependent on exports and heavily dependent on markets in the developed
countries, especially the US. Financial liberalisation in a context where
the dollar was the world’s reserve currency has meant that much of the
world’s financial wealth is accumulated in dollar denominated assets.
And confidence in the dollar sustained not by America’s competitiveness
but by its role as the watchdog of world capitalism makes it the preferred
target of any flight to safety. It is, therefore, in the interest of most
elites and governments0 to cooperate with the US in the name of finding
a solution to the problems confronting global capitalism. But finding
a solution does not guarantee its implementation. For the moment, what
the US seems to have managed is to initiate a process that would limit
Europe’s influence while creating space at the hegemon’s table for a few
“emerging” economies.