International governance has been transformed by the 2008 economic crisis, signalling a break with the established economic architecture. Initial responses by governments appeared ad hoc. But decisions at the recent Pittsburgh Summit to institutionalize the Group of 20 leaders' summit reflects a decided shift in economic leadership. New players, new institutions and new issues have moved to the centre of the agenda.
The future of global economic leadership is becoming clearer, with the G20 making a "big bang" transformation. Instead of staying the course as a crisis committee, in a trajectory started by the original Washington and London meetings, the grouping was elevated to the level of hub for global economic governance at Pittsburgh. That is to say, the choice was made to institutionalize the G20 as the "premier forum" for international economic co-operation.
President Obama waited until he had attended both a G20 (London) and a G8 (L'Aquila) before he made his leanings clear. He desired a reform of the G-process that would allow some rationalization of time and energy.
The Obama administration made its plan clear in the G20 transformation announcement on the opening night at Pittsburgh, before the main event on Sept. 25.
First among a set of provisos for transformation, such a move was tactically astute as it shifted concentration away from the debate about the detailed agenda and removed the opportunity for dissent.
Second, a key component to solidifying the leadership function of the G20 was the willingness to overlook disagreements on particular issues in the pursuit of a more generalized structure of co-operative behaviour. As in London, the run-up to Pittsburgh revealed major differences on the regulatory agenda.
The context of much of this tension was the Trans-Atlantic disagreements over bonuses and bank capitalization and the introduction of the Tobin tax. France's President Nicolas Sarkozy had even signalled he was willing to walk out of the summit if the bonus issue was not settled along the lines he wanted.
But these differences did not mar the call by the U.S. host to elevate the G20 to the status as hub of economic governance.
Rather than acting as a blocker, France displayed a willingness to be an active player in the creation of the new institution, dropping the notion of a G14, proposed earlier, and embracing the G20. Mr. Sarkozy also emphasized the sense of like-mindedness by his appearance with Mr. Obama and the U.K.'s Gordon Brown on the morning of Sept. 25 to showcase unity on the Iranian nuclear issue.
Third, buy-in from the major economies of the global South was critical for G20 transformation. This process was facilitated by the deepening engagement between the established G8 and the G5 of emerging powers. But it was also animated by the willingness of both the United States and China most particularly to trade off issues they wanted to deal with through a framework of problem solving. The United States successfully pushed the issue of global imbalances, a topic of some sensitivity to China. But in return China successfully pushed the issue of IMF reform, with reference to votes and voice.
Fourth, an active layer of middle power diplomacy bolstered the transformation. In terms of G8 insiders, Canada's model of bank regulation received kudos. In terms of outsiders, both South Korea and Australia deserve privileging. South Korea lobbied hard for an April stand-alone G20, which it didn't win, but in compensation gained the right to co-host the June 2008 G20 with Canada in proximity to the G8. Australia's Prime Minister Kevin Rudd acted as an energetic champion of the transformation process.
All of this is not to suggest that the way forward on the G20 will be a straightforward process.
Passing all of these tests of leadership does not mean the G20 can take its legitimacy and effectiveness for granted. As examined in detail in the recent CIGI Special G20 Report: Flashpoints for the Pittsburgh Summit, concrete action is still needed on a range of economic and structural issues.
Taking on the mantle of the "premier forum", the G20 will need to: reduce the gap between declaration and action on financial regulatory issues, on reform of the international financial institutions, and on world trade; avoid the hidden dangers in the winding down of national stimulus programs, and develop clear exit strategies to ensure they do not compromise sustainable economic growth; and, decrease systemic risks, by improving communications and knowledge-sharing among global and national markets and regulators.
Andrew F. Cooper is the associate director and distinguished fellow at The Centre for International Governance Innovation.