Academic journal article The Cato Journal

The G20 and Global Governance

Academic journal article The Cato Journal

The G20 and Global Governance

Article excerpt

The Group of 20 sees itself as "the premier forum for international economic cooperation" (G20 2009b). This article examines its evolution and performance, and member countries' compliance with G20 summit commitments.

The G20 evolved as a response to the shortcomings of its predecessor, the G7/8. Yet its creation allowed member countries to avoid confronting many of the problems that arose out of the earlier forum. The best defense of the G20 is that it is the only institution of its type, but it still consumes scarce political and diplomatic capital, sometimes to the detriment of the policy objectives to which it is notionally committed.

In this article, I compare data on members' compliance with G20 summit commitments to proxy measures of the quality of domestic policies and institutions. While the proxies predict G20 compliance, it turns out that G20 compliance has no power to predict subsequent changes in domestic policies and institutions. The main implication of this data is that international economic and political cooperation is a symptom, not a cause, of domestic policies and institutions. Improvement in domestic policies makes the best contribution to advancing the G20 agenda, but such improvements do not appear to depend on the G20 process.

I also consider some of the G20's major initiatives in relation to economic policy coordination and financial market regulation. The G20 is assumed to invest these initiatives with greater political legitimacy but, on occasion, the leaders' summit process has actually detracted from this legitimacy. Many of these initiatives arguably would have occurred without the overlay of the G20 leaders' or ministerial processes. In Australia's case, hosting the G20 summit in 2014 detracted from domestic political leadership and the government's ability to advance a domestic economic reform agenda.

G7/G8 Precedents and the Origins of the G20

The G20 can trace its origins to the collapse of the Bretton Woods system in the early 1970s. With the demise of fixed exchange rates, new informal arrangements arose through which the major Western economies sought to address international economic issues. The finance ministers of the United States, Britain, France, and Germany (G4) met in the White House library, forming the so-called Library Group in March 1973 (Bradford and Linn 2011: 1). Japan joined the group in September 1973 to form the G5, followed by Italy (1975), Canada (1976), and the EC/EU presidency (1977), forming what ultimately became the Group of Seven (G7) finance ministers.

A parallel grouping of G7 heads of state began meeting annually from 1975. Russia joined the G7 at the invitation of President Clinton to form the G8 leaders' summit from 1998.

From the late 1960s, a literature grounded in formal theoretical models identified potential economic gains from international economic policy coordination (Cooper 1969). Yet this literature lacked historical and institutional context, and proved misleading about the effective scope and potential of such cooperation. The G7 finance ministers' and G7/8 leaders' meetings were subject to major questions about their agenda, representativeness, and effectiveness.

The G7 presided over two major episodes of economic policy coordination in the 1980s. The 1985 Plaza and 1987 Louvre Accords were designed to address episodes of U.S dollar strength and weakness respectively. The effect of coordinated foreign exchange market intervention on exchange rates, and its economic significance, has long been disputed, starting with the G7's 1983 Report of the Working Group on Exchange Market Intervention (the Jurgensen Report). The report concluded that "the role of intervention can only be limited" (Truman 2003: 247).

Mina Baliamoune (2000) examined the announcement and compliance effects of the G7 summits held between Rambouillet in 1975 and Munich in 1992. She found no evidence for an announcement effect from these summits on a range of economic and financial market variables, implying a lack of credibility for the G7. …

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