What can the G20 in Hamburg deliver?

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The G20 rose to the occasion and moved to center stage of global governance in 2009, when the global financial system faced a meltdown — a period described by Daniel Drezner's "The System Worked" (reviewed here). The group was in fact formed a decade earlier, as a forum for finance ministers to jointly tackle the aftermath of the 1997-98 East Asian financial crisis. Given the increasing economic might and influence of emerging markets, a balanced group comprising the main advanced and emerging market economies was certainly more relevant, it seemed then, than the hitherto high-profile G7, the Group of 7 major advanced economies.

And yet, while the overall trend of multipolarization has continued since then, there are serious doubts about the future of the G20. As Eswar Pradat writes

the group has become the de facto agenda-setting body for global economic and financial policies. This broader role has generated existential questions for the G-20, not just about its effectiveness but also its legitimacy and role in the international monetary system.

That may be because today's challenges are more complex than the financial crisis in 2009 — partly as a consequence of the 2009 collapse, the world's is facing growing resistance to the very model the G20 represents: an open, rules-based international economic order. Contrary to what many had expected over the past decades, the fiercest challenge does not come from Beijing (an eager supporter of the grouping), but from Washington, the major pillar of that existing order. This year's G20 gathering in Hamburg will be one of Donald Trump's first participation in a multilateral gathering (he may be at the G7 in Sicily, which takes place in late May). 

The key question, then, will be whether and how the G20 can remain useful without the strong support of the United States, and despite growing headwinds from populists in democracies around the world. A few examples from the past months are encouraging: Only days after Donald Trump's election victory, the Chinese government not only asked the US to respect the Paris Climate Agreement, but also, in both Lima and Davos, Xi Jinping rejected protectionism, saying that globalization could not be blamed for domestic ills

A second reason for optimism is that despite embracing an aggressive anti-globalization narrative, the Trump administration has so far implemented only a limited (though highly visible) number of measures. It recently emerged that the Trump administration is exploring alternatives to taking trade disputes to the WTO in what would amount to the first step away from a system that Washington helped to establish more than two decades ago. Yet it is far from clear from whether the Trump administration is able to implement such a dramatic step, which would hurt many of the interest groups that have direct access to the 45th President.

A third reason to believe in the G20's usefulness is to point to its capacity to set the agenda in the global conversation. Interestingly enough, one of the key topics promoted by the German government is digitalization and technological progress and their impact on the labor market. As Homi Kharas writes, due to robots' growing capacity to replace humans in factories, in cars and so on, half the children born in 2020 might never have a job at all. The implications are vast, and having leaders from around the world at least recognize them is to be welcomed. As Kharas points out,  

What is frightening and exciting is the widespread nature of change that will come into societies as the labor market changes. Mortgage rules will need to be rewritten—you can’t demonstrate expected income with a paycheck in the gig economy. Part-time work, slack-time work, and income from underutilized assets will become more important. Families will develop risk-sharing practices—already common in many developing countries where remittances are a standard feature. Labor unions will need to avoid collusion when representing the interests of micro-entrepreneurs. 

And yet, there are several powerful reasons to be skeptical about the upcoming G20 summit's capacity to overcome the avalanche of anti-globalization and nationalism. To some extent, those in favor of globalization are to blame. As much as many economists want to explain why the overall effects of globalization are positive, those skeptical of it care not about abstract data that means little to their immediate lives. As Dani Rodrik argued recently, 

...Economists can be counted on to parrot the wonders of comparative advantage and free trade whenever trade agreements come up. They have consistently minimized distributional concerns, even though it is now clear that the distributional impact of, say, the North American Free Trade Agreement or China’s entry into the World Trade Organization were significant for the most directly affected communities in the United States (...)  If economists had listened to their critics who warned about currency manipulation, trade imbalances, and job losses, instead of sticking to models that assumed away such problems, they might have been in a better position to counter excessive claims about the adverse impact of trade deals on employment.

A related reason to worry is that not only skepticism vis-à-vis globalization is growing; rather, an increasing percentage of people living in democracies are no longer so sure whether their type of government is the better than more authoritarian alternatives (see graph below). While some autocracies are pro-trade, this is still bad news for those working for a more open, rules-based and transparent global order.

Democracy

Given the current degree of global political uncertainty, it seems hard to predict whether the G20 can produce any meaningful outcomes, or whether it can make a powerful case against protectionism. Yet even without any memorable new ideas in the final declaration, the summit's importance should not be underestimated: It may turn out to be a much-needed confidence-building measure between Donald Trump and the rest of the world.  

Read also:

The BRICS grouping in the G20: A Hedging Strategy

For the first time with Temer, BRICS leaders meet in Hangzhou

The Goa Declaration: An analysis

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