NEW YORK – We live in a world where, in theory, global economic and political governance is in the hands of the G-20. In practice, however, there is no global leadership and severe disarray and disagreement among G-20 members about monetary and fiscal policy, exchange rates and global imbalances, climate change, trade, financial stability, the international monetary system, and energy, food and global security. Indeed, the major powers now see these issues as zero-sum games rather than positive-sum games. So ours is, in essence, a G-Zero world.
In the nineteenth century, the stable hegemon was the United Kingdom, with the British Empire imposing the global public goods of free trade, free capital mobility, the gold standard, and the British pound as the major global reserve currency. In the twentieth century, the United States took over that role, imposing its Pax Americana to provide security to most of Western Europe, Asia, the Middle East, and Latin America. The US also dominated the Bretton Woods institutions – the International Monetary Fund, the World Bank, and, later, the World Trade Organization – to determine the global trade and financial rules, with the dollar as the main reserve currency.
Today, however, the US “empire” is in relative decline and fiscally over-stretched. Moreover, the rising power, China, which is not a liberal democracy, is pursuing a model of state capitalism, and is free-riding on the current global system – on trade, exchange rates, climate change – rather than sharing in the provision of global public goods. And, while there is general unhappiness with the US dollar, the Chinese renminbi is still far from becoming a major global reserve currency, let alone the dominant one.
This power vacuum has reinforced the absence of leadership on global economic and political governance within the G-20 since it succeeded the G-7 at the onset of the recent economic and financial crisis. Indeed, with the exception of the London summit in April 2009, when a consensus was reached on joint monetary and fiscal stimulus, the G-20 has become just another bureaucratic forum where much is discussed, but little is agreed upon.