Over the long term, no other forum but the G20 can continue to represent the shifting locus of economic power away from the developed economies of the West and to the emerging economies of Asia — and no other is likely to emerge.
Even in the short term, following the G20’s successful collective response to the 2008 global financial crisis, the world will look to the G20 again to deal with the renewed threat of a global recession. And with all the domestic constraints that Europe and the US currently face on the third round of quantitative easing and further stimulus, the G20 is bound to focus on the role of Asia.
We should strive for two things in thinking about Asia’s role in the G20. First, handling the short-term problems of global demand and the anxieties about a double-dip recession. Second, and of equal importance, addressing the question of how to rebuild the global economic order in one generation.
A generation might seem a very leisurely pace of change, but it will take time for both the West and the East to adjust to new economic realities. And pretending otherwise will rule out real opportunities for shaping the G20 into the longstanding forum it deserves to become. It must learn from the Asian experience of steady, even if often slow, economic cooperation.
Let’s consider two approaches to addressing these two priorities. First, on the immediate question of sustaining global demand, it now seems clear that the G20 has been able to repeat the success it had in dealing with the 2008 crisis in the much harder task of rebalancing the global economy. That success put the G20 in a somewhat more complacent mood than it can afford. It may also have placed its Asian members in what the Asian Development Bank (ADB) has called the role of ‘a passive onlooker in the debate on global rule-making and a reluctant follower of the rules’. This has to change. The world cannot afford the G20 to lose credibility.
Substantially increasing and advancing investments in productive infrastructure is one way of boosting global demand. The report of the G20 High-Level Panel on Infrastructure on ways to boost and improve infrastructure investments in low-income economies will be timely. This report should catalyse an effort by the Asian G20 members at the 2011 Cannes Summit to address financial and other policy constraints in order to generate accelerated investment in economic infrastructure. We need new ways of raising capital and new ways of sharing the risks that will go with the returns from such infrastructure investments.
Developing economies such as India will need serious policy reforms, including better governance, better land acquisition policies, and overall improvements to the investment climate. This is a win-win strategy, and falling prey to narrow domestic political interests and bureaucratic gridlock will mean passing up on an historical opportunity for many Asian countries.
Second, when it comes to the future of the G20 and its role in bringing about a new economic order, much will depend on whether the organisation remains effective over the long haul. Can the G20 be as effective over a generation as it has been in generating the short-term, collective response to the threat of global recession and of competitive devaluations or protectionism? Much will depend on how the Asian emerging newcomers, including India, take up their responsibilities to shepherd the G20 agenda. There is a lot to lose if the G20 descends into nothing more than the old G7 plus others. ASEAN has had considerable experience in coordinating policy responses and domestic policy choices, both those that have been successful and those that have failed. Asian members should bring this experience to the G20. ASEAN’s durability and openness to change presents an opportunity for the Asian G20 members to bring this ASEAN spirit to the G20. This will equip the G20 to be effective over the generation that will be required to rebuild the global economic order.
Adopting an explicit longer-term framework allows us to think about future developments that need to be shaped now, such as the G3 relationship between the US, China and India, and the shape it will be in 10 years from now. The relationship between these countries will be important in determining future G20 behaviour. India is today by far the poorest member of the G20. But it is nonetheless the fourth biggest economy in the G20, measured at purchasing power parity, and the 11th biggest measured at market exchange rates. Laying the foundations of a more cooperative relationship now will go a long way towards shaping it in productive ways for the future.
Dr Shekhar Shah is Director-General of the National Council of Applied Economic Research, New Delhi.
This article appeared in the most recent edition of the East Asia Forum Quarterly, ‘Asia’s global impact‘.