Globalization’s Government Turns 10
by Adam Tooze, November 19, 2018
For a decade, the G-20 has provided the nondemocratic oversight the global economy deserves.
Ten years ago, the George W. Bush administration played host to an unprecedented meeting. On the weekend of Nov. 14 and 15, 2008, the heads of the G-20—a group of leaders from 20 large economies who had never previously been treated as a collective—assembled for the first time in Washington to coordinate a response to the rapidly growing global financial crisis. The upcoming meeting in Buenos Aires on Nov. 30 will be its 13th since 2008.
It’s an unabashedly exclusive club—even the United Nations secretary-general attends as a guest, not a full member—and has quickly become one of the most potent symbols of globalization. Its authority is demonstrated by the blanket of security that surrounds it and the mass anti-globalization protests, most recently in Hamburg in July 2017, that regularly try to disrupt it. Ultimately, however, it is both more and less important than its critics and supporters allege—and given the present structure of the global economy, it is difficult to imagine an alternative. The G-20, in short, is the form of global governance the world currently deserves.
The G-20 concept was originally gestated in crisis—not that of 2008 but of the late 1990s. The story goes that, in the wake of economic meltdowns in Asia and Russia, then-U.S. Treasury Secretary Larry Summers tasked his deputy Timothy Geithner, together with his German counterpart, Caio Koch-Weser, with compiling a list of major global players who should make up a decision-making forum more exclusive and flexible than the U.N. Going down a table of population and GDP, they ticked France and South Africa in, Nigeria and Spain out. The result was a grouping dominated by the G-8 and the so-called BRICS (Brazil, Russia, India, China, and South Africa), with the addition of newcomers to the top table such as Saudi Arabia, Indonesia, Argentina, Mexico, and Turkey.
This proto-G-20 was a regular meeting of finance ministers and accordingly low-key and technical in atmosphere. There were some, like the Canadians, who pushed from the start for the G-20 to be upgraded to a meeting of higher-level leaders. But the Bush administration resisted, preferring to cultivate coalitions of the willing and to open a new era of G-2 diplomacy with China.
The 2008 gathering was a surprising last-minute turn to multilateralism on the part of a Bush presidency better known for its unilateral approach. Exceptional times, however, called for an unusual response. In September and October 2008, the world economy had experienced the closest thing in its history to a collective financial heart attack. All the major banks on both sides of the Atlantic had been shaken to their foundations. National governments everywhere were scrambling to the rescue of their financial institutions. But they were doing so in an alarmingly uncoordinated fashion. It was not until Oct. 13, 2008, that Europe and the United States managed to hammer out a coordinated program of capital injections and bank guarantees. Behind the scenes, the U.S. Federal Reserve was pumping dollar liquidity into the global banking system.
But what was needed was something more political to signal the commitment to avoiding a repeat of the conflicts of the 1930s, to accelerate new regulatory action, and to unlock additional crisis-fighting resources. Leaders elsewhere recognized the same need: as the depth of the disaster became clear, President Nicolas Sarkozy of France and Prime Minister Gordon Brown of the U.K. began talking about the need for a global gathering.
But creating an overtly political forum posed its own problems—namely, how to design in a way that reconciled the individual interests of its participants. The French and the Japanese wanted a relatively select group, one that would give them more weight. The Bush administration’s priority was to avoid formal cooperation with the U.N., which it feared would seize the initiative with a show-stopping global investigation into the U.S. roots of the crisis. Ultimately, the major players agreed to upgrade the existing G-20 and to link it closely to the IMF, in which voting rights are weighted by capital contribution.
The G-20 was a self-appointed group—and, unsurprisingly, the excluded resented it. Norway’s foreign minister denounced the summits in 2010 as the “greatest setback” for the international community since World War II. “We no longer live in the 19th century,” he opined, “a time when the major powers met and redrew the map of the world. No one needs a new Congress of Vienna.”
At the first meeting of the G-20 in Washington there seemed little prospect that it would be redrawing any maps. The format was untested and inefficient. The leaders took turns to deliver prepared statements. There was more posturing than substance. But they reached agreement on important initiatives regarding banking regulation and financial stability, which accelerated the push toward tighter banking regulation in the Basel III agreement. And the second meeting, in London in April 2009, starred new U.S. President Barack Obama and was a true global summit. Whether the resulting coordination of policy was a good or a bad thing, of course, depended on the policies that were agreed. The expansion of IMF resources at London would prove to be much needed. Less positive was the use of the G-20 to coordinate austerity. The decision at the June 2010 meeting in Toronto for all the major economies of the world to simultaneously halve their deficits was profoundly misguided.
Since the G-20’s beginnings in the financial crisis, its mission has become more dilute. Its remit has expanded, and its meetings have been cut to one per year. It continues, nevertheless, to serve as a convenient venue for bilateral encounters balanced by the wider global setting. Between 2010 and 2012, it was the principal forum in which the Obama administration conducted its discreet efforts to break the deadlock in the eurozone crisis. More recently it has become the stage on which global leaders have sought to temper U.S. President Donald Trump’s program of “America First” policy and to coordinate their response.
In a world of increasingly assertive nationalism, does the G-20 have a future? Almost certainly, yes—in part because its style of internationalism insulates it from nationalist pressures. As the Norwegian foreign minister noted, hierarchy is built into the G-20 model. In that sense, it marks a break with the postwar internationalist era, with its emphasis on the equality of sovereign members of the U.N. General Assembly. The G-20’s privileging of an exclusive group of major countries flies in the face of the pious fiction of equal sovereignty. But that does not make it a throwback to the 19th century, dominated by the principle of monarchical legitimacy and the “concert of Europe.” The G-20 is an authentic organization of the new era of globalization, which began in the 1990s when global growth began to take on a transformative aspect, rebalancing the hierarchy of nations. The criteria for inclusion in the G-20 are not sovereignty or political alignment but economic and demographic heft.
The balance of power within the G-20 itself has shifted accordingly. At the turn of the century, when finance ministers first began to meet, the G-20’s emerging economy members contributed 25 percent of global growth as compared to a 55 percent share for the United States, Europe, Canada, Australia, and Japan. Today, their shares are 45 percent each. In the next five years, the growth contribution of the emerging economies in the G-20 will eclipse that of the slower-growing rich countries. And it is not just the raw economic balance that is shifting. Political and intellectual authority are shifting too. Both the Europeans and the Americans have found themselves under sustained criticism from Asian members of the G-20, demanding that they put their financial houses in order. The clashes at the summits in Seoul in November 2010 and at Los Cabos, Mexico, in June 2012 were particularly fierce. On the other hand, the voices of Brazil and Indonesia brought to bear in the G-20 have also prepared the way for the IMF to take a more open-minded view on the need for emerging markets to manage international capital flows.
The question for the future is not where the likes of Norway fit in but how long population giants like Pakistan, Nigeria, and Bangladesh should be excluded. Egypt has four times the population of Australia, a founding member. Ethiopia has a population that dwarfs any country in the European Union and is widely touted both as a champion of East African growth and a strategic partner of China.
Short of a European agreement to be represented by the EU, it is unlikely that incumbents will give up their spots. We should, therefore, expect the number of members to expand. This would widen the G-20’s base of legitimacy, even if a G-25 or a G-30 would not mark a return to the universalism of the founding moment of the United Nations or the much-lamented liberal multilateralism of 1945.
But, considering 21st-century realities, those inherited models of global organization are holdovers from an ancien régime, as much as Prince Metternich’s dealings were in the 20th century. Why should a resurgent India or China with populations of 1.4 billion and rapidly growing economies agree to stand on the same level as Ireland, Uzbekistan, and Panama? The G-20 draws hierarchical distinctions and frankly recognizes the power relations of an increasingly multipolar world. In that world, size counts. The same is true in the G-20—which is why it’s here to stay.