G20 and Global Economics

Ever since the 2009 Pittsburgh Summit designated the Group of 20 (G20) as the premier forum for international economic cooperation, the institution has made tremendous achievements in global economic governance. Still, it faces challenges in terms of governance scope, legitimacy and effective response to global crises due to factors such as interference from the Group of Seven (G7). As the presiding country of the 2016 G20 Summit in Hangzhou, China will play an active role in promoting the transformation of the G20.

The G20 was first established in Germany in 1999, with the purpose of tackling international financial crises, especially preventing regional financial crises from infecting and spreading wider. Unfortunately, concerns about a global financial crisis proved prescient in 2008 when an unprecedented financial crisis broke out in the United States and Europe and then swept around the world. Upon the occurrence of the global financial crisis, governments of the U.S. and European countries, as well as some multilateral organizations including the European Central Bank and the G7, reached a consensus in Pittsburgh that the G20 was probably the only platform for international cooperation capable of responding to the global financial crisis. Based on that decision, the G20 began to hold an annual leaders’ summit, which is called the G20 Summit.

Premier Forum for Economic Cooperation

A textual analysis of the communiqués and statements the G20 has released since 2008 is crucial. Studies not only pinpoint what G20 has advocated and done, but also showcase the shifts in major topics at G20 summits over the past decade.

In the “post-financial crisis” era, the G20 members have found progress difficult on the essential issue of global economic governance – in-depth collaboration on macroeconomic policy – and began to focus on topics on which consensus is comparatively easy to reach such as recovery and growth of the world economy. Although some economies have achieved considerable growth since 2008, global economic growth still lacks momentum as many other economies remain stagnant and face difficulties in structural transformation.

The G20 is now considered the “premier forum for international economic cooperation.” It’s more than just another international forum: The G20 serves as a mix of international economic forums and a “global steering committee.” The G20’s stature above other international economic cooperation forums is measurable.

The ultimate goal of the G20 is to realize effective global economic governance. However, the most emphasized issue in G20 communiqués and statements is “international economic cooperation,” rather than “global economic governance.” This implies that in the current world order, global governance is still being materialized through international cooperation (including international rules, norms and regulations) to mitigate, control and address common challenges, crises and threats worldwide.

In fact, the G20 Summit not only seeks international economic cooperation, but also cooperation in many other fields.

First, the G20’s greatest contribution was its decision to reform and modernize the International Monetary Fund (IMF) and the World Bank, which had been decaying since their establishment in 1945, so emerging economies could play a greater role and have a stronger voice in these international financial organizations.

Second, the G20 helped accomplish breakthroughs in global sustainable development when South Korea and Mexico assumed its rotating presidency. The G20 is becoming increasingly important for developing countries because it places greater emphasis on the sustainable development of lagging regions such as Africa, which has since enhanced its global standing. The efforts have left a major impact by successfully upgrading the UN Millennium Development Goals to the Sustainable Development Goals in 2015.

Third, the G20 has been urging its members to collaborate on climate change policies, which has accelerated UN climate change talks and facilitated signing of the Paris Agreement.

Finally, the G20 has reinforced its position as a leading collective for global governance by focusing on issues such as anti-corruption and taxation.

G20 Problems

While applauding the major contributions that the G20 has made in global governance since 2008, we must acknowledge the problems it faces.

First, the form of the G20 is new, but at least half of its operating procedures are old. To some extent, it is an expanded version of the G7. Like the G7, the idea of forming the G20 was proposed by Canada and European countries. Emerging economies in the G20 such as China, Russia, India, Brazil, and Turkey have always advocated the G20 should avoid becoming another platform in which major Western countries dominate global economic governance like the G7. In reality, the influence of the G7 in world affairs has been reinforced with the emergence of the G20. As the global financial crisis entered “risk management” period (2008-2010), developed Western countries pledged to make the G20 a “premier forum for international economic cooperation” in a bid to motivate emerging economies to tackle the global financial crisis. That promise proved empty when Europe, Japan, and the U.S. refused to dissolve the G7; attempts have even been made to dominate the G20 via the G7.

Second, as a cooperative platform comprised of big countries, the G20’s global authority has been controversial since its inception, given by definition it excludes small, weak economies. The G20 Summit is open to representatives from some non-member countries and regional organizations such as the African Union and the Association of Southeast Asian Nations (ASEAN), which have sent delegates to each year’s summit. However, such efforts remain far from substantial to enhance the G20’s global legitimacy.

Letting big developing countries such as China, India, Brazil and South Africa play bigger roles in the G20 can help it improve its global standing. To completely solve the problem, however, the G20 needs to reform its system design and policy implementation, to bring in more countries as members.

Third, the G20 was designed to address crises arising from globalization, which could present impossible missions. One challenge that humans face is that globalization has largely passed over low and middle classes, with some lacking even basic living necessities. Even in the most globalized countries, which are largely developed European and American countries, the elite class benefits most from globalization, while ordinary people are more vocally objecting to it. Obviously, the G20 can do little to solve this controversy over globalization. Humans are the core propellers of globalization. They can refine globalization, and reverse it as well. The G20 has yet to produce a miracle to solve fundamental problems of the global imbalance.

Global economic governance requires concerted efforts from all classes of society. Local and national governments should work together with global and regional organizations. The current situation shows that international organizations such as the European Union, the IMF, the G20, and the Financial Stability Board cannot effectively govern the world economy themselves.

Reforming G20 with Chinese Wisdom

China has been playing a significant role as a G20 member. Hosting the 2016 G20 Summit is a major opportunity for the country to play a lead role in international affairs and exert a heavy influence on the transformation of global economic governance.

First, China could help build the G20 into a true “premier forum for international economic cooperation,” helping it act as a “steering committee” for global economic governance. To reach this ambitious goal, the country needs to enhance its international leadership capacity and begin playing the role of global leader. It must provide physical public goods worldwide, like it is doing with the Belt and Road Initiative and the Asian Infrastructure Investment Bank. More importantly, it should provide conceptual public goods, such as the plans to reform global institutions and rules and regulations for future global governance.

Second, China must improve the effectiveness of global economic governance. Prior to the Hangzhou Summit, the Third G20 Sherpa Meeting reached an agreement to promote “more efficient global economic and financial governance.” China has made “efficient, orderly global governance” an important goal of its foreign policy. Whether the G20 can effectively implement global governance depends on many factors, of which the most significant is its scope of representation.

Third, China must accelerate the modernization of existing global governance institutions. As an advocate of global governance reform, China has called for modernization-oriented reform. International financial institutions such as the IMF have played a vital role in global economic governance. With history of more than 70 years, the IMF and its cousins cannot hone the modernization process of today’s world – they have only managed to adjust to adapt to the changing situation. The 2009 Pittsburgh Summit stated that the G20 should “reflect the current situation of the world economy through modernization of global institutions.” The move included modernizing international financial institutions and global developmental framework. As the presiding country of this year’s G20 Summit, China should urge the IMF and World Bank to substantially implement reform plans passed and approved by governments of G20 countries, and formulate and enact plans to further reform international financial institutions.

Fourth, China can promote global governance from the ground up. One of the aims of establishing the G20 was to mitigate social recession and expanded inequality arising from globalization with hopes of helping globalization benefit as many ordinary people as possible. To this end, there is much China can do. It can realize social justice domestically, and at the same time urge the G20 to pay more attention to global social governance.

Finally, China can build the G20 into the 21st Century Concert of Powers. The concert of big powers in the G20 framework should involve not only financial and macroeconomic policies, but also global security policies. Through properly performing their respective duties, the G20 and the UN Security Council can play a pivotal role in global security governance.

Both authors are professors from the School of International Studies at Renmin University of China