As the full extent of the potential for the world to enter into a Great Depression became clearer in 2008, the G20 Finance meeting was elevated to a Leaders 20, a point that had for some years been advocated by former Canadian prime minister, Paul Martin, among others. Its convening confirmed what many had known for some time – that the G7 was no longer able to manage global crises on its own. The G20 represented most of the systemically important economies whose cooperation and coordination were essential to avert a Great Depression.
In those early days, the G20 did much to stabilise the global economy; yet as the crisis receded so has the ability to rally these countries to address some of the global structural problems. In the years since 2008, the spectre of inequality, fuelled by austerity measures in some countries, low growth and stubborn unemployment have characterised both developed and developing regions. This period has accentuated the disconnect between political and economic elites and ordinary citizens and been accompanied by rising populism or social unrest.
Larry Summers, former US Treasury Secretary, in a piece published in the Financial Times, argues that this requires a new approach that has to ‘start from the idea that the basic responsibility of government is to maximise the welfare of citizens, not to pursue some abstract concept of the global good’. The mainstream argument that strong international integration only brings benefits, while effective domestic policies will mitigate the effects of inequality and make people less opposed to globalisation has not had the expected outcomes.
These are indeed strong assertions that require us to question some of the economic orthodoxies of our time, and they are necessary. The response to growing populism may well be not greater integration or ‘reflex internationalism’ but ‘responsible nationalism’, according to Summers.
Reflecting on this consideration, what role do bodies such as the G20, which meets on 4-5 September in Hangzhou, China, play? The value of the G20 is in the collective decisions its members can take. Its agenda has grown in ambition over the years, while its ability to manage its various dimensions has not matched it. While the commitments made by the G20 at every summit are not enforceable, these countries have played a critical role in global financial regulation in the aftermath of the crisis (with mixed results) and their economic significance means that their decisions on the domestic front have a huge impact on the global economy… and this in turn is not an impact in economists’ graphs, but affects ordinary citizens in the streets. So when surplus countries in the G20 reject fiscal expansion, there are consequences for deficit countries, or when states raise protectionist barriers as seven G20 members did during the course of this year (Australia, Italy, France, Saudi Arabia, the US, the UK and Germany), according to the latest report by www.globaltradealert.org on the G20, other countries are affected, not least the developing ones.
Growth on its own is not sufficient to tackle the inequality and social marginalisation conundrum many citizens experience. However, it is an important element. G20 countries have not managed to stimulate global economic growth, with the latest predictions for 2016 at 2.4%, compared with the forecast in January of 2.9%.
Under the theme, ‘Towards an innovative, Invigorated, Interconnected and Inclusive world economy’, China, the 2016 chair, has sought to address the imperative of strengthening the foundations for a global recovery and growth.
Global recovery cannot happen through monetary policy alone. It needs a variety of tools, including fiscal policy and addressing structural economic constraints. One of China’s priorities during its G20 presidency has been to focus on enabling robust international trade and investment. To that end it established a new working group and in July the G20 Trade Ministers adopted a strategy for global trade growth and guiding principles for global investment policymaking. It is motivated by the perspective that investment and trade are engines of economic growth and that governments should aim to avoid protectionism in cross-border investment. Importantly the guiding principles confirm the right of governments to regulate for public policy purposes, and emphasise the need for investment policies to be consistent with sustainable development objectives.
In addition, China has introduced a new topic on supporting industrialisation in Africa and low-income countries, which was also a central pillar of the Forum on China-Africa Cooperation Summit in Johannesburg in December 2015.
For South Africa, apart from the priorities of stimulating global growth and Africa’s industrialisation, the development agenda is crucial. South Africa has emphasised domestic resource mobilisation, illicit financial flows and trade mispricing as crucial areas for the G20 to take collective action on. For example, on trade mispricing, South Africa has proposed a review of the existing mechanisms for exchange of customs information, an evaluation of their effectiveness and options for the future. But this is a long-term project and the hope is that it will be carried into the German presidency and beyond, and receive the same attention that the debate around base erosion and profit-shifting (BEPS) has received.
Collective action should be the engine of the G20: what makes it relevant in a way that larger multilateral and more representative forums find difficult. However, the track record of the last few years illustrates the shortcomings of such forums when after the initial crisis the pressure eases and shorter-term interests or narrower national concerns overcome collective action for the global good. Globalisation has shown us that there are winners and losers, and policy initiatives that require collective action (absent a systemic crisis) will be considered through the prism of national imperatives. While the Chinese presidency of the G20 has identified many concrete initiatives in addressing the systemic constraints, it is unlikely that there will be much change on the issues that are most relevant to unleashing higher growth and where the non-binding nature of the G20 means that the power of action lies with the individual states.
Over the years, the G20 has created a number of engagement groups, which include the Business 20, Youth 20, Labour 20, Women 20, Civil 20 and the Think 20.
The Think 20 (T20) is a network of think tanks from the G20 countries, and includes the South African Institute of International Affairs. The aim of the T20 is to provide research-based policy advice to the G20, based on interaction among research institutes and think tanks. Unlike the other Engagement Groups, the T20 does not represent a social interest group, but comprises researchers able to develop policy options for governments, assess G20 policies and plans, and help monitor implementation. The T20 is not a political process aimed at agreement among its members, but rather a process of intellectual exchange.
The T20 has evolved over recent years, starting small under the Mexican Presidency of 2012, with the Turkish Presidency in 2015 being the first to develop a concrete agenda. The Economic Policy Research Foundation of Turkey (TEPAV) held over 30 meetings with think tanks from around the world, including in South Africa. Their focus was on small and medium enterprises. Under the Chinese T20, meetings were given thematic order and sequencing.
Beijing T20 Summit: Under the Chinese Presidency, three Chinese Think Tanks took charge of the T20 agenda, which included global governance, economic growth, innovation and structural reform, international finance, international trade and investment and inclusive development; a very broad, all-encompassing agenda. However, the innovation and structural reform topic became the flag ship area for the Chinese Think Tanks. The headline message of the Chinese T20 Policy Recommendations to the G20 therefore stated: ‘Put structural reforms at the core of long-term growth strategies for all countries; make innovation the key driver of sustained economic growth; and create more and higher quality jobs.’
Recommendations flowing from the Chinese T20 include for the T20 to conduct joint research on various topics and to ‘enhance capacity building of themselves so as to better influence the G20 decision-making process’.
German G20 Presidency: After the Hangzhou G20 Summit, the German government takes over the G20 presidency from the Chinese. Two German think tanks, namely, the Deutsches Institut für Entwicklungspolitik (DIE) (German Development Institute) in Bonn and the Kiel Institute for World Economy (IfW) will coordinate the T20 process during the German presidency. They will plan the year ahead around two sets of topics: the one driven by ‘policy’ arising from the themes identified by the German government; the second determined by topics identified by the think-tanks, which should be championed by the T20 think tanks. Ultimately think tanks should be seen as ideas banks, and thus as vehicles for identifying areas that may not be on policymakers’ radars, but perhaps need to be.
T20 Africa Outreach: The German T20 will host an African Outreach event in February 2017 with SAIIA in order to gain insights from think tanks on the continent on topics related to the G20 agenda. Whereas South Africa is the only African country in the G20 group, input from the continent is critical to ensure that global economic recovery takes Africa’s unique position and challenges into account. Despite significant economic pressures, including the commodity slump and China’s slowed growth, the continent is still growing at rates higher than Europe or North America and should form an integral part of the G20’s growth strategy.
Written by Talitha Bertelsmann-Scott and Elizabeth Sidiropoulos, South African Institute of International Affairs