Analysis: Can G-20 succeed where G-8 failed?

[September 26, 2009]  PITTSBURGH (AP) -- The world's most exclusive club has just gotten bigger, and it is promising a lot of big things for the global economy. But it is likely to have just as much trouble delivering results as the smaller group it replaced.

Leaders of the Group of 20, holding their third summit in less than a year, proclaimed that the 21st century needed a new way of coordinating the global economy to replace the much smaller Group of Seven and later the Group of Eight that ruled over economic decision making for the past three decades.

Going forward, it will be the G-20 calling the shots. That means that the old economic powers - the United States, Japan, Germany, France, Britain, Italy, Canada and relative newcomer Russia - have now been joined by fast-growing developing countries like China, Brazil and India.

The old leaders were effusive in their praise of the expanded club. British Prime Minister Gordon Brown said the new grouping would be the "premier economic organization for dealing with economic management around the world."

President Barack Obama, who had helped handle the membership negotiations between the old guard G-7 members and the new countries, said that "we can no longer meet the challenges of the 21st century economy with 20th century approaches."

But despite the lofty rhetoric, the results the G-20 managed to produce in Pittsburgh looked very much like the mishmash of proposals that have been produced through the years by the G-8: lots of lofty goals but few specific details.

That shouldn't be surprising since the process of getting results is the same. Before the leaders sit down together, their aides spend hours working on the details of agreements.

Getting a bunch of government bureaucrats in a room for lengthy negotiating sessions invariably means that any bold proposals get whittled down to the lowest common denominator to meet objections from other countries.

France and Germany called for tough caps to penalize greedy bankers, an effort that ran into objections from the United States. The result: a proposal that calls for banking regulators to do a better job of linking pay to performance but without any binding caps. This is a disappointing outcome for voters already angry about a return of significant paydays for bankers whose institutions received massive government bailouts only a few months ago.

Likewise, an effort by the United States to avert another financial meltdown by forcing all countries to adhere to stronger capital standards seems destined to fall short of its lofty goal of preventing the next financial meltdown.

On its surface, the idea seems sound. Banks got in trouble last year because they did not have enough capital, the reserves used to cushion against losses from bad loans and other sour investments.

The G-20 did adopt the broad outlines of a tougher approach to capital, but the effort is likely to run into heavy opposition between the goal-setting phase and the implementation phase from banks upset that the new rules could cut into their profits.

The list of misses in the G-20's Pittsburgh communique is a lengthy one. In some areas the best that can be said is that the countries agreed to keep talking about thorny problems they have already been debating for years.

One example is the lengthy drive by China and other fast-growing developing countries for more of a say in the running of international lending institutions such as the International Monetary Fund and the World Bank.

On that issue, the G-20 agreed to move toward equalizing the voting power of developed and developing nations but left many tough decisions for a later day.

In some cases, the rhetoric did not match reality. For their third straight meeting, the G-20 promised to resist demand to erect protectionist trade barriers during the current hard times, seeking to avoid the disastrous spiral of tit-for-tat trade retaliation that deepened the Great Depression during the 1930s.

However, the track record of the G-20 countries including the United States, the world's biggest economy, has fallen far short of the promises. Just last week, the Obama administration announced it was imposing punitive tariffs on Chinese tire imports as the president moved to keep a campaign promise to a key labor constituency, despite an angry reaction from the Chinese government.

But even with all the failings, the G-20 could still offer more promise than the old G-7, if for no other reason than the right people are now at the table where decisions are being made. It made no sense to exclude China, now the world's third biggest economy, and such rapidly growing economies as Brazil and India from the decision-making process.

Russian President Dmitry Medvedev, whose country took years to crack the barriers keeping it out of the G-7, took a philosophical view of the latest expansion, saying no matter how big the ruling group, they need to be mindful of those left out.

"In the world, there are not just 20 countries, 20 economies, and therefore we have to think how the G-20 can work with the other countries that are not part of this club," Medvedev told reporters at the conclusion of the Pittsburgh discussions.

---

EDITOR'S NOTE - Martin Crutsinger has covered G-7, G-8 and now G-20 meetings for The Associated Press since 1988.

[Associated Press; By MARTIN CRUTSINGER]

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.