From G20 to Global Economic Council

To many the Seoul summit in November last year was the real test of the G20: the outcome of the Seoul summit would show whether the G20 continued to have viability and relevance. The result was disappointing. In the words of the Financial Times, the G20 had shown "how not to run the world". In the following I argue that the time has now come for the G20 Leaders Forum to be superseded by a Global Economic Council. This Council should be firmly embedded in the existing Bretton Woods system.

First, however, a brief exposition of the main reasons why many outside the membership consider the G20 illegitimate.

The G20 claims that its "economic weight and broad membership gives it a high degree of legitimacy". However, in a setting where the great majority of countries have no voice and influence, any claim to 'representational' legitimacy is less than convincing.

A key line of defence for the G20 is that it cannot sensibly be criticized because it is so obviously an improvement vis-à-vis the G7. Some form of multipolar deliberation and dialogue has indeed become a sine qua non for global economic governance. There are several reasons, however, why the G20 is the wrong form of multipolar deliberation:

• First, the G20 continues and reinforces a troubling trend towards 'plurilateralism-of-the-big', by which the vast majority of nations lose voice and influence on matters that affect them crucially.
• Second, the G20 effectively undermines the existing system of multilateral cooperation in institutions such as the IMF, the World Bank and the United Nations, causing resentment towards the G20 in those institutions in general and among non-G20 countries in particular.
• Third, what is needed to address the key problems today – such as global imbalances, climate change, and rising poverty – is not an informal Leaders Forum, but binding deliberations in a truly multilateral framework.

The way forward is to reform the Bretton Woods institutions so as to allow them to operate effectively as key pillars in a multilateral system of global economic governance, under the stewardship of a Global Economic Council. Three key reforms should be undertaken:

• The creation of a heads of state forum: the Global Economic Council
• Reform of the voting power systems of the Bretton Woods institutions
• Reconfiguration of their systems of country constituencies.

The cornerstone of a revised Bretton Woods system should be a Global Economic Council. The Council should consist of 25 country constituencies, in an arrangement similar to those of the Boards of the IMF and the World Bank, with procedures for consultation and rotation to ensure that all member countries have a voice in the process in proportion to their GDP.

A Global Economic Council based on country constituencies – with the relevant 25 Heads of State meeting twice a year on the basis of prior consultation with their country constituencies – would have the benefits of multilateral legitimacy and the advantages of being embedded in the existing institutional framework of the IMF and the World Bank.

The current systems of voting power of the Bretton Woods institutions do not adequately reflect the geopolitical realities of the world economy. The principle that voting power should reflect countries' economic weight in the global economy is theory more than practice.

It is of paramount importance to the legitimacy of the Bretton Woods institutions that their voting power systems are revised in a manner that restores a fundamental balance between voting power and GDP. The proposal here is to simply allocate to countries a share of voting power equal to their share of world GDP.

The country constituencies of the Global Economic Council should be in congruence with the country constituencies of the IMF and the World Bank. Therefore, a revised system of country constituencies should be formed based on new principles for the allocation of the 25 chairs both among regions and for the allocation of chairs within regions.

Allocation of chairs among the world's four main regions should be based on the following two principles:

• First, the allocation of chairs among regions should be undertaken so as to achieve reasonable representation of all the world's four main regions: Africa; Asia; Americas and Australasia; and Europe. 16 seats in the council should be distributed evenly among each of these four main regions; 4 seats for each region.
• Second, additional seats should be allocated to the four regions in proportion to their weight in the world economy. This would mean that all four regions except Africa would get 3 additional seats. Together, the application of these two principles would give Africa 4 seats and the three other regions 7 seats each.
  
  

Allocation of these seats within the four different regions should be based on the following two principles:

• First, country constituencies should be formed within the regions on the basis of negotiations in which countries have voting power in proportion to their GDP. Country constituencies should consist of between three and sixteen countries.
• Second, all country constituencies should have mechanisms of rotation to ensure consultation and dialogue. Each constituency should have one Director and two Alternates, and decide internally whether there should be rotation on both levels or only at the level of Alternates. This flexibility in rotation modalities would allow large economic powers – such as the US and China – to maintain Directorship of a chair, while ensuring consultation with countries in their constituency through the system of Alternates.

The way forward in global economic governance is to revise the existing Bretton Woods system in a manner that addresses its weaknesses and makes it responsive to the geopolitical realities of a rapidly changing global economy.
The two major advantages of such a reconfiguration of global economic governance would be that:

• It would embed a Leaders Forum within the institutional framework of the existing Bretton Woods institutions while at the same time bringing the latter up to date.
• It would give long-term durability to global economic governance by being responsive to the rise and fall of nations – in and through a transparent, automatically updated system of weighted voting (based on GDP) – while ensuring at the same time inter-regional legitimacy by means of the proposed balanced allocation of chairs to the world's main regions.

Last but not least: a Global Economic Council embedded in a revised Bretton Woods system would likely be more effective in addressing the key challenges of the global economy than the G20 Leaders Forum.