It's easy to be cynical about the G20. Will the meeting of finance
ministers and central bank governors in Sydney this weekend, and the
leaders' summit in Brisbane in November, amount to anything more than
talkfests?
People say the Brisbane summit will be the largest and most
important economic meeting ever held in Australia. That's true, but it
just means it will be bigger than the Sydney APEC leaders' summit in
2007 - which is remembered mainly for The Chaser boys' Bin Laden stunt.
But
though it's easy to be cynical, it's a mistake. It's possible the two
meetings this year will prove no more than talkshops, but that would be a
great pity. And, since Australia is this year's chair of the group,
it's up to Joe Hockey and Tony Abbott to make sure they're worth more
than that.
The G20 began in 1999 as a group for finance ministers
and central bankers, in the aftermath of the Asian financial crisis,
which revealed the need for greater co-operation and co-ordination
between governments in responding to crises in the global financial
system and, better, making changes to the global financial
"architecture" (rules and institutions) that reduced the frequency and
severity of financial crises.
The formation of the G20 was a
recognition that the G7 (compromising only Europe, North America and
Japan) wasn't truly global, particularly because it excluded the
emerging BRICS economies - Brazil, Russia, India, China and South
Africa.
For a decade or two most of the growth in the global
economy has come from the BRICS, and the developing economies now
account for more than half gross world product. For a better global
spread, the G20 also adds Argentina, Indonesia, Mexico, Saudi Arabia,
South Korea, Turkey, the European Union and, of course, Oz. With just
these 20, it accounts for 85 per cent of gross world product.
In
2009, in the aftermath of the global financial crisis, the G20 was
upgraded from just finance ministers to include summits of presidents
and prime ministers, an acknowledgment of the way economic power had
spread beyond the North Atlantic. But why do we need these
get-togethers?
Because, as Christine Lagarde, boss of the
International Monetary Fund, said recently: "The breakneck pattern of
integration and interconnectedness defines our times."
It has
become unfashionable for the media to talk about globalisation, but it's
continuing apace. As Mike Callaghan of the Lowy Institute said last
week: "If there is one lesson from the [global financial] crisis, it is
the interconnectedness between financial markets. Events in US financial
markets had worldwide consequences. We need co-operation to deal with
globally operating financial institutions."
These days, global
integration is being driven less by deregulation and more by advances in
technology, particularly the information and communications revolution.
One part of this is the way the internet has globalised the media.
News
of an economic calamity in one country is now conveyed to the rest of
the world almost instantly. Financial traders in New York or other
centres can start moving money out of the affected country in no time.
They can then take a set against neighbouring countries they merely fear
may have a similar problem, giving rise to a big problem called
"contagion", where trouble spreads like a communicable disease.
And
TV news that a few banks are tottering in Europe can scare the pants
off consumers and business people in countries around the world,
prompting them to stop spending until their confidence returns.
But
it's not just crises. As Callaghan reminds us, more and more businesses
now operate globally. Goods are more likely to be "made in the world",
with inputs from many countries rather than just one. So the trade
policies agreed by the international community have to adapt to the new
reality that such "value chains" are increasingly driving world trade.
Then
there's tax. The more businesses that operate globally, the more
businesses that are able to exploit loopholes between different
countries' tax laws, shifting their profits to countries with low tax
rates. This is eroding the tax base of many countries - including ours -
so their taxes aren't raising as much revenue as they should be.
In
other words, technology-driven globalisation - the ever-reducing
barriers separating particular economies - is throwing up problems that
can't be solved by individual countries acting individually.
So we
need greater communication, co-operation and co-ordination between
countries, first, to discourage countries from pursuing
"beggar-thy-neighbour" policies - I attempt to fix my problems at your
expense, which usually provokes retaliation, so we all suffer - and,
second, to find group solutions to the various problems.
The first
couple of G20 leaders' summits in 2009 were quite effective in ensuring
the Great Recession wasn't as bad as it could have been. But the truth
is the G20 has been running out of momentum, resorting to high-sounding
rhetoric while getting bogged down in excessive detail.
Considering
how crisis-prone the global economy has become, it's important merely
for world leaders, treasurers and central bankers to know each other,
have face-to-face meetings and phone each other.
But we also need more
joint action, and if the G20 doesn't lift its game the big boys will
stop coming to meetings and eventually shift their interest to a
smaller, more cohesive group which includes China and a few others, but
excludes Australia.
Clearly, it wouldn't be in our interests to
lose our seat at the top table. That's why it's so important we use our
position as this year's chair to get the G20 back on the rails. Many
pre-meeting phone calls need to be made by Hockey and Abbott to their
counterparts, to gather support on the directions to be taken.
Then
they need to chair the meetings effectively, discouraging set-piece
speeches and encouraging interchange that improves mutual understanding
and makes progress on a limited range of key issues.
We have a lot to gain or lose.
