Singapore - G-20 is too big to be effective

When French President Nicolas Sarkozy chose the ambitious slogan "New World, New Ideas" for the Group of 20 (G-20) nations summit this year, he had a grand goal - remaking the global monetary system.

Along the French Riviera, which last week welcomed leaders of the world's biggest economies, posters and banners proclaimed that "history is being written in Cannes".

In the face of such lofty expectations, the summit could have been a disappointment. What happened, however, was surprising even to those who had lowered their sights.

Mr Sarkozy's "New World" agenda was hijacked by the political drama in Greece, a non-G-20 country that represents 0.5 per cent of the world's economy. The G-20 members collectively account for 85 per cent of global gross domestic product.

In the end, the meeting closed with promises to boost the resources of the International Monetary Fund to combat incipient crises in troubled European countries.

But little time at the working sessions, or space in the final communique, was devoted to working on Mr Sakozy's original agenda of reforming global financial governance and aligning international currencies.

These have all been on the G-20 to-do list for a while. After all, the grouping was originally envisioned as a way for leading economies to mould the global financial architecture together, in the interests of stability.

The Cannes summit has underscored an inevitable lack of momentum behind any such forward-thinking and pre-emptive action.

Like at the 2009 London G-20 summit, during which leaders emerged with a US$1 trillion (S$1.28 trillion) plan to stimulate the global economy out of recession, the G-20 has shown in Cannes that it can firefight effectively.

Face-to-face "moral persuasion" among leaders, as Prime Minister Lee Hsien Loong termed it, yielded sensible promises from politicians such as Italian Prime Minister Silvio Berlusconi, who agreed to greater international surveillance for the Italian economy.

But when it comes to addressing the deep, systemic roots ailing the global economy now, the G-20 lacks a driving force even for marginal change to the global financial architecture - not to mention forging a "New World".

To be fair, the fecklessness of the G-20 was present at its creation. This rudderless quality is innate in a grouping large enough to accommodate all major powers in a multi-polar world order, but too big to be a nucleus of global leadership.

As Mr Lee said in an interview with the BBC programme Newsnight while he was in Cannes, whether this new reality is good or not "depends on your perspective".

"A lot of people will say a multi-polar, global system is more comfortable for the smaller powers. But it does make it more difficult for countries to coordinate, for leadership to be taken, for decisive actions to be agreed upon, except in extremes," he said.

By the time the "in extremis" is reached, he added, it is unfortunately too late. "You need really to act effectively and drastically long before things have come to a crisis."

Within the G-20, some countries are more influential than others, but when there is no threat of imminent disaster to "concentrate minds", they have different perspectives - and 20 different domestic agendas to balance with the international one.

To compound matters, powers like the United States and the European Union (EU) are not as dominant as they once were. New powers like China and India do not command extensive influence - yet. Neither has displayed interest in providing global common goods, a role the US played for much of the post-war era.

More importantly, they are also not so keen in following anyone else's lead. In Cannes, a draft communique contained paragraphs committing China by name to a specific course of action to boost its domestic demand. The seeming breakthrough sparked initial media excitement, but proved to be the French host's wishful thinking.

Chinese negotiators declined to endorse that version of the communique; the final document stuck to broad language that, save for a few paragraphs, could have been lifted straight from last year's Seoul summit communique.

So it will be for G-20 summits to come. History shows that the forging of global financial institutions was largely engineered by a powerful few who surged ahead. The rest just fell in line.

This was the case in 1944, when 44 countries set up the Bretton Woods system and tied each currency to the US dollar, which was backed by gold. In 1971, the US unilaterally dismantled this by terminating the dollar's convertibility to gold - in one fell swoop causing the breakdown of the system crafted 27 years earlier.

This was also the case for the EU and the euro - an ambitious project envisioned by France and Germany.

Similarly, the G-20 has its roots in a meeting of 22 finance ministers organised by then US Treasury Secretary Robert Rubin in the wake of the 1997 Asian financial crisis.

As the official G-20 history - written by researchers from the University of Toronto - records, then US President Bill Clinton had wanted to organise the special meeting to 'examine and debate the problems besetting the global economy - and where possible, seek consensus on solution'. (Interestingly, a US Treasury official told researchers that the idea for such a meeting sprang from a discussion between Mr Clinton and then-PM Goh Chok Tong.)

The G-20 was born of bold, decisive leadership, and a largely unipolar world. While Mr Sarkozy may have been willing to provide the former at the Cannes summit, his grand designs were left languishing in a multi-polar reality.

The G-20 may boast of a larger and more well-represented membership which can exert pressure on one another to keep the global economy from going over the cliff.

But fixing the systemic problems that drove the world to the brink in the first place - and pre-emptively acting to change the vulnerable aspects of the global system - might require the determined efforts of a small and powerful few.

Until that happens, however, new ideas in such a brave new world may remain just that.

Rachel Chang

The Straits Times

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