HOW THE G-20 GLASSHOUSE IS UNDER ATTACK / THE FINANCIAL TIMES COMMENTARY & ANALYSIS ( VERY HIGHLY RECOMMENDED READING )

How the G20 glasshouse is under attack

By Mark Malloch-Brown

Published: November 11 2010 20:42

These should be great days for the G20. It has held its first heads of government meeting in a non-western country, South Korea. There is perhaps no better role model to offer its high-level visitors a master-class in how to move from poverty to developed nation status in a generation.


The G20 was elevated to a heads of government meeting in 2008 by the then US President George W. Bush when the global financial system seemed to face imminent meltdown. The actions of its members, then and a few months later in London, who together represent more than 80 per cent of world gross domestic product, helped to save the world from plunging over the economic precipice.


So, the South Korean hosts envisaged their meeting as part victory lap, part consolidation of this earlier success through confirming new rules for banks, and part opportunity in the post-crisis calm to expand the discussions to longer-run global economic issues. They envisaged, for example, a discussion of development that moved away from aid volumes (that has anyway rather anomalously been left as a subject for the G8) and focused on lessons from South Korea’s own meteoric development. In their eyes this is much more about removing barriers to growth, such as poor infrastructure or weak education systems, than about the size of the aid input.


More broadly, the Seoul meeting seemed to offer the opportunity of a less western-centred view of the difficulties of the world economy: attention not just to western deficits and slow growth but more to the impact of unstable western investment flows, fuelled by monetary easing, into emerging economies and the structural bottlenecks that so many of the latter face in getting full value from global economic integration. It also offered the prospect of an Asian voice leading discussions on climate change and the Doha trade round, the case for both of which risks being sunk by western sponsorship alone. All in all South Korea offered the prospect of a more balanced G20 summit.


But this rosy outlook has vanished, partly because the American elections have left a weakened president at the G20 table but also because of the backdrop of what has become known as The Currency Wars. The charges over who is devaluing their currencies to undercut national competitors have dominated headlines in recent weeks. But this is a symptom of a deeper difficulty challenging the dream of G20 unity. As the crisis of 2009 has receded, calm has not returned. In the west jobs, growth and debt are on bleak trajectories whereas most emerging market members have taken the crisis in their stride. Indeed a tipping point of sorts may have been reached as inward investment flows and deal volumes have started to exceed those in western markets. At the very least a new pecking order appears to be forming.


This is reflected in shifting board representation in the International Monetary Fund and World Bank as developing countries take more votes and seats at the expense of the old powers. The shift is also exacerbated by Europe’s inability to act as one in either the G20 or these institutions, sidelining what should be a heavyweight player. Instead it often seems lost in unseemly rearguard actions to preserve a fading status.


In short, this G20 is far from united in its ambition to offer more coherent leadership to the world economy. Rather, it is at risk of being reduced to the sum of its feuding parts as structural trade imbalances, currency wars and very different views of each other’s relative economic prospects drive stakes into the enterprise.


Many of China’s G20 fellows fear it is unstoppable in its march to economic parity with the US whereas its leaders fear threats to themselves if they are forced to slow growth; similarly the US sees itself as the put-upon guardian of the world’s currency and security, China and others see recklessness and threat in how the US exercises both those roles. A new source of concern about the G20 stems from UN members that are not part of it. Some are angry because they think they have a claim to be at the table, many more because they resent a self-appointed group abrogating to themselves global economic policy.


So, far from a celebration at Seoul, the G20 glasshouse finds stones raining in from all quarters. This is a pity as the original idea that the G8 was too small and unrepresentative and the UN general assembly was too unwieldy remains valid. Building a lobby representing the majority of the world economy and entrusting it with pressing for reform in our management of our over-used planet is essential. Forging agreement was never going to be easy, but the alternative is that these conflicts get taken out of the conference room and played out in more dangerous places.


The writer is chairman of FTI Global Affairs, former UN deputy secretary-general and author of the forthcoming “The Unfinished Global Revolution”


Copyright The Financial Times Limited 2010