Are you wondering what will emerge from the G-20 Summit in Washington on November 15? Join the crowd. Here is an attempt to make some sense out of a confusing event at a strange time.
To begin with, despite being announced by the White House, the Summit is not President Bush’s idea. It is a European initiative, promoted by French President Sarkozy and U.K. Prime Minister Gordon Brown. Both of them saw an opportunity to make political hay domestically by exhibiting strong leadership. It hardly matters for them what is decided at the Summit. They can already claim a diplomatic victory by overcoming U.S. reluctance to convene a meeting with a vague purpose and little time to set the stage for meaningful action. At least give President Bush credit for going along with the idea.
The most intriguing aspect of the Summit is the choice of participating countries. No one has yet claimed credit for proposing heads of state or government from the G-20 countries, but it has two huge attractions: it exists already, and it is more representative of the world’s economic powers than the G-7 (Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States) or the G-8 (the G-7 plus Russia). Thus the White House has avoided the tricky business of deciding who is in and who is out. Again, give President Bush credit for picking the right group of countries for this extraordinary meeting.
At the same time, it is important to recognize three fundamental problems with the November 15 Summit: the advertised purpose is overly ambitious, heads of state and government are the wrong people to be fixing the international financial system, and five of the countries are misfits.
According to the October 22 White House press release, the purpose of the meeting is to “review progress being made to address the current financial crisis, advance a common understanding of its causes, and … agree on a common set of principles for reform of the regulatory and institutional regimes for the world’s financial sectors”. Reviewing progress is a useful objective, but trying to agree on the causes of the financial turmoil and on a set of reform principles to fix the system is not realistic. The situation is too much in flux.
A more positive and realistic purpose is to introduce the world’s leaders to the next President of the United States. The world is dizzy with bad news. The downward spiral will not end until something happens to begin rebuilding confidence. Today the greatest uncertainty in the world is arguably whether John McCain or Barack Obama will be elected. Knowing the answer on November 5 could be a key step toward rebuilding confidence. Introducing the G-20 leaders to the President-elect could be an even bigger step.
The European idea of having a Summit meeting now has been linked to the historic Bretton Woods Conference in 1944 where the key multilateral institutions of the post-World War II era were designed: the International Monetary Fund, the World Bank, and the abortive International Trade Organization. However, most commentators have glossed over the fact that the Bretton Woods Conference was not convened at the head of state level, or even at the Finance Minister level. John Maynard Keynes, who headed the U.K. delegation, was a private citizen appointed for his brilliant work in macroeconomic theory and practice. Harry Dexter White had worked his way up to a senior position in the U.S. Treasury Department.
A new round of negotiations to agree on improvements to the international financial system makes sense. But the negotiating mandate should be crafted by Finance Ministers, not heads of state and government, the actual negotiators should be experts at a sub-ministerial level, and the proper time to begin is after the next President of the United States has taken the oath of office.
Finally, when the negotiations begin in earnest, the G-20 countries are not quite the right group. The time has come to jettison the G-8 “club” and construct a forward-looking core group of leading countries. From the G-8, strong cases can be made for including in the new core group France, Germany, Japan, Russia, the United Kingdom, and the United States. Italy needs to withdraw to correct the over-representation of Europe. Canada cannot remain because that would put all three North American countries at the table.
Eight “rising powers” now in the G-20 have strong claims to belonging in the core group: Brazil, China, India, Indonesia, Mexico, Saudi Arabia, South Africa, and Turkey. Australia falls out because its population is the smallest. South Korea should bow out to avoid the over-representation of Asia. Argentina never deserved to be in the group. With these changes, the new core group would be a G-15 with the participation of a European Union representative, or a G-14 without a separate EU seat.
The next American President may signal at the November 15 Summit in Washington that he favors re-configuring the global leadership group, as well as following through on the process of strengthening the international financial system. But it is likely to be a quiet and private signal. He will stress that he is there to listen, not preach.