Governance

G20 membership: horses-for-courses

G20 Membership G20 membership: horses for coursesThe G20 leaders group achieved several significant examples of international economic cooperation in the first few meetings during the global financial crisis in 2008 and 2009. In the fraught crisis atmosphere, the G20 discussion encouraged bolder fiscal expansion, discouraged trade protectionism, spurred the world’s financial regulators into action to re-write the inadequate rules, and drew attention to the antiquated governance structure of the International Monetary Fund (IMF). With the immediate threat of global depression averted and the eurozone crisis not amenable to a global approach, many commentators observe that more recent meetings have lost a sense of urgency and purpose. This group has been successfully established as the paramount international economic coordination body (taking over that role from the G7 and G8) with a far more representative membership, but with the urgency of the immediate crisis gone, critical attention is focusing on the G20’s composition and agenda.

Downside to increasing membership

Andrew Cooper (2012) has made the case that the G20 lacks input and output legitimacy. “Moreover, the ‘input’ legitimacy of the G20 has been eroded by the absence of the United Nations in the design and representational gaps,” argues Cooper. But there is a big downside to enlargement of membership. From the early days of the G20, it was recognized that there was a trade-off between wider representation and efficiency. Twenty is about the maximum number of people who can sit around a table and have effective face-to-face dialogue. No one who has sat through the interminable debates and lip-synced rote speeches of the UN and its subsidiary organizations such as the IMF would advocate this kind of input legitimacy as a desirable norm or as a matter of principle.

This is not to downplay the value of the UN or to regard its quasi-universal formats (through constituencies) as failures: just to say that this universal-representation (and the quasi-universal) model does not meet all needs and circumstances. There will be some international issues that are best settled bilaterally; others will be resolved in a multilateral universal-representation framework, at the International Monetary and Financial Committee (IMFC) or at the Fund’s Executive Board: and still others in a variety of “right-sized” groupings in between. The G20 has established an operating mode that is incompatible with the universal-representation model.

Resolution conundrum

It’s worth recalling the origins of the G20, in the G7 and G8. There have always been international issues that do not lend themselves to resolution in the universal-representation format. For much of the post-WWII period, the G7 or G8 and its predecessors were center stage on time-critical international economic issues, as illustrated by the Plaza Accord and Louvre Agreement in the mid-1980s, settled outside the IMF framework. It is hard to argue that these issues would have been better handled in a forum that gave all countries a voice in the debate. Similarly, when the heat was on in the 2008 global financial crisis, the IMF (with its universal representation) was largely irrelevant and played little role in the response.

In its initial 1999 format (finance ministers and central bank governors), the G20 was the offspring of the G7. The series of crises in Mexico, Asia, Russia and Argentina made the incongruity of the G7 membership apparent to all. While the G7 and G8 continue to meet, a large part of the G7’s role devolved to the G20 and remains in principle the same: to address international issues that mainly concerned the large players (usually “crisis management”). Its further function (also performed by the G7 and G8 but in a more self-serving way) was to act as a steering group to bring policy focus to the UN’s specialized economic agencies to counteract the inertia and decision-making weaknesses that often characterize these universal-representation formats. The G20 has demonstrated its effectiveness in these roles through it response to the 2008 global financial crisis (coordination of fiscal responses; resistance to trade-protectionist pressures), as the facilitator of financial sector reform (Basel III and Financial Stability Board) and in promoting IMF governance reform. None of these functions could have been better performed by a group with wide representation.

The G20 did not replace the governance or decision-making processes in organizations such as the IMF, but by forming consensual coalitions big enough to carry the day when issues were debated in these organizations; there was some hope that the inherent inertia of these unwieldy large groups could be overcome.

Before 1999, this role gave the G7 a powerful position, but its patently unrepresentative structure could not sustain the role. Whether the G20 is the right group is not the issue. Adding a few more countries to the membership will just shift the demands for further enlargement to other excluded countries. Redesigning along a universal representation model does not just duplicate the existing institutions such as the IMFC, but loses the essential beneficial function currently performed by the group.

Finding the best representation framework

Thus the starting point for a sensible discussion is that there is a place for a group that has narrower-than-universal representation. The representation question should not start by asking “is everyone represented?”, but rather “who can make a useful contribution to the specific outcome?”

Does quasi-universal representation through constituencies, along the lines of the IMF, solve the problem? The constituency model works well for the large single-constituency countries and where close commonality of interest exists between constituency members (such as the Scandinavian group). But where this is not so, the constituency framework achieves lowest-common-denominator consensus that by default leaves the single-constituency countries to dominate the outcome. As a method of universal representation, it observes form rather than substance. Moreover, it has no relevance for a leaders’ meeting where plenipotentiaries from individual countries meet face-to-face. The political head of one member country of a constituency cannot have the same dialogue.

Linking regional bodies

The G20 has the opportunity to explore a different format: the linking of regional bodies into a more global process (Kawai and Lombardi 2012). But to be effective in limiting numbers and settling the continuing pressures for additional members, non-G20 participants should be limited to the regional groups, without the six or so extra non-G20 countries that are routinely invited.

To link regional bodies more firmly with the paramount coordinator would be an innovative approach to the long-standing conundrum of finding an appropriate compromise between universal representation and effective dialogue. The main regional bodies have been present at G20 meetings, although often in an ad hoc way without a consistent pattern to the invitations. Their role so far has been peripheral, as most of these regional bodies have limited experience at formulating and presenting regionally-relevant positions on global issues. But this is a matter of time and opportunity. If it becomes clear that the G20 provides a powerful and effective forum for voicing consolidated opinions, then there would be a strong incentive to tweak the agendas of regional meetings to give priority to the development of such consensus positions. The frequency of regional meetings allows such consensus positions to form over time, in the same way that the European Union, with its myriad different meetings at different levels, gave Europe a powerful voice in world forums during the post-WWII period.

Improving international action

The benefit comes not only from addressing the intractable membership issue faced by the G20, but perhaps more importantly in encouraging the regional bodies to move in a productive direction, putting to one side the detailed concerns specific to their regions, and instead give prominence to issues of wider application, more amenable to internationally-coordinated action. There is always the danger that this kind of representation will become a self-serving lobby group intent on promoting the narrow interests of its regional members above those of the wider global community, in the way that Europe has often used its well-developed regional institutions to defend and maintain its historic over-representation in international forums. But with a range of other regional forums represented, Europe’s favored position would be counterbalanced. Developing this process will take time and active leadership, but the starting point is to create the opportunity. This, rather than quasi-universal representation, is the way forward.
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References:

Cooper, A. 2012. The Group of Twenty: Input and Output Legitimacy, Reforms, and Agenda. ADBI Working Paper 372. Tokyo: Asian Development Bank Institute. www.adbi.org/files/2012.08.08.wp372.G-20.input.output.legitimacy.reforms.agenda.pdf

Kawai, M. and D. Lombardi. 2012. Financial Regionalism. Brookings Institution. www.brookings.edu/research/opinions/2012/08/30-financial-regionalism-lombardi

Additional reference:

Kawai, M. and P. Petri. 2010. Asia’s Role in the Global Economic Architecture. ADBI Working Paper No. 235. Tokyo: Asian Development Bank Institute. Available: www.adbi.org/files/2010.08.04.wp235.asia.role.global.economic.architecture.pdf

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Stephen Grenville

About the Author

Stephen Grenville is a visiting fellow at the Lowy Institute for International Policy and works as a consultant on financial sector issues in East Asia. From 1982 to 2001 he worked at the Reserve Bank of Australia, for the last five years as deputy governor and board member. His research interests include: regional economic integration; Australia’s economic relations with East Asia; international financial flows and the global financial architecture; and financial sector development in East Asia.
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