Coauthored with Daniel Chardell, research associate in the International Institutions and Global Governance program.
This weekend, leaders of the Group of Twenty (G20) states gather in Brisbane, Australia, for their annual summit. To maintain the G20’s credibility, President Obama and his counterparts need to demonstrate that it is capable of taking concrete steps to restore global economic growth.
Designated the world’s “premier forum” for international economic cooperation in the wake of the 2008 financial crisis, the G20 is widely credited with staving off a global depression. No mean feat, by any estimation. Its more recent performance has been disappointing. Many commentators, noting the still-tepid global recovery, the G20’s failure to implement past commitments, and its members’ diverging interests, question its credibility and capacity to effect real change. The forum’s best days, they suggest, are behind it.
That judgment is premature. The G20 remains a mainstay of global economic coordination, for reasons both symbolic and practical. The world is experiencing an unprecedented shift in global economic power. At such a fluid (and potentially volatile) moment, the world urgently needs a high-level steering group that convenes leaders of the most important advanced and emerging countries. Unlike the more exclusive and homogeneous Group of Seven (G7), the G20’s large and diverse composition gives its decisions more heft and greater legitimacy. It provides a potentially flexible framework in which to hammer out consensus on chronic challenges—as well as respond to urgent crises.
Aware that many are treating the Brisbane summit as a test of the G20’s relevance, the Australian government—which holds the G20’s rotating chair—has crafted a narrow agenda focused on restoring global economic growth. Earlier this year, G20 finance ministers and central bank governors agreed to develop policies to lift global GDP 2 percent above the business-as-usual scenario over the next five years. This weekend, G20 leaders will present their national strategies to realize this target, as part of what is being called the Brisbane Action Plan.
Reaching this new growth target will require new member state commitments in several policy areas–all of which are on the Brisbane agenda. These include redoubling investment in global infrastructure, combating corporate tax evasion, strengthening financial regulation, and implementing long-deferred governance reforms in international financial institutions.
- Investing in infrastructure: In September, G20 finance ministers and central bank governors agreed to launch the Global Infrastructure Initiative (GII) as a knowledge-sharing platform that seeks to match potential investors with projects. The GII will complement the Global Infrastructure Facility, established in October by the World Bank Group to facilitate public-private partnerships to finance infrastructure in the developing world. In Brisbane, G20 leaders should announce demonstration projects to illustrate the concrete benefits of these matchmaking initiatives.
- Curtailing tax evasion: Effective, transparent, and fair tax systems are vital to inclusive economic growth. In Brisbane, leaders will announce new steps to combat base erosion and profit-shifting (BEPS), which occurs when multinational corporations funnel profits to low- or no-tax jurisdictions to avoid taxation where business activity actually occurs. Last year in St. Petersburg, Russia, G20 leaders endorsed the OECD’s Action Plan on BEPS, intended to lead to a single set of international rules on tax evasion by the end of 2015. The battle against tax evasion was given a boost last week by the leak of documents showing that more than three hundred major multinationals channeled their profits to Luxembourg, allegedly saving them billions in taxes. President Obama can leverage the international outrage at these revelations to press for prompt adoption of the OECD Action Plan by G20 members.
- Ending the era of “too big to fail”: This week, the Financial Stability Board (FSB) released new rules that aim to end taxpayer bailouts of banks deemed “too big to fail.” The FSB will present the rules at Brisbane this weekend. President Obama and other G20 leaders are expected to endorse the proposal, a critical step to bolster public confidence in the G20.
Trickier for President Obama will be pressing for full implementation of the governance reforms of the International Monetary Fund (IMF). In 2010, the United States engineered a historic agreement to double the IMF’s quota—essentially, its lending capacity—and shift voting weight and representation (largely from Europe) to emerging economies. Unfortunately, the U.S. Congress has failed to approve these reforms, even though they will neither increase U.S. financial commitments nor endanger Washington’s veto over major IMF decisions. Congressional Republicans, the source of the opposition, are unlikely to budge, especially given their triumph in last week’s midterms. To circumvent the gridlock in Washington, the BRICS countries (Brazil, Russia, India, China, and South Africa) are expected to propose “alternative solutions” in Brisbane, such as breaking up the 2010 reform package into smaller parts.
Despite this potential work-around, Congress’s failure to ratify IMF reform carries tangible financial and reputational costs for the United States. Since World War II, the Fund has been the principal multilateral forum to promote global financial stability, just as the World Bank has served as the world’s main development agency. Frustrated with U.S. intransigence, the BRICS are starting to set up alternative institutions to rival the IMF and World Bank: the Contingency Reserve Arrangement and the New Development Bank, respectively. Though not yet operational, these new institutions could presage a fragmented global economic order. For all the talk on Capitol Hill about President Obama’s indecisive leadership, Congress’s own inaction on IMF reform should be considered a national embarrassment.
Notably absent from the Brisbane summit agenda, finally, is climate change. Despite pressure from the United States and Europe, Australia resisted including it as an item for discussion, and the final summit communique is expected to devote a mere paragraph to the issue. To be sure, climate change is politically sensitive for Australian Prime Minister Tony Abbott, who in July repealed the country’s carbon tax, earning the dubious distinction of the “first developed nation” to do so.
Many experts, moreover, argue that climate change has no place on the agenda, since it would dilute the G20’s purely economic mandate. Alas, the world is not so neatly compartmentalized. As recent reports from the Intergovernmental Panel on Climate change (IPCC) and a coalition of prominent business executives underline, the fate of the global economy and the global climate are inextricably linked. Extreme weather, rising sea levels, the health consequences of air pollution, and other consequences of climate change pose astronomical risks to the economy. In the long-run, the cost of mitigating climate change is negligible compared to the cost of inaction.
In short, a G20 “growth agenda” that ignores climate change is nothing of the sort. And if climate change demands immediate and concerted action among developed and developing countries alike (as this week’s ambitious U.S.-China climate change pact shows it does), there is no more fitting venue than the G20, which already includes all seventeen members of the Major Economies Forum (MEF) of major emitting countries. Merging the MEF into the G20 would simply elevate the former to the leaders’ level.
The scope of the G20’s mandate has been the topic of a running debate since it was elevated to a leaders’ level forum six years ago. The dilemma is that the G20 may not survive the addition of new issue areas—but can it afford to ignore the most urgent global challenges? One way to square the circle, as this blog has noted, is to create a parallel foreign ministers track, alongside that headed by finance ministers and central bank governors, to address a broader suite of global issues not adequately addressed in the narrow G7, the two-tiered UN Security Council, and the unwieldy UN General Assembly.
Last month, IMF Managing Director Christine Lagarde called for a “new multilateralism” based on “a renewed commitment to the global public good.” She may be overly sanguine about the willingness of independent nations to subordinate their interests to cosmopolitan purposes. But the world does need a new multilateralism, where sovereign states can bargain and horse-trade to realize broadly shared common ends. The G20 must be at the heart of this effort—in Brisbane and beyond.