Why the G20 keeps failing, and still matters

India as the current president of G20, is hosting the annual summit of the influential grouping in New Delhi on September 9 and 10.

The annual G20 summit brings together world leaders in pursuit of a lofty goal: coordinating policy for the global economy.

But how much progress has the G20 made toward its ambitions? And what can be expected from this year’s meeting in India on Saturday and Sunday?

The agenda in New Delhi includes climate change, economic development and debt burdens in low-income countries, as well as inflation spurred by Russia’s war in Ukraine. If members can reach consensus on any or all of these subjects, they will produce an official joint declaration at the end.

Then what? Often, not much, when it comes to real world results. Most of the group’s joint statements since it formed in 1999 have been dominated by resolutions as solid as gas fumes, with no clear consequences when nations underperform.

One example: At the 2021 summit in Rome, G20 leaders said they would limit global warming with 'meaningful and effective actions', highlighting a pledge to end the financing of coal power plants overseas.

But the communiqué left out domestic coal investments. And in 2022, coal-fired power generation worldwide reached a new high, according to the International Energy Agency. This year, investment in coal is expected to rise by another 10 per cent, to $150 billion despite G20 statements and a scientific consensus that coal use must end immediately.

What has the G20 accomplished?

The G20 began with a meeting of finance ministers after the wave of steep currency devaluations in the late 1990s, and added an annual meeting of world leaders after the global financial crisis a decade later.

Senior officials (mostly Germans, Canadians and Americans) pushed for what they saw as a more flexible, inclusive forum than the Western-led Group of 7 nations or G7. They believed that convening both established and rising powers would better protect the global economy, and early evidence suggested that they were right.

Many experts praised the group for stabilizing the financial system in 2008 and 2009 by agreeing to spending measures worth $4 trillion and instituting bank reforms to rebuild trust.

The 2016 summit in China also showed the power of bringing leaders together when President Barack Obama and the Chinese leader, Xi Jinping, announced that their countries would sign on to the Paris Agreement on climate.

More recently, in 2021, the G20 supported a major tax overhaul that included a global minimum tax of at least 15 per cent for each country. It also backed new rules that would require large global businesses like Amazon to pay taxes in countries where their products are sold, even if they lack offices there.

The plan promised to add billions in government revenue and make tax havens less of a driving force for corporations. But, as with a lot of G20 statements, follow-through has been weak.

“The global tax agreement is an important step in the right direction,” the International Monetary Fund declared this year, “but it is not yet operational.”

Why has the G20 struggled to make an impact?

Some critics argue that the G20 was flawed from the start, with a membership roster based on the whims of Western finance officials and central bankers.

According to Robert Wade, a political economy professor at the London School of Economics, German and U.S. officials “went down the list of countries saying, Canada in, Portugal out, South Africa in, Nigeria and Egypt out, and so on.”

For example, Argentina is neither an emerging economy nor among the 20 largest. It is a G20 member, many argue, because one of its former economy ministers, Domingo Cavallo, was a Harvard roommate of Larry Summers, the U.S. Treasury secretary from 1999 to 2001.

In an email, Wade said the organization still suffered from a “lack of representational procedures,” without a well-defined process for inclusion.

“A given state is in or out, permanently,” he said.

The group’s summits have also become a forum for the forces pulling against the established post World War II order. When the G20 started, there was more consensus about how to hold the world together. Free trade was ascendant; great power rivalry seemed but a memory; and optimists worldwide hoped that the G20 would lead to a broader power base for aging institutions like the United Nations and the International Monetary Fund.

Those hopes are still there, and blossoming elsewhere (the recent BRICS summit in South Africa is the latest example). But conflicts have supplanted G20 team efforts. The United States and China have become bitter competitors. Nationalism has surged as networked economies have come to look far riskier after the COVID-19 pandemic and the war in Ukraine, which has pushed up food and energy prices for countries far from the front lines.

“There’s a lot more dissatisfaction with hyper-globalization, open trade and free capital,” said Stewart Patrick, director of the Global Order and Institutions Program at the Carnegie Endowment for International Peace. “In a situation where the global economy is fracturing and countries are pursuing their own thing, the question is, what do you do when you still have rules and institutions that were created for a very different environment?”

Does the world need the G20?

Few critics want to see the G20 eliminated. They worry that it is already weakening, with Xi skipping this year’s meeting. (Russian President Vladimir Putin will also be a no-show.)

Many foreign policy experts argue that the G20’s failures simply point to the need for modernization in international institutions.

As Dani Rodrik and Stephen M. Walt wrote last year in Foreign Affairs: “It is increasingly clear that the existing, Western-oriented approach is no longer adequate to address the many forces governing international power relations.” They predicted a future with less agreement, in which “Western policy preferences will prevail less” and “each country will have to be granted greater leeway in managing its economy, society and political system.”

Wade has called for a reformulated G20, with a core of economic powerhouses complemented by a rotating set of smaller nations. Patrick said the G20 could play a leading role in the “post-neoliberal” order by discussing how to separate the benefits of trade from the risks of overindulging the free-market system that the organization was built to protect.

“The G20 would be a natural place to begin hammering out what rules of peaceful coexistence permit countries to share in a more tempered globalization,” he said. “That would be a positive agenda.”