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.
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