By Andrew Sheng and Xiao Geng/Bali/Hong Kong
Last October’s G20 Leaders’ Summit – held in Rome, and hosted by then-Italian prime minister Mario Draghi – produced a declaration brimming with promises to “address today’s most pressing global challenges” and “converge upon common efforts to recover better from the Covid-19 crisis and enable sustainable and inclusive growth” across the world. What a difference a year makes.
The promise of 2021 should not be understated. The Leaders’ Declaration that the Rome summit produced included noble pledges to give “particular regard to the needs of the most vulnerable.” When it came to global public goods, the 61-paragraph document covered virtually every base, from food security to the circular economy, from the environment to the international financial architecture.
That makes the events of 2022 all the more disappointing. The meeting of G20 Finance Ministers and Central Bank Governors in Bali last month – largely overshadowed by discord over Russia’s war in Ukraine – did not produce a communiqué at all. And, as it stands, there is little reason to think that this November’s G20 Leaders’ Summit in Bali will go any better.
In terms of global crises, the Ukraine war is just the beginning. In the United States, spiking inflation – which reached a 40-year high of 9.1% year-on-year in June – has spurred increasingly aggressive interest-rate hikes by the US Federal Reserve, raising fears of recession. Midterm elections – to be held just a week before the G20 summit – compound the uncertainty emanating from the US.
In Europe, the struggle to escape the yoke of Russian energy dependency is occurring against a backdrop of skyrocketing prices and supply disruptions. Meanwhile, the continent is experiencing record-high temperatures, forest fires, and drought – a mere taste of what is to come if the world does not act fast. And there remain plenty of political disruptions to contend with, with Draghi’s recent resignation as Italy’s prime minister as a case in point.
Emerging-market economies, already shaken by the collapse of the Sri Lankan economy, are bracing for higher inflation, escalating food shortages, and increased debt distress. JPMorgan notes that intensifying pressure on external and fiscal accounts is driving a growing number of countries to engage the International Monetary Fund for assistance, or at least to move in that direction.
Amid such far-reaching and interconnected crises, one might imagine that global cooperation would be forthcoming. But there seems to be little appetite to compromise, especially at the G20 level.
The situation is very different within the G7. At 47 years, the G7 has been around more than twice as long as the 22-year-old G20 – though it is worth noting that the G7 was the G8 for much of that history. Russia was kicked out in 2014.
This points to a defining characteristic of this older, smaller club: it comprises the Western democracies that have largely dominated the world economy since 1945. In 2020, the G7 accounted for over half of global net wealth and roughly half of world GDP, despite being home to just 10% of the world’s population.
This disproportionate economic power and broadly shared political ideology go a long way toward explaining the G7’s behaviour. The democratic systems of which G7 countries are so proud make their leaders hostages to a fast-moving electoral cycle that encourages short-term policy thinking. And the fact that nearly all G7 countries are reserve-currency issuers enables them to enact this short-termism with policies like large-scale quantitative easing.
With so much in common – and with those who disagree getting shunned – it is little wonder that the G7 manages to agree on more than the G20, which was established after the Asian Financial Crisis of the 1990s to engage the largest developing economies. Counting among its members 19 countries and the European Union, the G20 accounts for more than 80% of world GDP and nearly two-thirds of the global population.
The G20 countries are far more diverse, culturally and politically. They include a number of democracies, many of which are deeply flawed, as well as outright autocracies. They also have much younger populations. These factors help explain why many G20 countries operate on longer policy horizons. Meanwhile, escalating global crises have raised doubts about the neoliberal economic orthodoxy that the G7 countries have long pushed.
The G20’s host this year is a representative of this more diverse group of major economies. Indonesia understands that strategic patience is essential to build consensus among countries operating from different perspectives and stages of development. After all, it is a member of the highly diverse Association of Southeast Asian Nations (Asean), which emphasises musyawarah (consultation) and muafakat (consensus).
The Asean approach can certainly be frustrating, but it has been vital to enable compromise – and progress. Asean is on track collectively to become the world’s fourth-largest economy by 2030, surpassing both Germany and Japan.
If this year’s G20 summit is to produce any progress, its members – especially the G7 countries – must embrace musyawarah and muafakat. Most developing and emerging-market economies view peace and stability as prerequisites to their continued development. They rightly worry that the G7’s preoccupation with defeating Russia and containing China will impede this process, impeding the pandemic recovery and undermining climate action.
From a demographic perspective, the G20 is a much more legitimate grouping – in terms of representing a diverse, complex world – than the G7. The latter group must therefore do a much better job of listening to – and working with – its non-G7 partners. This means, for starters, considering the spillover effects of their efforts to deal with the food and energy crises that the Ukraine war has created. And, as difficult as it is, it means finding ways to work with “strategic rivals” like Russia and China.
The “rest” cannot force the West to act in their interests. But nor can the West ignore the rest, and maintain economic and moral leadership. This year’s G20 Leaders’ Summit in Bali amounts to a critical opportunity for the West to decide what future it is working toward. — Project Syndicate
* Andrew Sheng, a distinguished fellow at the Asia Global Institute at the University of Hong Kong, is a member of the UNEP Advisory Council on Sustainable Finance.
* Xiao Geng, Chairman of the Hong Kong Institution for International Finance, is a professor and Director of the Institute of Policy and Practice at the Shenzhen Finance Institute at The Chinese University of Hong Kong, Shenzhen.
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