G20 Governance for a Globalized World

John J. Kirton

• Publisher: Routledge
• Year: 2016
• ISBN:
  9781317131106
• Edition: 1
• Topic: Politica e relazioni internazionali
• Subtopic: Organizzazioni intergovernative

This book offers the most thorough, detailed inside story of the preparation, negotiation, performance, and achievements of G20 gatherings from their start at the finance level in 1999 through their rise to become leader-level summits in response to the great global financial crisis in 2008. Follow the moves of America's George Bush and Barack Obama, Britain's Gordon Brown and David Cameron, Canada's Stephen Harper, Germany's Angela Merkel, and other key leaders as they struggle to contain the worst global recession since the Great Depression of the 1930s. This book provides a full chapter-long account of each of the first four G20 summits from Washington to Toronto with summaries of the ensuing summits. It uses international relations theory to build and apply a model of systemic hub governance to back its central claim to show convincingly that G20 performance has grown to successfully govern an increasingly interconnected, complex, crisis-ridden, globalized twenty-first century world.

PART I
Analysing G20 Governance

Chapter 1
Introduction

The Significance of G20 Governance

On December 15–16, 1999, the finance ministers and central bank governors of the world’s 19 most systemically significant countries and the European Union gathered in Berlin for the first meeting of the Group of 20 (G20) (Kirton 2001a, 2001b). They gathered in response to the decisions made earlier that year, endorsed by the Group of Seven (G7) finance ministers and Group of Eight (G8) leaders, to create such a group. These decisions flowed from the initiative of two individuals: the finance minister of the G7’s smallest power, Paul Martin (2008) of Canada, and the treasury secretary of the G7’s largest power, Lawrence Summers (2008) of the United States. Martin, Summers, and their colleagues were reacting to the Asian-turned-global financial crisis that had erupted in Thailand in July 1997, engulfed Indonesia and Korea by the end of 1997, and spread to Russia in August, then the United States, with the collapse of hedge fund Long-Term Capital Management (LTCM) in September and finally to Brazil by the autumn of 1998. These cascading crises demonstrated the inability of the G7/8 and the International Monetary Fund (IMF) acting alone to provide financial stability for a world of increasingly globalized finance. In the view of Martin and Summers, the world needed a new, broader, permanent group of established and emerging countries to serve as a global financial and economic steering committee. They thought that each member of this group would operate as equals in the collective provision of essential global public goods. All the countries they chose as members agreed to join this new group. The G20 was thus established at the level of finance ministers and central bank governors just as the twenty-first century was about to dawn.

Almost a decade later, on November 14–15, 2008, the leaders of the same systemically significant countries and the European Union gathered in Washington DC for the first G20 summit. Similar to the birth of the G7 summit among six leaders in 1975, this first meeting featured France as the initiator and the United States as the decider. The immediate call for the G20 summit had come from French president Nicolas Sarkozy, whose predecessor Valéry Giscard d’Estaing had requested and hosted the first G7 summit in November 1975. Support for such a G20 summit soon came from the United States, led by President George W. Bush. As in 1975, the United States insisted that a broader group of countries be brought to the table, from beyond the established, exclusive Eurocentric and Atlantic club, in order to mobilize new, rising global powers whose contributions were now needed to confront the compounding crises adequately in the world. Bush decided in October 2008 that the new summit must be composed not only of G8 members and a few other countries, but also of all members of the established G20 finance ministers’ and central bank governors’ forum, and that it be hosted and chaired by the United States. Just as the finance ministers and bank governors had done a decade earlier, all G20 leaders agreed to attend. They believed that a global response was needed to the destructive American-turned-global financial crisis that had erupted in the US mortgage markets of “main street” and then Wall Street, and that had reached across the Atlantic to engulf Europe too. These shocks showed the need for a new, summit-level centre of global governance to foster financial stability, economic growth, trade liberalization, and development for the poor. These issues already constituted key components of the core G7/8 summit agenda, but they now needed a broader G20 to address them effectively. Managing crises that affected the global system required greater participation and equality than the G7/8 allowed. Together, the G20 members contained 65 percent of the population, 80 percent of the trade, and 85 percent of the gross national product (GNP) of the world.

The first G20 summit in Washington set key directions to mitigate the financial and economic crisis, initiated a process to apply them, and took concrete decisions to put them into effect. It agreed on a follow-up summit to be held in just over four months’ time. This second G20 summit, hosted by UK prime minister Gordon Brown in London on April 1–2, 2009, led many to conclude that the new leader-level G20 should and would become a permanent institution to reinforce, rival, or even replace the G7/8 as the centre of global economic governance in the twenty-first century. The third G20 summit, hosted and chaired by new US president Barack Obama in Pittsburgh on September 24–25, 2009, took the next step along this path by proclaiming that the G20 henceforth would be the permanent premier forum for its members’ international economic cooperation. The fourth G20 summit, chaired by Canadian prime minister Stephen Harper in Toronto on June 26–27, 2010, underscored the continuing need for such intense G20 summitry, for it confronted and contained the newly erupting European-turning-global financial crisis sparked by the spiralling sovereign debt of Greece. This Eurocrisis had quickly expanded beyond the control of the powerful regional EU to become the third global financial and ensuing economic crisis in just over ten years.

Competing Assessments of G20 Governance

The leaders of the world’s key governments quickly decided that among all the international institutions available or imaginable, the G20 was the most appropriate to lead the global response to the 2007–10 financial crisis. This suggests that they judged the earlier G20 finance ministers’ and central bank governors’ forum to have been successful during its first decade, and saw the G20 being so yet again at a higher level. The G20 seems, in retrospect, to have been the obvious international institution to mobilize a new configuration of collectively predominant economic powers to meet the needs of a rapidly globalizing, more equally vulnerable world. At the same time, the much greater speed, scope, scale, simultaneity, and societal impact of the 2007–10 crisis, relative to the 1997–99 one, as well as the former’s outbreak after only a decade of G20 efforts to produce financial stability at the level of ministers and bank governors, suggest that there were serious shortcomings in the G20’s earlier performance. Such shortcomings could be sufficiently large that a simple rise of the same club to the leaders’ level might be insufficient to overcome them.

Which of these two possibilities proved most accurate is a matter of critical significance for the many whose financial security, economic prospects, and daily lives have been devastated by the events of 2007–10 and their aftermath. It is equally important for scholars and practitioners of international politics and global governance seeking, respectively, to understand and to shape the G20 and other informal plurilateral summit institutions by specifying the workings of an effective, legitimate, and enduring global governance architecture for a now tightly wired world where major power shifts and changes in the connectivity of countries are underway.

To date, judgements about the course, causes, and consequences of G20 governance at the level of finance ministers and bank governors and now leaders have offered few convincing conclusions that command consensus by the standards used by scholars and others. In their place has come a wide-ranging, often poorly disciplined, prescriptively and normatively oriented debate among several schools of thought (see Appendix A). This debate often focuses in the first instance on the general question of the relationship between the new G20 and the old G7/8 (Hermawan et al. 2011).

Redundant

The first general school in this debate sees the G20 as redundant in the long term, because it is too large and diverse in its membership and too informal in its institutionalization, or because it has inspired the G7/8, other informal plurilateral bodies, or the Bretton Woods/United Nations organizations to revive and reform to meet the new global governance needs. Assuming a zero-sum global governance competition, this school first finds support in the G20’s birth alongside the British-guided, legally entrenched International Monetary and Financial Committee (IMFC) and the German-designed Financial Stability Forum (FSF). It adds that the minister- and governor-level G20 failed to predict or prevent the 2007–09 US-centred crisis that challenged its core mission of providing global financial stability and making globalization work for all. Even at the leaders’ level, the G20 did not prevent the onset of the 2010 European crisis from arising in Greece. Indeed, it was the G7 finance ministers who first responded to the erupting crisis in May 2010, leaving the G20 ones to follow a day later in less detail. After the fifth G20 summit in Seoul, Korea, on November 11–12, 2010, the G20 faded from being a twice-a-year gathering to only an annual encounter. This left the G7/8 and others to govern the ever more challenging global economy for the following year until G20 leaders were to assemble again in Cannes, France, on November 3–4, 2011, and in Los Cabos, Mexico, on June 18–19, 2012.

In this view, the G20 stands as an inherent rival of a G7/8 that has rapidly adapted to the competition from the G20 by expanding its own membership and participation through to 2009. At its finance ministers’ and central bank governors’ meetings and its summits in 2009, the G7/8 returned to dealing seriously with the financial and economic issues that its summits had largely abandoned during the decade before. The G8 summit routinely and expansively includes other countries and international organizations. With G20 leaders having done no better than their G8 counterparts to get the overdue Doha Development Agenda of trade liberalization done, with finance and economics a core part of the 2009 and 2010 G8 summits, with the new Financial Stability Board (FSB), old Basel Committee on Banking Supervision (BCBS), and the IMF doing the detailed reform work, and with the leaders of Brazil and Australia choosing not to come to the fourth G20 summit in Toronto, the G20 summit could become redundant and fade away as the self-proclaimed premier or even consequential global economic governance forum. At best, the existing finance G20 could be left to do its lower-level work alongside such other G7/8-catalysed finance-oriented bodies as the 1989 Financial Action Task Force against Money Laundering (FATF) and the 1999 FSF (Bayne 2003).

A particularly strong, prescriptively oriented strain of the “redundant” school sees the G20 as a great danger to the kind of global economic governance the world needs. A leading G20 abolitionist, Anders Åslund (2009) argued after the 2009 Pittsburgh Summit that the G20 was a threat to the international architecture and must be “stopped.” He questioned the legitimacy of an institution that arrogantly named itself the premier economic forum, without clear criteria for membership, agreed rules of governance, or authorization from excluded powers. In Åslund’s view, the G20 breached the principle of national sovereignty by usurping power for global finance governance while expecting the remaining 173 countries excluded from the G20 to follow its rules. Åslund’s alternative is the IMF, since it has the needed universality, hard legal status, and staff. He would make the G20 an informal “consultative forum” at best. Many traditional, hard law multilateralists associated with or sympathetic to the IMF or United Nations shared this view. Indeed, the IMF itself had long followed this approach, seeking to destroy the G20 since its 1999 start until its elevation to a leader-level club in 2008. Even after the 2010 Seoul Summit, IMF managing director Dominique Strauss-Kahn warned of the continuing risk that the G20 could become a largely irrelevant institution (Talley 2010).

Rejection

The second general school rejects the pre-eminence but accepts the continuation and contribution of the G20 (Beeson and Bell 2009). Such rejectionists, conceding the possibility of positive sum coexistence and cooperation among international institutions, conclude that although the G20 will endure, it has failed to perform as the primary centre of global economic governance, in part because it contains many of the flaws that have afflicted the G8. Such claims about poor G20 performance arose soon after its start and came especially from those who shared a hard law, legalization approach (Abbott et al. 2000). They predicted that another informal ministerial meeting was destined to fail due to the superior power or performance of the existing or reformed hard law multilateral bodies (Culpeper 2000; Foster 2003; Scholte 2003; Bryant 2003). They highlighted the formidable institutional defects of the G20, while conceding its competence on immediate narrow tasks. They insisted that the G20 was incapable of dealing with the much different global economic architecture the world needed. Leonardo Martinez-Diaz (2007) saw imbalances in G20 outcomes arising due to G7 dominance, arguing that the finance G20 did not work equally well for its emerging economy members due to a reliance on consensus rather than majority voting and to the G7’s dominance in capability, coherence, and continuity as an established concert within the new G20.

Rejectionists also emerged in response to the first G20 summit in Washington. They insisted that the leaders fell well short of their objectives due to a misdiagnosis of the financial crisis, denial of their own culpability for it, and failure to deliver what they had promised at prior ministerials (Duncan 2008; Lander 2008; Economist 2008c, 2008d, 2008a, 2008b). After Pittsburgh, rejectionists still doubted the group’s performance (Giles 2009; Donovan 2009; Winning and Parkinson 2009). Some pointed to differing dominant domestic ideas and interests across key members as causes of the summit’s failure to agree on key issues (Schirm 2012). In the lead-up to Toronto, Kenneth Rogoff (2010) presciently asked the self-proclaimed international financial regulators of the world to explain their failure to control the sovereign debt crisis spreading through Europe and beyond. He insisted that the global challenges modern society faced, from regulating complex technologies to managing ever increasing financial risks, as well as crises such as the 2010 BP oil leak in the Gulf of Mexico, necessitated a much more concerted and inclusive organizational response.

More analytically, Paul Masson and John Pattison (2010) found that international financial cooperation after a common shock might suffer because of a free-rider problem. They wrote that “regulation is an international public good that is under-provided, since some of the benefits and costs spill over to other countries.” While the G20 as a whole might work better than the G8, it is less beneficial for G8 countries to be involved in the larger group. Some additional members may not add much value to financial regulation, and their involvement in the group dramatically increases cooperation costs. Thus, the size of the G20 “has lowered the chances of agreement on major reforms.” Furthermore, it is difficult for the informal G20 to transform international consensus into domestic law, which renders the group toothless.

Anthony Payne (2010) also wonders how the G20 can work well with a “marginalized” majority left out. Thomas Wright accepts the G20’s “transformation in the architecture” of global governance, but similarly questions the legitimacy of a group with an “arbitrary” membership (Shorr and Wright 2010). With 173 countries left out, accusations of “global economic apartheid” could arise. Agreement is difficult to reach in a group of so many equal members who confront complex issues and do not share the same values. Wright’s solution is stronger US leadership in developing deeper relationships with countries that share its interests.

Other critics also reject the G20 due to an absent Africa and the missing poor of the world (Payne 2010). After the 2009 Pittsburgh Summit, Senegalese finance minister Abdoulaye Diop remarked that the leaders could not “continue to ignore hundreds of millions of Africans” (Agence France Presse 2009a). The ministers of the heavily indebted poor countries (HIPCs) called for the G20 to remedy the fact that no genuinely poor country was represented in the group.

Some rejectionists are ultimately reformers. Those in this reform sub-school reject the G20 in its current form and conduct, but would see it as effective, legitimate, and adequate if several changes were made. Sylvia Ostry (2010) claims that the G20 as an informal steering committee has suffered from the lack of trust that inspired the G7, having no criteria for membership and an American desire to reduce its membership. It needs “significant changes in structure and process in handling the ongoing global economic challenges.” A host of analysts, largely in the rejectionist school, have offered a multiplicity of suggestions for such institutional improvement (Bradford and Lim 2010). But they often disagree on the desirable reforms, offer an internally inconsistent array of proposals, and fail to show, analytically and empirically, how their preferred proposals would produce the particular governance results they want.

Reinforcement

The third general school sees G20 governance as a valuable reinforcement of what the G8 and other similar bodies do (Kirton 2005a, 2005b, 2010b; Alexandroff and Kirton 2010; Griesgraber 2009; Kharas and Lombardi 2012). It argue...