Is the G20 still policy relevant?
The world has changed. In the past, the most powerful seven countries were enough to govern the rest of the world. However, now we need more, and policy cooperation is becoming increasingly complex. What was once the G7 is now the G20, which represents more than two-thirds of the world economy and includes both developed and developing countries.
The G20 was established in 1999. In the early 2000s, for those who followed global governance, the G20 was significant mainly because of its potential, although the G20’s global impact on policymaking was negligible. Then, something happened that was unprecedented in recent history: An economic crisis that spread all across the global economy. It was the urgency to respond to the crisis that turned the G20 into an effective policy cooperation device in 2008, which was also the year the first G20 Leader’s Summit was held in Washington, D.C. The mechanism worked. In a way, we witnessed the IMF reinvent itself and become relevant again, while the G20 became an integral part of the effort that saved the world from the brink of financial ruin.
So far, so good. Yet, one question remains: Now that the world economy is relatively secure, will the G20 remain relevant?
This question is important for us Turks this time around. Why? Because, Turkey is about to take over the annual rotation of the G20 Presidency in 2015. This is a good thing for the country. It means hosting more than 150 global meetings that can help restore Turkey’s reputation, which has been tarnished over the last couple of years. More importantly, Turkey will be taking over the responsibility of a mechanism that has shown the ability to solve problems in the context of a highly complex game of global policy cooperation. The question is: Can it continue to do so? Let us think through this idea.
The wave of unprecedented events that started in 2008 are not over yet. Among the rich countries, the United States is in a process of recovery, while Europe’s economy is still stagnant. European banks still do not inspire much confidence. On the side of developing countries, the health of the Chinese economy, with its shadow banking and structural issues, is questionable. The U.S. Federal Reserve’s recent tapering decision spells out trouble both for emerging markets, and the American bond markets.
Moreover, Argentina’s default has shown the urgent need for a global sovereign debt restructuring mechanism. Argentina’s default is not because it is penniless – the country does have the financial means to make payments – but because of a lack of global policy coordination, and everyone knows it. Argentina defaulted because American banks, and eventually American courts, lost faith in Argentinian debt holders’ ability to pay their debt. These are all unprecedented events, indeed. The need to build a global financial safety net provides a good basis for policy cooperation under the G20.
What is at stake here? Let us take the shooting down of the MH17 Malaysian Airlines flight over Ukrainian skies: It made us feel just how fragile the global security network actually is. Problems in Iraq, Syria, Libya and Yemen are all unprecedented both in terms of their breadth and depth. They are also bad for business. Why has the Islamic State of Iraq and the Levant (ISIL) gained ground as a non-state actor? It is because of inequalities and a widening middle class deficit. The only lasting solutions to resolve these problems can come from globally inclusive mechanisms, such as the G20. For instance, we need stronger domestic tax bases to support private sector development and fight inequalities in the region. Fighting inequality requires tax policy cooperation, and that is a G20 issue if ever there was one.
Therefore, I guess the G20 is still policy relevant after all.