The new global political economy needs steering and the G20, despite faults, is our best bet to do the job
Globalisation is a ubiquitous term in the new political economy. Some see it as opening up opportunities for national and regional economies, while others suggest that it constrains and denies them. It’s a debate that’s longstanding and far from concluded.
But one less acknowledged feature of the process of globalisation is that, over the course of the last 20-30 years, it has created a new phenomenon: a global political economy that now exists in its own right and needs to be governed and steered. If it is not governed, or not governed well, it will likely run into trouble. At best, it will just ‘run wild’.
So who is expected to steer and lead us at this vitally important global level? We do of course have a group of global economic institutions. They include the IMF, the World Bank, the Bank of International Settlements (BIS), the Financial Stability Board and so on.
They matter hugely and do a better job in governing the global political economy than they are sometimes given credit for. But they are technocratic bodies led by officials and bureaucrats who report to political leaders in opaque fashion via boards of directors assembled in complex and (arguably) illegitimate ways.
It cannot be right to abdicate responsibility for political leadership of the global economy to such people as Christine Lagarde (IMF), Jim Yong Kim (World Bank) and Jaime Caruana (BIS), as eminent, experienced and talented as they unquestionably are. After all, who do they represent in democratic terms? To whom are they accountable? How can they give political leadership when necessary?
This is what brings us to the G20. This new grouping of countries, brought together in the aftermath of the Asian financial crisis of 1997-8, was given a mandate to ensure the systemic stability of the global financial order. It operated initially at the level of finance ministers and central bank governors. It did not attract many headlines and it did not prevent a new financial crisis emerging in the Anglo-American heartland of the global political economy.
It was surprising then, that former President George W. Bush chose to elevate this body to leadership level. Bush identified it as the main means of getting the world out of crisis when panic almost took over in the US at the height of the collapse of major banks and other financial institutions in the fall of 2008. The G20 has now met at summit level on seven occasions and is scheduled to gather again under Russian chairmanship in St Petersburg in September 2013.
A couple of weeks ago I attended an excellent workshop on the history and prospects of the G20 at the Leuven Centre for Global Governance Studies in Belgium. John Kirton, Director of the G20 research group at the University of Toronto, was present and made a strong case that the G20 should now be seen as the systemic hub of global governance.
Basically, John thinks that the grouping contains all of the key countries in the contemporary world, is developing an effective collective spirit and has an improving record of decision-making over the course of its seven summits. He sets this argument out fully in an excellent new book to be published by Ashgate early next year.
In a public meeting in the lovely old town of Leuven and in the workshop I took a somewhat more critical line. I didn’t dissent fundamentally from the view that the G20 was the best available option to play the kind of political steering role that is needed in relation to the global political economy. But I did argue that it still had important weaknesses and that its performance has actually fallen away of late from the impressive record set in its first three leaders meetings in Washington DC, London and Pittsburgh.
The key problem is that the G20 is just a vehicle: it doesn’t have an engine under its bonnet or even a map in its glove-box. It awaits a new driver to come along at intervals to take it out on the road. During the early summits successive American and British drivers drove it with purpose, with stimulus packages agreed worldwide. Since then, the sense of direction and energy apparent at the top of the G20 has slackened. Looking forward, who can have much confidence in President Putin’s potential leadership?
This makes it imperative that the G20 has a fuller institutional capacity. There is no secretariat, as yet, and many oppose the creation of another bureaucracy. For the moment the OECD is partially filling the gap by conducting some interim studies ordered by G20 leaders. But it is the wrong body to service the G20 and will impair the group’s wider legitimacy in non-OECD parts of the world if it gets too close.
Finally, the G20 cannot in the long run avoid the biggest elephant in its room: its member countries espouse and operate different models of capitalism. This fact underlies every pragmatic issue the G20 confronts, from global imbalances to global demand, currency exchange rates or further stimulus packages. The G20 doesn’t have to work out an ideological consensus to be effective, but equally it cannot continue to ignore the implications of this big question.
The G20 is the best global leadership option we have. But it needs considerable creative attention if it is to become more efficient and legitimate in what it does.