G8 to G20: The Growing Role of Developing States in the Global Economy

By Fae MacArthur Clark

Website: http://www.bard.edu/bgia/bardpolitik
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Photo courtesy of the Kremlin

NEW YORK, Sept 28 -- The meeting of the world's twenty largest and fastest developing economies in Pittsburgh this week is historic in two ways. Firstly, coming one year after the outbreak of the global financial crisis, the meeting in Pittsburgh was a chance for world leaders both to plan further methods to bolster and improve their economies and to look back at the efficacy of previous measures implemented. Secondly, in a historic announcement on the second day of the conference, US President Barack Obama pronounced that the G20 summit would “permanently replace” the G8, the much smaller group of the world's eight richest states which had previously taken the leading role in deciding world economic policy.

These two things may not appear on first sight to be connected. However, in the eyes of many experts, the rise of the G20 is not only a response to the global financial crisis,but a reflection of geoeconomic realities that the traditional G-8 powers had sought to forestall.

“The global crisis has moved the United States, along with the rest of the world, toward a new global economic order, with the G-20 summit as one of the principal manifestations of the new global governance system,” reads a report published by the Brookings Institute earlier this month“While moving from G8 to G20 summit might not create an optimal global steering group, it is a pragmatic and effective step, especially in response to crisis.”

Dr. Mohan Kaul, Director General of the Commonwealth Business Council, blogged in response to the “almost unnoticed” passing of the G7 Summit earlier this year, “attention is now focused on the G20 meeting in London in April, with many hoping that it will become the starting point for recovery, for a new global financial and governance structure.”

In fact, the Group of 20 was founded in 1999 in response to the Asian Financial Crisis and was intended to help coordinate responses to international economic crisis.

With representation from eleven more states than the G8 as well as the European Union, the G20 represents 90% of world GDP and two thirds of the world's population. Notable members to the G20 include China, Brazil, and India who were not included in the G8.

Brazilian President Luiz Inácio Lula da Silva, heralded the speed with which the larger group has overtaken the old G7 club of American allies. “The acceptance that the challenges of a globalized planet will not be met without the active involvement of all” was the “main achievement” of the London G20 summit in London earlier this year Lula wrote this week in the Christian Science Monitor.

In part, this might stem not only from a growing realization in the wake of the global financial crisis that greater multilateralism is necessary. The crisis also laid bare the defects in the United States' economic ideology, bolstering models of states like China and Brazil, whose economies proved resilient and quick to recover in comparison to those of the US, Japan, and Europe.

Jaspal Bindra, chief executive of the Standard Chartered Bank in Asia, writes that “it is clear by now that the West will take a long time to repair the damage to its economies caused by the financial and economic crisis and return to a sustainable growth path.” In an op-ed in the Taiwan News, he said the world now looks for economic leadership to Asia. “The onus for engineering a relatively quick recovery now largely rests with China, India, Korea, Indonesia and the other large emerging markets.”

Decisions made in Pittsburgh reflect this sentiment. G20 leaders agreed upon a shift of at least 5 percent of IMF voting power to the developing world and a shift of at least 3 percent in voting power at the World Bank. In combination with the decision for the G20 to replace the more exclusive G8, these agreements point towards a greater understanding of the role of developing nations in the global economy. “To make our institutions reflect the reality of our times, we will shift more responsibility to emerging economies, within the International Monetary Fund, and give them a greater voice,” explained US President Barack Obama who has taken a strong role in pushing for multilateralism in economic affairs.

Closing the Pittsburgh summit, Obama seemed to concede the point: “We can no longer meet the challenges of the 21st century with 20th-century approaches. That's why the G-20 will take the lead in building a new approach to cooperation.”