G20 the Right Body for Economic Leadership

29 September 2009

The Age

By John W.H. Denton

Chairman, BCA Global Engagement Task Force

In Pittsburgh at the end of last week, world leaders decided to make the G20 the primary global economic forum. This is a very welcome step. The G20 has proven to be the right global institution for the times. Over the past 12 months, it has successfully reduced the impact of the financial crisis through a co-ordinated global response.

In large measure, this is because of its structure and membership. It was created in response to an earlier, albeit smaller, financial maelstrom: the Asian financial crisis of the late 1990s. As a consequence, the key directions for its policy agenda are set by finance ministers and central bank governors. Such a structure is rare among global institutions, and has been integral to the G20’s success.

The G20’s structure has enabled it to put in place effective economic policies and strategies to respond to the global financial crisis, with the most important being the co-ordination of fiscal stimulus packages. Many G20 governments may not have had the confidence to pursue substantial fiscal stimulus measures if there had not been such strong support from so many of the world’s major economies.

It has also been effective because there is at least one member from every significant region of the world. This includes strong representation from the Asia-Pacific, an emerging centre of global economic power. Developing countries are also well represented. Both these factors distinguish the G20 from the G8.

For the G20 to play an even more effective role and to make good the progress of Pittsburgh, three key actions are required.

The first and most important is to continue to provide the policy leadership to build an effective and sustained recovery from the global recession. Importantly, the Pittsburgh declaration commits G20 governments to the ongoing co-ordination of stimulus measures wherever, and for as long as, they are required to strengthen growth.

When the recovery phase is sufficiently well established, the G20 will have an equally vital job in co-ordinating the unwinding of stimulus policies, and in facilitating strategies to reduce government debt.

The institution should also take more of a leading role in bringing the World Trade Organisation’s Doha round of trade negotiations to a conclusion. Substantial trade and investment liberalisation would contribute to higher world economic growth.

Much more than statements of support from political and business leaders is required at a time when governments are under domestic pressure to pursue protectionism.

Practical leadership from G20 nations should involve making genuine concessions without waiting for others to move first.

This would be a valuable example to other WTO governments.

The second key action is to build the international economic policy-making capabilities of the G20 as an institution in its own right.

To date, the G20 has relied more on the combined efforts of its constituent parts. As a leading global body, resources should be allocated so the G20 can undertake policy development. This would enable a broader perspective, better anticipating global challenges and creating an alternative source for policy ideas.

The third key action is to strengthen the G20 by establishing a business reference group, or a B20, where key business leaders from each G20 nation would provide a channel for new ideas.

A B20 would also be a valuable forum for testing existing policy priorities through open dialogue between business and government representatives.

After all, it will be business growth that drives poverty reduction and increases prosperity.

The lingering impact of the global financial crisis will make sustained growth difficult to achieve.

The creation of a B20 should be a key focus for the next meetings of the G20 in Canada and South Korea.

A return to sustained world economic growth will be aided by continuing to develop the capabilities of the G20.

But it will also require all G20 governments to back their leadership with action, especially in trade and investment liberalisation, and in working effectively with business.



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