The G20 has come to a crossroads. The global economic recovery is not yet secure. Growth remains anemic across much of the developed world. Political leadership on structural reform remains underwhelming and front-loaded fiscal retrenchment is dragging on demand.
Exceptionally accommodative monetary policy – a necessary but not sufficient condition for growth – is increasingly "pushing on a piece of string" in a low-growth, jobless recovery. The emerging market giants that drove the global recovery for much of the last five years continue to face a broad and complex set of challenges if they are to transition to more sustainable, high income growth models. Recent capital outflows have exposed underlying structural deficiencies in several developing economies.
The G20 – forged in the fires of the global financial crisis – must renew its focus. In 2008, with world demand collapsing and the threat of protectionism heightened, the G20 came together to deliver coordinated policy action that successfully avoided the onset of a deeper and more prolonged global recession. Millions of jobs were saved. It happened because of political leadership. President Bush called an extraordinary G20 meeting in Washington; prime Minister Brown led with energy in London in 2009. President Obama continued the United States’ driving support later that year in Pittsburgh.
But five years on from its rise, the G20’s relevance hangs in the balance. Doubts are increasing about the commitment of its principal members to cooperative policy setting. If the primacy of the G20 is not restored, global decision-making could revert to some smaller, less inclusive group like a G14 or the G7. This outcome would serve neither developed nor developing countries in a world of increasing economic interdependence.
Yes, it can be hard to get consensus at the G20 – but that’s because you’ve got everyone you need in the room. You don’t expect agreement to be easy when the world’s most powerful political leaders are present, representing around two-thirds of the world’s inhabitants and 80% of the world’s GDP. But they’re the people you need if you want to make truly global decisions. What we need is to see a rediscovery of the sort of active political leadership we saw in 2008 and 2009. Starting with the major advanced economies – the US in particular – but increasingly from the likes of the big emerging economies.
There couldn’t be a better time for Australia to assume the G20 leadership. A creative middle power with the 13th largest economy in the world, Australia was instrumental in the establishment of the G20 as the premier economic table. As a strong, flexible and vibrant developed economy sitting in the fast-growing Asian region, Australia is respected among both developed and developing countries alike as an "honest broker" or a "bridge" between the two. In November 2014, Australia must present a focused agenda that begins to reenergise the G20.
The G20 must go back to basics, refocusing on the three primary goals that Leaders set down in November 2008:
1. Strong, sustainable and balanced growth – including addressing the global savings imbalances that contributed to the global financial crisis
2. Repairing and reforming the global financial system – in a way that supports the recovery while making the system safer over time
3. Reforming the international financial institutions – to ensure the continued engagement and participation of the developing world
The first of these objectives is central to job creation and reducing inequality – to not just support the recovery, but making it more inclusive. It must involve a renewed political drive to complete the next round of trade negotiations. There must be a genuine discussion that goes beyond explicit protectionism, and also deals with indirect or soft protectionism through domestic industry and export policy, capital controls and investment restrictions. The G20 must also continue progressing its response to the threat of dangerous climate change, as well further addressing the erosion of the global corporate tax base by multinational companies as a critical element of restoring sovereign balance sheets.
But that’s where the agenda should end. It must remain clear and focused. There must also be a move to more properly define success in terms of actual outcomes, not just carefully worded communiqués that generate politically favourable headlines. The G20 must move past language, to action. This will require individual effort by member countries to integrate global solutions into their domestic agendas. The real test of success will be whether G20 member countries actually do anything differently after the 2014 Brisbane Summit.
Australia's presidency of the G20 comes at a critical time. It is the ideal opportunity for the G20 to be re-aligned and put back on track. If this does not occur then lingering doubts will persist about the worth of G20 Leaders’ Summits. The big risk is that the percolating reservations might gather a head of steam and become irreversible. Let us hope that the Brisbane Summit yields all that we hope it can in the form of a revitalised international forum, a that is once again a conduit for cooperative global policy-making, as we continue to navigate the post-crisis global economy.
