G20 & development - why bother?

28 April 2011

By Michael Gaskin, currently completing a PhD on the G20 and international legitimacy at the University of Sydney and an Intern in the Myer Foundation Melanesia Program at the Lowy Institute

Development has become an increasingly important item on the G20 agenda. For an organisation with its roots in fiscal and monetary policy, the natural question is to ask ‘why bother with development?’ But if you look at where the G20 came from, it becomes clear that it is a natural fit for their discussions. What might be a little more surprising is how the G20’s idea of development has changed over just the last three years. But first, for the uninitiated, a brief history of the G20.

The G20 is a direct descendant of the G7/G8 system. The G7 was established as an informal consultation mechanism for a group of finance ministers and central bank governors to discuss difficult fiscal and monetary policy issues and to share lessons. There was no formal founding document, no particular mandate and certainly no permanent bureaucracy. As some of the finance ministers went on to become leaders, they carried the consultations through to a leaders’ forum, which eventually went on to invite Russia to form the G8 (the finance ministers chose not to invite Russia, and remained the G7). 

The two births of the G20
The G20 arose out of the Asian Financial Crisis (AFC). For the first time, the AFC demonstrated the true reach of global markets. What happened in developing countries no longer stayed in developing countries. Events in Indonesia, Thailand and South Korea had large effects on markets in the United States, the United Kingdom and Germany. This was a clear signal that the G7 countries needed to broaden their membership to include what they labeled as ‘systematically important’ emerging economies in their consultations. After brief experiments with the G22 and G33, the G20 met for the first time in Germany in December, 1999. 

This was the first birth of the G20. It was an extension of the G7, that is, a meeting of finance ministers and central bank governors from member countries (with the President of the World Bank and Managing Director of the IMF in tow). Development was certainly on the agenda, but in a very traditional form. The G20 Finance communiqués did a lot of reaffirming: reaffirming support for the Millennium Development Goals (MDGs), reaffirming commitments to increases in official development assistance, reaffirming an intention to conclude the Doha Development Round of trade negotiations and reaffirming alterations to voting arrangement in the international financial institutions (IFIs).  Given this was occurring around the same time as the Monterrey conference on Financing for Development, this was hardly a surprise.

The second birth of the G20 occurred in November 2008. In the wake of the collapse of Lehmann Brothers and the massive bailout of several significant financial services firms that spread throughout the world, President George W Bush called the leaders of the G20 countries to Washington DC for the first G20 leaders’ summit. With the greatest financial meltdown for around 80 years in full swing, there was pressure on the G20 Leaders’ summit, dubbed ‘Bretton Woods II’ in some corners, to deliver a significant and coordinated response. 

The first G20 Leaders’ declarations from the Washington and London summits again focused on development in the traditional sense. They talked in terms of increasing facilities and altering governance arrangements at the IFIs, concluding trade agreements and supporting the Millennium Development Goals. This reflects the idea that development is about what ‘we’ can do for ‘them’. We can give them money, we can trade more with them and we can provide more health care to them. 

Something changed in Pittsburgh
In the Pittsburgh declaration, the references to the MDGs and increases in development financing remained, but the language shifted from a transaction between ‘us’ and ‘them’ towards a partnership between equals. Having just set out a series of actions that should be taken, the G20 Leaders Declaration from Pittsburgh states ‘These policies will help us to meet our responsibility to the community of nations to build a more resilient international financial system and to reduce development imbalances’. The Toronto declaration followed suit with phrases such as ‘it is important to work with Least Developed Countries (LDCs) to make them active participants and beneficiaries of the global economic system’ and ‘narrowing the development gap and reducing poverty are integral to our broader objective of achieving strong, sustainable and balanced growth and ensuring a more robust and resilient economy for all’. 

This language is indicative of the effect the leaders of emerging economies are having on the G20. Far from acting as legitimising window-dressing, the leaders of emerging economies are making a significant difference.  In an analysis of the G20 Leaders’ Declarations between the Washington and Toronto summits, the Global Economic Governance unit at the University of Oxford concluded that ‘the inclusion of emerging economies has been crucial to agreements on several core issues’. Interestingly, the paper concludes that the one area the emerging country leaders were yet to make a mark was in development. However, this was forecast to change with the Seoul summit approaching. 

Beyond aid    
The Seoul Summit produced the Seoul Development Consensus for Shared Growth. It maintains the language of ‘shared growth’ and focuses the G20 development agenda of six principles: focus on economic growth; global development partnership; global or regional systemic issues; private sector participation; complementarity; outcome orientation. This continues the change in focus from aid, as discussed in this short video below: 

This is not to say official development assistance, institutional reform and MDGs are off the agenda, but rather development is taking on a broader meaning. The Overseas Development Institute in the UK noted that ‘the emphasis in the G20’s development agenda on trade, investment and growth is the right one for diversification, innovation and long-term development, although contrary to recent suggestions, this agenda should not be seen as a shift in aid policy (alone) but rather as a beyond-aid development policy by the G20.’ 

As for the future, France’s agenda for its G20 Presidency in 2011 maintains development as one of six priorities, with a specific focus on infrastructure development, food security and innovative development financing such as a tax of financial transactions. The Global Economic Governance unit noted the importance of South Korea’s turn at the Presidency as the first of the emerging country members to take on the top job. Expect development to hit the top of the G20 agenda again in 2012 when Mexico steps up. 

What this means for Australia is that it has the potential to take a leadership position within the forum. While it might not have the clout to lead discussions on the more brawny monetary issues, its growing status as a ‘good donor’, as a power within a developing region, and as a long-time good global citizen, bolsters its leadership credentials. 

Image by Flickr user United Nations Photo