At the Pittsburgh Summit in 2009, G20 Leaders agreed that the G20 should be the premier forum for their
international economic cooperation. They made it their priority to lay the foundations for strong, sustainable and balanced growth, so as to safeguard and strengthen the economic recovery. With
the global economy still facing serious challenges, the need for strong political will to generate and implement lasting solutions has become more urgent.
The G20’s efforts need to be better coordinated, and backed up by effective governance, to ensure that their political commitments secure growth for the future.
The need for political consensus
The ever closer integration of the global economy has meant much greater diversity of economic actors, emerging markets that are growing in influence and issues that are complex and cross-cutting in nature. Effective governance through the institutions, rules and standards that support global economic activity is critical for building political consensus and enabling countries to anticipate, and cooperate in response to, global challenges. Stronger coordination is also necessary to enable the best possible collective outcomes to be achieved.
The path to more effective governance does not always require the creation of new institutions and processes. There is neither a shortage of international bodies, nor of blueprints to reform the global governance architecture. The priority now is to find ways of building political consensus where it is lacking and most needed, and deploying it to coordinate policy and to help existing institutions work more effectively within their current mandates. Practical ways must also be found to sustain this consensus over time and to improve Leaders’ ability to drive and direct action.
Generating consensus through the G20
Since the Pittsburgh Summit, the G20 has developed macroeconomic policy coordination; shaped and driven forward a substantive common agenda to reform international financial regulation; promoted a consensus on reforming the governance of the international financial institutions; and set out a new, more growth-oriented approach to wider economic issues such as development. However, the G20’s emergence has also raised questions about its current and future role, its legitimacy, the scope of its agenda and its effectiveness.
Executive summary
The G20 is unique in bringing together the political leaders of the world’s major economies - advanced and emerging alike - on an equal footing. From its birth in economic and financial crisis, it has been an informal and Leader-driven group focused on building political consensus. This informal quality, combined with its flexibility, has been the G20’s comparative advantage and its greatest strength.
The G20 should maintain this role and informal character; it should not aspire to become more formal in status. But ‘informal’ does not mean less relevant. Informal mechanisms to generate and sustain political consensus are a valid and essential part of global governance, working alongside and complementing the work of institutions whose members have more formal rights and obligations. Nor should ‘informal’ mean being unstructured and unengaged with the rest of the global system; the G20 must become more effective, transparent and consistent in building relationships with formal institutions, non-members and others.
The G20 represents 85% of the world economy and its agenda should reflect this. Leaders should focus their sustained effort on the economic challenges of globalisation broadly defined. Since its inception, the G20 has proved unique among informal political groups in backing up its high-level agreements with action plans and monitorable, time-bound commitments. The G20 should build on this. Leaders must now give it the capacity it needs to function more effectively in delivering its past commitments and managing its agenda more closely and through time. For the future, the G20 must :
• maintain its informal and Leader-driven nature for the foreseeable future, and provide a clear public declaration of its role and purpose within the global system ;
• become much more consistent and effective at engaging non-members, international institutions and other actors, welcoming their effective participation in specific areas of the G20’s work ; and
• develop clear agreed working practices to manage and deliver its agenda through time more effectively; formalise the Troika of past, present and future Presidencies ;
and underpin it with a small secretariat, possibly staffed by officials seconded from G20 countries and based in and chaired by the Presidency.
Governance for growth
Addressing gaps in governance
Beyond the G20, there are a number of priority areas in which the governance of international economic activity should be addressed. Reforms to the International Monetary Fund (IMF) and the World Bank, agreed by the G20 in 2009, should continue. Beyond that, the immediate priority must be to press for continued improvements to the governance of economic policy coordination, financial regulation and global trade, which are essential to global growth.
Economic policy coordination
The G20 has committed to work together to undertake a joint assessment of how individual countries’ economic policies fit together and how to deliver better outcomes for all, to put the global economy firmly on the path towards stronger, more sustainable and balanced growth. Greater ambition and commitment are needed by all G20 members to achieve this goal.
The IMF and other relevant international organisations have provided invaluable assistance to the G20 in this process, validating and where necessary challenging G20 actions against strong objective analysis. Their contribution to this process should continue. Alongside this:
• the IMF should enhance its surveillance role by updating and codifying its multilateral surveillance function to drive further improvements in its ability to monitor global risks.
Financial sector governance
The financial sector is the most integrated part of the global economy but the governance of its regulation has lagged behind what the system presently needs. The Financial Stability Board (FSB) was set up by the G20 in 2009 as part of the response to the global financial crisis, succeeding the Financial Stability Forum. The FSB has made very significant progress within a short period of time. But the challenges it faces and the tasks conferred upon it mean that the FSB needs to be strengthened so that it can continue to effectively address some of the underlying problems that led to the crisis – by driving greater coordination among financial standards, preventing regulatory arbitrage arising, inter alia, from inconsistent and partial national implementation of standards, and ensuring that there is sufficient understanding of how macroeconomic and financial sector risks interact.
Many international bodies and authorities are leading on aspects of these core problems in different parts of a very diverse international financial sector. But the FSB is the only body able to play a coordination role across these issues. This role now needs to be reinfor ced and made more visible. The FSB Chair, Mario Draghi, has led a process, initiated by Leaders at the Seoul Summit, to examine ways in which the FSB’s capacity, resources and governance can keep pace with growing demands.
As a result, the FSB has: taken steps to improve the efficiency of its internal processes ; established a standing committee to assess its resource needs; and committed to extend its consultation of non-members on its policy work.
The FSB, under its next Chair, must build on these achievements, and place itself on a more effective, enduring and independent organisational footing for the future.
In doing so, the FSB should maintain its existing links with the Bank for International Settlements. The G20 should ask the FSB to take first steps before the end of this year to :
• intensify its monitoring and assessment of global standards implementation, working with international standard-setters, to prevent regulatory arbitrage ;
• strengthen and formalise the basis on which it coordinates the work of international standard-setting bodies to promote greater coherence, through Memoranda of Understanding that embed concrete coordination mechanisms ;
• further strengthen its collaboration with the IMF on multilateral surveillance by initiating a liaison committee to oversee this work ; and • establish itself as a legal entity by early 2012 to provide it with the identity, authority and capability it needs to fulfil its comprehensive remit.
Governance of global trade
The World Trade Organization (WTO) is at the centre of the multilateral trading system, and its role in taking forward the Doha Development Round has occupied public attention for the past decade. This report does not discuss Doha, which is addressed elsewhere in the G20’s agenda. It focuses instead on the WTO’s wider responsibilities in relation to the governance of the multilateral trading system. For example : it is the guardian of the rules that govern the global trading system; it operates a unique Dispute Settlement Mechanism ; it carries out surveillance of the system; and from the start of the global economic crisis, the WTO has prevented protectionism by monitoring the actions of G20 members. These and similar activities are crucial to the efficient and equitable operation of the global trading system.
Governance for growth
Practical actions to strengthen this system are even more important at this time of economic uncertainty. Many of the ideas around enhancing the WTO are not new.
But some of these important reforms could be taken forward now to bring the WTO’s activities and rules more closely in line with current economic and commercial realities, and at the same time make it easier for developing countries to participate.
This will reinforce the WTO at the heart of global trade governance. The G20 trade ministers should propose, starting at the WTO Ministerial in December, that the WTO and its members address four specific issues among other subjects on its agenda :
• enhancing the WTO’s efforts to monitor free trade agreements, identify protectionist measures and recommend remedies to rectify them ;
• concluding and implementing key reforms to the WTO’s Dispute Settlement Mechanism ;
• instituting more regular updates to existing global trading rules through the WTO’s remit to do so outside the context of ongoing multilateral negotiations, as envisaged in the Marrakesh Agreement of 1994 ; and
• considering innovative approaches to trade liberalisation, such as regional and plurilateral agreements, in a manner that is compatible with the multilateral framework.
Towards more effective global standards
Alongside the work of formal institutions, a large body of international standards and rules exists across a range of policy areas. Many of these were developed by advanced economies, reflecting their collective needs at the time. But the world economy now includes a much greater number of actors. As economic interests converge, all of the key actors need to be involved in the development of existing and, where the need arises, future standards so that they become more global in nature.
The G20’s informal character has enabled a diverse set of major economies to come together and solve problems on an equal footing. This approach of involving all of the key actors, with political endorsement from the G20, has just begun to be applied to the development of existing standards and rules, such as in the area of tax transparency and information exchange. The G20 should build on this and encourage opportunities to further develop standards and their governance by :
• endorsing the political importance of developing existing and future standards, by involving all of the key actors to ensure that these standards become truly global ; and
• supporting high-level principles that guide a more open, inclusive and practical process of developing and governing these standards.
Greater coherence in future governance
Taken together, the practical proposals set out above should help to improve the effectiveness of the key institutions, standards and rules that govern international economic activity, and lead to better collective outcomes overall. But looking more broadly at the institutions grappling with the current and future challenges of economic globalisation, there is clearly a need to strengthen their overall coherence.
This is a much larger subject than can be addressed in this report. But there are some important approaches that the G20 could support.
There are a large number of established institutions and processes, especially those tackling challenges in cross-cutting areas such as energy, the environment and development: the essential challenge is to make these institutions work better together. The solution in many cases is not formally changing mandates or creating new bodies. Such changes can consume huge amounts of political energy. And in today’s fast-changing world, challenges often evolve more quickly than institutions can be restructured to address them. Rather, existing institutions must be given clearer and stronger political direction to work together, analysing global problems and proposing actions in a more joined-up way to achieve common goals.
The G20 should :
• signal the importance that its Leaders attach to international institutions working around clear and common goals ;
• encourage ongoing efforts, such as ahead of next year’s Rio+20 Summit, to strengthen the coherence of global sustainable development governance, including through the process of agreeing high-level goals ; and
• commission international institutions to work together in providing the G20 with joint analysis or prescriptions that support the work of its members, respecting these institutions’ own decision-making processes.
The report : 
2011-cameron-report
