G20: A Much Wider Range of Issues on the Table
Mark Thirlwell argues that the G20, which meets this weekend in Toronto, Canda, is a beneficial element in global economic management but risks broadening scope for argument
When G-20 leaders meet this weekend there will be plenty of scope for debate. China’s decision to move on the RMB has defused one potentially contentious issue, at least for now. But several more remain on the agenda.
Disagreement over the appropriate pace and timing of the withdrawal of fiscal stimulus is probably the most prominent of these, but there is also ample scope for further argument over financial regulation. With other sources of discord such as climate change and the future of the Doha round still waiting in the wings, the world economy’s new steering committee faces some tough challenges if it is to continue to build on what has been a promising start.
Still, the presence of an element of discord at G-20 summits really shouldn’t come as a huge surprise. Indeed, it’s pretty much an unavoidable design feature of the new international economic architecture.
By bringing together a broader and significantly more diverse group of countries than the G7/G8, the G-20 inevitably increases the scope for disagreement, since the range of policy interests and priorities is now much greater. While that makes it much tougher to reach any kind of consensus, it’s the inescapable consequence of a more multi-polar world.
In fact, many of the current disagreements pit the G-20’s rich countries — the established powers — against each other. But there is also plenty of scope for North-South divisions to complicate matters, too.
This raises a broader point. Until now, much of the debate around the G-20, and around the international economic architecture more broadly, has concentrated on the issue of representation: of updating membership lists and re-jigging voting weights in light of the shifting balance of global economic power. All of which is, of course, necessary and important. But it’s only part of the story.
Once the architecture is in place and the membership issues settled — and the G-20 is actually a pretty good start — then the new arrangements actually have to deliver agreements. And getting them to do this is not going to be straightforward.
One important reason is the nature of that new global balance of economic power. Specifically, the arrival at the world’s top table of major economic powers which are also developing economies with levels of income per capita significantly below those enjoyed by their advanced country G-20 counterparts. This divide in national living standards is manifested in what I have been describing as a clash between hypocrisy and reciprocity.
Hypocrisy is the charge levelled by the emerging powers against the established ones. So, for example, on trade policy: after decades of lecturing the developing world on the benefits of free trade and liberalisation, the rich world has developed cold feet.
The Doha round was supposed to be a development round, but one reason for the current stalemate is that rich countries are increasingly reluctant to allow any additional access to their markets to the economic success stories of the developing world.
On international finance: after years of preaching the gains from free capital flows, developed economies seem to have decided they are uncomfortable being recipients of investment from the developing world, sounding warnings about the dangers posed by Sovereign Wealth Funds and other state-controlled investments. And on climate change: after reaping the benefits of energy-intensive economic growth, the developed world now appears to want to restrict the ability of the developing world to seize the same opportunities.
All charges which contain at least an element of truth.
For its part, the developed world looks to the new emerging economic powers and their new seats at the top table, and then asks for reciprocity.
On trade policy, for example, the bargaining dynamic that is at the heart of the WTO process means that rich countries now expect at least the big developing economies to be active participants, and not free-riders. On capital flows, the talk is of level playing fields and equal treatment. And on climate change, any credible agreement requires commitments from the largest future emitters as well as the largest past ones.
The big developing economies are inclined to meet at least some of these requests with the counter-argument that they are still, after all, developing countries, and therefore cannot be expected to take on the same burdens as the developed world.
Again, this defence has (more than) an element of truth: to take just one example, the kind of adjustment problems posed by agricultural trade liberalisation look rather different when you still have millions of subsistence farmers. Nevertheless, the reality is that demands for reciprocity are the unavoidable price for these economies’ new status as emerging powers.
Getting global governance to work is one of the major long-term challenges facing the world economy, and resolving the clash between hypocrisy and reciprocity is going to be an important part of that process. Meanwhile, we can look forward to the weekend’s squabbles over fiscal policy and bank taxes.
This article originally appeared on The Interpreter, the blog of The Lowy Institute in Sydney, Australia, at www.lowyinterpreter.org.
Mark Thirlwell, a senior analyst at The Lowy Institute in Sydney, specialises in globalisation, international trade and finance and the economic rise of China and India.Filed under: Opinion