The G-20

Structure, Governance, Mandate

and Perspectives
Seoul 7./8. July 2010

Peter Wahl

World Economy,
Ecology &
Development
Association

Berlin
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 Content

1. Hiistory, structure, governance of the G-20

2. The G-20 and global governance

3 . The G-20 and the financial crisis

4. Perspectives

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 Chapter 1

Hiistory, structure, governance of the G-20

 History
Initially established 1999 by G7

Finance ministers and central bankers

Reaction to the Asian crisis 1997/98

Dialogue on global key economic issues

Heads of states since 2008

Washington, London, Pittsburgh, Toronto
Seoul, France, Mexico

Reaction to the crisis 2008 WEED - PeWa

 Member states
US
Canada
China Brazil
France
India Germany Mexico
South Korea Italy Argentina
UK
Japan

Indonesia Russia South Africa

Saudi Arabia
IMF/World Bank
Turkey Australia
Permanent guest: Spain

EU/ECB Special guests

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 Some indicators

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65,5% of global population

88% of global GDP

80% of world trade
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 Nevertheless

The G-20 is not inclusive

It aggravates the
marginalisation of the UN

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In terms of theory of democracy the G-20 is a Club

„The East India Club, in the heart of London’s clubland, ....

As a private club, only open to members and their guests, the club still provides a
refuge and meeting place for busy young men and their more seasoned seniors.“
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 Internal Structures

The G-20 = informal institution

• No statutes
• No binding decisions („peer review“)
• No headquarters
• No own administration and staff
• Rotating presidency
• Implementation trough national states
or multilateral institutions

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 Chapter 2

The G-20 in the system of global

governance
Is the G-20
a global economic government?

„We designated the G-20 to be the premier forum for our

international economic cooperation.“
Pittsburgh Declaration

Key words:
1. forum (lat.) = marketplace, open space in the centre of a city

2. economic cooperation

G-20 = part of the global economic

governance system
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Governance is not Government
Governance:
• mix of formal and informal cooperation of
different types of actors (governments, multilateral
institutions, private sector, civil society)

• mix of formal and informal

procedures and agreements

• indirect regulation

opacity

complexity
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 Global Governance

OECD
IMF

IOSC
O Basle
Committee

World
bank WTO

G-20 Summit
FSB UN

Paris
BIS
Club
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 The big problem behind
„The crisis is global.
But the instruments to solve it are national.“
Why? Joseph Stiglitz

Increasing gap between the transnationalisation of

markets, in particular finanial markets and
the capability of national states to regulate them.

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Financial markets
National state WEED PeWa
 Disembedding of Global Players from
Regulatory control of the national state

The world of national staates The post-national world of globalisation

National State A National state A

National state B National state C

National state B National state C

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Emergence of a new, transnational
space beyond national states and
intergovernmental relations

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„We have lost control.
B. Bernanke

What a deluge! What a flood!

Lord and master, hear my call!
Ah, which disaster!
Master! I have need of Thee!
from the spirits that I called
Sir, deliver me!
Goethe, The sorcerer‘s apprentice

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There is no international or global
state to regulate markets

Global Governance as a very imperfect

substitute of international statehood

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 Chapter 3

The G-20 and the

financial crisis
 The assessment of the G20

reform proposals depends on the

analysis of the roots and the

nature of the crisis

Some current explanations
d

Ea
re e
G

s y
Subpri

m
me

on
crisis rvision

ey
o pe
f s u
Lack
Reckless behaviour
UNCTAD: „Nothing short of closing down the big
casino will provide a lasting solution.“

„The globalisation of savings has created a world in which

everything was given to financial capital and nothing to labour,
where the entrepreneur was secondary to the speculator,
where the capital owner was privileged above the employees,
where the leverage has assumed irrational dimensions. All this
created a capitalism, in which it was normal to gamble with
money, preferably other peoples money, to obtain money
easily and extremely fast, without any effort and often without
creating wealth or generating employment with these huge
amounts of money.“

Sarkozy in Davos 2010

Essence of Sarkozy‘s analysis:

1. Dominance of finance over labour/real economy

2. Speculation as dominant business model
3. New type of capitalism

Finance capitalism as a specific

version of capitalism

Systemic crisis
Traditional role of international financial markets
• providing efficient services payment system for
households and real economy

• providing money for public and private investment -

lending

Real Economy

Subordination

Financial markets

Service function of financial markets WEED PeWa

A new system has emerged

Financial markets

Dominance

Real Economy

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Th e main characteristics of the new system
1. Liberalization of financial markets
2. Weak regulation and supervision (deregulation)
3. Speculation as a central business model
4. Excessive leverage
5. Procyclical („herd“) behaviour
6. Risky new instruments (CDS etc.)
7. High risky institutional investors (Hedge funds
etc.)
8. Intransparency (shadow banking, off-balance
sheet operations)

Systemic instability

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 The neo-liberal financial architecture

E
r
o
s
i R
o E
n D
o
I
f S
T
d I
e Privatisation, pressure on social systems
m
B
o Negative effect on employment U
c T
r I
a Structural underinvestment in real economyy
C
O
y Profits in finance higher than in real economy n

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General dimensions of the crisis

1. Stability
2. Distribution
3. Democracy/Policy Space

The G20 is
focussing only on stability
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 Pittsburgh: interesting promises
• we confronted the greatest challenge to the world economy in our generation.

• We cannot rest until the global economy is restored to full health, and hard-working families
the world over can find decent jobs.

• We want growth without cycles of boom and bust and markets that foster responsibility not
recklessness

• we will not allow a return to banking as usual.

• strict and precise timetables.

• move toward greener, more sustainable growth.

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 Pittsburgh areas of financial reform
• Raising capital standards
• capital requirements for risky products and off-ballance
sheet activities
• reduce leverage
• strong international compensation standards
• regulate OTC derivatives
• standards against moral hazard („too big to fail“)
• quota reform in the IMF and World Bank
• strenghtening regulation, supervision, transparency
• measures against tax havens and money laundering
• contribution of finance industry to costs of crisis

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 Toronto

• No progress in reform

• Disagreement over exit strategies

• Diplomatic formulars

„We recognize that these measures will need to be

implemented at the national level and will need to be
tailored to individual country circumstances.“

„Working Group on Development ... to elaborate a development

agenda and multi-year action plans to be adopted at the Seoul
Summit.“
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 The Seoul agenda for financial reform
„Four Pillars“

Regulatory Supervision Addressing Peer Review

Framework systemically
relevant
• Basle III actors
(„too big to fail“) • FASP &
• Including FSB
Hedge Funds
etc.

• OTC
• Tax
Havens
• CRA‘s

• Acctg. FSB report

FSB report
Standards
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Chapter 4

Perspectives
 Results by now

1. Change in rhetorics of summit discourses, in particular

Pittsburgh declaration  erosion of neoliberal talk

2. Consensus to act countercyclically  stimulus packages

3. Strengthening of the IMF and the FSB

4. No consensus on further crisis management  „exit strategy“

5. No consensus on reform of financial system

6. Modest financial reforms either at national level or in institutions

which would have done something without
the G-20  Basle Committee on Banking Regulation

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 What can the G-20 achieve?

1. Dialogue, communication among leaders

2. Learning processes among leaders

3. Soft pressure

4. Early warning systems for emerging problems

5. At best, concerted action in case of consensus

But limitations due to manyfold

internal contradictions
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 Contradictions & Heterogenity

• National perspectives and interests are dominant

• Behind the scenery of cooperation geo-politic power
politics, rivalry and the fight for hegemony continue
• Emergence of regional powers and reconfiguration
of the hierarchy in the international system
• Competition/conflict US - China
• Geo-political competition between countries
• Emerging market  emerging self-confidence 
overshooting of national pride.

Don‘t expect too much!

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 Civil society and G-20

• Civil society in rsp. Countries should take G-20 on the ir

agenda

• Organise parallel activities to create a counterbalance in

public opinion

• Pressure for integration into UN-System and & representation

of poor countries

• Challenging the G-20 with own alternatives

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Thank you very much

for your

attention

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