Every year, leaders of the world’s 20 largest economies gather to discuss economic and financial matters and coordinate policies on other issues of global significance.
Jim O’Neill, chairman of Chatham House, a London-based international affairs think tank, said improved efficiency might be put on the agenda of this year’s G20 Summit, which will be held in Osaka, Japan, on Friday and Saturday.
O’Neill, who coined the term BRIC for the emerging economies of Brazil, Russia, India and China when he was Goldman Sachs’ chief economist in 2001 — since expanded to BRICS with the addition of South Africa — said improving efficiency is not easy, but the challenges are not insurmountable.
It could be argued that all international bodies frequently struggle to be effective, never mind efficient, he said.
The scale of the 2007-08 financial crisis seemed to bring the best out of the G20, O’Neill said. Many countries were happy to try to frame their monetary and fiscal policy response in a collective way, which allowed observers to comprehend the massive scale of their effort, he said.
“However, what to do when there is no imminent crisis making headlines all over the world?” O’Neill asked.
The G20, formed in 1999, brings together the most important industrialized and developing economies to discuss international economic and financial stability. Its annual summit, a gathering of G20 leaders that debuted in 2008, has evolved into a major forum for deliberating economic issues and other pressing global concerns. Bilateral meetings on the sidelines of the summit have occasionally led to major international agreements or underscored existing hostilities.
It comprises 19 countries and the European Union. The countries are Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Republic of Korea, Russia, Saudi Arabia, South Africa, Turkey, the United Kingdom and the United States.
Because of their size, the countries’ policies play a big role in determining the health of the global economy.
Together, the nations of the G20 account for around 80 percent of global economic output, nearly 75 percent of all global trade and about 66 percent of the world’s population.
These figures have remained relatively stable, while the corresponding contributions for the G7, a smaller group of advanced economies, have shrunk as emerging markets take up a relatively greater share of the world’s economy, Council of Foreign Relations staff members James McBride and Andrew Chatzky wrote in a backgrounder published recently on the website of the US think tank.
While some are skeptical about the G20’s usefulness, they said, many observers point out that its membership is more representative of the current international balance of power than other blocs formed earlier like the G7, which came into being in 1976.
The G20 initially focused on broad macroeconomic policy, but has expanded its ambit, McBride and Chatzky wrote. Last year’s summit in Argentina focused on fair and sustainable development, while the previous one in Germany addressed issues including corruption, money laundering, and international tax havens. At the 2016 summit in China, President Xi Jinping and US President Barack Obama formally announced their countries’ accession to the Paris Agreement on combating climate change.
As part of the preparations for the Osaka G20 summit, the world’s leading think tanks held a meeting in Tokyo on May 26-27 to work out policy recommendations for the leaders.
The meeting, known as the Think 20 or T20, is the research and policy advice network for G20 countries. More than 400 think tank experts from the 20 countries sent a message in Tokyo that political leaders must adhere to the principles of multilateralism despite currents of anti-globalism and economic uncertainty.
Naoyuki Yoshino, chairman of T20 Japan and dean of the Asian Development Bank Institute, said the recommendations of the policy experts were based on theoretical and empirical analysis, ensuring that G20 leaders received the most accurate advice.
“The G20 countries have taken steps closer to the new global goal of a sustainable, inclusive and resilient society with the Paris Agreement and 2030 Agenda for Sustainable Development but still face challenges on the way ahead,” Yoshino said in the T20 Japan statement.
He said T20 Japan, through the work of its 10 policy task forces, had produced innovative and evidence-based recommendations to guide the way forward for the global community.
In a message posted on the G20’s website, Japanese Prime Minister Shinzo Abe said Japan is determined to lead global economic growth at the Osaka summit by promoting free trade and innovation, achieving both economic growth and the reduction of disparities, and contributing to the development agenda and other global issues with the UN’s Sustainable Development Goals at its core.
He said Japan will lead discussions on the supply of global commons such as quality infrastructure and healthcare for realizing economic growth around the world, adding that ways to resolve issues such as climate change and the amount of plastic waste in oceans will also be discussed.
The summit is also expected to address the digital economy and issues that arise from an aging society.
Nicholas Stern, chairman of the Grantham Research Institute on Climate Change and the Environment at the London School of Economics, said the most important issue for G20 leaders in Osaka is how to generate sustainable and inclusive economic development and growth across the world over the coming decades.
Stern, who is also co-chair of the Global Commission on the Economy and Climate, said G20 nations can safeguard against one potentially important element in future financial crises by prioritizing wise investments in the transition to zero-carbon and climate-resilient growth and development, adding that an inadequate, slow or badly managed transition could destabilize economies, slow or reverse growth, and severely damage the environment.
A report published by the World Bank early this year highlighted the huge need for infrastructure to eliminate poverty and raise living standards, with 940 million people living without electricity, 663 million lacking adequate sources of drinking water, 2.4 billion lacking decent sanitation facilities, 1 billion living more than 2 kilometers from an all-season road, and 4 billion people lacking internet access.
It found that the spending of developing countries on infrastructure was mostly in the range of 3.5 percent to 5 percent of GDP, and they should be able to build the infrastructure necessary to realize the SDGs through investment equivalent to about 4.5 percent of GDP.
“Such investments will be of profound importance in our cities, where more than half the world’s population now lives and 70 percent of GDP is created, to ensure they are places where we can live, breathe, move safely and be productive,” Stern said.
The G20 nations must lead by example on this imperative, Stern said, and especially the world’s two biggest economies, the US and China.
“China is demonstrating leadership through its significant investments in zero-carbon energy, particularly renewable power,” he said. “China’s support for solar power has directly contributed to the astonishingly rapid fall in the production costs of panel units, making it now the cheapest source of electricity in many parts of the world.”
Stern also noted that China can provide even greater leadership through the Belt and Road Initiative if it encourages the application of robust sustainability tests to investments in new infrastructure in partner countries.
He added that G20 nations should be wise with their investments within their own countries and abroad. They should promote the role of international financial institutions, and multilateral development banks in particular, in lowering the cost of capital for sustainable infrastructure.
“The necessary pace and scale of transition requires a substantial expansion of that role,” he said.
Stern, a member of the international advisory panel for the Asian Infrastructure Investment Bank, said that on the back of good management, a strong portfolio and a clear strategy, the AIIB successfully issued its first global bond last month, raising $2.5 billion to support sustainable infrastructure, cross-border connectivity, and environmental, social and governance-related investment practices in emerging economies in Asia.
The AIIB’s inaugural report on Asian infrastructure finance, published early this year, concluded there has been no significant breakthrough in Asia in mobilizing private capital for infrastructure. It urged more efforts to attract private capital to sustainable infrastructure, and called on multilateral development banks to contribute more toward improving project preparation and country policy frameworks and maintaining supportive conditions by, for instance, providing better information for market players.
Stern said the G20 nations can promote sustainable economic growth and development, reduce poverty and improve living standards across the world.
“But they must move quickly and on scale,” he said. “The climate crisis is real and now; delay will be profoundly dangerous.”
Kevin Gallagher, director of the Global Development Policy Center at Boston University, and Richard Kozul-Wright, director of the Division on Globalization and Development Strategies at the United Nations Conference on Trade and Development, have appealed to G20 leaders to call for a new multilateralism that combines mission-oriented rules with a commitment to shared prosperity and environmental recovery and that leads by example, with or without the US.
“A new multilateralism must prioritize the role of global public goods needed to deliver shared prosperity and a healthy planet, promote cooperation and collective action to bring fairness and balance to market outcomes, coordinate policy initiatives to mitigate common risks, and ensure that no nation’s pursuit of these broader goals infringes on the ability of other nations to pursue them,” they said in a report published at a forum in Osaka on Tuesday organized by China Daily. “In short, we need a global green ‘new deal’ to reclaim multilateralism.”
With the US having signaled its intention to withdraw from the Paris Agreement, other countries such as China, Germany and the UK are leading the way by phasing out fossil fuels, investing in clean technologies and advancing green industrial policies, they said. “But actions at home must be globalized.”
Stephen Roach, a faculty member at Yale University and a former chairman of Morgan Stanley Asia, warned that if the US and China, which have accounted for fully 44 percent of world GDP growth since 2008, opt for a superficial resolution or fail to come to terms on their trade conflict, the global economy could well falter.
Bipartisan political support for China bashing in the savings-short US threatens to turn a trade war into a protracted and destructive economic cold war, Roach said.
“Now, more than ever, a fragile world is in desperate need of political will and wisdom,” he said.
Xiong Aizong, assistant researcher at the Chinese Academy of Social Sciences’ Institute of World Economics and Politics, agreed that multilateral mechanisms are the best solution to tackle global issues.
Most of the current multilateral mechanisms were established after World War II and have long played a positive role in addressing global issues and ensuring the world’s economic stability and development, he said. But as time has passed, some of the mechanisms have run into challenges.
Take the World Trade Organization. Xiong said it is in unprecedented crisis as its dispute-solving mechanism is challenged, its clauses on security exceptions and unilateral measures are abused, and negotiations on some agendas progress slowly.
“To solve such problems, we need to improve and consolidate multilateral mechanisms as soon as possible,” he said. “As countries become more domestic-focused, and unilateralism as well as protectionism are rising, China’s support for, and promotion of, multilateralism is more important than ever.”
China has been working with G20 countries on macroeconomic policy coordination, global financial governance and sustainable development, and held a successful G20 summit in Hangzhou, Zhejiang province, in 2016 where it contributed Chinese wisdom and Chinese solutions to global economic governance, Xiong said.
China supports highly professional, representative and influential international organizations such as the International Monetary Fund, the World Bank and the WTO, as they are important pillars of the world’s economic stability and development, he said, and also supports their efforts to reform their governance structures and improve their capabilities to play a more positive role in the global economy.
Olav Kjorven, chief strategy officer at EAT, an NGO based in Stockholm that advocates a fair, healthy and sustainable global food system, warned that alarm bells are now ringing loudly on behalf of planet Earth.
“We are rapidly running out of time to secure a safe future for humanity; we have a climate crisis on our hands, and we have entered an era of mass extinction of species with grave consequences for humanity,” he said.
“With leadership from the right places and with a sharp focus on the most strategic levers of change, humanity can turn this crisis into an opportunity.”
Kjorven said that after several decades of uninterrupted high-speed development, unmatched in human history, that lifted 800 million people out of poverty, China is today an example for the world when it comes to effective economic policymaking, mobilization of capital at home and abroad for productive purposes, and investment in its people.
“China can show the way to a safer, healthier and more sustainable food future, by taking bold action at home and inspiring and engaging the rest of the world,” he said. “Chinese President Xi Jinping’s call for ‘building a community with a shared future for mankind’ can and should involve getting it right on food, guided both by what science is now telling us loud and clear and the wisdom inherent in Chinese food culture and traditions.”
For an efficient G20 summit, O’Neill, from Chatham House, recommended that each G20 country gives itself some kind of score card for the progress made toward initiatives that featured in past G20 statements.
He said such a system could really test countries, often the hosts, that want to put a new issue on the G20 agenda.
This year, O’Neill said, it looks as if Japan is going to try to feature the issue of global governance of technology in terms of some common rules. He said it, and other countries that have ideas for new areas of focus in the future, need to be pushed to explain precisely what they want to achieve in doing so.
“It is all very well to make very general grand statements, but unless anything specific occurs between and across G20 countries, what is really the point?” O’Neill said. “This must surely become a prerequisite for the G20 at this year’s meeting and into the future.”