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Peter Wahl

World Economy, Ecology &

Development Association

Berlin

Seoul 7./8. July 2010Seoul 7./8. July 2010

The G-20The G-20Structure, Governance, Mandate Structure, Governance, Mandate

and Perspectivesand Perspectives

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

Reaction to the Asian crisis 1997/98

Finance ministers and central bankers

Dialogue on global key economic issues

Heads of states since 2008Washington, London, Pittsburgh, Toronto

Seoul, France, Mexico

WEED - PeWaReaction to the crisis 2008

Member statesUS

Canada

FranceGermany

ItalyUK

Japan

Russia

Australia

Brazil

Mexico

Argentina

China

India

South Korea

Indonesia

Saudi Arabia

Turkey

South Africa

EU/ECB

IMF/World Bank

Permanent guest: Spain

Special guests

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Some indicators

65,5% of global population

88% of global GDP

80% of world tradeWEED - PeWa

Nevertheless

The G-20 is not inclusive

It aggravates the marginalisation of the UN

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

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Internal Structures

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

or multilateral institutions

The G-20 = informal institution

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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

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

Key words:

2. economic cooperation

G-20 = part of the global economic governance system

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Governance is not Government

• mix of formal and informal cooperation of different types of actors (governments, multilateral institutions, private sector, civil society)

Governance:

• mix of formal and informal procedures and agreements

opacity

complexity

• indirect regulation

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Global Governance

G-20 Summit

OECD

FSB

BIS

UN

IMF

Worldbank

ParisClub

WTO

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IOSCO Basle

Committee

The big problem behind

„The crisis is global. But the instruments to solve it are national.“

Joseph Stiglitz

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Increasing gap between the transnationalisation of markets, in particular finanial markets and

the capability of national states to regulate them.

Why?

Financial marketsNational state

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Disembedding of Global Players from Regulatory control of the national state

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

National state B

National State A

National state C

National state A

National state B National state C

Emergence of a new, transnational space beyond national states and

intergovernmental relations

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„We have lost control.B. Bernanke

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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 calledSir, deliver me!Goethe, The sorcerer‘s apprentice

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

Greed

Easy money

Lack of supervision

Subprime crisisReckless 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

1. Dominance of finance over labour/real economy

2. Speculation as dominant business model

3. New type of capitalism

Essence of Sarkozy‘s analysis:

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

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Real Economy

Service function of financial markets

Financial markets

Subordination

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Real Economy

A new system has emerged

Financial markets

Dominance

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)

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Systemic instability

Profits in finance higher than in real economyProfits in finance higher than in real economy

Structural underinvestment in real economyyStructural underinvestment in real economyy

Privatisation, pressure on social systems Privatisation, pressure on social systems

Negative effect on employmentNegative effect on employment

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The neo-liberal financial architectureThe neo-liberal financial architecture

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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

Regulatory Framework

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„Four Pillars“

Supervision Peer Review

• Basle III

• Including Hedge Funds

etc.

• OTC

• CRA‘s

• Acctg. Standards

FSB report

Addressing systemically

relevant actors

(„too big to fail“)

FSB report

• Tax Havens

• FASP & FSB

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

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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

What can the G-20 achieve?

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1. Dialogue, communication among leaders

4. Early warning systems for emerging problems

3. Soft pressure

5. At best, concerted action in case of consensus

2. Learning processes among leaders

But limitations due to manyfold internal contradictions

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!WEED PeWa

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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