CIGI Commentaries

Where does China stand? And how does this impact global leadership? While many G20 countries will likely look to Beijing to act as a global leader, it is likely that China will fall short of expectations in terms of both ideas and resources. China will step up to the mark on occasion, but not always, and the G20 leaders and others will have to accept that Chinese collaborative behavior will be slow and at times frustratingly cautious. China may well be – the part time global leader.

Thanks to Lord Nicholas Stern of Britain, a compelling case has been made about the drastic economic consequences of failing to deal in good time with climate change. The next economic crisis might well be driven by an inadequate response to climate change. We have seen from the Great Recession that the G20 can deal successfully with global-scale problems. We need it now to focus its efforts on the quintessential global governance issue – climate change—that could doom us all if we can’t find the means to agree to change course.

International trade is, in effect, the circulatory system of the contemporary world economy. Leaders at the upcoming G20 summits, in Toronto this month and in Seoul in November, will want to spend some of their time discussing international trade, both what they should do and should not do about it, individually and collectively, as they attempt to provide leadership and improve prospects for the betterment of the world economy.

Since November 2008, the G20 appears to have consolidated its position as the hub of economic governance. Moving from its initial role as an improvised "crisis buster," the forum has begun to take shape as a global "steering committee." Yet from its origins, the G20 has suffered from some deficiencies concerning its size and geographic make-up. Given the scope of the G20’s ambition, refining the structure so that it combines a core membership with some degree of accessibility will only enhance its credibility.

The US still thinks of itself as a leader in summits and in the world. But the US is now a number one among many, a leader among other leaders, a country seeking common ground rather than only the higher ground for it to stand on. The Obama administration seems committed to what we might call "embedded multilateralism," where US leadership is embedded in the varied mechanisms, formal institutions, "Gs," and other informal arrangements in which the US works with others.

Fallout from the global financial crisis gave a sense of focus to the G20. As the global financial crisis fades, so does the sense of urgency about tackling the shortfalls in global governance that were highlighted by the crisis. Close observers warn that the opportunity provided by the crisis to push through the needed measures to stabilize the global financial system, to reform the global architecture, and address global imbalances is dissipating. The G20 leaders’ process is at an important crossroad in its development. A measure of self-restraint is key to ensuring the continuing success of this innovation in global summitry.

The G20 has a limited window of time to demonstrate that it is representative and effective in ways that the G8 and the UN are not. The G20’s current membership reflects countries “that mattered” to resolve a financial crisis over a decade ago; fully one-third of the world’s population is currently unrepresented in a forum hailed as the shape of things to come. For small developing countries, the goal must be to ensure that their concerns are addressed in whatever configuration of the G20 emerges in coming years. A sound analytical basis for negotiations coupled with a model for giving voice that emerges willingly is going to be superior to one where representation is mechanical and mandated.

The G20 was born out of the global financial crisis and thus the bulk of its agenda has been focused on financial reform. The early stages of the financial crisis in late 2007 and early 2008 coincided with sharp rises in food prices. At Pittsburgh last September the G20 summit leaders recognized the gravity of this situation and promised to invest in the promotion of food security. But the G20 could do much more to combat hunger by linking its food security initiative more tightly with its broader economic agenda.

At the Pittsburgh Summit, the G20 announced a new “Framework for Strong, Sustainable and Balanced Growth.” Within this Framework, leaders pledged to pursue responsible fiscal policies, prevent destabilizing credit and asset price cycles, promote more balanced external accounts, undertake structural reform to increase their potential growth rates and, where needed, improve social safety nets. But cooperation is easier said than done. The Pittsburgh summit may be remembered as the high water mark of G20 cooperation on global imbalances, unless officials draw lessons from past attempts at international economic reform.

International financial regulation has been a central topic at G20 summits since the global financial crisis led to the establishment of the leaders’ group 18 months ago. Although the Financial Stability Board was created and other steps have been taken towards regulatory reform, the G20 has yet to tackle some of the most difficult aspects, which relate mostly to macroprudential regulation. The Toronto and Korean G20 meetings in 2010 will be decisive in this respect. Success will require strong political leadership at the leaders’ level.