The North-South Institute



Globe and G20, both in Crisis

June 28, 2012


The North-South Institute

The recent G20 meeting in Los Cabos achieved minimalist expectations. The leaders actually met, had a smiling photo-op and once again promised to act urgently and decisively on the global financial crisis, now into its fourth year and on the brink of a ‘double-dip’. However, they returned to Berlin, Washington, Beijing and Brasilia, knowing a recovery plan, one based upon effective action, not mere words, was far from done. The G20’s own institutional credibility has in no way been strengthened by this latest meeting. Borne in a crisis to fast-track a solution judged beyond the credibility of a tired elitist G7, the G20 is increasingly seen as failing as the Leaders’ forum for global governance. It has neither dealt with the economic crisis nor began to provide leadership for a new, more inclusive approach, one focusing upon the core development issues of a now multi-polar world, notably poverty, income inequality and climate change.

One has to sympathise with the governance challenges of a 27-member EU. Things were much easier when it was a cosy like-minded seven. The somewhat ‘positive’ Greek election outcome seems to have just given the German’s Chancellor Merkel an excuse for procrastination instead of leadership. Europeans did not like being blamed in Los Cabos. They reminded impatient G20 colleagues that ‘their’ problem was itself triggered by the rash behaviour of New York’s ‘too big to fail’ bankers. However, finger-pointing is unproductive. Delays just make the solution harder to implement and provides more opportunity for speculators to gain from vulnerable banks in Italy, Spain, France, even Germany. Cut-backs and shrinking bank finance just adds to growing joblessness in Europe and the USA. The same contagion is now impacting hundreds of millions in both ‘emerging economies’ and low-income developing countries.

The mantra of austerity is still being chanted, but now with more nuanced wording. There is greater recognition that the co-ordinated G20 stimulus packages in early 2009 saved the world from another Depression. We now need a re-run of complementary, growth-orientated European action. The G20 has an action plan for jobs and growth. Good doable ideas exist: banking insurance, quarantining the overhang of ‘excess’ European debts, job-intensive ECB funded public projects and, not least, a rescheduling of recent EU and IMF loans. Without firm fast action, contagion will soon spread to Spain, even perhaps Italy and France. Indecision will further stall the USA recovery and could cost President Obama his re-election.

So far, G20 developing countries have stood back and watched. They failed to fill the leadership gap. Nobody has a working model for sustainable growth. And now there is pain. China, Brazil and India, key BRICS that kept the global economy moving for the last two years or so, are all suffering lost markets and the private foreign investment critical for future growth. The pain is quickly spreading to second-tier exporters such as Indonesia and Bangladesh as their markets also shrink. Nobody was really ‘decoupled’.

The last few G20 Summits made an effort, but rather limited, to think about the forgotten agenda of longer-term development issues. Green Growth, by marrying mitigation and adaptation to poverty reduction, may yet help save the stalled Climate Change agenda. Food Security and Agriculture are re-connecting through poverty reduction. All are core building blocks of a stronger focus on inclusiveness: not just financial but critically social and political. The G20 effort has been reduced to footnoted ‘achievements’, usually the work of sub-groups, in closing declarations. Sadly they get little airtime in the deliberations of the actual ‘Leaders’.

This neglect, hardly benign, is not limited to the G20. It pervades the UN system including the WTO. The world community, despite its new, inclusive rhetoric, has in reality become more self-focussed and short-term in its activities. The Rio +20 meeting on the sustainable development, just days after this G20, reportedly agreed on its final report before the meeting even started; not a sign of good progress, but rather of a realisation that nothing new would emerge. Another sign of hard realism is maybe the idea of creating SDGs, Sustainable Development Goals, to replace the MDGs in 2015; fine in principle, but in practice likely kicking urgent actions a decade down the road. The strong leadership and policy courage needed is not there; we will struggle hard to just escape the impending global economic double-dip.

The G20 as a global institution itself risks becoming a victim of the toxic impact of the last four years of economic crisis. These global leaders have become entrapped in a largely technical debate about bail-outs and banking regulations. They stumble through finance ministry details rather than providing strategic leadership on emerging global challenges. The collegiality sought between South and North has not emerged. Their June Communiqué seemed to need to list each individual country action, but showed no bold vision. The G20 has lacked an individual statesman: Obama is de facto powerless, Merkel is too cautious, China sits on the side-line, and minor Europeans cling to disproportionate IMF votes.

New donors, in the G20, as at the 4th High Level Forum on Aid Effectiveness held in Busan, Korea last year, act more like those ‘neo-colonial’ western donors of the 60s, than promoters of enriching south–south partnerships. For all its greater breadth of membership, the G20 has sounded no more interested in global development than the old G7. Its leaders have not devoted even an hour of formal prime-time to the issues of fragile states and the really poor; can an enhanced G20 provide a formal permanent seat for one fragile state around its table?

Canada is choosing to be a bystander in all this. We offend the Europeans by preaching to them, but then we are too lacking in multilateral spirit to lend any money to a new global IMF crisis mechanism. (Spain put in $20b). We even cut our development aid. However, Canada will not be immune; this time the economic and social collateral damage could be more severe, especially if the US goes over that end-year ‘fiscal cliff’.

John Sinclair is a Distinguished Research Associate of the North-South Institute. He is an economist and development practitioner, and Senior Fellow at the University of Ottawa’s School of International Development and Global Studies.