It was easy, back in late 2008, to see what the G20 was for. The first gathering of leaders from the world’s biggest developed and emerging market economies took place in Washington in November 2008, shortly after the collapse of Lehman Brothers. The idea was to prevent a colossal financial and economic crisis turning into a second Great Depression, something that seemed entirely plausible given the 1930s-style collapse in industrial output and trade. The second meeting was in London five months later, after central banks and finance ministries had acted in concert to boost demand.
The message was clear. Avoiding calamity required co-operation but was no longer a job solely for the great powers of the west; the task had to involve China, India, Russia, Brazil and the other countries starting to make their mark on their global stage.
The G20 appeared to be just what was needed. It was bigger than the G7 but not so big as to make meetings unmanageable. Moreover, it seemed to be a body that could provide global solutions to global problems: the lack of effective demand, unemployment, the imbalance between creditor nations such as China and deficit countries such as the US, the failure to supervise multinational finance effectively, and the loss of government revenues to offshore tax havens.
Sadly, the G20 has failed to live up to its promise. It has in effect become a G30 because countries unhappy about being frozen out of the club have turned up anyway. Meetings have become talkfests and photo opportunities. The willingness to come together in the hostile environment of late 2008 and early 2009 has entirely dissipated.
An indication of how the G20 has fallen from grace is the number of finance ministers who have decided not to make the trip to Sydney this weekend. Those who do show up are expecting fireworks when India’s central bank governor, Raghuram Rajan, meets Janet Yellen, the new chair of the Federal Reserve. Rajan has been vociferous in his criticism of the way the US central bank is “tapering” its asset purchase programme with no heed as to how the winding down of quantitative easing will affect emerging economies.
George Osborne, the British chancellor (finance minister), says Sydney should not turn into a blame game. Fat chance. Emerging countries are at odds with the US over tapering; Germany is at odds with the US over growth.
There will be talk this weekend of the need to crack on with the crackdown on tax avoidance, but here too progress has been slow and faltering. The unpalatable truth is that the history of the G20 since its heyday at the London summit in April 2009 has been one of fragmentation and increasing irrelevance. It lacks a political leader to give it impetus and lacks an agenda that could put in place measures to tackle unemployment, global warming and the threat of a second financial crash. The challenge for the G20 is to show it has a real purpose. Otherwise it should be scrapped.