Time the West stopped being obstinate

For leaders and citizens of the G20 countries, this week's summit in Cannes is about as welcome as a visit to an undertaker. For all its unwieldiness and amorphous sense of purpose, the G20 represents the beginnings of an understanding, as necessary as it is reluctant, that a global economy with new growth sources must have a new structure of governance.

What keeps G20's strength potential rather than actual, however, is a stark fact: In many Western capitals the G20 is still seen more as a symptom of disorder in the global system than a solution fitting for a new world of fragmenting capital, power and ideas. Before the G20 can become the force for effective coordinated action to address economic and political challenges, the old powers need to get over their outdated sense of privilege.

You'd have thought that the United States debt-ceiling debacle and the eurozone's endless cycle of half-measures declared and quarter-measures taken would have impressed upon Western leaders the urgency of finding new solutions to their economic difficulties and the modesty of recognizing the need for help in implementing them. You'd be wrong.

Instead, they responded to a recent proposal from some emerging countries to increase the firepower of the IMF with a mixture of fear and arrogance. Seeing the power of their global foreign exchange reserves and sovereign wealth funds to serve as a definitive boost to Europe's failed attempts to regain markets' confidence, the rising powers had suggested letting surplus countries to make ad hoc bilateral loans to the IMF, or contribute to a special purpose vehicle designed to support sovereign bond purchases.

There are technical reasons why each of these solutions would be problematic. But the response from the G20's old guard, including the US, the United Kingdom and Australia, was that the IMF had enough resources of its own and that the eurozone should be sorting out its own problems. So what explains this reluctance?

At its core, it's about a jealous hoarding of powers at the centers of global governance, such as the IMF and the World Bank, with only the slightest shifts in voting power granted to date. In political terms, it's about long-held aspirations for a Western-designed multilateralism to convince national leaders everywhere to forego sovereign interests for global ones. In today's shifting global environment, neither will do.

First, as the response to the latest EU package to deal with the widening sovereign and banking crisis demonstrated, markets and businesses simply do not have the confidence that the eurozone on its own - or the IMF without deepened resources - can change the calculus of risk around the twin challenges of debt and deficits in Europe. Nor, for that matter, is it credible that the resources currently available to the IMF would suffice in the event of a serious run on Italian and Spanish sovereign credits.

And yet as China is making abundantly clear these days, for the emerging powers to put their hard-won reserves at risk for the sake of far richer European societies, they need to have a greater say in global governance.

Second, to bemoan, as many in the West now do, the meddlesome role of national politics - within the EU and more broadly in global politics - is to mistake an opportunity for a threat. The countries and leaders now rising are those that have understood that a sustainable economic strategy begins with delivering inclusive growth for citizens of their own nation first. Seeing open markets and free trade not as an end in itself, but a means to broad-based prosperity, they are making reforms to secure greater competitiveness and innovation.

A thriving G20 world is one that builds from the ground up, with each country contributing to a global system out of a deeply individual - and profoundly democratic - interest in prosperity at home and influence abroad. This is as natural to the rising powers today, as it was to Europe and the US when they assembled the current global architecture 60 years ago from positions of strength and confidence to benefit themselves first, and the broader world second.

For the West, the choice is not between maintaining an outdated oligarchy of power and giving up its privileges prematurely. It is between embracing the G20 as the legitimate management committee of an archipelago world defined by a proliferation of economic and political power centers, as well as resisting it and seeing itself even less able to influence the global rules of the 21st century.

The author is chief executive officer of Oxford Analytica.

(China Daily 11/05/2011 page5)