It has been interesting to read Indian reactions to the G-20. At the risk of caricature, here is what many seem to be saying. The G-20 isn?t really getting anything done, just making empty statements. It has no clout, and its legitimacy is questionable. Its lack of impact illustrates a crisis of the project of globalisation. I think these views (even if presented in more nuanced fashion) get the G-20 wrong. I will explain why, by saying what I think the G-20 is really about. But first I want to emphasise that my position is not that the G-20 is perfect, influential everywhere it ought to be, or guaranteed to succeed. But it is the best we?ve got, and the practical thing to do is to work with it and keep moving it in the right direction.
Let?s start with one bare fact. Money matters. Economic might has been crucial for global influence, and has shown its ability to triumph over military strength and ideology. Lack of money brought down the Soviet Union. Money has spread Wahhabi Islam around the world. Money has given China more clout than its nuclear power. After World War II, when various international organisations were created, money mattered greatly in determining who really ran the show. And when the big democratic organisations became dysfunctional or uncomfortable for the rich countries, they had their clubs to retreat to. The G-7 began in 1976, and was a response to the first oil shock. This was the world?s major industrial democracies responding to the first postcolonial insurrection?political freedom had not previously translated into flexing economic muscles.
Fundamentally, therefore, the G-20 is an attempt to replace the implicit dichotomy of the G-7, which perpetuated the divisions of the colonial era, with an inclusive grouping. It is a club, not an organisation. It attempts to acknowledge the coming rebalancing of money power in the world, and to prepare for it.
Because it is trying to be ahead of the game, it is going to take time to sort out its modus operandi. In clubs, pecking orders, friendships and social norms all evolve in an implicit manner. Everyone is a member, with equal formal status, but, like the Oldest Member in PG Wodehouse, some have favourite seats that are sacrosanct and get to tell long stories. And the nouveau riches have to learn to fit in, especially when the ?riches? part is still a work in progress. Eventually they will rewrite the rules of the club and change the norms, but it will take time.
From this perspective, the G-20 is important now for what it represents?a more egalitarian club?as well as for what it can become. The G-20 began as a finance group but is now projected as something broader, a ?global steering committee?. To criticise it for being young and evolving hardly seems fair. A broader agenda for the G-20 makes sense because of the factors behind the group?s finest hour so far?its handling of the financial crisis of 2007-09, when the world economy was on a precipice.
Systemic financial risks still loom large, and the G-20 is discussing what to do about restructuring global financial regulation, but not trying to do everything. It has to allow for domestic sovereignty, individual country variations in policy, and the existence of specialised organisations, equipped to handle the technical details. The G-20?s role, then, is to be a kind of council, to make sure that all the balls being juggled stay in the air, and that the right overall principles are being followed. The G-20 has consistently rejected the doomsayers pronouncing the demise of global capitalism, and has stuck to principles of openness and economic interaction.
Beyond finance, other risks loom large. The biggest one is climate change, with its associated threats to food security. Another is the risk that the openness to movements of goods and services will unravel, if major industrial nations face stagnation as Asia keeps rising. The G-20 is beginning to grapple with these issues, and its value is precisely that it can take in the big picture, and provide cross-cutting approaches to risk management, without replacing the specialised organisations that have the expertise and clout to design and implement specific rules. Seemingly bland statements may actually have a role in starting more concrete processes.
To put it simply, the G-20 will have a role in saving the world. But saving the world is a global public good, and determining who pays for it does lead to zero-sum situations. Some of what we see now is a debate on who pays for what. That is inevitable. But save the world we must.
The author is professor of economics, University of California, Santa Cruz
