G20 Role Needs Greater Clarification

The Australian Financial Review

By John W.H. Denton

Chairman, BCA Global Engagement Task Force

The Group of 20 has the potential to provide the leadership needed for a new era of global co-operation and stability. Last year it was decided that the G20 would take over from the G8 as the principal international economic body.  In part, this recognised that the G20 has developed and led a successful response to the global financial crisis.

However, the effectiveness of the institution in leading a sustained recovery from the downturn is far from assured. This is a different challenge to that faced when financial systems were on the brink of collapse, and it will be pursued even without the urgency of a crisis. Four critical issues that go to the G20’s role and organisational arrangements must be addressed if it is to live up to, and deliver on, expectations.

First, what will be the limits of the policy role of the G20? Since it was established, the G20 has confined itself to cooperation on economic policy, including coordination on fiscal policy. A clear indication needs to be given as to whether the institution will maintain this focus, or extend its influence to other policy areas. Here in Australia we need to ask which policy areas we want on the agenda – and those we do not want included. 

The possibilities include energy, trade and investment - and even adopting the broader ‘future world’ initiative of the G8. There is also the possibility of taking on the Millennium Development Goals. 

One view is that the institution should not try to take on too much and risk overreaching with the number and scope of its priorities. Yet, many of these broader agendas will require the attention of global leaders if real progress is to be made.

Second, what responsibilities do members of the G20 have when it comes to making and implementing decisions? An important issue is whether decisions should be made on the basis of a consensus achieved by all members. 

Careful consideration should also be given to whether all members should be bound by decisions, or whether there will be the flexibility that allows a small minority to stand aside or seek an exemption due to domestic circumstances. 

This latter issue is of particular relevance to Australia when it comes to the work being undertaken by the G20 on financial system regulation and executive remuneration.  In both these areas, Australia’s domestic arrangements have proved to be robust. It is very doubtful that future proposals by the G20 would be applicable to our domestic circumstances.

Third, what will be the internal organisational arrangements for the G20?  The key issue to be determined is whether there will be a stand alone secretariat and base for the G20, in the same way that there is a permanent administrative arm of the United Nations. This in turn highlights the need to determine who shall have responsibility for setting the forward agenda of the institution, and how this is linked to each of the member governments.

Australia needs to give careful consideration to allocating the resources within the federal government that are needed to support membership of a G20 with greater responsibilities. This may require greater input from departments other than Treasury, and making certain there is close alignment with our wider foreign policy and national interest priorities.

Finally, the Business Council of Australia has over the past 12 months advocated the establishment of a business reference group, or a B20, in which key business leaders from each G20 nation would provide a channel for new ideas.  It will be important to connect the policy agenda to the business context. A B20 would also be a valuable forum for testing existing policy priorities through open dialogue between business and government representatives.

The President of South Korea recently announced that the Korean Government was planning the launch of a Business Summit in Seoul timed to coincide with the November G20 Leaders Summit. This initiative of President Lee Myung-bak is an important and timely step.  As the President said when he announced the business summit, the G20 should devote its “energies toward giving full scope for the impetus for recovery to come from the private sector business community, taking the baton from the government sector in leading the recovery effort.”  To facilitate this goal and to take forward the outcomes of the summit in November, a continuing business reference group is required.

A highly effective G20 that drives a sustained recovery will only be possible if member governments, as a matter of urgency, develop the capabilities of the institution and address outstanding issues. These matters must be progressed well before the next global leaders summit which will take place in late June.