By Risto E. J. Penttilä
CEO, Central Chamber of Commerce of Finland
This article was published in NORDICUM 2/2011
G20 Finance ministers met in Paris in February. They did not accomplish much. This was not surprising. The G20 is no longer a steering group for the world economy. It has become a debating chamber for two camps with competing economic ideologies.
One camp consists of the BRIC-plus countries (Brazil, Russia, India, China, Indonesia, Korea, Turkey, Mexico, South Africa, Argentina and Saudi Arabia). The other camp consists of the old G7 countries plus Australia. It is not the new cold war but the divisions are ideological and they run deep.
The rise and fall of the G20 has been spectacular. It was created on ministerial level in 1999 as a response to the Asian economic crisis. It toiled away in obscurity for ten years. Then, in the middle of the financial crisis of 2008, it became both a fire brigade and a steering committee for the world economy.
President George W. Bush was not known for his multilateralism. Yet, he invited the leaders of the G20 members to the first ever G20 Summit. The Summit was held in Washington D.C. in November 2008. The second summit was also successful. Together, the first summits achieved a coordinated response to the crisis and prevented protectionism from taking hold.
The third summit was held in Pittsburg in September 2009. It was less important in terms of accomplishments than in terms of tone. The host, U.S. president Barack Obama, made clear that the West was committed to a full partnership with the Rest.
Since Pittsburgh, the G20 Summits have been characterized by a growing tension within the group. The Brazilian president could not make it to the Toronto Summit in June last year. Instead, the Brazilian government started to speak about a new currency war between the established and the rising powers. The Chinese government dismissed US attempts to seriously discuss global imbalances at the Seoul Summit at the end of last year. But the more acrimonious tone was not due to diverging views on currencies and imbalances alone. It was based on diverging ideologies.
Today, the G20 is no longer a concert of economically significant powers. It has become a forum for debate between two opposing blocs.
In one camp, there are the indebted nations of the G7 plus Australia. These countries are as indebted as they were at the end of the Second World War. Their growth rate is between 2 and 5 percent if everything goes well. Yet, they still adhere to the idea that democracy plus markets equals progress.
In the other camp, there is the new improved BRIC. It consists of the original four (Brazil, Russia, India and China) plus Mexico, Indonesia, Turkey and Korea – the four countries that Goldman Sachs added to the list of BRICs as future centres of growth. South Africa, Argentine and Saudi Arabia belong to this camp as well. The growth rates of these countries are between 5 and 10 percent. They subscribe to a different formula from the old G7. In their view, political control plus capitalism equals progress.
The division of the G20 into two blocs, state capitalists and market capitalists, is a significant departure from the euphoria of the first G20 summits. It means that the great powers now have a joint forum for economic debate but they do not have the same vision for the world economy.
The G20 is no longer what it once was. But the ministerial meeting in Paris was not wasted. It is useful for major economies to come together to find a way forward. But do not expect great things to come out of ministerial meetings or from the Summit at the end of the year. The glory days of the G20 are over. From now on it is all about bargaining and reaching a compromise between very different notions of what is good for the world economy. The old glorious G20 is dead. Long live the new laborious G20!■