g20

This year’s G20 Leaders’ Summit in Antalya, Turkey, has produced arguably the broadest agenda of action yet of any G20 gathering. But do the G20’s widening ambitions build on a commensurate increase in capability? Not really.

The Brisbane Summit in 2014 had stuck to the group’s narrow macroeconomic policy origins, making an ambitious though unqualified target of growth acceleration its central promise (accomplish an additional 2 per cent G20 GDP increase by 2018 on top of what the IMF had projected in 2013). This was to be attained via familiar tools—coordinated monetary, financial, labour market, competition and trade policies. About the only novelty was the acknowledgment of the need for drastically higher public infrastructure investment.

The Antalya Summit took place in an overwhelming world political context. The desire to see some intergovernmental solidarity in the face of the ever escalating security and humanitarian crisis of our time did not leave much media appetite to dwell on divisions within the group. Yet the same focus on politics has also distracted attention away from the different economic message of Antalya.

While Antalya reaffirmed the Brisbane pledge of growth acceleration, it described differently what future prosperity should resemble and how it could be accomplished. Pulling more to the left, the Antalya Leaders’ Communiqué (already twice as long as the Brisbane one) called for the type of growth that is “inclusive, job-rich and benefits all segments of our societies”, citing the risk posed by “rising inequalities” to “social cohesion and the well-being of our citizens”. To that end it pledged to lower youth unemployment in G20 countries by 15% by 2025, emphasised for the first time the role of small and medium sized enterprises (SMEs) in fostering inclusiveness, and called for closer cooperation between the G20 and the low income developing countries (LIDCs). The usual references to financial stability, reform of international financial institutions (mainly the IMF), corporate governance reform, multilateral trade deals and anti-corruption were of course present, but the doubled number of agreed documents now also included a statement of policy priorities on labour income share, a skills strategy, and an energy access action plan. This widened focus was the result of many months’ prior work that saw inaugural ministerial meetings in agriculture, energy and tourism as well as a joint meeting of finance and labour ministers (to further underline the inclusiveness dimension). Seen this way, Antalya has expressly called for a kinder, gentler capitalism (à la World Bank since the late 1990s), to be pursued via a sectorally and geographically integrated macro strategy. (Leaving, as well noted, the knotty topic of climate change to the UN conference to commence in Paris later this month.)

There is nothing wrong with this noble call—insofar as we understand that the G20 is merely a sounding board for a somewhat arbitrarily selected group of big countries and international organisations, without any material resource at its disposal to implement actual change. The problem with such an existence is that there is no dependable way of measuring effectiveness: Whatever proposals emerge from this gathering need to be acted upon by governments and international organisations, which, as it so happens, also set the agenda. The troubles of the day (global imbalances, eurozone crisis, the fallout from Syria, weak recovery) always make the cut, as do the sensibilities of the host country (Turkish presidency this year was a good example). Yet in the end the G20’s specific output is always an expression of desire for coordination, not the consequences of actual coordination observable in policy or institutional change. As a result compliance with the group’s yearly commitments varies widely across countries and policy domains.

Consider here the curiously modest progress made in the G20’s core agenda item—international financial regulation. The group was conceived in the aftermath of the Asian financial crisis, and its morphing into a high-profile leaders’ summit from a gathering of finance ministers and central bank governors was a direct response to the global financial crisis of 2007-08. However, eight years and ten summits on (two summits per year were held in 2009 and 2010), all the G20 has to show for in that department is the Financial Stability Board’s (FSB) total-loss-absorbing-capacity (TLAC) standard for global systemically important banks to address the “too-big-to-fail” pathology, announced a week before Antalya. There is no way to know how the G20 contributed to that outcome; for all we know the FSB (or its predecessor the Financial Stability Forum as it was called before the 2009 G20 London Summit) might have ended up devising a similar measure. More important, this is a relatively small change that applies to only part of the sector. Insider reports suggest that since the crash international finance has been back to business as usual already; intense policy debate for the past eight years produced cosmetic changes at best. Even if we credit solely the G20 for all the progress made in the area of international financial regulation to date, the disappointing record of change in that realm inspires little confidence in the G20’s capabilities. If it has largely failed in its core mission, how could the G20 deliver an even more ambitious agenda?

The point is not that the G20 is useless. These summits have served the important function of providing a permanent high-level negotiating table that included some leading powers of the global South. Let us also not forget that change in the absence of total calamity could be a notoriously slow process, in the course of which different voices, such as in Antalya, may indeed have crucial long-term ideational effects. Even then, until such time as we observe material shifts on the ground, unorthodox calls as in Antalya must be treated with caution. Yet give us similar outcries about contemporary capitalism’s social ills in China 2016, Germany 2017 and India 2018 with the global policy ground unambiguously shifting towards attaining fairer resource distribution between as well as within national economies, and we shall get very excited.

Ali Guven is a lecturer in International Relations and International Political Economy at Birkbeck

 

 

http://upload.wikimedia.org/wikipedia/commons/a/a9/BRICS_leaders_in_Brazil.jpeg

http://upload.wikimedia.org/wikipedia/commons/a/a9/BRICS_leaders_in_Brazil.jpeg

The top news from this year’s BRICS summit was the announcement of a New Development Bank. Headquartered in Shanghai, the bank will become operational in 2016 with an initial capital of US$50 billion. Its core mandate is to finance infrastructure projects in the developing world.

The bank, announced at the summit in Fortaleza, Brazil, will also have a monetary twin to provide short-term emergency loans, the Contingency Reserve Arrangement. While the bank will be open to all UN members, the reserve will lend only to the contributing BRICS countries in times of crisis.

This combination of timing, actors, and institutions is noteworthy. It was in July 1944 that the Allied nations gathered at Bretton Woods to form two of the most vital institutions of the post-war era: the International Monetary Fund and what would become the World Bank. Now, 70 years later and only a few years on from the global financial crisis, the leading developing nations of our time have joined forces to forge new institutions of international economic cooperation with mandates identical to the World Bank and the IMF.

This move is born out of a belief that the Bretton Woods twins, despite numerous governance reform initiatives over the past decade, remain set to reflect the policy preferences of their original creators. In creating complementary institutions, the BRICS will be hoping to use these alternative platforms of international economic governance and as leverage to accelerate the reform of existing arrangements.

Game-changing potential

The New Development Bank is currently the more interesting of the “Fortaleza twins”, for it is designed as a freestanding organisation that’s open to all. Yet it has not received a warm welcome in business columns. While the political symbolism of the new institution is widely acknowledged, its immediate economic utility has been challenged – why do the BRICS need a development bank of their own when infrastructure projects are already easily financed through private as well as official channels, especially through the World Bank?

This is a narrow criticism. In the long run, the New Development Bank has the potential to become a game-changer in development financing. In fact, if its evolution even remotely parallels that of the World Bank, it might end up having a formative impact on economic policy-making and overall development strategy in the Global South.

To begin, while there is no shortage of national and regional development banks as well as private financiers of infrastructure projects, there is still a massive gap in development finance, estimated to be as high as US$1 trillion per year. Many developing countries encountered significant financing problems during the global crisis of the late 2000s. This shortfall necessitated a surge in World Bank commitments, from an annual US$25 billion in 2007 to about US$60 billion in 2010.

But commitments declined just as swiftly over the past few years, and as of 2013 stood at about $30 billion. Given these figures, the New Development Bank’s readily available $10 billion in paid-up capital and the extra $40 billion available upon request are not exactly pocket money for development financing.

Yet just as the World Bank was never simply a money lender, so too will the new bank represent far more than a mere pool of funds. The existing geostrategic and policy inclinations of its founding stakeholders imply a bigger role to play for the institution. In the process, it is bound to offer a formidable challenge to the World Bank’s financial prominence and so influence policy in the developing world.

Client-side

The new bank has been long in the making. It is the culmination of nearly two decades of intense South-South cooperation and engagement. In recent years especially, the BRICS and other emerging nations have become donors and investors in both their immediate regions and in less developed areas of the world – with Chinese and Brazilian involvement in sub-Saharan Africa and parts of Latin America representing the prime examples.

They have made an effort to establish more equal relationships with their lower-income developing peers and emphasised an attractive narrative of partnership, non-intervention and knowledge transfer, instead of smug, superior Western notions of top-down aid and restrictive conditionality. To the extent that it could keep its rates competitive, the New Development Bank is unlikely to suffer from a dearth of clients from among its fellow developing nations.

Paradoxically, BRICS and other large middle-income countries still remain the most valuable clients of the World Bank. Since the financial crisis, India has been the largest borrower of the World Bank, and has been closely followed by Brazil, China and a few other near-BRICS such as Indonesia, Turkey and Mexico. But, once the new bank fully kicks off, it is possible the World Bank will lose a lot more business from this traditionally lucrative market of large middle-income borrowers who now have a serious alternative.

Political implications

A reduced loan portfolio will ultimately translate into declining policy influence for the World Bank, which has held near-monopoly of development wisdom over the past 70 years. Perhaps in recognition of their waning power, there has already been a slight but steady decline in World Bank loans that emphasise policy and institutional reforms.

Also, a larger portion of the Bank’s resources have been allocated to conventional development projects, such as environment and natural resource management, private sector development, human development, and social protection. These are precisely the types of projects the Bank will encounter fierce competition from the new BRICS-led bank.

Knowledge and power

Consider also that the World Bank has labelled itself as a “knowledge bank” in recent years. Employing thousands of policy specialists, it doubles as one of the biggest think tanks in the world. Yet if it loses considerable financial ground to initiatives such as the New Development Bank, this threatens a decline in the power it has through knowledge.

Crucially, none of the BRICS adhere to the Bank’s standard policy prescriptions, nor do they advocate a different common strategy either. Brazil’s social democratic neo-developmentalism is quite different from China’s state neoliberalism, which in turn differs from established policy paths in others in the group. The only common denominator is a substantially broader role given to the state. But beyond this there is much flexibility and experimentation and little in the way of templates and blueprints like there is with the Western institutions. This policy diversity itself dismisses any idea of superiority of knowledge and expertise.

None of this suggests that the World Bank, as the dominant, Northern-led development agency, is now on an ineluctable path of decline. Cumbersome as they may appear, large organisations often accumulate considerable resilience and adaptive capacity over generations. Yet the World Bank does have a serious contender in the New Development Bank.

While it may not overtake the World Bank in financial prowess and policy influence any time soon, at a minimum it should be able to exert significant pressure over the World Bank to respond more sincerely and effectively to the new balance of power in the global economy.

Ali Guven is a Lecturer in International Relations and International Political Economy at Birkbeck, University of London.

This article was originally published in The Conversation

Modern societies are infinitely complex entities. But every now and then singular events furnish a surprising, if ephemeral, sense of clarity. Turkey’s recent Gezi Park crisis is one fitting example. What began as an innocuous sit-in against the proposed development of a small green space adjoining Istanbul’s main Taksim Square quickly escalated into a prolonged nation-wide uprising, courtesy of gross government miscalculation to try and quash the protestors with disproportionate force. The result: two weeks of clashes that left in its wake five dead, thousands injured, and an ever deeper schism between PM Erdoğan’s conservative rule and the secular segments of Turkish society. In the process the country’s image as a calm harbour in a turbulent region has been heavily tarnished, the exact economic and political costs of which remain to be priced. For information on the events and some interesting commentary, see here, here and here. What clarity can we glean from these events? Mainly, that the recent policy path of the governing Justice and Development Party (AKP) is no longer sustainable, as I argue in four broad points below. It is high time the AKP come to terms with plain realities on the ground and retool its priorities. Continue reading