G-20 has come a long way from its inception as a group of finance ministers and central bank governors, formed in the wake of the Asian financial crisis of 1997-98. Its initial agenda was rather a limited one. It was established as a forum for encouraging the adoption of the 'Washington Consensus' by Asian and other emerging economies to prevent another financial sector meltdown. This objective was perhaps over achieved.3 The need to demonstrate global solidarity and collective action in tackling the financial sector crisis and subsequent global recession led to the resurrection and elevation of the G-20 to the Summit level in November 2008. Collective action by the G-20 leaders helped to unfreeze global financial markets, prevent the recession from turning into a depression and engender a quick recovery.
The declarations at the end of successive summits in Washington (November 2008), London (April 2009) and Pittsburgh (September 2009) gave credence to the idea of G-20 having emerged as the principal global forum for financial and economic governance. This was reinforced by the establishment of several working groups on the entire range of issues that are at the heart of the present crisis. The inclusion of development issues in the agenda for the G-20 Summit in Seoul in November 2011 apparently marks a new stage in the evolution of the G-20. The objective is to give -20 greater legitimacy to the G-20 and ensure greater attention to global equity concerns.
In this context, this short paper makes two central arguments. First, that while it is important to include development issues in the G-20 agenda, this could be done with greater advantage after insuring the future existence and efficacy of the Group. Second, that the G-20 should focus on a selected minimum number of development issues that are seen as critical constraints on achieving rapid, equitable and sustainable growth in developing economies. Otherwise by spreading itself too thinly, it faces the risk of becoming yet another layer in the hierarchy of agencies overseeing global efforts for promoting development.
II. The First Priority: Existence and Relevance of the G-20
The refrain from the recently concluded G-20 Summit at Toronto, is not positive on the continued relevance of the G-20. The communiqué itself is different from the previous summits as it does not present a common understanding of all G-20 members on major global issues. (Jean rry- 2nd July Economist Blog; Also Martin Wolf Financial Times 1st July). It seems that the G-20, like the G-8 is unable to bridge the differences in approaches on handling the recovery with members seeking to go their own way in continuing with or exiting from the fiscal stimulus depending on the national circumstances. Collective action it seems is limited to handling the crisis. There was disagreement on financial sector issues like imposing a tax on banks for funding future bail outs. The UK and the US have both gone ahead with their own measures for improving financial sector regulation without waiting for the final recommendations from the expanded Financial Stability Board. On trade and protection, there is precious little , other than once again repeating the desirability of completing the Doha Round but with no suggestions on how to achieve that. It will not be incorrect to say that it will be difficult to convince the leaders of G-20 member countries of its continued usefulness. The forum, it seems, is suddenly in need of a major boost to achieve greater coherence and relevance.
The selection of maternal and child nutrition as the principal theme for the G-8 Summit at Huntsvile, close to Toronto, a day before the G-20 Summit, was itself rather strange as it would appear to undercut the very raison-d'etre of the G-20. The necessary condition for the G-20 to emerge as the principal forum for addressing global economic and financial issues, is for the G-8 to move these issues out of its agenda. This does not seem to be happening. Moreover, given that the political context provides the essential context for economic and financial issues, it is perhaps infeasible to put the political and economic issues in separate forums and not expect a spill-over of one to the other. If the G-20 is to emerge as the new high table for global issues, the trend would have to be to bring political and security issues within its purview, however gradually, rather than to take the financial and economic issues back to the G-8, as was apparently done at Toronto. Greater clarity will perhaps be achieved in the next round of G-8 and G-20 meetings that will be hosted by France in 2011. For the present it is fair to conclude that the continued relevance of the G-20 is not certain.
The two sufficient conditions for the continued relevance and evolution of the G-20 as a global forum are to ensure its legitimacy and establish its credibility. It is sometimes argued G-20's legitimacy is questionable because it is a self selected grouping, which cannot claim to be representative of the global community. Suggestions for achieving greater legitimacy range from establishing an objective criteria for the membership; putting in place a system of constituencies; or expanding the membership to reflect a more balanced geo-strategic composition. These suggestions are an attempt to formalize the G-20, and therefore strike at the very basis of the formation that is by definition and design an informal group which does not want to either replicate or substitute the United Nations or its organs. The trade off between representation and formal authority on the one hand and efficiency on the other has been well recognized. For informal groups like the G-20, legitimacy is necessarily derived from their ability to deliver on their chosen mandate and objectives.
Legitimacy for the G-20 will therefore come from implementing the several decisions taken by the leaders at successive summits. Thus, the crucial issue is to ensure the necessary follow up of the decisions and their implementation in a time bound manner. G-20's record here is rather patchy. The major achievements have been the trebling of the IMF's capital base, the increase of Asian Development Bank's capital base and the increasing the voice and vote of emerging and developing economies by 5% in the World Bank. As against this there has been no ostensible progress on the Doha Round despite repeated exhortations, emergence of new forms of 'messy protectionism', status quo on the reform of IMF's governance structure including no change in the voice and vote structure; lack of unanimity on banking sector reforms including the inability to agree on either a tax on banks or a uniform set of counter cyclical prudential or capital provisioning norms. The process of multilateral surveillance for achieving balanced economic growth has also only just started and here again major economies seem to be opting for their own national solutions.
If the G-20 is unable to improve its implementation record, both its legitimacy and credibility will be fatally affected. This will result in the forum quickly losing its relevance. It is at this stage, therefore, critical that leaders focus on these existential issues. They should be giving far more attention on establishing mechanisms for follow up and implementation including the issue of whether or not to establish a secretariat. It would do well to consider creating an appropriate incentive structure that will produce greater compliance of collective decisions by member countries. Adding development issues on the G-20 agenda will be useful only if the group remains relevant and is perceived to be effective in implementing its avowed objectives.
III. The Development Agenda for G-20
South Korea has taken the initiative to put 'development' as an independent agenda item for the summit in Seoul in November 2010, with President Myung-bak Lee first spelling out the priorities in his address at Davos.4 However, it is worth noting that, despite their pre-occupation with the global financial and economic crisis, G-20 leaders have referred to development issues in earlier summits as well.5 The rationale for including them is to try and achieve a more balanced outcome from globalization and improve equity across countries and within each economy. This will make the G-20 more relevant and acceptable to developing economies, which are not included in the grouping.6 Promoting the development agenda will help accelerate growth in developing economies and reverse the trend of worsening equity across countries that has been witnessed over the last three decades.7 In the absence of such 'convergent growth' G-20 will be perceived as an expansion of the rich nations' cartel to maximize the benefits from globalization to the detriment of the poorer countries. This will crystallize large scale opposition, the beginnings of which were visible in Toronto. This is a compelling rationale for the G-20 to give greater attention to development issues.
On the other hand, there is a danger that the development agenda being suggested for adoption by the G-20 becomes too large and precludes effective follow up or implementation. It is being suggested that the G-20 oversee practically the entire range of development activities in developing economies.8 This will include building of physical infrastructure, human resource development, poverty alleviation measures, raising agriculture productivity, greater effectiveness of development aid, better management of water resources, labour standards and employment issues and adoption of measures for mitigation of climate change impacts.
This is far too ambitious and impractical an agenda for a Summit level forum. Moreover, this completely duplicates the mandates of existing multilateral organizations like the World Bank, Regional Development Banks and UN agencies and organizations.9
There are however three development issues on which the G-20 could be effective. First, G-20 could take up the issue of global aid architecture and adoption of globally accepted norms for channelling aid flows by old and new donors . Presently, these issues are overseen by the Development Assistance Committee (DAC) of the OECD, which has tried through the Paris Declaration and the Accra Action Program to devise some global benchmarks for donors. However, large emerging economies like Brazil, China, India and Turkey have emerged as major donors, but who are not party to the DAC initiatives as they are not OECD members. This prevents effective coordination and in some cases could work against implementation of desirable sanctions against truant governments. On the other hand, nearly all existing DAC members (save perhaps Sweden and Japan) are in violation of their own pledge to allocate 1% of their GDP for development aid. There is apparently insufficient peer pressure within the DAC to hold them to their commitment. Such an issue where the global community would benefit from a greater coordination between emerging and advanced economies and which required a degree of name and shame and accountability would be ideally suited for adoption by the G-20, provided of course (and it bears repetition) it can resolve its existential problems by building credibility and acquiring legitimacy. For example a coordinated G-20 effort to improve the volume, design and delivery of development aid for sub-Saharan Africa and poorest countries in Asia will surely produce win-win outcome. It could lead to higher allocations by the advanced economies; greater compliance of governance norms by new donors and more effective coordination of the delivery of aid programs on the ground. This will help raise incomes and accelerate growth in Africa and in the least developed economies, which will provide much needed impetus to global economic activity.
Second, G-20 must take up the issue of developing new norms for transfer of technology that are less onerous for the least developed economies. This can also be extended to cover emerging green technologies across the entire spectrum of goods and services. The issue of access to necessary technologies and now green technologies has for long divided the global community in to 'Us and Them' or between 'Owners and Users'. These divisions are specially harmful for technologies needed to overcoming deleterious consequences of extreme poverty (for example malnutrition and illiteracy and morbidity etc) and addressing climate change issues. By agreeing to a collective approach and action towards these issues, the G-20 could help reinforce the awareness that for tacking global public 'bads' (poverty and climate change) all of us are in it together and divisions across income or other lines are disastrous.
Third, it is becoming increasingly clear that the existing asymmetry between near complete freedom and flexibility for movement of capital across national borders and highly restricted movement of migrants across the same borders is no longer tenable if globalization is to succeed and deliver on its promise of convergent growth. The argument against labour mobility across national borders is based on the rather out-dated notion of maintaining a degree of social and cultural homogeneity in a world which is increasingly a global village. In this day and age of extensive connectivity through faster travel, internet, media explosion and collapsing economic borders through multilateral (EU, ASEAN, MERCOSUR. NAFTA etc.) or bilateral comprehensive economic cooperation agreements, this is an increasingly archaic understanding. Every segment of the global economy will have to increasingly reflect the pluralistic nature of the global community and be equipped to handle it. This is the only way forward for thwarting the avoidable clash of civilizations. Moreover, we cannot expect the full benefits from globalization if two major factors of production viz. technology and human resources suffer from restricted mobility. As referred to earlier, this restricted mobility of labour and technology can also be seen as being responsible for increasing inequity and lack of convergence that presently characterizes the global economy.
All the three development issues mentioned here for G-20's attention are somewhat controversial and with major implications for both advanced and emerging economies. They are also not the typical low hanging fruits, amenable for easy and quick solutions. But they are critical for the future success of the global community in tacking global negative externalities including climate change, human and drugs trafficking and pandemics. By accepting the essential multiethnic and increasingly pluralistic nature of the global community and each of its constituents, we will engender the necessary spirit of collective responsibility and accountability. The present divide between "Us and Them' that characterises all global forums will begin to dissipate only if there is some movement towards freer movement of skills and human capital across borders. In any case, with rapid aging in a number of advanced economies, this phenomenon may soon be upon us. It is surely more efficient for a global body like the G-20 to anticipate it and take the necessary preparatory action.
The G-20, acting at the highest Summit level, is the appropriate forum for taking on tackling such apparently difficult issues, These require the generation of the necessary collective political will that G-20 alone can achieve. All other development issues, that are presently being suggested for adoption by the G-20 are fairly routine in nature and can be left to the Boards of the MDBs where the G-20 can achieve better results with more effective coordination, as they have done in raising the capital base of the MDBs by 85% in the last two years.
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Also presented as a conference pap Also presented as a conference paper in a conference "G-20 in a Post Crisis World" Seoul ( 15-16th July 2010)
2Dr. Rajiv Kumar, Director and CE, ICRIER, New Delhi.
3Asian economies proceeded to insure themselves against future financial crisis by building huge, even excessive, foreign exchange reserves and exercising greater degree of caution and prudence in liberalizing their financial sector. This saved them from the worse fall outs of the 2008-09 global financial crisis, which almost resulted in a complete freezing of financial sectors in the US and Western Europe and precipitated the worst global recession since the Great Depression.
4See, Myung-bak Lee, Seoul g-20 Summit: Priorities and Challenges, Davos Forum Special Addres, 28th January 2010
5See, Shaw Zaria, G-20 Leaders' Conclusions on Development, 2008-09, Munk School of Global Affairs, mimeo, 1 February 2010
6Ngozi N. Okonjo-Iweala, Why the G-20 Should Be Interested in the Development of the G-160 + Speech at the World Bank-Korea Conference on Post Crisis Growth and Development, Busan, 3-4 June 2010, and Qureshi Zia, G20 and Global Development, Paper presented at the Busan conference.
7See Kharas, Homi, paper presented to the Brookings Institute-KDI Conference, Washington DC, April 2010. Where he points out the that the ratio of per capita income in sub-Saharan Africa have worsened in relation to the US per-capita incomes over the last two decades.
8Dr. ll SaKong Chairman, Presidential Committee for the G20 Summit, Republic of Korea, Opening Remarks World Bank - KoreaHigh Level Conference on Post-Crisis Growth and Development, June 3-4, 2010, Busan, and Overseas Development Institute , A Development Charter For the G-20, London, May 2010. www.odi.org.uk/odi-on/financial-crisis/default.asp, accessed on 3 July.
9It is in fact rather surprising to find the World Bank and Regional Development Banks supporting such an initiative for the G-20 to include the entire gamut of development issues on its agenda as this would simply duplicate the functions of their own respective Board of Governors where all these countries are represented. |
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