So the Group of 20 is going to be the body "coordinating" the global economy from now on, the leaders of the world's most powerful developed and developing nations agreed Friday in Pittsburgh, Pennsylvania. The decision to remove that responsibility from the G-8, the world's richest industrialized nations, and encompass Latin America's Brazil, Argentina and Mexico as well as other major emerging economies like China, India, South Africa, Indonesia and South Korea is a positive step forward. The BRIC countries in particular are playing an increasingly important role in the global economy and giving them more say in managing its affairs would be a welcome move indeed.
But is that what's really going to happen by including developing nations on this global "board of directors"? Not likely, because as we've seen time and time again, whether it's the G-20, the G-8, the G-7 or the G-whatever, such loose talking shops will never have the authority - given the different national interests involved - to make hard decisions on specific matters, let alone manage the global economy. And that's exactly what we saw once again in Pittsburgh - lots of fudging, on issues from bankers' bonuses to trade and budget imbalances. Talking shops are important, world leaders need to get together every now and again to discuss big issues, but the idea that, as British Prime Minister Gordon Brown put it, the G-20 is now going to become the "premier economic organization for dealing with economic management around the world," is, eh, pie in the sky. Even if the leaders of 19 such diverse nations (the 20th member is the EU, which complicates matters even more) could agree on the specifics of managing the globe's finances, they would inevitably be one step behind the curve, as the economy moves faster than regulators, managers, directors, finance ministers, central bank chairpersons or even presidents.
All that's not to say that there are no lessons to be learned from discussing these issues at the highest level, but more questions than answers will likely be the result. How can world leaders prevent another financial meltdown like the one we saw last year? Why didn't the "experts" see it coming, or did they? Looking at Latin America, and comparing the region to say China and India, one lesson to be learned is the need to develop the region's domestic economies and depend less on exports, whether in the form of commodities or, like Mexico, manufactured goods sold largely in the US. The Chinese and the Indians saw their export markets collapse but are emerging from the slump relatively unscathed thanks to their stronger domestic markets.
But at the end of the day, unless individual nations are prepared to cede a degree of sovereignty to international organizations, the "solutions" (read "delayed reactions") will continue to come in at a national or at best regional level, just as we saw during the financial crisis when the US, Europe and others all adopted very different approaches. Economic stimulus packages, nationalizing the banks or bailing them out, stricter capital requirements, slashing interest rates to encourage lending (when loose lending was what started it all off), quantitative easing, protectionism (buy American, buy Brazilian etc), caps on bonuses - you name it, someone's tried it. If the G-8 couldn't agree what to do, what chance does the G-20 have?
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