G20 Since the Global Crisis

Jonathan Luckhurst

• Publisher: Palgrave Macmillan
• Year: 2016
• Print ISBN:
  9781137551450
• eBook ISBN:
  9781137551474
• Topic: Politics & International Relations
• Subtopic: Globalisation
• Index: Politics & International Relations

This book analyzes the Group of Twenty (G20) since the 2008 financial crisis. The latter event undermined conventional wisdom and governance norms, constituting a more contested international economic regime. G20 leaders sought a cooperative response to the 2008 crisis through the forum, aware of their interdependence and the growing economic importance of key developing states. They agreed to new norms of financial governance based on macroprudential regulation, the Basel III Accords, and enhanced multilateral cooperation. They prioritized G20 cooperation for achieving international economic stability and growth. Differences exist over causes and effects of the crisis, including on the merits of economic austerity or fiscal stimulus strategies; on responsibility for and solutions to international economic imbalances; and concerns about monetary policies and "currency wars". Despite claims from skeptics that G20 cooperation is declining, this book argues its importance for international relations and as a hub of global governance networks.

© The Editor(s) (if applicable) and The Author(s) 2016

Jonathan LuckhurstG20 Since the Global Crisis10.1057/978-1-137-55147-4_1

Begin Abstract

1. Introduction: G20 Since the Global Crisis

Jonathan Luckhurst¹

(1)

University of Guadalajara, Guadalajara, Jalisco, Mexico

End Abstract

This book analyzes the influence of the Group of Twenty (G20) since the 2008 global financial crisis (GFC). It examines the effects of the GFC on global governance and international relations. Despite claims from several leading scholars that G20 cooperation declined after its crisis response of 2008–2009, the forum has become an important hub of global governance networks. Policy contestation has increased on core economic governance issues, with significant effects on the G20, global governance, and international relations. This chapter provides an overview of the book. It introduces the analytical approach, which combines insights from constructivism, liberalism, realism, and other approaches to international relations. It reviews academic literature on the G20 and GFC to help contextualize my analysis, and then it summarizes the focus of each chapter.

In the late 1990s, the Asian financial crisis damaged several developing economies, which many western officials blamed on poor governance standards, “crony capitalism,” and institutional flaws in those countries. The G20 Finance forum was created as an international response by the Canadian and US governments, with other allies, following a key meeting in 1999 between US Treasury Secretary–designate Larry Summers and Canadian Finance Minister Paul Martin. The focus of the new forum would be to share the best economic policy practices from its wealthy members with strategically significant developing-state members. Policy learning and adaptation was intended to be principally one way, based on the assumption of superior policy norms in the wealthy members. A decade later, somewhat ironically, the wealthy states suffered most from an equally dramatic financial crisis, centered on the USA and Europe. This crisis, due to its global effects, commonly became known as the “global financial crisis,” abbreviated to GFC. I adopt this usage in the book. Not all regions and countries were equally affected, but the near-global impact of the 2008 financial crisis justifies the name.

The financial crisis became international in late 2008, but began in the USA when the sub-prime mortgage market collapsed in 2007 and a liquidity crisis ensued in the US banking sector. The increasingly fragile circumstances of the US financial sector in 2007–2008 only led to an international crisis with the bankruptcy of Lehman Brothers investment bank on September 15, 2008. Stock markets crashed in many countries, and several financial institutions in Europe, Asia, and elsewhere experienced severe liquidity problems. Policymakers around the world suddenly found themselves in profoundly challenging and uncertain economic circumstances. The US-led international economy and the liberal economic beliefs upon which the international economy was founded were undermined and brought into question. The most popular models of financial risk management suddenly lost credibility, while economic growth predictions were radically lowered in countries substantially exposed to the international economy, which meant the majority.

G20 Since the Global Crisis

The G20 has been the hub of international economic governance since the first Leader summit in November 2008, due to strategic, ideational, and political effects of the GFC, and of the forum itself. The G20 has cooperated to enhance the role of multilateral governance in reducing negative effects from international financial markets. The GFC was a catalyst for the reorganization of global economic governance. Economic changes of the previous decade had already led to demands for developing states to be included more in multilateral management of the international economy. Elite policy actors realized that financial, economic, and political contributions from leading developing states could significantly improve their capacity to reduce negative effects of the GFC and the ensuing global economic recession.

Strategic and ideational effects of the GFC increased contestation of the international economic governance regime. The relative strategic shift in economic influence from the Group of Seven (G7) to leading developing states, especially Brazil, China, and India, contributed to ideational effects of the crisis and influenced socialization processes in the G20. Awareness of economic interdependence and the growing importance of leading developing states influenced G20 leaders, from both developing and wealthy members, to seek a cooperative crisis response through the forum. The G20 became the hub of an augmented “in-group” of global governance, incorporating policy actors from leading developing states in elite consultations and decision-making fora. The increased influence of policy actors from leading developing states, often more skeptical than their American and European counterparts about economic governance norms associated with the Washington Consensus and financial liberalization, undermined pre-crisis conventional wisdom in multilateral fora and international organizations (IOs). An ideational crisis effect further reduced confidence in those policy norms, which many scholars and policymakers in both wealthy and developing states perceived to be responsible for the GFC. The G20 shifted its political focus to “re-embedding” aspects of the international economy in 2008, implicitly recognizing what Karl Polanyi (1944) argued to be the societal origins of economic relations. This occurred especially in areas of international finance, initially through ad hoc policy responses, but also, more comprehensively, through the strategy of macroprudential financial regulation to reduce societal risks from finance.

This study analyzes the G20’s role as a hub of global governance networks since the GFC. It is a “hub” in the sense of it being the center or focus of key global governance networks, the latter indicating professional networks of policy actors cooperating on areas such as global financial governance and sustainable development. It is a hub of “communities of practice” in some policy areas (Adler 2008, 198–202), implying cooperation between actors with significant mutual interests in common practices. The G20 also facilitates deliberation on issue areas with less consensus when such policy communities are weaker or absent. I argue the G20 is a loose “club,” whose members cooperate on an informal, consensual basis as a self-selected group, due to shared interests rather than general politico-normative convergence. The Leader forum has also become a “steering committee” for multilateral economic governance, having an authoritative role in guiding international economic governance, following its “crisis committee” origins of 2008–2009 in response to the GFC.

The G20 members agreed on new norms for financial governance, based on macroprudential regulation, including the Basel III Accords and enhanced cooperation through the Financial Stability Board (FSB) and other multilateral financial institutions and fora. They also prioritized the role of the G20 and multilateral bodies in maintaining international economic stability, especially through increased financial and policy coordination. Differences persisted in the forum on causes and effects of the GFC, which influenced disagreements on the relative merits of economic austerity and fiscal stimulus strategies; on responsibility for and solutions to international economic imbalances, especially in trade and capital flows; and on concerns about the potential effects of competitive monetary policies and so-called currency wars. Issues such as these, in addition to climate change, sustainable development, and security challenges, could reduce G20 cooperation in future. This book analyzes these potential obstacles, concluding they could have negative effects on G20 cooperation, but not necessarily sufficient to render it ineffective. G20 cooperation has been achieved on several important issues despite differences between its members.

The G20 is not dominated by any single member. Several members influence different issues on its agenda in important ways, with the rotating presidency a strong diplomatic tool for swaying international policy debate on the economy and other political priorities. The Leader forum continues to play the leadership role agreed at the Pittsburgh G20 Summit of 2009. Despite political contestation over international economic governance and other key issues, the G20 has become the main hub of global governance and cooperation. This enabled it to contribute significantly to re-embedding key aspects of the international economy, often through informal policy coordination rather than Bretton Woods style comprehensive institutional redesign of the international financial architecture. This has constituted an altered international financial-governance regime, especially ideationally, despite the lack of what Peter Hall (1993, 278–297) calls “second order change,” or institutional innovation, except the upgrade to the FSB and relatively modest International Monetary Fund (IMF) reform. Strategic and ideational effects of the GFC and the G20’s role in international governance have had significant consequences despite the absence of more comprehensive institutional reform. Eric Helleiner (2010a, 633–663) argues that the current context of international economic governance indicates an “interregnum,” rather than a new regime, based on the continued contestation of policy norms. I agree that policy contestation, within and outside the G20, indicates the lack of a fully formed new international economic regime. However, it does demonstrate that the old Washington Consensus/post-Washington Consensus regime is no longer dominant. More than just an interregnum , this is a period of increased contestation and significant change in international relations and economic governance.

The G20 has become crucial for multilateral economic governance, providing “constructed focal points” (Keohane and Martin 1995, 45) for concentrating international policy coordination on key issues. The forum’s capacity as a steering committee is indicated by a raft of reforms agreed and implemented since 2008. The International Monetary Fund (IMF) reform agreed in 2010 was only eventually implemented in December 2015, due to the US Congressional opposition to ratification of the necessary legislation. This delay, combined with the western duopoly of American and European dominance of the Bretton Woods institutions, encouraged Chinese and other developing-state policymakers to seek additional means to increase their role in multilateral governance, such as the new Asian Infrastructure Investment Bank (AIIB) or the BRICS’¹ New Development Bank (NDB). The potential for developing states to abandon the Bretton Woods institutions due to lack of inclusivity increases the significance of the G20, which helps sustain multilateral cooperation as a forum of equals.

Analytical Approach

This study combines a constructivist focus on socialization, political agency, and ideational effects of norms and beliefs, with an analysis of rationalist claims about strategic calculation and evaluation of material and strategic effects of the GFC and G20. The G20 has significant socialization effects on its members and interlocutors, due to its political, strategic, and “cognitive” authority (Broome and Seabrooke 2015); through contestation, deliberation, rhetorical action, persuasion, sometimes as a hub of policy networks or communities of practice; and because its members prioritize the forum as useful for effective policy coordination. By analyzing these aspects of the G20, the book demonstrates its importance for contemporary international relations and global governance.

The first part of the book, Chaps. 2 and 3, analyzes GFC strategic, ideational, and normative consequences for international relations and global governance. The second part, Chaps. 4, 5, and 6, focuses on the internal workings of the G20, the dynamics of its policy agenda and outreach engagement, and its capacities as a hub of global governance networks. The final part, Chaps. 7 and 8, considers the potential for continued G20 cooperation despite strategic tensions and differences between members. The analysis is based on research of documentary evidence and a small number of interviews with influential G20 policy actors and interlocutors, especially past and present G20 sherpas of some member governments, as well as participants in the G20’s civil society engagement. These interviews were conducted in 2014 and 2015 and usually lasted a considerable amount of time, sometimes two hours, which provided substantial primary evidence for the book. The research also includes an extensive study of expert and scholarly contributions on the G20 and global governance. The analysis focuses on ideational, material, and agency effects of the G20 since the GFC, as well as linkages between domestic and international politics and policy actors. It traces the diverse processes that influence the G20 by combining political–economic and strategic evidence with extensive policy research, elite interviews, qualitative discourse analysis, and evidence of political contestation and norm entrepreneurship (cf. George and Bennett 2005 , 6).

The research method for this study fits Peter Katzenstein and Rudra Sil’s (2011, 29) advocacy of “analytical eclecticism” to achieve “middle-range” theoretical insights about the complex dynamics of a particular context of international relations. This intentionally inclusive approach includes a constructivist core supported by liberal, realist, English School, poststructuralist, interpretive, and rationalist analytical tools. I combine constructivism with liberal regime analysis, especially in Chap. 4, to demonstrate the extensive contestation of the post-Lehman global economic governance regime, especially within the G20. I examine similarities and differences between the current international context and the postwar Bretton Woods re...

Table of contents

• Cover
• Frontmatter
• 1. Introduction: G20 Since the Global Crisis
• 2. Strategic Economic Effects of the GFC
• 3. Ideational and Normative Effects of the GFC
• 4. International Focus on the G20
• 5. G20 Hub for Global Governance
• 6. G20 Significance for Members and Non-members
• 7. China–US Economic Cooperation as Antidote to Strategic Conflict
• 8. Strategic Competition Probably Won’t Prevent G20 Cooperation
• 9. Conclusion: G20 Importance for International Politics
• Backmatter