by JOHN SINCLAIR
Embassy Magazine, September 21, 2011

Text only version

The G20 was born after a flawed global response to the 1997 Asian financial crisis. It is now de facto replacing the G7/8, the faded elite club of the world’s largest industrial economies, whose main outputs had become photo-ops for presidents and prime ministers in country retreats and mega-dollar security efforts to keep away protesters.

The G20, initially a forum for finance ministers, adding some newly emerging economies to the old G8, has been given the daunting task of saving us from the US-driven global financial follies of 2008. 

Its birth was heralded by a surge of collective action.  Even George W. Bush, then in his lame-duck days, reluctantly hosted the first Leaders G20 in November 2008.  Since then there have been two summits a year, including a rather ineffective (and certainly expensive) G8-G20 double-header chaired by Canada in summer 2010.

The key decisions were taken in 2009 at the London G20 Summit as leaders agreed on a massive coordinated program of Keynesian fiscal stimulus. 

This eased the sense of immediate crisis. But has an over-confident G20 peaked prematurely?

It has quickly slipped into the flawed G8 mode of endless technical debate between finance and central bank officials.  It has fallen into a quagmire of competing plans for avoiding a repeat banking crisis, with Americans and Europeans squabbling over whose regulations are the best (or rather, the least bad). Are vision and leadership now dangerously absent? More fundamentally has policy shifted too fast from stimulus to budget-cutting?

Economically our world has been largely kept afloat for the last two to three years by the resilience and growth mainly of China and India, but also other developing G20 members such as Brazil.  Big global decisions increasingly need a private G2 (US  + China) consensus.  The US, burnt, politically and economically, by its ‘wars of choice’ in Iraq and Afghanistan, is now a hesitant leader.

The faded G8 is no longer a credible final powerbroker, even on global security.  Its main audiences, apart from political insiders, are now protesters and riot police.

Meanwhile, the continuing debt overhang of the USA and several EU countries, plus Japan’s tsunami-triggered crisis, has undermined the global recovery.   American and European workers, especially the young and minorities, are paying a growing price of high unemployment.

Indeed there is a sense that we are maybe in the early days of a ‘double-dip’, as a result of policy failure (or paralysis) by floundering leaders in the USA and European Union.

Maybe worst of all, the US President, in resolving his recent debt-ceiling crisis, has conceded the high ground to a Tea Party-driven policy mix of rejecting stimulus and squeezing immediate public spending, one that is highly likely to trigger further job-losses.

Can the G20 be resuscitated in time for its next summit in Cannes this November? Or will it also descend into self-indulgent chatter, among just a larger group of leaders?

French President Nicolas Sarkozy as the current chair certainly talks of energetic action. He has announced a long reform agenda. But is he serious… or just driven by his desire for a high-profile role before the 2012 French election?

The BRICs: a solid solution?

The G20’s BRIC countries are doing little to help.  Having pressed for a more equitable share in global governance, they have shown little interest in exercising influence. But a BRIC summit this weekend formally discussed how they might help debt-ridden Europeans!

China seems to be playing for the longer-term, worrying more whether contagion is finally reaching its shores as shrinking western demand hits markets for domestically sensitive, job-creating exports.  Can it shift growth strategy towards greater domestic consumption? It is also struggling to manage the risks intrinsic to passivity on its fortune locked in US Treasury Bills.

India has similar worries about shrinking exports and jobs. It is also suffering from its hyperactive democracy, including the hunger strike of its new Gandhi, Anna Hazare, with his demands for tough anti-corruption legislation.

Canada’s role

Canada helped create the G20. Can it now help re-energize its child? Despite boasting it dodged today’s financial crisis thanks to its superior regulatory stance, Canada seems so far to have done little to help fill the leadership… or financing… gap.

A now domestically secure Conservative government could show its international aspirations and capacity.  It could help frame a consensus to better regulate the international banks. Rather than fall in behind the Americans, we could support the European initiative on an international financial transaction tax, tapping still buoyant offshore banking profits?  A very modest tax could support development funds for global warming mitigation or Canada’s G8 initiative for maternal health (MCH).

Canada could seize the lead in making the G20 more effective.  The world has waited over a decade on Doha trade reform.  How about pressing for a G20 mandate to break the key deadlocks?  Could we press, in the spirit of inclusivity, for a permanent G20 seat for a fragile state? What about Canadian leadership on delivering governance reform to the multilateral financial institutions? Or creating a G20 Secretariat to allow its leaders to focus on the big picture, not technical issues?

So far Canada seems coy about a leadership role. However, the present wariness and weariness of many OECD partners provides a great opening for Canada to shine as a global citizen—and impress developing country G20 partners.

John Sinclair is a member of the McLeod Group, temporarily based in Jakarta, Indonesia. He is a Senior Fellow at the School of International Development and Global Studies, Ottawa University. He has worked for the Economist Group, DFID, CIDA and the World Bank.