Membership of the modern G20 has been an important development in Australian foreign policy, and has quickly formed a key part of our economic diplomacy.
The core case for maintaining effort in the G20 is that it offers the chance to progress Australia's economic interests in a way that no other forums provide.
At its heart the G20 means that we are part of the key global 'economic steering committee'. This gives us valuable intelligence on global trends affecting Australia and, more importantly, insights into the way top policy makers are thinking about responding to them. It also means that we have a seat at the table making major decisions around global economic policy cooperation.
Policy cooperation becomes critical in an international economic crisis situation, and the case is stronger as international factors dominate domestic ones. In crisis times, economic issues normally the concern of finance ministers and central bank governors become issues for leaders, as economic performance dominates other concerns and responses require whole-of-government efforts. This can be seen in the broad ranging nature of the G20 response which played a major role in averting a major economic collapse in 2009. It is no surprise at all therefore that the G20 was 'more successful' during the crisis and has since found progress more difficult; it will always be thus. The G20 is nevertheless now a key part of the global crisis response architecture, pulling in all major systemic players. Australia has a huge stake in the success of these actions. A major payoff in crisis mitigation is relatively rare, but the payoff from successful crisis response is so large that this 'insurance value' alone is worth a significant investment in the G20. Habits of cooperation built up in non-crisis environments then become critical.
In more normal times this cooperation is difficult to secure, and judgements of the effectiveness of any forum need to recognise the inherent limits of international cooperation. Nevertheless, it is fair to say that the G20 has made important progress, and certainly relative to many other international institutions. The Brisbane growth commitments created an important benchmark with which G20 individual and collective efforts could be judged. Even if progress against this benchmark has been incomplete, it has raised the bar and pushed countries to put forward substantive reforms in a way that qualitative commitments would not. It has highlighted in a sharper way what needs to be done to reduce the burden being borne by monetary policy in the current recovery, and lift long term growth.
There are other examples of G20 success in 'normal' times. Commitments around exchange rates have played important roles in calming markets at times in the post crisis period, in 2013 and as recently as Shanghai earlier this year. G20 discussions in Sydney and subsequently achieved important consensus about international monetary policy cooperation, where systemic central banks made explicit their willingness to be mindful of international spillovers and all agreed to their responsibilities to build domestic resilience. This was hard fought and marked a change in atmospherics around international tensions over monetary policy, which has to some extent endured.
The G20 is also an important forum for testing new ideas in macroeconomic policy arising from the very different circumstances of this recovery. By bringing together idea generators such as the IMF and key policy makers grappling with the practical and political realities of implementing policies, the forum accelerates the policy development process. For example, it has been an important forum for discussing the various ways to take pressure of monetary policy, including through well targeted structural policy and infrastructure spending. These discussions don't produce immediate results but affect underlying policy paradigms with long-lasting effects on the global economic environment within which Australia operates. As we are not immune from the some of the same forces, this discussion can also benefit domestic policy making. Our participation provides us with the opportunity to ensure Australia's specific circumstances are taken into account and, with other countries, shape an emerging consensus that is more relevant to our situation.
As well as being a steering committee, the G20 plays a key role in setting the rules of the road. The G20 has been key to progressing global standards and norms that are important for a resilient international economy. The coordinated strengthening of financial stability legislation has been arguably the most important achievement of the G20. It has lifted capital and liquidity requirements on key banks, which has significantly improved the resilience of the core international financial system – the main reason why, despite the significant economic uncertainties, talk of 'Lehmans' crisis are overblown. The G20 has progressed important norms on anti-corruption, and has been key to making headway on international tax cooperation.
Australia, like other countries, will generally adopt such standards through market or political pressure, so it makes sense for us to participate in their development to better protect our interests. We want standards that make the international environment genuinely safer, and that can be sensibly tailored to our interests. This means we should strive to be part of the decision making process. Of course we need to be realistic about our influence – but we should also not underestimate our ability to progress important Australian interests when we share these with other G20 members.
And finally, the success of international institutions should not be measured only by the progress they make, but by the extent to which they stop bad things happening. The G20 has found it hard to accelerate progress on trade liberalization, but it has been important in resisting the extent of rising protectionism. This is set to remain an important role for the body, and will need to be progressed in the context of a broader inclusive growth agenda.
This is not to say international groups are always effective – one only needs to sit through meetings and read dense communiques to know they are far from it.
Nevertheless, the G20 is large enough though to capture a good range of interests from all systemic economies, and small enough to forge efficient consensus on critical issues for the world economy. The modern G20 engages leaders, which gives it its power, but also means its agenda needs to be focused on issues that require the highest political input to progress.
Part two of this post will examine how Australia's involvement with the G20 fits within our broader economic diplomacy strategy.
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