Mike Callaghan is Director of the Lowy Institute's G20 Studies Centre.

The world is going through a dramatic transformation with the rapid growth of the emerging economies, particularly in Asia. What does this mean for global economic leadership?

Fen Osler Hampson and Paul Heinbecker from the Center for International Governance Innovation note in their recent paper, Leadership in a Turbulent Age, that we now live in a 'messy' international environment where no one country or small group of countries can dominate world affairs.

This same theme was covered in the US National Intelligence Council's (NIC) publication, Global Trends 2030: Alternative Worlds. The objective of this report is to identify possible global trajectories over the next 15-20 years. The NIC concludes that by 2030, no country – whether the US, China, or any other large country – will be a hegemonic power. By 2030, Asia will have surpassed North America and Europe combined in terms of global power based upon GDP, population, military spending and technological investment. And the health of the global economy will increasingly be linked to how well the developing world is doing.

What impact will the 'rise of the rest' have on global economic leadership? The NIC offer three scenarios.

The plausible worst case is called 'reverse engines', in which a global power vacuum and the inability of countries to work together sees growing mercantilism and protectionism, and economic globalisation is put into reverse.

The plausible best case scenario is termed 'fusion'. This is a world where US dominance may have receded, but it remains actively engaged and other emerging powers step in to assume greater responsibility for international affairs commensurate with their growing economic importance. The third scenario is something of a half-way house in which the global economy stumbles on, but in which it is less secure and prone to crises.

By way of illustration that we may be heading to the world of 'reverse engines', Stephen King commented recently in the Financial Times that while currency wars may be all the rage, they are merely the symptom of a much deeper problem, and that is the rise of economic nationalism: 'Persistent economic stagnation has left our political leaders increasingly looking for national solutions to what have become deeply-entrenched international problems'.

Effective multilateral institutions and agreed norms, rules and procedures to guide state behaviour are important in dealing with this messy international scene. Hampson and Heinbecker point out that old fashioned political leadership remains indispensable:

...but that leadership is likely to see 'more hands on the steering wheel and more feet on the brake'. In this reality, cooperation is more likely to be coaxed along than commanded.

What will be the mechanism to allow 'more hands on the steering wheel' when it comes to the global economy?

The rise of the G20 leaders' process in 2008 can be attributed to the fact that the global financial crisis exposed deficiencies in the international 'architecture' and demonstrated the need for a more inclusive and representative forum than the G7/8 to deal with what was a global crisis. The major emerging markets had to be at the table.

And when it comes to charting a course between the three scenarios outlined by the NIC (hopefully one that will lead us to 'fusion'), the G20 is the only game in town when it comes to facilitating economic dialogue between the leaders of advanced economies and major emerging markets.

So we need to make sure that the G20 is effective. But while it has achieved much, it is in danger of losing its way with an ever expanding agenda and declining interest by leaders. The G20 needs to be relaunched. Nine key lessons from previous summits suggest that the G20 should develop an explicit multi-tracked approach where a wide range of issues continue to be discussed and advanced through ministers and officials. But the leaders' meeting (and communique) must concentrate on a few key issues. The G20 must maintain its focus and not lose its inherent strength, namely the direct engagement of leaders.

It will take a circuit breaker to move away from the current approach whereby each year's chair builds on the agenda and procedures of their predecessors. Australia should provide that circuit breaker when it chairs the G20 in 2014. In particular, the careful selection and handling of the leaders' agenda should establish a new precedent where leaders focus on the priority areas where they can make a difference and achieve meaningful outcomes.

Australia has the opportunity to make a major contribution to strengthening global economic leadership when it chairs the G20 in 2014. And as David Shorr has noted, 'at a time when international cooperation is falling short of our major global challenges, we have to get as much out of the G20 as we can.'

Photo by Flickr user PentaxFanatiK.