G20 needs effective mechanisms in decision making

Comments on Thom Woodroofe “The G20: More development needed”, 9/09/2010, http://www.eastasiaforum.org/2010/09/09/the-g20-more-development-needed/#more-13997
While G20 should have its place on the world stage on important issues, it does not mean it will replace other important world/international institutions such as UN and UN Security Council.

G20 may, however, facilitate other world bodies.

Also, while G20 is much smaller in size compared to UN general assembly, it also needs a workable governing structure and mechanism to be effective and efficient.

For example, does G20 require complete unanimity or simple majority to make decisions?

Another issue is that while it should not adopt the veto mechanism by permanent members of UN Security Council, does it need some sort of representative mechanism as opposed to purely senate mechanism in parliament, by some measure of size like population or economy?

That issue reflects the differential impact of a decision on countries of different sizes.

That is also the core meaning of democracy, isn't it?

It may appear better to have some sort of combination of the representative and senate mechanisms in decision making.

Global economic governance - from G8 to G20

Comments on Pradumna B. Rana “How can Asia strengthen its voice at the G20?”, 30/06/2010, http://www.eastasiaforum.org/2010/06/29/how-can-asia-strengthen-its-voice-at-the-g20/
While I have sympathy to some of the arguments of Pradumna B. Rana, I think it is important to recognise that G20 is much more representative than G8 and has stronger representation of Asian economies. Indonesia, a member of ASEAN, is part of the G20. ASEAN + 3 has 4 members in the G20.

It is important to consolidate G20 and not to derail or damage the progress already made while pursuing further goals.

The Asian members of G20 include economically and politically diverse group. The dual roles of those members should enable them to better coordinate their policies to advance both global and regional interests.

Is economics rich countries'?

Comments on Andrew Elek “The G20: principles for meeting the global challenge of climate change”, 7/01/2010, http://www.eastasiaforum.org/2010/01/07/the-g20-principles-for-meeting-the-global-challenge-of-climate-change/

Although the article touched about the so called self selection of big groups like the G20, it has not advanced any effective measures or principles for such groups to avoid or mitigate that tendance among those groups or perceptions among others outside those groups.

Why don't people devisee some principles or processes that can improve the representation of those groups? For example, to have a principle of voting weight associated with any members that are actually representing not only themselves but also some others outside those groups? This will create some incentives for group members to take the interests of others outside the groups.

A second issue that the article also touched but failed to have a sound economic principle is equal per head emissions. If emissions represent a market failure, why don't economists apply the sound economic principles of tackling market failures such as externalities associated with emissions?

I guess it is all related to self interests that rich countries will have to shoulder the main costs if such well founded economic principles are applied. It is a well entrenched problem of economics it is perceived to be rich countries' tool to disadvantage the others and when it does not suit the rich, it will be abandoned.

For example, why is it the case for "convergence towards equal emissions per head by an agreed date, such as 2050", proposed in this article, as opposed to now or even back dated to the past?

Where is the user pay principle? Where is the property right that economists and everyone talk about?

How should Europe be represented at international bodies?

Comments on Gideon Rachman “Europe’s plot to take over the world”, 6/10/2009, http://www.businessspectator.com.au/bs.nsf/Article/Europes-plot-to-take-over-the-world-pd20091006-WK2CN?OpenDocument&src=sph

While the current structure and membership of the G20 can be regarded as a transitional arrangement to bridge the G8 and a new permanent G20, it is a bit unfair to have so many European representatives from both its individual member countries and from its unity bodies.

Europe should be represented either as a group or as individual countries, but not by both. It is up to them to decide how they would like to be represented.

While others are polite enough not to raise this issue openly and directly with the Europeans, they should have self awareness and be wise enough not to be unreasonable in their representation at the G20.

They should act without the urge of others. The earlier they do that, the better for both them and the rest.

G20 governing issues

Comments on Paul Kelly “G20 the world's best hope”, 30/09/2009, http://www.theaustralian.news.com.au/story/0,25197,26143439-7583,00.html

The argument that "the risk is that the G20 will be too large and ineffective" has some practical implications and should not be ignored and must be addressed.

One way is to design an effective governing structure within the G20. A similar style to standing members of a much smaller core, say 5 among them, should have a permanent office during the off summit seasons/times. This office can coordinate and implement policies more effectively and mare efficiently and more timely.

The second point is that rather than having consensus of all members, it should adopt a substantially majority, say, two thirds or 4/5 to agree.

Thirdly, it may adopt a combination of voting mechanism of the UN assembly and the IMF, so to reflect both demographic representation and real economic impact.

Fourthly, the memberships should be updated periodically, say every 5 years based on clear criteria agreed by the members.

One possible criterion is a top economy in each broad continent.

The rest can be selected by the size of a country's economy. This should be based on a combination of measures based on both market exchange rate and purchasing power parity (PPP) done by UN.

The current members should last for 5 years and then the new criteria should be used to determine the membership of the next G20.

In the way it combines pragmatism, rationality and common sense.

Swan shoots at his foot by relying on what G20 says generally

Comments on Michael Stutchbury “Will Wayne plan pass the IMF test?”, 28/09/2009, http://www.theaustralian.news.com.au/story/0,25197,26133477-5017771,00.html

It will be interesting to see how much those countries will adhere to their pledges to let the IMF to prescribe economic policies for those individual countries. But I doubt that will ever work for any of the large countries in the group.

Swan and Rudd may backfire if they rely too much on what the G20 is prescribing now as a matter of principle for the group as a whole but not necessarily applicable to every individual country.

Australia is very different from all other developed countries in the group. As a result, the policy positions should naturally be different too. But the government does not admit this on political grounds.

It appears that both are choosing what is good for them at the moment, but there will be a day of reckoning ahead when they will have to contradict what is prescribed as the medicine for a general situation.

I personally don’t place too much trust on Swan’s reliance on what the G20 is saying now, although I stand ready for correction if I am proven to be wrong.

What should be ahead for G20?

Comments on Paul Kelly, “Shift to G20 was matter of time”, 28/09/2009, http://www.theaustralian.news.com.au/story/0,25197,26133473-7583,00.html

Australia deserves a seat at the top table, because of its dominant position in the Pacific region.

However, as Kelly acknowledged that "the sceptics are right to warn of the risks: that the G20 will be too big, too divided and unable to deliver genuine outcomes by consensus."

So there should be a consolidation of the G economic grouping to make it both representative and workable. It should be smaller in size and also has a workable and efficient and effective governance structure.

In this regard, an article "Deciding who decides at the G20 summit" on http://www.eastasiaforum.org/ has shed some light and is worth reading. I have provided some comments that further complement that article’s ideas.

G grouping of world economic affairs

Comment on Nina Hachigian “Deciding who decides at the G20 summit”, 26/09/2009, http://www.eastasiaforum.org/2009/09/26/deciding-who-decides-at-the-g-20-summit/

This is an important issue that is evolving and should be decided by a core of the current G20 members, the sooner the better.

While there are merits in each of the proposals mentioned in the article, it seems that economic weight should be the key criterion.

Even using the size of the economy as the key criterion, then there is still a tough question: how to determine or calculate the size of a economy?

There is obvious a calculation based on market exchange rate. But it is well understood that the market exchange rate has some significant shortcomings. For example, it may vary substantially within a short period. Also it generally underestimates the real size of most developing economies due to their lack of international trade and especially export power.

So whether you use a market based or a purchasing-power-parity (PPP) based exchange rate to calculate a country’s economic size? Alternatively is it better to use a combination of the two with an equal weight to reflect both the real economy and its trade impact?

In order to enhance its regional representation, then the top economy in a continent could be included.

So I would propose that the group should comprise the top one economy in each continent, and then the next 15 world largest economy, with the size of the economy based on a combination of both PPP and current exchange rate to be calculated by the United Nations. This group should be updated every 5 years to reflect the new world economic reality to be representative.

There should also be a governing structure of the G grouping. The top 5 of the G group should be the standing members during the off meeting period. Again, they should be decided using the same criteria.

This G economic group should be a new branch of the United Nations, to enhance the multilateral nature of the group and the legitimacy of the United Nations.

A important historical step in the right direction

Media report that the G20 summit meeting has taken an important step in addressing global economic governance. See: “G20 sets course to avoid another global financial crisis”, 26/09/2009, http://www.theaustralian.news.com.au/story/0,25197,26127690-601,00.html

It is reported that the meeting has reached some KEY AGREEMENTS:

“The summit of the Group of 20 leading economies have agreed to empower developing nations in global governance and to encourage a sustainable recovery. At thea two-day summit in the eastern US city of Pittsburgh, the Group of 20 agreed that:
The Group of 20, which brings together developed and developing nations accounting for 90 per cent of the global economy, will replace the Group of Eight club of rich nations as the world's pre-eminent forum.
Developing nations will assume at least five per cent of voting rights at the International Monetary Fund.
The G20 will co-ordinate to find the right time to ease stimulative measures as part of an effort to "return the world to high, sustainable and balanced growth". Finance ministers to meet in November.
"Excessive" compensation for executives in the banking sector should end as it encourages risk. The G20 opposed guaranteed multi-year bonuses, urged greater transparency and called on the G20's Financial Stability Board to propose new measures by March 2010.
The G20 will phase in new rules to improve both the quantity and quality of bank capital, seen as a key deficiency during the global economic crisis. The G20 set a goal of developing rules by the end of 2010 and implementing them by the end of 2012.
International accounting authorities should come up global standards by June 2011 to ease variations among major economies.
Governments should eliminate tax havens by March 2010 or face consequences.
The G20 will initiate a system of peer review where economists in each member nation can advise on policies in others. They agreed to set up modalities in November with an aim of initiating their in February 2010.
The G20 involved leaders of 19 nations - Argentina, Australia, Brazil, Britain, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey and the United States. Also taking part in the G20 was the European Union, represented by current president Sweden. The prime ministers of Spain and Thailand, which is the current chair of the Association of Southeast Asian Nations, took part as observers as did the finance minister of Singapore, which now heads the Asia-Pacific Economic Co-operation forum. AFP”

G20 is more representative of the world economy by bringing some big developing economies into the table of decision making. Some of the developing economies are larger than some of the G8 members.

It makes sense to include them in the table.

G20 - helpful or unhelpful?

Comments on Uri Dadush “Four challenges in Pittsburgh for the G20”, 24/09/2009 http://www.eastasiaforum.org/2009/09/24/four-challenges-in-pittsburgh-for-the-g20/

Among the three important examples which go beyond the current crisis, the third one is likely to be the most difficult one. It is not a significant issue for quite a number of countries in the group that means there may not be enough incentive to have that on the agenda.

In a post crisis environment, it may be easier to achieve the second and the first ones.

There is enough momentum for the first one out of the UN summit meeting this week.

In terms of withdrawal of stimulus, the group is now more unhelpful than being helpful, because it should send a clear signal that while in many countries it is still too early to withdraw measures, the condition in some countries are such that their government should decide when and how to withdraw from stimulus, otherwise there will be a serious chance that they may do it too late that will accelerate inflation.

The group already has an adverse effect on some countries, say Australia. The Australian government is using the group to play domestic politics and delay withdrawal.

In terms of how to prevent future similar crisis, it is important not to over regulate the banking and finance industry to achieve financing efficiency and lower costs of capital. There may be some minimum international regulations / guidelines, and leave the rest to each country to make sure their banks are safe and efficient.

The worst thing is to have a group of unaccountable international bureaucrats to impose a set of excessive regulations in the wake of the crisis in the name of preventing another crisis that will significantly increase the costs of finance everywhere.

Banks in Australia have done through the crisis with little problems. In such a case, is there a need to tighten the regulations? The answer is definitely no. But the danger is that the Rudd government will do it nevertheless to fight the so called “neo-liberalism”, or “market fundamentalism”.

That will be a tragedy for Australia with higher interest rates than necessary.

Asia goes alone for green growth?

Comments on Brad Glosserman “Wisdom of an Asia rising”, 6/08/2009, http://www.eastasiaforum.org/2009/08/06/wisdom-of-an-asia-rising/

I’d like to make some quick comments.

1. Are “self interested” individual countries necessarily incompatible with the common good of a group? Adam Smith had a quite different idea that laid the foundation of economics.

2. While it is obviously very important to ensure human activities are sustainable environmentally, is it economically sound for Asian countries to have greener consumer consumption, irrespective what is happening elsewhere and what the process or trajectory of human green evolution or revolution? Wouldn’t that “go it alone” mentality, especially for developing countries in Asia, be too far ahead the possible reality to be optimal for them?