The Big Powers Need to Learn to Share
31st October 2011
For both leaders and citizens of the G20 countries, this week’s summit in Cannes is about as welcome as a visit to an undertaker. Euro-zoned out, as most of us are by now, seeing presidents and prime ministers assemble at a moment of global crisis to issue bland communiqués and even blander group photos will tempt many to reach for their “Occupy Wall Street” signs and pitch their tents in the nearest town square. This would, however, be a mistake. For all its unwieldiness and amorphous sense of purpose, the G20 represents the beginnings of an understanding – as necessary as it is reluctant – that a global economy with new growth sources must have a new structure of governance.
Founded in the late 1990s in the aftermath of the Asia crisis, the G20 found its purpose at the 2008 Washington Summit when its members had gone through the experience of the Lehman collapse, and feared for their economic lives. Their minds concentrated by the threat of a cascading systemic crisis throughout the global banking system, G20 political and economic leaders coordinated stimulus programs and ensured that central banks injected vast amounts of liquidity into the global economy. Rising out of the ashes of the much-derided G7 meetings, this was a grouping that accounted for more than 80% of global output and two-thirds of the world’s population – and was yet able to take effective economic action.
With the likes of Indonesia, Turkey, South Africa and Saudi Arabia finally joining with China, Brazil and India at the grown-up’s table set by the Americans and the Europeans, this forum for economic cooperation has the potential – uniquely among global gatherings – to harness the power and interests of rising and rich countries alike. What keeps its strength potential rather than actual, however, is a stark fact: in many Western capitals the G20 is still seen more as a symptom of disorder in the global system than a solution entirely fitting for a new world of fragmenting capital, power, and ideas.
Before the G20 can become the force for effective coordinated action to address challenges both economic and political, the old powers need to get over their outdated sense of privilege. Rather than appearing as reluctant joiners of a coalition of the un-willing, they must understand that the price of a new global growth era is one of shared power, and shared rule-setting, among developed and developing countries. Preaching must be replaced with genuine partnering; lecturing with hard-headed, realistic dialogue that recognizes the position earned by those countries whose successful management of their economies earned them a position of virtual lender and investor of last resort to embattled Western countries.
And yet, we’re far from this realization at present. You’d have thought that the U.S. debt-ceiling debacle and the Eurozone’s endless cycle of half-measures declared and quarter-measures taken would have impressed upon Western leaders the urgency of finding new solutions to their economic difficulties, and the modesty to recognize the need for help in implementing them. You’d be wrong. Instead, they responded to a recent proposal from a number of emerging market countries to increase the firepower of IMF with a mixture of fear and arrogance. Seeing the power of their global foreign exchange reserves and sovereign wealth funds to serve as a definitive boost to Europe’s failed attempts to regain the confidence of markets, the rising powers had suggested allowing surplus countries to make ad hoc bilateral loans to the IMF, or contribute to a special purpose vehicle designed to support sovereign bond purchases.
There are technical reasons why each of these solutions would be problematic even under the most benign circumstances. However, the response from the old guard of the G20, including the U.S., UK, Australia and others, was that the IMF had enough resources on its own, and that the Eurozone should be sorting out its own problems. So what explains this reluctance? At its core, it’s about a jealous hoarding of powers at the centers of global governance, such as the IMF and the World Bank, with only the slightest shifts in voting power granted to date; and in political terms, it’s about long-held aspirations for a Western-designed multilateralism to convince national leaders everywhere to subsume sovereign interests for global ones – timed nicely for when the new powers are able to assert their interests independently on the global stage. Well, in today’s shifting global environment, neither will do.
First, as the response to the latest EU package to deal with the widening sovereign and banking crisis demonstrated, markets and businesses simply do not have the confidence that the Eurozone on its own – or the IMF without deepened resources – can change the calculus of risk around the twin challenges of debt and deficits in Europe. Nor, for that matter, is it credible that the resources currently available to the IMF would suffice in the event of a serious run on Italian and Spanish sovereign credits. And yet as the Chinese government is making abundantly clear these days, for the emerging powers to put their hard-won reserves at risk for the sake of far richer European societies, they need to have a greater say in the management of global governance.
Second, to bemoan, as many in the West now do, the meddlesome role of national politics – within the EU and more broadly in global politics – is to mistake an opportunity for a threat. The countries and leaders now rising – from Turkey to Brazil – are those who’ve understood that a sustainable economic strategy begins with delivering inclusive growth for the citizens of their own nation first. Seeing open markets and free trade not as end in itself, but a means to broad-based prosperity, they are making reforms to secure greater competitiveness and innovation. A thriving G20 world is one that builds from the ground up, with each nation contributing to a global system out of a deeply individual – and profoundly democratic – interest in prosperity at home and influence abroad. This is as natural to the rising powers today, as it was to Europe and the U.S. when they assembled the current global architecture 60 years ago from positions of strength and confidence to benefit themselves first, and the broader world second.
Between nostalgia for a vanished world of Western rule-setting and an imagined world of a G-2 US-China duopoly lies the reality of a collection of pivotal powers whose sovereign interests require cooperation on global issues while driving greater public-private integration of interests within their borders. Down this road lies, to be sure, a more messy, more populist, more contingent phase of globalization with protectionism and beggar-thy-neighbor policies as the greatest threats. But what it lacks in predictability or elite control it is likely to gain in resilience and responsiveness to the genuine demands of a new and growing global constituency distributed across multiple countries and regions. For the West, the lesson of the Arab Awakening lies, above all, in the importance of accountability and legitimacy of government – at the national as well as global level. It is a lesson that needs recalling among Europeans and Americans at a time when an economic crisis is posing existential questions about their societies’ ability to provide either growth or equality.
For the established powers, the choice is not between maintaining an outdated oligarchy of power and giving up its privileges prematurely. It is between embracing the G20 as the legitimate management committee of an Archipelago World defined by a proliferation of economic and political power centers, on the one hand; and, on the other, resisting it and seeing themselves even less able to influence the global rules of the 21st century. You don’t need much of a crystal ball to decide which option offers the best hope for the West to influence the global architecture of the 21st century.