Not Just Another Recession
Why the Global Economy May Never Be the Same
At first glance, the recent G-20 summit in Hamburg may have seemed little more than another expensive and pointless diplomatic exercise. The “Leaders’ Declaration,” a document issued at the end of every meeting to set goals and define the lines of collective action, is a compromise text full of banal niceties. The paragraphs on trade are an illustration: the G-20 members promise to “fight protectionism” and yet also acknowledge “the role of legitimate trade defense instruments,” which is essentially a polite nod to the very measures that countries use for protectionism. Climate change is arguably an even bigger disappointment. An agreement among the Group of 20 has now been replaced by a Group of 19+1, in which the outlier position of the United States is essentially legitimized.
With the summit costing the host country at least 130 million euros, German taxpayers are understandably irate about a meeting that they see as having little to no public benefit. Violent protests marred the meeting on a daily basis, and Hamburg has yet to recover from the upheaval. Damaged properties are now being reconstructed and restored, and insurance claims have run into the millions. Citizens of the city were so shaken by what transpired that they now say they never want to host such a summit again. It is therefore worth asking whether any good has come out of this apparent mess. It might seem easy to answer no. But on closer inspection, the answer is an emphatic yes.
A LANDMARK MOMENT
The challenges facing the G-20 in 2017 are of a different magnitude than those faced by prior summits—perhaps even greater than the financial crisis of 2008, which resulted in upgrading the G-20 from a financial meeting to a summit involving world leaders. Unlike in 2008, when the world was at least united in facing down an international crisis, this year the leaders arrived at the G-20 divided and confronted by severe challenges. They had to deal with a United States distancing itself from global governance, relatively poor performance from existing international organizations (witness the slow death of the Doha round of trade negotiations in the World Trade Organization), and a very high level of polarization among member countries of the G-20 and within them. In such difficult circumstances, the fact that the G-20 was able to come up with a joint declaration at all is no small feat.
The reason why the “Leaders’ Declaration” may appear to be somewhat lackluster stems from the fact that it is, as with all successful international declarations and agreements, a result of complex negotiations and compromises. What is remarkable about the concessions made at the G-20 is that they took place at a time when backlash against globalization has been on the rise, examples of which include Brexit, the rise of populism, and the path of the United States toward isolationism. The G-20 declaration tries to find a middle ground that retains the gains of globalization while also addressing its more unsavory effects (such as the fact that the gains do not permeate all levels of society and that some people do lose out). For example, the declaration does not abandon the G-20 commitment to growth, but identifies “strong, sustainable, balanced and inclusive growth” as its highest priority. It recognizes that “the benefits of globalization have not been shared widely enough.” The rest of the draft then develops some ideas on how globalization might be shaped to “benefit all people.” Not mere talk, these statements are seeds that may develop into a reform of globalization.
Take trade, for instance. On this, the declaration sends all the right signals: it promises that the world’s leaders will “keep markets open,” “continue to fight protectionism,” and “underline the crucial role of the rules-based trading system.” Importantly, however, the text makes it clear that it must “continue to fight protectionism including all unfair trade practices.” Some free-trade enthusiasts would balk at such references to unfair trade and trade defense instruments (such as anti-dumping duties and countervailing subsidies to combat “unfair” competition), not least because this is precisely the kind of language that an increasingly protectionist United States has been using against many of its trading partners. But the gung-ho economic liberalism of the 1990s is now over; addressing concerns about the “unfair” side of globalization is both a political and ethical imperative. In a similar vein, the paragraphs on trade recognize the importance of ensuring that globalization benefits all people, and to that effect, the G-20 nations agreed “to exchange experiences” and share “appropriate domestic policies” on how to mitigate the loss of jobs and decline in wages, for example, that accompany a transition into a more open society. All in all, the declaration recognizes that the goal is not global growth in and of itself but “inclusive and sustainable global growth.” The text acknowledges the need to bring in the many types of people who feel short-changed by or marginalized from the process of globalization. Inclusive and sustainable growth might be hard to pull off, but trying is a step in exactly the right direction.
Another interesting example of how the G-20 took the concerns about globalization seriously was its focus on Africa. This is a new theme, which Germany introduced for the first time into the G-20 agenda. At least some of the problems in African countries stem from a lack of being well-integrated into the processes of globalization. Take, for instance, the lack of private and infrastructure investment in the region. To address some of these problems, as part of its Africa Partnership, the G-20 developed the “Compact with Africa.” The compact offers some suggestions on ways in which to create a more favorable investment environment on the continent, for instance, through better management of investor risk and better matching of capital supply to regional needs. Importantly, the compact is not prescriptive, as its emphasis is on partnership. It is clear that the details of how to promote infrastructure and private investment would have to be worked out through country-specific agreements.
Climate change mitigation is another issue on which the Hamburg summit made progress. This was an especially difficult matter due to U.S. President Donald Trump’s decision to withdraw from the Paris accord. The G-20 nonetheless found a workaround. Although 19 members of the G-20 reaffirmed their commitment to the Paris agreement, a U.S.-specific paragraph acknowledges its decision to withdraw from the accord and also its endeavor to facilitate access to fossil fuels for other countries. Ardent climate action supporters would of course have preferred not to have this two-paragraph exception. But this solution shows that an innovative form of diplomacy was at work, which allowed the G-20 to avoid a deadlock.
Of course, neither trade reform nor the Africa partnership nor the climate change measures are finished pieces of work. In the case of trade, a lot will need to be done to ensure that the fight against protectionism actually delivers results, that trade defense instruments are not misused, and that arguments in favor of “fairness” and “equality” do not become excuses to close markets. Similarly, the “Compact with Africa” has much potential, but G-20 members and African partners will need to pay close attention to implementation, not least to ensure that the encouragement for private investment does not compromise sustainability and stability in the region. On climate change, careful attention is needed regarding the use of fossil fuels and the promotion of sustainable economic growth. And the remaining 19 members must ensure that they continue to stand together. Loopholes, undoubtedly, will be found in the text, given the loose nature of the international framework entailed in the G-20 declaration, but much will depend on how the document is interpreted, implemented, and further developed by future G-20 initiatives, parallel projects in other international organizations, and also by individual countries in their domestic policy. But as far as trying to rescue the best and mitigate the worst aspects of globalization, the Hamburg outcome provides a very promising starting point.
The Hamburg summit not only took a serious stab at making globalization fairer and more sustainable, but also at transforming the process of international negotiations. The G-20, as with many other international institutions of global governance, has encountered severe criticism over the years for representing only the powerful elites of rich countries, and being far removed from the people affected by their decisions. The fact that many of these meetings have taken place in remote locations or cities under lockdown—such as Hangzhou, China; Antalya, Turkey; and Ise-Shima, Japan, to name a few—has further contributed to this widespread perception. This is why the decision to hold the summit in Hamburg, a major international city that prides itself as “the gateway to the world,” was a welcome change. Furthermore, the G-20 involved a diverse set of stakeholders in the lead-up to the summit via official outreach, giving them the opportunity to deliberate and provide input through mechanisms such as the B-20 (for businesses), C-20 (for civil society), L-20 (for labor groups or trade unions), S-20 (for the scientific and academic community), T-20 (for think tanks and research institutions), W-20 (for women’s groups), and Y-20 (for youth leaders). Many of these channels included participants from G-20 countries as well as from non-member countries.
Together, at least as far as global governance goes, a high level of deliberative democracy seemed at work here. Globalization has come under fire for not being inclusive enough, in terms of both outcomes and participatory processes. Hamburg made a serious attempt to change this, and it did it in a realistic and feasible way. For this, it deserves much credit.
NO GOOD DEED GOES UNPUNISHED?
The Hamburg declaration is as good as it could have possibly been, and perhaps even better than expected, given the circumstances. But important and hard lessons should be learned from the anti-globalization protests in Hamburg, some of which turned violent.
Germany made a very systematic attempt to not only engage with outreach groups but also with protest groups through the “Global Solidarity Summit,” billed as an alternative to the G-20. Nongovernmental organizations working on development and environmental issues were given an opportunity to apply for funds (from a pot of 200,000 euros provided by the Hamburg government) to support their participation in G-20 activities, such as the C-20. There were a variety of public engagement activities with skeptics and dissidents, and also efforts to facilitate popular awareness about global problems that the G-20 was seeking to address, as well how it would go about doing this, and in a more inclusive manner.
But in spite of all this, the protests turned violent. The extremist elements of the demonstrations were apparently not all from Germany, but also from other parts of Europe. And yet they found a receptive audience in Hamburg. This is partly due to the fact that not enough has been done over the years to communicate the gains of globalization to the great majority of people. This was also a problem in the run-up to Hamburg; although much energy was rightly spent on acknowledging the limitations, costs, and risks of globalization, the positive side of the story did not receive the attention it deserved. Even if the process of globalization is reformed to truly work for everyone, it will fail to gain the necessary supporters if it is not properly shown to improve all lives.
The protest movement in the West has been right to question the elite consensus on globalization, but it should also learn to question its very own assumptions in purporting to defend the poor and downtrodden. Ignoring the gains of globalization will only fan the flames of a populist movement that claims to speak on behalf of the world’s neediest, but that actually risks depriving them of fundamental opportunities for development. In this sense, the G-20 in Hamburg was a landmark moment in which world leaders committed to renegotiating the terms of globalization. Although the details of implementation depend on the will of international organizations and the trajectory of member states’ domestic policies, it is exactly through this sort of agenda setting that the G-20 reveals its true power.