The G20 Can’t Govern Itself, Let Alone the World Economy
The G20 talks a lot about “growth targets”. The problem is it never gets past talking, says John Hancock.
You have to admire the confidence of the G20. As finance ministers and central bankers gather in Sydney this weekend for the group’s semi-annual meeting, Australian Treasurer Joe Hockey, the host, is aiming for nothing less than a “global growth plan” backed by binding “growth targets.” Unfortunately, that’s the same thing G20 leaders promised in St Petersburg six months ago—in fact, it is the same thing the group has promised at practically every meeting since 2009—yet still the IMF warns that world growth remains lacklustre and international cooperation inadequate. What explains the G20’s serial failure to provide global economic leadership?
One problem is that its members can’t seem to agree on how to go about promoting global growth. Australia’s new government—faced with a slowing economy after decades of resource-fuelled expansion—wants to use its G20 chairmanship to demonstrate decisive leadership on economic growth and job creation. But not everyone thinks more government action—let alone a binding growth target—is the answer. The Germans, always the most sceptical and parsimonious of the group, have already dismissed Australia’s idea as a “slightly antiquated form of economic planning.”
Another problem is that—even if the G20 could agree on the solutions—there’s no immediate crisis to galvanize collective action. One reason the 2009 London summit presented at least a semblance of shared resolve to tackle unemployment, trade protectionism, and financial reform was that the Great Recession focused the G20’s collective minds and underscored their interconnected problems. But now that a recovery—albeit anemic—is underway in the US, Japan, and parts of Europe, the idea that “we’re all in this together” looks both vaguely inconvenient and out of date.
Rocked by recent financial turmoil and stalling growth, India, Brazil, and other once-dynamic developing countries are arriving in Sydney demanding that the US pay more attention to the global impacts of its unilateral decision to cut the Federal Reserve’s stimulus this year. Last month, Raghuram Rajan—the beleaguered Governor of India’s Reserve Bank—warned that advanced countries can’t just “wash their hands off and say we’ll do what we need to and you [developing countries] do the adjustment.” But with US policy-makers focused on keeping America’s fragile recovery on track—and not entirely displeased to see some of the wind taken out of the BRICS’ sails—that is precisely what Janet Yellen, the new Chair of the Federal Reserve, will be saying to her erstwhile partners over the weekend.
Then there’s the problem of the sprawling, amorphous character of G20 itself. Created to give voice to emerging economic giants like China and India shut out of an increasingly anachronistic G8 club, the new group soon faced intense lobbying for additional seats at the head table. Italy and Canada got in because no one was prepared to freeze out a G8 member. Australia got in because Canada was in. Argentina and Mexico got in because Brazil was in. And Turkey, Saudi Arabia and South Africa got in because… well, no one really knows why they got in. But while the G20 may be more representative of the 21st century global economy, it’s also more unwieldy—less an exclusive club and more an angry crowd. With finance ministers, central bankers, and legions of officials from nineteen countries plus the EU squeezed around the same table, it’s hard enough to organize a speaker’s roster and photo-op, let alone a concerted plan for global growth.
But there’s a deeper problem. The idea that an elite group of political leaders can somehow fine tune the world economy looked ambitious enough when the French, so enamoured of dirigiste planning, first proposed a G6 meeting at Rambouiette in 1975. It now looks positively utopian in this anarchic era of market-driven, technology-fuelled globalization. No doubt officials will labour into the early hours of Sunday on a carefully crafted communiqué outlining all of the good things that G20 countries plan to do to bolster international markets. But today’s global economy is simply too complex and fast-paced to be managed by anyone, even the most powerful ministers and leaders. The G20 is not in charge of the world economy; the G-7 billion is.
Does this make the G20 a mere “talking shop”, as the critics claim? Yes. But talking, discussing, sharing information is no bad thing, especially if it restrains governments from acting impulsively and precipitously—by, for example, launching trade wars or other beggar thy neighbour acts. And who knows, the spectacle of these wizards of Oz drawing up their global action plans may even be comforting to some in these uncertain, turbulent, out-of-control times.