The G20 is meeting in London tomorrow. It is supposed to address the ongoing global economic crisis. But there appears to be some widespread disagreement between its members over how precisely to do that. Germany and France are pushing for stricter financial regulation. The United States wants Europe to commit more money to their economic stimulus efforts. Argentina, Brazil, South Korea, and China want a greater say in the international financial institutions.
Not surprisingly, the blogosphere is alive with discussion of the G20 spectacle. France’s threat to walk out of the G20 meeting unless agreement is reached on “key issue” of offshore tax havens was greeted with ridicule by Dani Rodrik. Gideon Rachman argues that the G20 is focusing on the wrong issues; that unless the problem of toxic assets in the banking sector is addressed, no financial stimulus or regulatory changes can be successful. Alex Evans and Rob Elliott both argue that the G20 should not forget the environment in their discussions.
And Daniel Drezner, who always seems to be at the forefront, has already leaked the G20’s final communiqué, the Miracle of London, in which all the G20 parties get everything they want, thereby resolving the world’s economic crisis and achieving the goals of Security Council reform and concluding the Doha Round in one fell swoop—okay, this was an April Fool’s gag, but a good one!
But back in the real world, I’m suspicious that the G20 will not be able to produce any real agreement. The problem is that, despite his popularity, Obama faces an uphill battle in convincing the other G20 countries that they should sacrifice for his program. As Clive Crook surmised, Obama’s nice guy image buys only so much goodwill. This is a classic example of the free rider problem. The G20 members are each hoping that the other members will bear the cost of stimulating the economy, saving them from having to do it themselves. At the same time, no single country has the hegemonic position necessary to advance real, fundamental reform of the global financial system. As a result, I believe we are more likely to see piecemeal changes to the international financial institutions. Perhaps the International Monetary Fund will move to an open selection process for its Managing Director. But any real restructuring of financial regulations would depend on closer cooperation between the United States, Europe, China, and other leading financial players. And I don’t see that in the cards. Hegemonic stability theory tells us that the construction of any effective and powerful international regime (such as a global system of financial regulation) requires the existence of a hegemon willing and able to create and enforce norms, and having the economic, technical, and military capacity to do so. The United States was clearly this country after World War II, as was the United Kingdom during the period of Pax Britanica. The overriding question, then, is whether or not the United States (or some other country) plays that role today. Of that, I’m not sure.