Unwieldy body needs to pare down to play effective role in global governance
 
The third G20 summit – in Pittsburgh Sept. 24-25 – will tell us how much the world has learned about the causes and consequences of the Great Recession. Have we made any progress in pump-priming the world economy and putting in place mechanisms that will prevent similar collapses?

The very existence of the G20, long championed by Canada, recognizes the need for more effective global governance and for the emerging economies of Asia, Africa and Latin America to be part of it. After meetings in Washington, London and now Pittsburgh, the next meeting is scheduled to be held in Seoul in 2010. While some thought the G20 might replace the G8, indications are the two will coexist for some time. Indeed, the next G8 meeting will be held in Muskoka in 2010.

As the first "green-shoots" of economic recovery appear and with a better outlook for 2010, the danger is that the urgency so palpable in earlier meetings may vanish.

What are the main issues?

The first is to strengthen the G20. This may mean paring it down. In previous meetings there were too many hangers on and party crashers. The whole purpose of summit diplomacy is to create a feeling of intimacy and private discussion among top leaders. This is barely possible with 20 principals around a table, let alone with 60, as were present in London. Intimacy coupled with extensive preparatory staff work is essential for a sense of ongoing enterprise.

In terms of global fiscal stimulus, it is worth remembering how much ink was spilled over the differences at the London meeting between the Anglo-Saxon economic approach and the continental European one. Whereas the former advocated larger amounts of discretionary spending, the latter replied that "automatic stabilizers" (i.e. social welfare spending) should count. In the end, what matters is actual spending rather than where it comes from. Global spending may have reached some $5 trillion (U.S.) – more than the 2 per cent of GDP sought in London – and the incipient signs of recovery attest to this. Yet prudence would suggest waiting until a full-fledged recovery is in plain sight.

Earlier hopes for a global financial regulator seem pretty much dashed. The best that can be expected is some networked governance. One idea is a system akin to the pharmaceutical industry, in which some financial products would be freely available to all and others subjected to increasing degrees of regulation and authorization. A key point is how to move forward on the reduction of systemic risk, and the building of "buffers" for banks that would avoid excessive leveraging, finding a proper balance between some degree of international oversight and national realities.

Whereas a mere two years ago the International Monetary Fund found itself marginalized and engaging in a major staff-shedding exercise, London allocated half of its $1 trillion (U.S.) pledge to the fund, including $250 billion as part of the global stimulus package. But the fund continues to privilege Europe – of its total new spending in this period, 82 per cent has been pledged to European countries. Capital-surplus countries in the global south, like China and Saudi Arabia, are reluctant to put significant amounts of their reserves into an entity in which they have little say. Improving the governance structures of the IMF and of the World Bank, where Europe is overrepresented, is imperative.

World trade, projected to drop by 9.7 per cent in 2009, is key, as is the fate of current trade-negotiation round of the World Trade Organization (WTO), the so-called Doha Round. According to one count, the G20 countries themselves have taken 41 measures that could be construed as protectionist in the course of the past year (i.e. the "Buy American" provisions in the U.S. that Prime Minister Stephen Harper has been trying to stretch for Canada's benefit), which is not exactly encouraging.

On the issue of global imbalances, seen by some as the main cause of the crisis, much progress remains to be made. Determining whether the real culprit is China because of its excessive saving and undervalued currency or the United States because of its spendthrift ways will take a lot more than a G20 meeting, or even a G2 one. But there is little doubt that the leaders meeting in Pittsburgh next week have their work cut out for them. One of the best things to come out of the Great Recession might be a strong G20.

Jorge Heine holds the chair in global governance at the Balsillie School of International Affairs and is a distinguished fellow at The Centre for International Governance Innovation (CIGI). The CIGI report Flashpoints for the Pittsburgh Summit is available at: www.cigionline.org/publications/2009/9/flashpoints-pittburgh-summit.

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