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Improving the G20 process

The recent G20 Hangzhou Summit is yet another example of the difficulties the G20 has to move ahead at cruising speed. Changes in the G20 process might help to increase its impact.
Par Christophe Destais
 Billet du 24 octobre 2016

The Hangzhou Communiqué: an ambitious policy message, a modest action plan

There are reasons to celebrate for anyone who makes the effort of reading the 7,000 words of the 48 paragraphs communiqué that was published at the end of the recent G20 summit in Hangzhou, China. The macroeconomic policy message is comprehensive and clear cut (monetary policy alone is not enough, “fiscal strategies are equally important” to support growth). Structural policies on innovation and “high-quality” investment are rightly emphasized. The communiqué is blunt on protectionism (the G20 “will resist all form of protectionism”) and it includes developments that are elaborated and coherent -though not audacious enough- on financial regulation, and tax transparency.

One shall, however, refrain from depicting an excessively rosy picture. The “Hangzhou Action Plan” which complements the communiqué on issues related to macroeconomic coordination falls short of offering the signs of a genuine capacity for policy makers to take into account a global general interest that would not match their domestic calculus.

This contradiction between a polished Leader’s communiqué and a far less ambitious and consistent “Action Plan” illustrates the limited actual impact that the G20 has on actual economic policies and raises the issue of the ability of the G20 in effectively coordinating global macroeconomic policies and tackling other global issues.

Indeed, the G20 suffers from design flaws that have translated into management issues.

Design flaws

The original sin of the G20 is perhaps the heterogeneity of its members in size, influence, and resources. When, in October 2008, at the peak of the global financial crisis, Georges W. Bush, the then President of the United States, decided to summon a summit in Washington DC that would include the G7/G8 and the major emerging economies, he invited all the members of a group already known as the G20 that had been created in the midst of the Asian crisis. He extended also the invitation to the European Commission and an arrangement was found so that Spain could be at the table while not formally a member. Time was not appropriate for the complex diplomatic fine tuning of the Group’s composition.

There is no such a thing as a perfect design of world leading countries. Nevertheless, this one includes countries such as Argentina, Saudi Arabia and, to a lesser extent Turkey, whose economic size and international clout remain limited, Latin American and maybe Europe are being somewhat over-represented.

This issue is all the more challenging that the G20 works under the principle of the rotating presidency. Rotating presidencies means rotating priorities. Each country tends to privilege an agenda that matches its own concerns. This rotation results in inconsistencies between years. In addition, there are obvious differences between the G20 countries in term of the resources they can allocate to the management of their presidency and their ability to use these resources in a productive manner.

The focus on annual summits, since 2011, also has its drawbacks (there were two summits in 2009 and again two in 2010). Gathering heads of states and governments at the helm of the financial crisis genuinely contributed to impose the idea that the biggest economic powers were decided to implement strong measures in order to cope with the crisis as far as fiscal policy and financial regulation were concerned. Since then, the direct involvement of political leaders means that the political and diplomatic – often bilateral - agenda inevitably highjacks the multilateral and more technical discussions. The massive presence of the media also means that there is a strong incentive to privilege postures over consensus searching.

Management issues

The main issue with the management of the G20 by the successive presidencies is perhaps the agenda overstretching. Whereas the historical G20 (between 1999 and 2008) gathered finance ministers and the central bank governors, the meetings at a ministerial level have in the recent years proliferated in various fields (agriculture, tourism, trade...) that may each have their own legitimacy but which, combined, contribute to distance the whole process from their original purpose, namely macroeconomic coordination and financial stability.

In parallel, the successive presidencies have accumulated layers of side meetings in order to involve the civil society in the process: Think 20, Business 20, Civil 20, Women 20... Again, each of this forum has its raison d’être and the discussion – though uneven- can be of great interest.  Nevertheless, they contribute to the overall bloating of the process.

Another management issue which is worth singling out is the proliferation of initiatives which are referred to in the official communiqués: as “task forces”, “blueprints”, “action plans”, etc... Some of them are relevant, the actual content is often disappointing and the quasi-systematic recourse to this technique results in a limited impact of the message that the leaders are supposed to deliver.

The multiplication of the fields in which the G20 intervenes and its tendency to go into the details tends to erect it as a contender of the international organizations in charge of the global issues it is suppose to coordinate and to dilute its very nature as a political process.

A declamatory body that has no leader

We should indeed keep in mind that it is of the essence of the G20 to be declamatory. The G20 is all about the message it sends to the world. The shorter, the more coherent the message, the better it travels to the policy-making spheres.

Back in 2008, the crisis called for a clear answer. The first G20 summit was called by the US, which still was the indisputable world hyper power, though to a large extent the country from which the crisis originated. Since then, the US leadership has weakened thanks to the convergence of several factors. Among them: the fact that China has begun to assert itself as a political power, its relation with the US has deteriorated; Russia is getting more confrontational; the US tends to turn to itself; Europe has weakened as a result of poor economic performances, increasing internal divisions and institutional crisis.

This situation contrasts with the period during which, back in the old days of the G5 turned G7, “the US was the only country that was willing and able to offer leadership and set an agenda” [1] .

Absent a world leader, reaching ambitious solutions requires genuine commitments to multilateralism that is the willingness to compromise for the sake of the general interest. This resource is scarce and very much uneven among the participating countries. The European G20 members have a tradition of negotiating among themselves on economic and technical issues. It is less the case of other powers. In most countries, this willingness to compromise when it exists is confronted to the rise of populism and nationalism.

Possible avenues for improvement

These shortcomings do not make the G20 irrelevant by themselves. As Gordon Brown wrote last summer “today’s patently global problems — low growth, trade protectionism, financial instability and deep-seated inequality, as well as mass migration — cry out for co-ordinated global solutions” [2] but they result in the G20 to be perceived as ineffective.

One priority of the coming German presidency should be to improve the process rather than to further enlarge the scope of the G20.

As already mentioned, the composition of the G20 is not optimal. Some propose to substitute a condominium which would only include say China, the US, and Europe. This would make the G20 turned G3 easier to manage, it would, however, be confronted with many obstacles. The first one might well be the lack of unity and coherence of Europe and its likely incapacity to deal on an equal footing with the two most powerful nation states in the world. Many economically and politically important countries and entire continents would be left on the side by such a choice: Russia, the UK, Japan, Korea, India, South-East Asia, Africa, Latin America, the Middle East...

Perhaps a less ambitious but more realistic solution would consist in taking a series of steps to improve the way the G20 works. The main idea would be to make it a more streamlined and coherent process.  In this respect the following ideas might be considered:
  • a. Negotiating a short set of principles
    A G20 charter would very briefly summarize the scope of the G20 and its main principles of operations.
  • b. Setting up a secretariat
    A secretariat means the inevitable bureaucratization of the process. However, a very light one would bring consistency over the years. In order to avoid excessive inertia, the principle that no one working for the secretariat can stay for a longer term than, say, 4 years, could be adopted.
  • c. Widening the intervals between summits. The summits give an impulse to the G20 but they also highjack discussions on global issues in favour of more traditional diplomacy and competition for media attention. An idea would be to allow for longer intervals between summits, say two to three years.
  • d. Keeping summits in a single location. Summits tend to turn into beauty contests between presidencies. One possibility to avoid this is to keep summits in a single location. Given the rise of Asia, it would be logical that this location be in Asia.

A final issue to consider is the rationality of the system of international organizations and fora in charge of implementing the “impulse” sent by the G20 leaders.

If we only consider the macroeconomic and financial goals associated to the G20, a myriad of institutions is supposed to implement the decisions: the IMF, the OECD, the Financial Stability Board and the constellation of organizations related to financial stability it gathers, the Bank of International Settlement, not to mention the regional arrangements. Each has a specific institutional setup, a specific membership, and specific rules. A rationalization of such a system would be desirable, if not realistic, in order to improve the implementation of the statement issued by any global yet formally powerless gathering of head of states and governments.

[1] « The G20 is likely to disappoint. Without global leadership, little of substance will be agreed at the coming summit », GeorgeMagnus, Prospect Magazine, August 30, 2016.
[2] Gordon Brown, “Leaders Must Make the Case for Globalisation”, Financial Times, 17 July 2016.
Politique économique  | Monnaie & Finance  | Economies émergentes 
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