The G20 forum is a relatively new addition to the global governance architecture. The group has no secretariat or treaty, and instead relies on consensus agreement of its membership of 19 of the world’s largest developed and emerging economies and the European Union. G20 countries ‘sign up’ to commitments voluntarily with some peer review processes. When the G20 cooperates and countries implement policy in tandem, the forum can act as the ‘steering committee’ for the global economy.
The G20 has a number of channels to influence domestic policy: issuing collective statements, shaping global norms, setting or adopting collective targets, developing minimum international standards, and improving the functioning of global institutions. We focus here on three examples where the G20 has successfully shaped the global governance landscape: financial regulation, international tax, and reform of the IMF. We then briefly describe two other governance gaps that an ambitious G20 could seek to address in the future: migration and health governance.
How has the G20 shaped governance since 2008?
Financial regulation became very prominent in the initial stages of the G20 as a leaders’ forum, with significant successes. Subsequent G20 commitments on financial regulation affected banks, non-bank financial entities, derivatives markets, data, and other areas (1). A significant governance change was the upgrading of the Financial Stability Forum into the official Financial Stability Board as a more inclusive global body for monitoring and making recommendations about reform to the global financial system (2). While there has been progress since the crisis – and the financial system has proved robust to bouts of financial volatility in 2016 – more needs to be done to complete reforms and continue to make progress.
A new tax agenda
While the OECD has been developing technical expertise in tax avoidance by multinational companies for decades, political progress in the 1990s and 2000s was slow. The G20 as a leader-level forum has added political weight to this work, most notably through the two-year G20-OECD tax base erosion and profit shifting (BEPS) action plan. BEPS has changed the world of international taxation in a profound way and will change the way multinational corporations and tax authorities operate(3). G20 countries have now agreed to change their domestic laws to implement minimum standards. The future will likely be one of considerable uncertainty as corporations deal with different interpretations and implementation schedules of BEPS outcomes country by country. Without a global tax body, the G20 and OECD have filled an important governance gap. In light of the release of the Panama papers in early 2016, the G20 has discussed additional actions to tackle tax havens and respond to so-called non-cooperative jurisdictions in terms of tax transparency. The G20 will have more work to do in this area in 2017.
Supporting IMF governance reform
The G20 has been instrumental in efforts since 2008 to increase IMF resourcing, expand the IMF’s mandate, and improve the representation of emerging market economies in the institution’s decision-making architecture (albeit the latter comes after a lengthy delay in the hands of the US Congress). IMF governance modernisation is an ongoing process and it is vital to the IMF’s long-term legitimacy and its cornerstone role in the global financial safety net. Notwithstanding the gloss that has come off GDP growth in BRICS countries since 2011, emerging markets remain under-represented at the IMF, and discussions that further progress IMF reform cannot be ignored. In 2017, the G20 and IMF, along with a new US administration, will need to turn their attention towards concluding the next round of IMF quota and governance reform.
Where are other governance gaps?
The Syrian refugee crisis has highlighted that global governance arrangements are failing both migrants and states. Despite vocal calls for more action from across the community – and a handful of G20 members playing a leading role in responding to the crisis – the G20 has collectively done little to ameliorate the deficient global response to refugee-related issues. Migration is not a natural fit for the G20: the economic case for migration is complex, there is a fragmented network of migration-focused bodies and processes to manage the cross-border flows of people, and the G20 membership is disproportionately made up of migration destination countries. So far, the G20 has kept the issue at a distance, with a call for G20 countries to ‘scale up’ their assistance to relevant international organisations in the 2015 leaders’ communiqué(4). At the 2016 Hangzhou and 2017 Hamburg Summits, the G20 can support the 19 September 2016 UN Summit for Refugees and Migrants, play a norm-setting role in treating the free flow of people as a potential source of prosperity, and add political momentum to existing processes set in place by the United Nations, such as the Global Migration Group and the Global Forum for Migration and Development(5).
The 2014 Ebola virus outbreak had terrible humanitarian and economic consequences for Sierra Leone, Guinea, and Liberia. The rapid international spread of Ebola exposed gaps in the global health governance system and illustrated the potential for infectious disease outbreaks to have a significant negative impact on the global economy (6).In 2016, the Zika virus, yet another health epidemic, is in the global headlines. This once again exposes the flaws in the global architecture set up to deal with cross-border health pandemics. More troubling, it highlights that actions to improve health systems after Ebola have not necessarily been implemented.
Health policy, for the most part, remains a domestic policy area managed within national borders. However, there is much room for the G20 to play a role in addressing gaps in the architectureto mitigate the economic effects of future health crises. There is currently a complex global architecture that manages health emergencies, involving international organisations, specialised agencies, national and subnational health administrations, research institutions, and private and not-for-profit sector organizations. There are also opportunities for G20 members to lead on particular health issues, for example, actions on antimicrobial resistance and health innovation and technology(7).
The future of the forum
There has been a lot of debate about the declining relevance and effectiveness of the G20. Some say the G20 is not representative enough, while others say a smaller grouping like the G7 is more effective. But to paraphrase Mark Twain, rumours of the death of the G20 are exaggerated. The forum still advances cross-border economic issues, provides insurance value in case of global crisis, and has untapped potential to embrace a role as a truly global steering committee.
In reality, the size and structure of the G20 is unlikely to change, particularly in the short-term. Global bodies are path-dependent and hard to change. The current formula of the G7, BRICS countries, and a selection of middle powers is representative of five-sixths of the global economy, three quarters of trade and two-thirds of the global population. This makes the G20 large enough to capture a good range of interests from all systemic economies, yet it is small enough to forge efficient consensus on critical issues for the world economy(8). Importantly, all G20 countries have an equal seat around the table.
However, this is not to escape from the fact that the G20 is limited, as an informal organisation that lacks a constitution, bylaws, secretariat and compliance mechanisms(9). Three suggestions for improving the process of G20 interaction stand out. First, ensure that the right people are in the room. Given that the success of the G20 depends on leaders, finance ministers and central bank governors continuing to see merit in regular meetings, the focus should be on building relationships. This implies giving leaders or ministers space to discuss things among themselves, reducing the number of people around the table to the minimum necessary, and reining in meetings or activities that do not have a clear outcome attached. Second, the forum needs to be more active in its communications and norm-setting. Public statements need to be more robust, blunt and targeted at the everyday citizen of G20 countries, and G20 leaders, finance ministers and central bank governors need to be more personally active in defending both the liberal economic order and the institutions that underpin it. Third, build more political will around the implementation of commitments. Multilateral commitments are difficult to monitor but the G20’s voluntary and flexible nature means that implementation is especially important. The G20 will ultimately be judged by how well leaders translate their international efforts into domestic policy.
Tristram Sainsbury is Project Director of the G20 Studies Centre at the Lowy Institute for International Policy and a visiting fellow at Chongyang Institute for Financial Studies, Renmin University of China and the Kiel Institute of the World Economy.
Hannah Wurf is a Research Associate in the G20 Studies Centre at the Lowy Institute for International Policy
1 N. Véron, “The G20 and financial regulation: early achievements and structural gaps”, G20 Monitor 20, 19 May 2016, http://www.lowyinstitute.org/publications/g20-monitor-new-considerations-chinas-2016-presidency.
2 FSB, http://www.fsb.org/about/.
3 M. Callaghan, “Reforming international tax: is BEPS the end of the starting point?” G20 Monitor 19, 16 February 2016, http://www.lowyinstitute.org/publications/g20-monitor-chinese-2016-g20-host-year.
4 University of Toronto G20 Information Centre, “G20 Leaders Communiqué”, 16 November 2015, Antalya, http://www.g20.utoronto.ca/2015/151116-communique.html.
5 H. Jorgensen and T. Sainsbury, “The G20 and global migration governance”, G20 Monitor 21, 19 August 2016, http://www.lowyinstitute.org/publications/g20-monitor-towards-hangzhou-and-hamburg.
6 T. Sainsbury and H. Wurf, “Can the G20 help prepare the world for future health pandemics?”, G20 Monitor 16, 9 April 2015, https://www.lowyinstitute.org/files/investment-inclusiveness-implementation-health-governance.pdf.
7 J. Kirton and J. Hospedales, “Opportunities for G20 health governance in 2016 and 2017”, G20 Monitor 21, 19 August 2016, http://www.lowyinstitute.org/publications/g20-monitor-towards-hangzhou-and-hamburg.
8 B. Sterland, "G20: An essential element in Australia’s international economic diplomacy (Part 1)", The Interpreter, 18 August 2016, http://www.lowyinterpreter.org/post/2016/08/18/G20-an-essential-element-in-Australias-international-economic-diplomacy-
9 B. Carin and T. Sainsbury, "Improving G20 Processes", G20 Monitor 17, 25 August 2015, http://www.lowyinstitute.org/publications/g20-monitor-from-turkey-to-china