Global multilateralism probably suffered its worst decade, the 2000s, since the spectacular failure of the League of Nations some eighty years earlier. The United Nations has steadily been reduced to a talk shop, aptly described as Hyde Park?s Speakers? Corner by Muammar Qaddafi. The WTO is still stuck in Doha, eight years on. Nobody hears much about the World Bank anymore, and the IMF was dead, and waiting to be buried, until the global financial crisis struck us all after the collapse of Lehman brothers in September 2008. Until that moment, the 2000s were all set to be remembered as the decade when unilateralism (courtesy George W Bush?s neocons) and bilateralism (almost everybody else) finally defeated the noble cause of multilateralism.
It is, however, interesting to note that none of the organisations mentioned above were instrumental in initiating the coordinated response to a potential Great Depression. Instead, it was a largely dormant club of finance ministers and central bankers from the world?s twenty largest economies, the G-20, formed in the aftermath of the East Asian crisis in 1999, which was brought into the limelight, elevated to a heads of government level.
Nobody gave the hastily convened meeting of the G-20 heads of government by a lame duck US president in November 2008 much of a chance to solve anything. One year on, the cynics would be eating their words.
Of course, some of the most crucial decisions taken were guided by the immediate context, the decision to undertake coordinated fiscal and monetary stimuli being the prime example. But even that was a tough decision given the differences between member states. Still, it was taken, and quickly agreed to by all. Even on the more controversial issue of financial regulation and executive pay, the G-20 has arrived at reasonable consensus fairly quickly. Everyone now agrees that banks must have minimal capital requirements to prevent excessive leverage. And everybody agrees that bankers? should be paid in a manner that discourages short-term gambles?so bonuses should be paid over long time horizons and more in stock options than cash. Obviously, each country will devise its own norms, but the fact that some broad principles have been agreed to by such a diverse range of countries is no mean achievement.
However, more than these immediate issues, what is most interesting is the commitment that G-20 has made to reform the fundamentals of the global financial architecture. This is what really gives multilateralism a new lease of life. First, the G-20 will replace the G-8 as the main body to guide international economic policy coordination. Second, the G-20 will reform the Bretton Woods institutions to give greater voting rights to emerging economies. Third, the developed countries will subject their own economic performance to peer review from other countries and the IMF. By committing to such far reaching changes, which democratise the governance of the global economy, the G-20 has given a new lease of life to a multilateralism which was breathing its last.
Critics will argue that a group of twenty countries deciding things is hardly the inclusive multilateralism of the UN and WTO kind. But its small size is one of the reasons why G-20 will work effectively while the UN and WTO struggle. The G-20 is admittedly exclusive at one level but very inclusive at another. Its members after all account for 85% of the world?s GDP and a significant majority of global population. It has representation from every continent and region and includes rich countries, middle income countries and poor countries. Yet, by being a small group, it avoids the collective action problems of large groups like the UN general assembly and WTO. And it can thus arrive at decisions relatively quickly. Because the grouping is representative and diverse, its decisions have more legitimacy than those of other small groups like G-8 (all rich), IMF Board (US and Europe) and the UN Security Council (P-5).
The plain and unfortunate reality of the world is that it is an unequal place, and some countries will always matter more than others?as trouble makers and as problem solvers. A run on banks in Burkina Faso or Guyana will not have the same impact as a run on banks in the US or China. If the global economy falls into recession, then stimuli by the twenty largest economies will matter more than stimuli by the hundred smallest.
Moving forward, beyond this crisis, we confront the important issue of climate change. Again, the G-20 countries have the most important role to play since they are largely responsible for the problem and therefore responsible for the solution. If the twenty largest economies do not agree on climate change, a consensus among the other 170 doesn?t matter. So, the G-20 must be used as a forum to address problems beyond this crisis which is nearly over. It will only be a good thing. Consider it even as the core of a reformed UN Security Council.
?dhiraj.nayyar@expressindia.com