The dust has settled on another G20 summit, the latest held in Hangzhou, China. The small group of think tanks who follow the G20 are disappointed with the outcomes. What’s new? The G20 has been a disappointment for a number of years.
Perhaps it’s time to reflect on what works and what doesn’t in the G20.
Tristram Sainsbury concluded the Hangzhou was ‘big on spectacle, low on substance’, Kevin Carmichael described it as ‘another missed opportunity’, Colin Bradford said there was ‘substantial evidence of avoiding commitments’, and Tom Bernes said it achieved ‘little more than talk’. It is not surprising there was disappointment, because the trend has been for each G20 chair to set unrealistic expectations as to what the forum will achieve under its stewardship. China was no exception. The G20 has lost touch with its roots.
Reflecting on what the G20 has achieved since the first leaders’ summit, the standouts are the forum’s initial response to the global financial crisis, its work on strengthening financial regulation through the Financial Stability Board (FSB) and combating corporate tax evasion and avoidance through its Base Erosion and Profit Shifting (BEPS) project. The G20 achieved meaningful outcomes in these areas because they met the conditions for achieving international economic cooperation. Those conditions are:
1. Broad agreement at the outset on the underlying problem and required solution
In the wake of the near collapse of the global financial system, there was widespread recognition that financial regulation was inadequate and better international cooperation was required. Similarly, following media reports that many multinational corporations were not paying their ‘fair’ share of tax, it was widely recognised that the international tax system was out of date and needed to be modernised. In both cases, the problem was evident, as was the need for international cooperation. These conditions are not in place for most of the other items on the G20 agenda. There may be agreement on the objective – be it stronger economic growth, increased infrastructure investment, better employment outcomes, increased innovation, and so on – but there is anything but agreement on the underlying problem, let alone whether the solution requires international cooperation. An example was the attempt by the US and Europe at Hangzhou to curb China’s steel overcapacity. Little was achieved, apart from establishing a forum to monitor things, because there was no agreement on the underlying problem; the US said it was oversupply while China said it was weak demand.
2. Clarity around the course of action for each country
The G20’s work on strengthening financial regulation and reforming international tax involved reaching agreements on new common standards that each member would implement. What was required by members was clear and specific. This stands in stark contrast to what is expected from members when the main outcome from a summit, as was the case in Hangzhou, is agreement on ‘high level principles’ or broad ‘blueprints’.
3. A mechanism to monitor performance
The existence of common standards in the case of financial regulation and international taxation facilitated the monitoring of whether members were meeting their commitments. Moreover this monitoring was oversighted by international institutions, the FSB in the case of financial regulation and the OECD for international taxation. This is more rigorous then G20 outcomes where each country voluntarily determines what it has to do and there is little by way of monitoring performance – such is the case with the G20’s efforts to eliminate fossil fuel subsidies.
4. Public pressure on governments to act
Financial regulation and international taxation are technical issues that are usually left to the technocrats to resolve. However because of the financial crisis, there was strong domestic political pressure on governments to act. This is not the case for most of the other items on the G20 agenda which while important, are not seen as domestic economic priorities.
5. International bodies advance the work
The G20 is not a ‘doer’, its main strength is to provide political impulse to the International bodies who are the doers. This was what happened in the case of financial regulation and international taxation, which were advanced through the FSB and OECD respectively. The advantage of international bodies leading the detailed work is that technical expertise and momentum is maintained notwithstanding a revolving chair. It is far more effective than each G20 chair seeking to advance outcomes through ad hoc working groups.
The lesson for future G20 chairs is to be realistic, do the homework in making sure that there is agreement on the problem to be resolved before seeking to promote solutions, make sure the issues being pursued require international cooperation, pick topics that are a domestic priority for members, leverage the work of international bodies and recognise that outcomes are achieved over years, not in one summit.
Germany is the G20 chair in 2017 and, unlike some recent chairs, is not under pressure to demonstrate its international leadership credentials. But it could be bold and show true leadership by taking up with a vengeance what Australia attempted in 2014 and streamline the forum and reverse the rise of the ‘G20 circus’. The focus at Hangzhou was on having an event that was bigger than the rest: the largest B20 meeting; the most developing countries participating; the biggest opening ceremony; and the most expensive summit. With the focus on the scale of the event, it is not surprising that the expectation is for ‘big’ outcomes.
Germany needs to get the G20 back to basics and end the circus. In doing so it would establish more realistic expectations as to what summits can achieve. Towards this end, Germany could take up the suggestion of Alan Alexandroff, and drop what he calls the ‘near summits’ – the B20, L20, C20, T20, Y20, Girls20, W20 and so on. Consultation is good, but the more pressing problem is to eliminate the baggage that has developed around the G20 process.
Photo: China / Barcroft Images / Barcroft Media via Getty Images