G20's Dilemma: From an Economic Powerhouse to a Guardian of Global Welfare

Updated:31 July 2017

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By Venkatachalam Anbumozhi

G20's Dilemma: From an Economic Powerhouse to a Guardian of Global Welfare The G20's response to global economic governance challenge was effective, the expansion of its scope to include socio-economic issues affecting developing counties is logical; however, it needs to make three decisive actions to become a guardian of global welfare.

As the G20 leaders gather on July 7-8 in Hamburg, Germany to take stock of the global economy, critics and supporters have amplified their hopes in this economic powerhouse - a club of 19 countries plus the European Union. Nine years into its formation at the leaders' level, G20 has consolidated its status as the power centre of global economic governance.

The G20, which accounts for 85% of world economy and 80% of global trade, successfully controlled the damage from the 2008 crisis by macro-level economic policy coordination. The coordinated actions by the G20 countries from 2009-2012 has helped inject liquidity into markets, recapitalise international financial institutions, as well as provide a formula for global economic recovery and future crisis avoidance. Its efforts during that period was also hailed as the exemplar of cooperation between developed and emerging economies of the world. G20 was also given credit for moderating trade conflicts and averting currency wars. The rotating presidency of G20 also forced developing countries to build capacity to contribute to the global economic governance process. For countries such as Brazil, China, India, and South Africa, which for decades have been at the receiving end of global economic policies set by institutions like the IMF and the World Bank, this opportunity is invaluable. China's G20 Presidency in 2016 brought the issues that are vital to developing countries, such as trade in services, climate change, and innovations, into the global economic governance framework. With five Asian countries as part of this group, namely China, India, Indonesia, Japan, and South Korea, now G20 wants to steer the global economy towards strong, sustainable, and balanced growth.

Critics have voiced their concern over the fundamental lack of legitimacy for the self-appointed group of global powers. They call into question the effectiveness of the G20 in balancing the national interests of countries that presides over the management of the world economy. Due to conflicting interests among members, particularly the United States, and other rising powers of Asia and Africa, the G20 has not shown much ambition to stop the erosion of the multi-lateral trade system through the emergence of mega regional trade agreements like the Transatlantic Trade and Investment Partnership (TTIP). Critics cite the lack of support from G20 on global public goods, such as the stability of the ecosystem that support economic fundamentals.

Some also doubt the merits of G20, going much beyond its original mandate of fixing the global financial architecture to non-economic issues like climate change, healthcare, migration, and terrorism - much like the United Nations. Issues on the finance track, typically led by finance ministries and central bank governors, were overtaken by the prioritisation of issues on the 'other track', typically led by officials outside finance ministries. Both arguments have merit. As the G20 enters the ninth year of its formation in a world that is in geopolitical turmoil, it is appropriate to assess what has worked, what has not, and why. Over the years, and under pressure to address the larger socio-economic needs of member countries, G20 began to include issues such as economic inequality, jobless growth, and sustainable development challenges--issues that are particularly important for the developing countries, and not an illogical evolution.

Looking at the G20 from the perspective of effective global economic governance, the big question to ask is: Do the member states see their group as a constellation of great economic powers or are they ready to act as guardians of global welfare? There are three ways the G20 need to concentrate so they can achieve both objectives.

First, due to the group's unique economic and political weight, member countries hold a particular responsibility for implementation of free trade and anti-protectionism measures. Sustainable economic growth cannot be achieved globally if they are not realised in all G20 countries - high income and middle income countries alike. To demonstrate the sincerity of their commitment, G20 countries should ensure coherence across all of its work streams emphasising free trade, investment, and finance that nudge private business towards the trajectories of wellbeing of global citizens. This will have the effect of boosting domestic employment and reducing account surplus on overcome global imbalances.

Second, G20 governments should signal their collective support for a transformation of the world economy towards new models of low-carbon and resource efficient growth. They need to establish coherent policy frameworks for inclusive growth anchored on 2030 sustainable development agenda and Paris Climate Agreement. The G20 should use its collective voice in directing the multilateral development banks and other international financial institutions to make sure that these institutions fully support social and environmental standards set by the global community.

Third, G20 governments should support the evolution of new global formats and institutional arrangements for North-South joint knowledge creation and South-South knowledge sharing to address the global economic and social challenges. International knowledge networks are mostly dominated by representatives from major OECD countries. Innovative knowledge solutions can only become effective on a global scale if it is co-created by participants from different regions and if it reflects ideas and approaches in pluralist perspective. G20 should initiate a process of establishing an inclusive knowledge network to support its future actions and to interact with policy makers as well as business and civil society across the countries.

The G20 is now a matured institution with a depth of experience in global economic governance. China, Germany, and Mexico, which holds the G20 presidency last year, this year, and next year respectively, have the unique opportunity and responsibilities to expand its role. They should join hands in transforming the G20 from a club of economic powers into genuine guardian of global welfare.

Dr Venkatachalam Anbumozhi is a Senior Economist at the Economic Research Institute for ASEAN and East Asia (ERIA), based in Jakarta, Indonesia. His previous positions include Senior Capacity Building Specialist at Asian Development Bank Institute, Assistant Professor at the University of Tokyo, and Senior Policy Researcher at the Institute for Global Environmental Strategies and Assistant Manager in Pacific Consultants International, Tokyo. He has published several books, authored numerous research articles and produced many project reports on resource management policies, energy infrastructure design, and private sector participation in Green Growth. Dr Anbumozhi was invited as a member of the APEC Expert Panel on Green Climate Finance and the ASEAN Panel for promoting climate-resilient growth. He has taught resource management, International cooperation and Development Finance at the University of Tokyo and has speaking engagements at some of the leading international organizations. He obtained his PhD from the University of Tokyo.

This opinion piece has been published in Bangkok Post, Jakarta Post, China Daily, and The Japan Times. These opinions are his own and do not necessarily represent ERIA.Click here to subscribe to the monthly newsletter.

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