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The G-20 and international economic governance: hegemony, collectivism, or both?

Following the East Asian crisis of 1997-1998, much attention was paid to financial sector reform. While little of substance has changed in the intervening years, a number of potentially important new forums were established to facilitate international cooperation. By drawing on and modifying theories of hegemony, this article provides a theoretical context within which to explore one of these institutions: the Group of 20 (G-20). The key question examined is whether institutions like the G-20 are likely to provide genuine mechanisms for cooperation and inclusion or simply become instruments of "hegemonic incorporation." The argument here is that despite the continuing "structural" dominance of the international system by the United States and the Group of 7 (G7) nations, the G-20 provides some scope for other nations to influence outcomes. KEYWORDS; G-20, hegemony, governance, institutions, international financial system.

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The contemporary international financial system in recent decades has expanded greatly in size, reach, and liquidity. At the same time, however, it has become much more susceptible to crisis and instability, not only in emerging markets but more recently in the developed economies as well. (1) The financial crisis that engulfed East Asia in the late 1990s was especially important in highlighting the potentially devastating effects of exposing immature domestic financial systems to highly volatile international capital flows. Debates about a "new financial architecture" and new coordinating institutions followed in the wake of these events. (2) A report by the Bundesbank's president, Hans Tietmeyer, was endorsed by the Group of 7 (G7) in 1999 and led to the creation of the Group of 20 (G-20) and the Financial Stability Forum (FSF). The focus of this article is the G-20, a forum designed to promote dialogue on financial and global economic governance issues in which nations of both the North and the South come together to discuss and attempt to manage common systemic problems. Its key participants are finance ministers and central bankers from the traditional G7/8 countries as well as from Australia, Argentina, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, the Republic of Korea, Mexico, the Russian Federation, Saudi Arabia, South Africa, Turkey, the United Kingdom, the United States, and the European Union (EU). These are countries that together represent over 85 percent of world gross domestic product (GDP), 80 percent of world trade, and two-thirds of the world's population. The G-20 also has representatives from the EU, the International Monetary Fund (IMF), and the World Bank.

To help frame our analysis of the political dynamics of the G-20, we utilize two conceptualizations of the politics of international coordination and inclusion: hegemonic incorporation and collectivist cooperation. Both are potential vehicles for coordination but on different terms and via different logics of interaction. Hegemonic incorporation implies US and G7 dominance, which Alison Bailin refers to as "group hegemony," involving an "incorporationist" logic applied to the non-G7 members within the G-20. (3) This logic encourages the adoption of a broadly neoliberal consensus and policy model by emerging market economies, not only in the interests of overall coordination and a safer world for the lead economies and their economic and financial interests, but also in terms of the conditions under which emerging market economies gain access to key trade and financial flows. However, collectivist cooperation involves an institutionalized voice and new role, especially for the non-G7 members of the G-20. The creation of the G-20 ostensibly suggests a collectivist and inclusive logic in international politics aimed at functional and normative goals: a more diverse and inclusive membership increases the prospects for consensus and effective policy coordination, while simultaneously enhancing credibility and legitimacy through a wider representation of interests. (4) The collectivist logic also implies some degree of mutuality and shared influence in developing new understandings or policy frameworks. In this sense, the politics of collectivist cooperation may not simply be a fig leaf for continuing US or G7 dominance, but a genuine--if still incremental--shift toward wider participation in the governance of the international economic and financial system. Certainly, this was the way the G-20 was presented to the world by its sponsors back in 1999.

The central questions we address are whether the emergence of institutions like the G-20 mark a fundamental departure from US or group hegemony, or whether this apparent embrace of such a multilateral approach is simply hegemony by other means. Our broad answer to both questions is no or, perhaps better still, not quite. The G-20 does not mark a fundamental departure from US or group hegemony, but nor should it be understood as simple hegemony by other means. This is largely because the incremental shift toward wider participation apparent within the G-20 marks an interesting multilateral departure in international politics born of specific institutional dynamics within the G-20, underpinned by wider structural shifts in the international system. The specific institutional dynamics we refer to involve a form of relational hegemony involving trade-offs and resource exchanges between the members of the G-20. We thus locate the G-20 within the shifting modalities of authority and the promulgation of new norms in international politics and argue that the G-20 network is helping to produce modified variants of hegemony and collectivism within the system. These institutional and structural dynamics caution against writing off the G-20 as part of what some scholars see as a wider current crisis of multilateralism. (5) It may be true that institutions such as the IMF, World Bank, and World Trade Organization (WTO) are being marginalized, but we argue that the institutional dynamics emerging within the G-20 nevertheless deserve wider analysis and discussion. In this article we explore new perspectives on the G-20 gained in part by interviewing key Australian insiders. (6)

In other words, we suggest that neither of the two models presented wholly captures the evolving politics of the G-20. Their either/or nature obscures the fact that the dynamics of both hegemony and collectivism are at work within the G-20, each being partly shaped by different structural logics in international political economy. Hence, the operation of the G-20 and, especially, its broadly neoliberal policy commitments reflect important elements of structural influence over the international economy by the major powers, notably the United States. Nevertheless, nested within this broader framework, the G-20 should also be seen as a case of dynamic institutional development in which new institutional effects and at least some collective capacities appear to be developing. The key to our analysis is to show how structural elements of hegemony (properly understood) relate to institutional and agent-centered relational dynamics within the G-20 itself. We also argue that the dynamics and exchanges within the G-20 relate to two different structural dynamics in the international system: the structural dominance of neoliberalism and the lead states, and structural shifts in the system whereby power balances as well as levels of economic integration are being altered by the rise of significant emerging market economies, such as, among others, India, Brazil, and China. (7) The G-20 itself refers to this latter change as a "tectonic shift in the global economy." (8)

In the next section we unpack the models of hegemonic incorporation and collectivist cooperation before briefly outlining the origins of the G-20. Following an exploration of the internal dynamics of the G-20, we argue then that the evolving amalgam of hegemony and collectivism within the G-20 reflects deeper structural and institutional logics.

Modeling International Economic Governance

Both of the models outlined in the following discussion offer accounts of possible patterns of international coordination in the contemporary international system. To understand their development, significance, and possible attractions, however, we need to place them in context and say something about the evolution of US hegemony.

Hegemony in Historical Perspective

There is now a large literature that deals with the nature of hegemony from a variety of theoretical perspectives. (9) What is significant about such debates in the present context is the way they help us to understand familiar, if not entirely resolved, problems of structure and agency. For our purposes, it is useful to make a general distinction between the structural and relational aspects of hegemonic power. Susan Strange famously argued that the structural aspects of hegemony are derived from a state's dominant position in production, finance, knowledge, and security. (10) Most analyses from a political economy perspective understandably focus on the first three of these factors. However, we argue that if we are to understand how US hegemony has evolved, and why it may not have as much leverage over other states as it once did, then we need to take the overarching security context seriously too. One of the arguments we develop is that the United States has been forced to assume a more accommodating position vis-a-vis other states partly because other states are no longer as constrained by geopolitical or structural considerations as they once were.

While it is clear that the United States remains the most powerful country in the international system, it is also apparent that US hegemony currently operates in very different circumstances from those in the immediate aftermath of World War II. The geopolitical constraints that made the creation of the Bretton Woods institutions and the reconstruction of successful capitalist economies in Europe and East Asia such a critical ideological imperative, as well as a formidable "technical" challenge, have weakened. The principal consequence of this reconfigured strategic environment is that there is currently not a contest about the type of economic system that should prevail, but only about its management and precise form. One of the ironies of the postwar period from the narrowly conceived perspective of America's "national interest" is that the very success of the postwar international order has seen the emergence of formidable competitors in Europe and Asia--rivals that are not only gaining on the United States' relative economic position but also pushing for greater political and institutional representation as a consequence. (11) In such circumstances, the relational aspects of hegemony, in which the application and distribution of power assume more contingent and negotiated forms, become increasingly important.

The contradictions that emerge from the interaction of structure and agency are thrown into sharp relief in a long-term historical context. At the level of what Michael Barnett and Raymond Duvall describe as "productive" (as opposed to structural) power, the United States has clearly been able to promote and institutionalize practices and relationships that are broadly congruent with neoliberal ideas and interests. (12) But there has always been a tension between the role of the United States as hegemonic stabilizer and systemic leader (13) and its own interests as a country like any other. The potentially unsustainable nature of these competing imperatives was highlighted by the collapse of the postwar system of regulated international finance in the 1970s, which the United States abandoned because of domestic economic and political imperatives--leading directly to the much more liberalized financial order we see today. (14)

Two further contradictions are worth briefly noting. First, it has been belatedly recognized that a "deregulated" financial system requires a good deal of regulation if it is to avoid periodic crises. This is why, absent the United States' former leadership/stabilizing role, institutions like the G-20 are potentially significant, especially if they can help shape national and international financial regulation. Second, despite a clear decline in the United States' relative economic position, it has been able to access--indeed, it has become increasingly dependent on--the sorts of large-scale capital flows that are so characteristic of the new order. Without continuing inflows of capital from Japan and, more recently, China, the United States would not be able to underwrite its debt-driven economic development and consumption patterns. (15) Furthermore, even those aspects of US hegemony that are taken to be so unequivocal and unchallenged--especially its unrivaled military dominance--would be less assured and require greater domestic sacrifices without assured access to the savings of foreigners. Consequently, the United States in particular has powerful incentives to try to maintain the international system as it currently operates. (16)

Hegemonic Incorporation Versus Collectivist Cooperation

There are, we suggest, two broad possible responses to this reconfigured environment. The hegemonic incorporation model suggests that the G-20 should be seen as an institutional development crafted by the core economies under US leadership, primarily as a discursive and deliberative forum designed to help inculcate the virtues of globalization and stabilize the international economy. In this view, the G-20 is an institution of international coordination via the incorporation of previously peripheral players that are now considered to be of "systemic importance" as the reach and potential vulnerabilities of the international financial and economic systems increase. The basic thrust of such coordination is a commitment to a broadly neoliberal consensus and the adoption of domestic liberalization and other reforms designed to make emerging markets more stable and easier to access for footloose investors. Consequently, we might expect that debates within this model would reject the notion that financial markets suffer from systemic instability or that they themselves should be the target of reform. According to this model, the G-20 thus helps the United States and the G7 dominate a wider order and legitimize a G7-generated view of the world.

Much of the scholarly writing on the G-20 from international political economy (IPE) scholars has been strongly influenced by this kind of hegemonic and incorporationist view. Tony Porter, for example, argues that the G-20 should be seen as a forum for selling and "legitimating G-7 policies." (17) Other scholars reach similar conclusions. (18) The problem with this type of account, however, is that it reflects a kind of totalizing structuralist form of hegemony. An important critique of what might be called "crude" hegemonic concepts in IPE is provided by Randall Germain and Michael Kenny, (19) who argue that such approaches fail to appreciate the subtlety of Gramsci's original formulation of hegemony, one that stressed that the power equations at work are both structured and relational. As David Levy and Peter Newell suggest, hegemony is not primarily about direct coercive control but about "coalitions and compromises that provide a measure of political and material accommodation with other groups and on ideologies that convey a mutuality of interests." (20)

In the postwar era, the implicit hegemonic bargain was predicated on a highly institutionalized order in which US power was constrained, with significant payoffs for other cooperating countries as a consequence. Crucially, "secondary states" were given access--albeit somewhat limited--to decisionmaking processes through multilateral institutions. (21) Transposed to today's international arena, this form of rule or incorporation still generates significant payoffs for cooperating countries. In other words, the international system (including the G-20) might have originally been crafted by the dominant players, but to effectively incorporate wider interests it must also inculcate support and offer benefits and compromises to other noncore actors. Hence, hegemonic incorporation is a subtle process. It is structured by the dominant patterns of economic and political power that make up the international system, but it involves a degree of cooperation and compliance based on a series of ideological and material exchanges between the stronger and weaker parties. It is on this basis that the G-20 is best understood as the institutionalization of both (relational) hegemony and a new form of emergent collectivism--essentially a form of relational hegemony played out inside the G-20. In this sense, the G-20 is not a neutral institutional venue but one that, because of its format and procedures, facilitates the kinds of collective engagements and exchanges we analyze in this article. (22)

Two structural changes in the international economy have provided an impetus for this style of collectivist cooperation. First, there is the heightened perception of systemic vulnerabilities, which have increased the perceived need to work more closely with emerging market economies. (23) Second, the structure of the world economy is changing. Not only are emerging markets now systemically important, but the older G7 club is increasingly expected to be less central in the world economy as players such as Brazil and (especially) India and China continue to expand in size, potentially altering the balance of economic power. Extant policy coordination problems and the rapid rise of powerful new economies have led some to argue that there is little choice but to include such new actors and to seek genuinely collective solutions to international problems. (24) As one senior financial official argued in 2003, the G-20 represents the "recognition by the international community that the solutions to global financial pressures had to reach well beyond the G7." (25) These views place an emphasis on the institutional and normative requirements for collectivism and inclusion within the international economic system and the G-20, with a focus on technical collaboration, consensus formation, information flows, regulatory cooperation, mutual influence, and perhaps a broader shared vision of how the system should be managed. All this involves, according to Germain, (26) a "strong functional argument" for the politics of coordination. Mobilizing effective collective action across countries to provide the basis for joint action in a system that is more difficult to govern by a hegemon acting unilaterally or in alliance with a small group such as the G7 consequently necessitates the development of a politics of inclusion, in which a range of key stakeholder countries are brought into an institutionalized process of consensus forming, if not decisionmaking and power sharing.

But the authentic pursuit of a politics of inclusion creates a related normative argument: new collectivist forms of coordination are likely to be supported and seen as legitimate only if they incorporate genuine forms of engagement and inclusion. The key issue, especially for non-G7 countries, is the perceived legitimacy of coordinating institutions in the international economy. In this context, legitimacy refers to issues such as transparent procedures, fair and equitable treatment and rules, and, above all, a sense of inclusiveness and meaningful participation. (27) This is especially germane because critics in the developing world and "global civil society" have drawn attention to the exclusive, inequitable nature and impact of decisionmaking within the established institutions and the "democratic deficit" within them. (28)

Paul Martin, a former Canadian prime minister and a major advocate of the G-20, has argued that new institutions and policies "will work only if the developing countries and emerging markets help shape them, because inclusiveness lies at the heart of legitimacy and effectiveness." (29) The G-20 was inaugurated partly as a result of the view that the most badly affected crisis countries were not represented in the existing intergovernmental bodies like the G7, which, despite the inclusion of Russia (to form the G8), remains dominated by the established industrial powers of Western Europe and North America. This unrepresentativeness, combined with the fact that the most crisis-prone countries had little capacity to influence the development and operation of the international financial system, has been one driver of ongoing support for the G-20 process. Moreover, a policy consensus that emerges from this forum can be expected to enjoy substantial legitimacy--something that ought to facilitate ongoing policy implementation by other agencies.

We argue that this collectivist logic and the revised hegemonic model described are not alternatives but are linked in complementary ways. In this view, the G-20 is a specific institutionalization of certain elements of collectivism nested within and dialectically interacting with the form of relational hegemony as outlined. This is why neither of the models we have presented provides a comprehensive account of the politics of the G-20--largely because both hegemony and new forms of institutional collectivism are at work at different levels, each in turn reflecting differing logics in the international political economy.

The Evolution of the G-20

Significantly, the G-20 was originally promoted by the United States and Canada and by the G7. (30) US efforts in establishing the G-20 reflected its role in promoting the earlier G-22 and subsequently the G-33 in early 1999, both moves demonstrating its unique capacity to bypass or create new organizations and operate unilaterally or multilaterally as it chooses. (31) Efforts to morph the G-33 into the G-20 were pursued from early 1999 because of views that the G-33 was too ad hoc and unwieldy (with European views that it was too skewed toward Asian representation). (32) This restructuring implied, as the G-20 puts it, that "some participants of the G-22 and G-33 would be disappointed." (33)

The G-20's modus operandi is to hold a series of preliminary meetings and an annual ministerial conference that discuss policy issues with the aim of establishing a consensus among the attending finance ministers and central bankers on the key issues and policy agendas pertaining to the management of the global economy and related problems. In the wake of the Asian crisis, issues such as market volatility, emerging market crises, domestic financial reform and operation of the international financial institutions, and exchange rate issues were the main focus of the initial G-20 meetings. Indeed, the creation of the G-20 was an explicit acknowledgment that such issues could not be tackled without including key emerging market economies. Over time, the G-20's agenda has widened, and in recent years discussions have ranged more broadly across aid effectiveness, debt relief, energy security, demographic shifts, and the like. Thus far annual conferences have been held in Canada (2000, 2001), India (2002), Mexico (2003), Germany (2004), China (2005), Australia (2006), South Africa (2007), and Brazil (2008).

Our central argument, then, outlined more fully later, is that the G-20 constitutes an instantiation of relational hegemony, sustained by a series of evolving exchanges between stronger and currently weaker parties within the G-20. In such a setting it is useful to ask how non-G7 countries have operated within the G-20 to forge exchanges with the dominant powers. First, however, we need to underline the fact that the ideas and positions endorsed within the G-20 are broadly neoliberal in character. The G-20 meeting in Berlin in 2004, for example, reflecting strong impetus from Germany, generated a key document, the G-20 Accord for Sustained Growth, which spells out its consensus position on central issues of economic management. (34) This was accompanied by a Reform Agenda which lists (in a rather perfunctory fashion) the Accord initiatives that each G-20 member has undertaken to prioritize. The most striking feature of the two-and-a-half-page Accord document is its range of orthodox neoliberal formulations: price stability, fiscal discipline, labor market flexibility, competition, transparency and accountability, good governance, and trade and capital liberalization. In the financial arena, the reform agenda aims to promote the vision of relatively free and lightly regulated capital flows and deal with potential problems by strongly encouraging target countries to improve and modernize their economic and financial governance arrangements. The adoption of best-practice regulatory and prudential systems, capital opening, flexible exchange rates, monetary stability, and greater transparency are all part of the recommended toolkit. (35) Despite being broadly neoliberal, however, such commitments also reflect a degree of disenchantment with any lockstep adoption of the so-called Washington Consensus. (36) This emerged clearly in the G-20's Montreal meeting in 2000, embodied in the so-called Montreal Consensus, which dealt with issues such as income distribution and social protection. (37)

The G-20 does not promulgate rules, it does not make or implement policies or allocate resources, and--at least from the perspective of those involved from Australia--it does not browbeat members. According to the Australian Treasury's Gordon de Brouwer, there is "no split between industrialised and emerging market countries within the G-20 ... it's not a matter of the industrialised countries coming in and laying out a set of propositions for the emerging market countries." It could be that the G-20's neoliberalism is a product of groupthink. Perhaps even more plausible is the argument that it stems in large part from the way the international economy is structured. Crucially, policies of neoliberal openness are more or less the prerequisite for participation in the trade and especially the financial flows of the international economy, and such participation is something all G-20 members desire. Even former communist countries such as China are now bent on economic opening and neoliberal engagement and--in China's case, at least--have made substantial alterations to their domestic constitutions to comply with the dominant international order as a consequence. (38) In part, at least, neoliberal commitments reflect instrumental responses to the structural characteristics and requirements for greater participation in the international economy.

Yet as critics of neoliberal "convergence" point out, (39) such structuralist arguments do not tell the whole story, and at the national and institutional level there are degrees of freedom for divergence and policy innovation. Hence, broad policies of openness can be seen as a structural requirement for engagement in the international economy, although even at this level, protectionist and closed trading arrangements are not uncommon (especially in the major powers). But despite structural or market confidence pressures on countries to comply with sound fiscal and monetary policy settings, there is still some room for maneuver, even in areas such as monetary policy. (40) It is not clear then that the pressures of "disciplinary neoliberalism," (41) as experienced within institutional settings such as the G-20, are necessarily overwhelming. (42)

Institutionalized Collectivism

It is here that certain institutional and even perhaps collectivist elements of the G-20 are worthy of attention because they are potentially reinforced by the structural developments already noted--namely, increased intervulnerability in the international economy as well as the slowly changing structure of international economic power. It is certainly true that the G-20 brings to the table a number of large emerging market economies and offers the opportunity to widen the debate beyond a narrow neoliberal agenda. (43) As the Australian observers Gordon de Brouwer and L. Yeaman argue, the G-20 is potentially important because "the active engagement of the key mid-sized economies ensures the forum's decisions are not just the big countries deciding things for the rest of the world ... it also provides an opportunity to broker consensus between, and consensus by, the big countries that they are not able to make between themselves." (44) As South Africa's finance minister noted in 2000, "The G-20 provides us with the opportunity to make allies among the middle powers to engage with the G7; to push for structural change in a world where the inequalities are often reinforced." (45) Similarly, Vanessa Rubio Marques, formerly of the Mexican finance ministry, argues that the G-20 provides a "space" in international politics for the interaction between the advanced and emerging economies and that the strength of the G-20 lies in its "respresentativeness, its legitimacy and the systemic influence of its members." (46) A recent G-20 survey of the attitudes of participant members also found support for the notion that the G-20 served non-G7 members' interests: "All members expressed a high degree of satisfaction with how the Group operates and the procedures in place; those representing emerging countries particularly so." (47)

However, despite the expectations that surround the evolving institutional dynamics of the G-20 as a research, consensus-building, and discursive forum, its institutional capacities have potential limitations. The G-20's lack of operational or implementation capabilities and the limited number of ministerial meetings--only one a year--would seem to place constraints on the G-20's effectiveness. The lack of a permanent secretariat similarly raises concerns. The modest character of the G-20 as an informal discussion forum for finance ministers and central bankers (not government leaders) highlights its lower profile compared to the G7/8 groupings. Even admirers of the G-20 have questioned its significance because there seems to be little current prospect of converting it into a more robust Leaders group, or L-20. (48)

And yet, the lack of a secretariat and the fact that the G-20 is not currently evolving into an L-20 or some similar configuration may actually be potential strengths, not weaknesses. To understand why, it is necessary to explain the G-20's distinctive style of operation.

Porter's work on some of the institutional dynamics of international financial governance points in the direction of such nuanced institutional accounts. Porter compares his "technical systems approach" with a "power politics" approach and argues that the legacy of cooperative technical collaboration, whereby problems are addressed through what he sees as research and reasoned debate, has influenced practices within the FSF and even the G-20. Porter's argument regarding the G-20 experience is that its broad discussion agenda--including social issues related to globalization--has been a function of previous technical collaboration experiences.(49) Such views are reinforced by insiders like Martin Parkinson from the Australian Treasury, who argues that the G-20 has institutional attributes that help foster debates through informality, consensus formation, and experience sharing. Indeed, according to Parkinson, the lack of a formal bureaucracy, the limited number of participants, and the open nature of discussion are key strengths: "In most other international meetings you will be sitting there with a script. And as a result you find it hard to get a dialogue going. The thing that's really striking about the G20 is that it's very frank and very open. This capacity to foster low key open discussion is actually one of the G20's great strengths." (50) Moreover, continuity and coordination of the policy agenda has occurred through the development of a troika, composed of the most recent, current, and future annual conference chairs, which draw on expertise, ideas, and input from member countries in ongoing work and in the lead-up to the annual ministerial meetings. (51)

Equally counterintuitive, and at odds with other more established bodies like the G7, the G-20 has a multiyear time horizon. According to Australian participants, the fact that the G-20 does not have to satisfy short-term politicized aspirations at the leaders level or produce the sort of deliverables that have plagued the Asia-Pacific Economic Cooperation (APEC) forum (52) means that the G-20 can deal with more contentious issues than can the G7. Accordingly, the governor of the Reserve Bank of Australia, Glenn Stevens, believes that converting the G-20 into an L20 would be a "mistake," as this could undermine or transform the underlying dynamics that revolve around longer-term consensus building: "If you've got a heads of state meeting ... they've got to go home with some great triumph in their bag, and so the focus becomes on what is deliverable. ... It is less likely that you can actually work hard over a number of years on quite important fundamental things." (53) Indeed, the G-20 highlights the importance of policy learning and transfer, the role of epistemic communities, and the discursive and policy activism of increasingly autonomous organizations. (54) According to insiders like Parkinson and de Brouwer, the G-20 offers a forum for widening existing mind-sets and policy paradigms. An intellectual soil-tilling exercise in this regard occurs in the run-up to annual ministerial meetings by way of several prior deputies meetings as well as workshops, study groups, commissioned research, and background discussions, which help set the agenda and frame issues.

Notwithstanding the underlying commitment to a broadly neoliberal agenda, Parkinson argues that the G-20 debates are relatively fluid and wide ranging. In the immediate wake of the Asian crisis, G-20 attention was mainly focused on orthodox positions such as maintaining openness and improving transparency in target countries. But the G-20's ideational framework has subtly shifted over time, toward what Parkinson sees "as a sort of post-Washington or collective view of all of the membership." This shift has been partly spurred by a widespread perception that the IMF mishandled the Asian crisis. (55) The emerging "post-Washington consensus" recognizes the potential dangers that badly managed integration into the international system can entail, with the concomitant recognition that capital account opening contains potential dangers as well as benefits. The East Asian crisis drew widespread attention to the question of sequencing, (56) and the need to develop sound financial institutions and mechanisms of regulatory oversight before wholesale capital liberalization occurred. As former Reserve Bank governor Ian Macfarlane commented,
 I think there has now been an acceptance that it takes a long time to
 build good institutions and that you just can't let markets free
 before the institutions have been built. I think everyone now accepts
 that. That was the big lesson out of the Asian crisis. ... I think
 the IMF will never admit that it was wrong but it has stopped doing a
 lot of the things that it used to do under American pressure. (57)


Discussions within the G-20 have also generated a broad, though not universal, consensus that soft currency pegs and other fixed-rate regimes, combined with an adverse policy mix, are likely to contribute to a financial crisis. (58) There is also support for floating rates as a viable longer-term option. The G-20 discussions have also registered the view that globalization involves potential social costs, that different countries might need to respond flexibly to crises, and that capital account liberalization should be gradual and supervised. G-20 discussions have also focused on energy security, ways to combat terrorist financing, the introduction of collective action clauses in international bond contracts, and codes of conduct between major sovereign borrowers and lenders. Issues of trade access and liberalization have also been raised at the G-20, but as with the failed Doha Round within the WTO, there has been little progress thus far. Other examples of policy discussion that are perhaps more aligned with non-G7 members' concerns have also included development and aid programs, employment and demographic issues, migration and remittances, fiscal policy and social safety nets, and reform of the Bretton Woods institutions.

These latter elements go beyond the original G-20 focus on financial stability and demonstrate the G-20's increasingly broad-ranging discussions. "This shift in emphasis," according to the G-20, reflects the "fact that discussions on crisis prevention and resolution, the key issue when the G-20 was established, had run their course ... most merging economies have increasingly pursued prudent domestic economic policies." (59) Some member participants in a recent review of the history of the G-20, however, noted that the emphasis on longer-term issues of growth and development perhaps reflected more the interests of finance ministers than of central bankers. (60)

G-20 participants also stress the G-20's capacity to overcome policy logjams that exist in higher-profile bodies like the G7. Parkinson argues that "a lot of the flow in recent times has been from the G-20 to the G7." He also commented that "the G7 has been fairly high handed at times ... causing significant resentment that can restrict their ability to be influential." Work on tax havens and transparency, for example, "came through the G-20 after a combined German/Australian initiative because the G7 and OECD were fundamentally incapable of breaking deadlocks." (61) De Brouwer and Yeaman argue that "for a number of years, the growing role of the G-20 as a circuit breaker has become apparent." (62) The G-20 itself argues that "the role of the G-20 has become increasingly independent from that of the G7." (63) Influential former participants in the G-20 like Ian MacFarlane argue that its institutional dynamics and membership make it a potentially vital component of any regime of future crisis management. (64) Similarly, the G-20 itself comments that "while difficult to measure, there is also considerable value in the personal contacts and trust that has developed among G-20 ministers, governors and senior officials, which can be drawn upon in the event of a crisis." (65)

The G-20 as an Instrument of Wider Institutional Reform?

A big test, therefore, is whether the G-20 can help reconfigure the international institutional order that has previously attracted such criticism. An important measure of the G-20's influence and operational style has been its push for reform of the IMF governance system, a move that gathered momentum at the G-20 ministerial meeting in China in 2005. (66) A key issue of contention has been the dominant role of the United States and Europeans in the IMF, with the convention being that the executive director would be a European national. By contrast, other non-G7 countries have wanted more say in the IMF. In this context, Ian Macfarlane argues that the G-20 should actually have the authority "to sit in judgment of the IMF." Macfarlane contends that the G-20's broader constituency gives it the legitimacy to push for IMF reform. Indeed, progress on such institutionally fundamental issues of inclusiveness and legitimacy were seen by McFarlane as a measure of the G-20's future relevance and viability.

Australia's former treasurer Peter Costello made it clear in a speech at the 2005 China conference that Asia's low representation at the IMF was a problem. Parkinson argues that a coalition including Australia, the UK, Canada, and Japan had been pushing for reform partly because the IMF/World Bank annual meetings scheduled for 2006 in Singapore were the first time these meetings had been held in Asia since the late 1990s crisis and were keen to exploit this "big symbolic moment." According to Australian officials, G-20 pressure "helped break a long-standing deadlock within the IMF." (67) The G-20 also comments that G-20 measures "aimed at increasing the representation and voice of developing countries within the IMF contributed to the IMF's Singapore resolution of 2006." (68) The 2006 Singapore meeting saw, in principle, agreement from the governors for a two-stage governance reform package. First, there are ad hoc quota increases for the most significantly underrepresented countries: China, Korea, Mexico, and Turkey. But the real reform, according to Parkinson during an interview, is a second stage where "we get a new formula that reflects the economic weight of the globe at the moment. And that will be updated on a regular basis. So you won't get a situation where the quota structure ossifies." This momentum for progress on IMF governance reforms coming out of the G-20 is probably its main concrete achievement thus far. The key linkage has operated through the finance ministers and senior financial officials in the G-20 who have then worked within the IMF to push the agenda.

Despite progress regarding IMF governance and on other issues such as promoting collective action clauses, the current limits of the G-20 (not to mention the G7) are also clearly apparent. For example, the G-20 has noted "disappointment" that the appointment of the World Bank president was not more open and transparent, as urged by the G-20 since 2005. It also comments that one of its limits has been in driving through some of its consensus views and converting "policy objectives into operation." (69) This has been especially so in relation to current "tough issues," such as dealing with the US budget deficit as well as wider issues of exchange rate management and global imbalances. (70) The G-20 Reform Agenda includes a commitment to address the US public budget deficit, however, given that this continued to increase under the George W. Bush administration, especially as a consequence of its strategic commitments and reluctance to raise taxes; it will remain a major test of the G-20's willingness and capacity to tackle politically sensitive issues. Beyond this, the United States' increased dependence on China for continuing inflows of capital to fund its budget deficit, and growing tensions about China's exchange rate, mean that some mechanism must be found to manage US-China relations. (71) And yet, despite the fact that influential commentators such as Fred Bergsten consider the G-20 as possibly uniquely qualified to address such issues, (72) it is noteworthy that at the 2005 G-20 meeting in China there was limited discussion of the exchange rate issue, with no suggestions about how it might be managed. Even if the G-20 attempts to address such problems, it will need to confront a number of issues that are so central to perceived US interests that it is doubtful whether, absent a major systemic crisis, it could have much of an impact. As the G-20 itself admits, following a survey of member views, "G-20 support for global initiatives has had only a modest effect on members' behavior, and even less impact on the behavior of non-member countries." (73)

Conclusion

The combination of hegemony and collectivism analyzed in this article at first appears contradictory, but it is not. The embryonic institutional collectivism operating within the G-20 is nested within a wider hegemonic system, in a relational mode. Large inequalities in power between countries, the manifest dominance of the lead states, and the impact of wider institutional and structural processes all strongly influence the dynamics of the G-20. This hegemonic perspective is reinforced by the general reluctance of sovereign states to share power or to confer significant authority on international organizations. Nevertheless, institutionally embedded in this wider structure are potentially important processes and exchanges between parties that help legitimize this wider system but that may also slowly alter it. This view of the G-20 highlights issues of legitimacy and cooperation, in part reflecting growing opposition to what is widely seen as unrepresentative groupings like the G7/8. This suggests that there may be an opportunity for other organizations to provide a venue for the management of international problems and relations. What is clearly needed is a more detailed understanding of the internal dynamics of organizations like the G-20 from a wider variety of national perspectives.

Despite the importance of broader power structures, then, the G-20 has become--at a more meso or institutional level--the site of interesting and potentially useful institutional dynamics that have in recent years made some progress in broader consensus formation and fostered a modicum of collective action, especially around issues such as IMF reform. Most important in the longer term, the inclusion of systemically important emerging market economies into a new multilateral forum reflects important structural changes in the world economy. Such institutional and structural developments need to be taken seriously. As emerging market economies such as China, India, and Brazil increase in size and influence, they will inevitably play a greater role in international forums--something that potentially makes the G-20 a key institution. In this context, the G-20 may also be favored by the fact that two of its most significant members--India and China--may not prefer to run with alternatives like an expanded G8. (74) In the medium term, the G-20 could reflect--and possibly even help manage--a major reorientation in the relative standing of the world's major powers. If it can, it may yet reflect the hopes of some of its admirers and the underlying belief that it is an idea whose time has come.

Notes

Mark Beeson is professor of international politics in the Department of Political Science and International Studies at the University of Birmingham. His recent books include Institutions of the Asia-Pacific: ASEAN, APEC and Beyond, Regionalism, Globalization and East Asia: Politics, Security and Economic Development, and Securing Southeast Asia: The Politics of Security Sector Reform (with Alex Bellamy). Stephen Bell is professor of political economy and former head of the School of Political Science and International Studies at the University of Queensland. His most recent books include Australia's Money Mandarins: The Reserve Bank and the Politics of Money and Rethinking Governance: Bringing the State Back In (with Andy Hindmoor). The authors wish to thank the journal's reviewers and Robert Wade in particular for helpful comments on earlier drafts of this article.

(1.) Robert Wade, "The First World Debt Crisis of 2007-2010 in Global Perspective," Challenge 51, no. 4 (July-August 2008).

(2.) Peter B. Kenen, The International Financial Architecture: What's New? What's Missing? (Washington, DC: Institute for International Economics, 2001).

(3.) Alison Bailin, From Traditional to Group Hegemony: The G7, the Liberal Economic Order and the Core-periphery Gap (London: Ashgate, 2005).

(4.) Randall D. Germain, "Global Financial Governance and the Problem of Inclusion," Global Governance 7 (2001): 411-426.

(5.) Robert H. Wade, "Feature Review: The Globalisers: The IMF, the World Bank and Their Borrowers," New Political Economy 12 (2007): 127-138.

(6.) Much of this article is based on extensive interviews with a number of Australian participants, including senior Treasury officials Martin Parkinson and Gordon de Brouwer, both of whom have worked closely with Australia's treasurer in G-20 meetings; the recently retired governor of the Reserve Bank of Australia (RBA), Ian Macfarlane; and the current governor of the RBA, Glenn Stevens. We note the potential for bias in such a sample and suggest further, more extensive, interviews with a wider range of interviewees from a wider set of countries, especially developing countries; this would be an important next step to expand research on the G-20.

(7.) Leslie E. Armijo, "The BRICs Countries (Brazil, Russia, India, and China) as Analytical Category: Mirage or Insight?" Asian Perspective 31, no. 4 (2007): 7-42.

(8.) G-20, The G-20: A History (2008), available at www.g20.org/g20/.

(9.) For an overview of the literature, see M. K. Beeson, "American Ascendancy: Conceptualizing Contemporary Hegemony," in Mark Beeson, ed., Bush and Asia: America's Evolving Relations with East Asia (London: Routledge, 2006), pp. 3-23.

(10.) Susan Strange, States and Market (London: Pinter, 1994).

(11.) Mark Beeson, "Trading Places? China, the United States and the Evolution of the International Political Economy," Review of International Political Economy (forthcoming).

(12.) Michael Barnett and Raymond Duvall, "Power in Global Governance," in M. Barnett and R. Duvall, eds., Power in Global Governance (Cambridge: Cambridge University Press, 2005), p. 20.

(13.) Charles P. Kindleberger, "Dominance and Leadership in the International Economy: Exploitation. Public Goods, and Free Rides," International Studies Quarterly 25 (1981): 242-254.

(14.) Eric Helleiner, States and the Reemergence of Global Finance. (Ithaca: Cornell University Press, 1994).

(15.) Leo Panitch and Sam Gindin, "Finance and American Empire," in L. Panitch and C. Leys, eds., The Socialist Register: The Empire Reloaded (London: Merlin Press, 2004), pp. 46-80.

(16.) See also Robert Wade, "US Hegemony and the World Bank: The Fight Over People and Ideas," Review of International Political Economy 9 (2002): 201-229; and Robert Wade, "The Invisible Hand of the American Empire," Ethics and International Affairs 17 (2003): 77-88.

(17.) Tony Porter, "The G-7, the Financial Stability Forum, the G-20, and the Politics of International Financial Regulation," paper presented at the International Studies Association annual meeting, Los Angeles, 15 March 2000, p. 17.

(18.) Susan Soederberg, "On the Contradictions of the New International Financial Architecture: Another Procrustean Bed for Emerging Markets," New Political Economy 23 (2002):607-620; Leslie Elliott Armijo, "The Terms of the Debate: What's Democracy Got to Do with It?" in Armijo, ed., Debating the Global Financial Architecture (Albany, NY: SUNY Press, 2002), pp. 2-62.

(19.) Randall D. Germain and Michael Kenny, "Engaging Gramsci: International Relations Theory and the New Gramscians," Review of International Studies 24 (1998): 3-21.

(20.) David L. Levy and Peter J. Newell, The Business of Global Environmental Governance (Cambridge: MIT Press, 2005), p. 50.

(21.) G. John Ikenberry, "Institutions, Strategic Restraint, and the Persistence of the American Postwar Order," International Security 23 (1998): 43-78.

(22.) Another good example of such processes is the OECD "talk-fests," which provide venues for the discussion and development of new regulatory norms. See J. Braithwaite and P. Drahos, Global Business Regulation (Cambridge: Cambridge University Press, 2000).

(23.) Ralph C. Bryant, Turbulent Waters: Cross-Border Finance and International Governance (Washington, DC: Brookings Institution, 2003).

(24.) C. Fred Bergsten, "The G-20 and the World Economy," speech to the deputies of the G-20, Leipzig, 4 March 2004.

(25.) Howard Davies, "Is the Global Regulatory System Fit for the 21st Century?" address to the Monetary Authority of Singapore, 20 May 2003, p. 2.

(26.) Randall D. Germain, "Global Financial Governance and the Problem of Inclusion," Global Governance 7 (2001): 414.

(27.) Injoo Sohn, "Asian Financial Cooperation: The Problem of Legitimacy in Global Financial Governance," Global Governance 11 (2005): 487-504.

(28.) Robert O'Brien, Anne Marie Goetz, Jan Aart Scholte, and Marc Williams, Contesting Global Governance: Multilateral Economic Institutions and Global Social Movement (Cambridge: Cambridge University Press, 2000).

(29.) Paul Martin, "Notes for an Address by the Honourable Paul Martin to the Royal Institute for International Affairs," 24 January 2001, available at www.collectionscanada.gc.ca/webarchives/20071122090216/http://www.fin.gc.ca/news01/01-009e.html (accessed 21 January 2009).

(30.) G-20, The G-20: A History. Australia's former Reserve Bank governor, Ian Macfarlane, recalls: "The Americans pushed the G-20 [but] the Europeans were extremely unenthusiastic because they have much more representation in the G7. The Europeans didn't like the G-22 very much because they were under-represented ... and they lobbied heavily to make sure it didn't continue in that form. And eventually a compromise was reached and it evolved into the G-20."

(31.) Rosemary Foot, S. Neil MacFarlane, and Michael Mastanduno, "Introduction," in Foot, MacFarlane, and MacFarlane, and Mastanduno, eds., US Hegemony and International Organization (Oxford: Oxford University Press, 2003), pp. 265-272. Gleen Stevens argues that the "Americans would use the G-20 where it suits them to do so, and they won't be in the slightest bit averse to using any other forum or just unilateral action where they think that suits them. And most big countries will always be that way."

(32.) It should be noted that there have also been a number of regionally-based responses to the crisis, such as the Chiang Mai Initiative, but they have yet to realize their potential. See C. R. Henning, East Asian Financial Cooperation (Washington, DC: Institute for International Economics, 2002).

(33.) G-20, The G-20: A History, p. 21.

(34.) This document, along with other G-20 statements, is available at www.g7.utoronto.ca/g20/g20-041121growth.html.

(35.) Armijo, "The Terms of the Debate." pp. 2-62.

(36.) Interview with Gordon de Brouwer.

(37.) On the Montreal Consensus, see www.fin.gc.ca/news01/01.

(38.) Hui Feng, The Politics of China's Accession to the World Trade Organization: The Dragon Goes Global (London: Routledge, 2006).

(39.) Geoffrey Garrett, Partisan Politics in the Global Economy (Cambridge: Cambridge University Press, 1998).

(40.) Stephen Bell, "How Tight Are the Policy Constraints: The Policy Conver gence Thesis, Institutionally Situated Actors and Expansionary Monetary Policy in Australia," New Political Economy 10, no. 1 (2005): 68-91.

(41.) Stephen Gill, "Globalisation, Market Civilization and Disciplinary Neoliberalism," Millennium: Journal of International Studies 34 (1995): 399-423.

(42.) On the other hand, the G-20's neoliberalism should not be downplayed. Robert Wade reports that at a G-20 officials meeting he attended in Sydney in 2002, there was limited input from developing country representatives and the neoliberal agenda was Australian-Canadian led. Personal correspondence, 17 July 2008.

(43.) Germain, "Global Financial Governance," p. 420.

(44.) Gordon de Brouwer and L. Yeaman, Australia's G-20 Host Year: A Treasury Perspective (Canberra: Department of Treasury, 2007).

(45.) Quoted in G-20, The G-20: A History, p. 25.

(46.) V. Rubio Marques, "The G-20: A Practitioner's Perspective," Global Economic Governance Program, University College, Oxford, 2007, p. 6.

(47.) G-20, The G-20: A History, p. 46.

(48.) John Kirton, "From G7 to G20: Capacity, Leadership and Normative Diffusion in Global Financial Governance," paper prepared for the International Studies Association Conference, Hawaii, 1-5 March 2005, p. 20.

(49.) Tony Porter, "Technical Collaboration and Political Conflict in the Emerging Regime for International Financial Regulation," Review of International Political Economy 10 (2003): 546.

(50.) Author interview with Martin Parkinson.

(51.) Glenn Stevens, the current governor of the Reserve Bank of Australia, also highlighted the importance of this preparatory work.

(52.) For an explanation of this point, see John Ravenhill, APEC and the Construction of Pacific Rim Regionalism (Cambridge: Cambridge University Press, 2001).

(53.) Author interview with Glenn Stevens.

(54.) Mark Evans and Jonathon Davies, "Understanding Policy Transfer: A Multi-level, Multi-disciplinary Perspective," Public Administration 77 (1999): 361-385; M. Barnett and M. Finnemore, "The Power of Liberal International Organizations," in M. Barnett and R. Duvall, eds., Power in Global Governance (Cambridge: Cambridge University Press, 2005), pp. 161-184.

(55.) Joseph E. Stiglitz, Globalization and Its Discontents (New York: Norton, 2002).

(56.) Gerard Caprio, James A. Hanson, and Patrick Honohan, "The Benefits and Pitfalls of Financial Liberalization," World Bank Policy Paper (Washington, DC: World Bank, 2000).

(57.) Author interview with Ian MacFarlane.

(58.) Davies, "Is the Global Regulatory System Fit for the 21st Century?," p. 2.

(59.) G-20, The G-20: A History, p. 40.

(60.) Ibid., p. 41.

(61.) Author interview with Martin Parkinson.

(62.) de Brouwer and Yeaman, "Australia's G-20 Host Year."

(63.) G-20, The G-20: A History, p. 46.

(64.) Author interview. Much of the following discussion draws on this interview and those with Martin Parkinson in particular.

(65.) G-20, The G-20: A History, p. 49.

(66.) See the G-20 Statement on Reforming the Bretton Woods Institutions, released in November 2005 following the G-20 China ministerial meeting.

(67.) de Brouwer and Yeaman, "Australia's G-20 Host Year," p. 41.

(68.) G-20, The G-20: A History, p. 51.

(69.) Ibid., pp. 50-51.

(70.) P. I. Hajnal, The G8 System and the G20: Evolution, Role and Documentation (Ashgate, London, 2007).

(71.) The urgency of this issue can be seen in China's explicit criticism of the IMF and its apparent reluctance to deal evenhandedly with the United States and China. See Financial Times, 20 June 2007.

(72.) Bergsten, "The G-20," p. 33.

(73.) G-20, The G-20: A History, p. 53.

(74.) Parkinson argues that "the Indians do not have an appetite for going anywhere near the G7." China similarly prefers to be part of larger groups in which it is a potentially powerful player and in which it is less likely to come under pressure on issues such as exchange rate policy. See Thomas G. Moore, "Racing to Integrate or Cooperating to Compete? China, Globalisation, and East Asian Regionalism," paper presented to the conference "Regionalization and the Taming of Globalisation?" University of Warwick, 16-28 October 2005.
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Title Annotation:Group of 20
Author:Beeson, Mark; Bell, Stephen
Publication:Global Governance
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Geographic Code:1USA
Date:Jan 1, 2009
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