It would be tempting to dismiss the just-concluded summit meet of the Group of Twenty (G-20) countries as a missed opportunity to attempt a fix of the global economy. Especially if you read the communiqué that preferred to focus on promises rather than commit action. That would be simplistic.
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Summit meetings of this nature mean much more and it would be a mistake to judge the G-20 meet based only on the tangibles. While, yes, there are no specifics to show, it is the unsaid that is most significant, especially from the standpoint of developing economies—and that is the political economy of the Seoul meeting. In no uncertain terms it has underlined what everyone has been saying intuitively: the balance of power in the global economy has shifted east.
The first avatar of the G-20 was in 1999, two years after the East Asian financial meltdown.
It really came into its own after the 2008 global economic crisis. Since then, the effort has been to use the forum to stitch together international cooperation; prior to Seoul, G-20 summits were held in Washington in 2008, and in London and Pittsburgh in 2009, and in Toronto earlier this year.
There are two factors that worked against a resolution at Seoul for a collective fix of the global economy that would have made it a super success.
One, the context—aggressive posturing on a currency war and then the QE2 effort by the US Federal Reserve that emerged in the run-up to the summit hardly made for ideal circumstances. Second, and more importantly, unlike in 2008 there was no crisis binding all the major powers. Yes, while some countries such as the US continue to struggle, several big economies such as Germany have recovered or like China remained unscathed. So not everyone was hurting as much as the US to force a solution. But at least the G-20 countries did not part ways inseparably, which would have been a disaster, like in the case of the World Trade Organization talks, and instead have agreed to disagree.
This apart, the meeting underlined the shift in the global power balance. More importantly it showed up the waning influence of the US. Its attempt to preset the agenda through aggressive posturing on the Chinese yuan as well as the Fed’s decision to unilaterally resort to relaxation in monetary controls that would inject $600 billion in liquidity—much of which could find its way into emerging markets—would in the normal course have worked. This time it was told off; first by its ally Germany and later by its adversary, China. This is significant because it happened in an Asian country—also, a non-G-8 country.
US President Barack Obama’s visit to India and the unexpected largesse (as indicated in Capital Calculus published on 8 November) had indicated a weaker US exploring for partners in its growing adversarial run-ins with China. Seoul confirmed that its influence, despite being the world’s most powerful economy, is on the wane. It is not so much the decline of the US as it has been the rise of others such as China, Brazil and India—and hopefully Africa in the next decade.
While the G-20 was the first forum to reflect this change, similar transformation is under way in other global multilateral institutions. The Seoul summit ratified the reforms that enhance the voting share of emerging countries by 6% in the International Monetary Fund (IMF), something that will bump up India from a rank of 22 to eighth on the IMF board. For long, the Bretton Woods twins have been the hegemony of the US and Europe—with the leadership of either IMF or the World Bank vested with a European or an American. It is obvious that this is about to change.
Finally, the summit saw the inclusion of development on the agenda; initially the primary focus is to bridge the infrastructure deficit in most developing countries. It was at Toronto that this issue was first raised. South Korea and India inspired the argument that there was too much focus on the crisis and very little on long-term issues such as development. This recognizes the inequity in global growth, which has to be corrected if, in the long term, the global economy has to stabilize. What it also does is that it views the entire issue holistically instead of merely through the prism of growth; that makes eminent sense as the world economy rapidly globalizes. Uneven growth not only poses risks to stable global growth, but it also gives rise to pockets of disaffected that can be tapped by extremist elements.
In net, therefore, though the Seoul summit did not throw up measurable tangibles, it has formally marked the beginning of a new global order. There is no guarantee that this would be better than what has prevailed so far. But at least it is doing away with an iniquitous regime that vested power in a few with disastrous consequences. If nothing else, the shift towards Asia, home to a predominant share of the global population, ensures greater democracy in global policymaking.