Who gets to rule the world

The Metro Toronto Convention Centre is no Château de Rambouillet. To mention just one difference, the infamous fake lake installed at this week’s G20 venue is merely temporary, whereas the canals and fountains of the historic manor south of Paris, where former French president Valéry Giscard d’Estaing hosted the first G6 in 1975, are permanent fixtures. But if the sites bear little resemblance, the basic idea behind the first and latest of these modern summits remains the same: even in an era of instant, even incessant, global communication, there’s no substitute for prime ministers, presidents and chancellors looking one another in the eye.

There’s plenty of debate, though, about how many leaders and exactly which ones should be gathered together to produce optimum results. The original G6 was a cozy affair, with just the leaders of France, the U.S., Britain, Italy, West Germany and Japan included. Canada snuck in the next year to make it the G7, and Russia was added after the Cold War ended, creating the G8. Along the way, the event turned from intimate to extravagant. But it took the financial markets’ meltdown of 2008 and the global recession of 2009 to finally render the original model insufficient. Confronted with the crisis, the G8 was superseded by the G20, which draws in major new players from China to Brazil, India to Indonesia, as the world’s top forum for economic summitry.

The question for Canada is whether the expanded club extends or dilutes our influence. G8 membership gave Ottawa equal standing, at least in theory, with Washington, London and Tokyo. Squeezing around the G20 table with smaller players such as South Africa and Turkey looks less prestigious. Yet Paul Martin, who as Liberal finance minister was a driving force behind the G20 concept, argues the alternatives for Canada were far worse. “Being influential in a [G8] that represents only half the world’s reality doesn’t make much sense to me,” Martin says. “I’d rather be at a G20 that represents the whole world’s reality. Otherwise what you’d end up with is the great powers talking amongst themselves.”

The notion that without the G20, even mid-sized countries would be shut out of negotiations among heavyweights like, say, the U.S., China and Germany, is a strong argument for the new configuration being good for Canada. Another is the early evidence that Ottawa can use the expanded membership to find fresh allies for its priorities, as it has in opposing a global bank tax. In any case, the G8 hasn’t disappeared. Canada is hosting both summits this month, the smaller, older confab in the Ontario resort town of Huntsville, and then the bigger, newer assemblage in Toronto. It’s as if the old six-team NHL kept on playing as a subset of the post-expansion league. “My impression last year was that the G8 was going to fade into sepia-toned memory,” says Stewart Patrick of the Washington-based Council on Foreign Relations. “But we haven’t seen that.”

One reason is that nobody is sure yet how much of the old G8 role the G20 can comfortably take on. For now, the G20 is managing the economic recovery, while the G8 concentrates on security and aid to developing countries. Martin predicts this division of responsibilities will prove too artificial to maintain, since most big files have economic dimensions that will demand G20 attention. “Climate change is an economic issue,” he says. “Development is an economic issue.” Martin also rejects the notion that the G8 can remain the premier forum of foreign-assistance donor nations. “Come to Africa with me and tell the Africans that China is not a donor,” he scoffs. “Go to Asia and tell them the Australians are not donors.”

Martin is among the G20’s most outspoken enthusiasts. He pushed hard for its creation as a forum of finance ministers from advanced and emerging economies after the Asian financial crisis of 1997, and then plumped for a leaders’ G20. But his expectation that the group’s scope will widen is echoed by some veteran summit-watchers who don’t share his personal stake in its success. Patrick also foresees “mission creep” for the G20. “Over time,” he predicts, “leaders will find it an irresistible venue.” And he doesn’t buy the argument that 20 voices are too many for productive talk. The G8’s so-called “major economies forum” had already invited so many guests that it encompassed 17 of the G20 members.

Still, the G20’s ascent is far from guaranteed. Its early momentum was fuelled by grim necessity. The first G20 leaders meeting was held in Washington after world credit markets froze up in the fall of 2008. Subsequent summits in London and Pittsburgh last year reached an impressive degree of consensus on injecting massive government stimulus into the slumping world economy and working toward reforming shaken financial markets. For countries like Canada that rely heavily on exports, G20 peer pressure on member countries not to resort to trade barriers was another huge accomplishment. “There has actually been a startling lack of protectionism,” Patrick says.

But now that the immediate crisis has passed, G20 solidarity is showing signs of fracturing. As the recovery spreads unevenly, leaders are taking different tacks. German Chancellor Angela Merkel is leading the charge for countries to start cutting their deficits. Her stance has attracted sharp criticism from Americans, like Paul Krugman, the Nobel Prize-winning economist, who called her austerity push a “bad idea” as the rebound from last year’s recession remains weak. U.S. President Barack Obama cautioned in a pre-summit letter against governments repeating the mistakes of past slumps “when stimulus was too quickly withdrawn and resulted in renewed economic hardships and recession.”

A looming clash of major powers creates a classic opening for leaders of smaller countries to try playing brokerage roles. In a G20 briefing, Prime Minister Stephen Harper’s officials took pains to claim that Canada hears no discord in U.S. pleas for sustaining stimulus and European calls for fiscal restraint. Playing both sides of that divide this weekend will test Harper’s diplomatic skills. He’s already enjoyed some success on a tough challenge, fending off pressure from the U.S. and Europe—the core of the G8—for a global bank tax. On that issue, the Canadian government took full advantage of the G20’s membership roll, finding key support for its opposition to the tax among new players, such as Australia and India.

The battle against a bank tax shows how the G20 might serve Canada’s interests by broadening the spectrum of coalitions that might be forged on any given issue. Another test is Canada’s ongoing bid to shape new banking regulations on capital and leverage. No final deal on the reforms is expected in Toronto. Negotiations will likely stretch well into the fall, when another G20 summit is scheduled to be held in South Korea. But since Harper touts Canada’s solid domestic banking sector at every opportunity, as G20 host in Toronto he will want to signal how that translates into impact when it comes to drafting a new global banking rule book.

Even bigger questions, though, are emerging as potential G20 preoccupations. None is more fundamental than tension between countries that spend and borrow and those that save and lend. The U.S. leads the first category, and China dominates the second. Fixing that imbalance will, as Paul Volcker, the former U.S. Federal Reserve chairman who now heads Obama’s economic recovery advisory board, recently said, “go way beyond the technicalities of law and regulation of financial markets.” The G20 is the first economic forum where U.S. and Chinese leaders sit as equals. Can it help? Before the Toronto summit, the Chinese government issued a tentative hint of willingness to let its currency appreciate. If Beijing follows through, allowing a stronger renminbi to boost its domestic consumption, the G20 will have to get at least some of the credit.

A potential shift of that sort suggests powerful forces at work, currents in world affairs that run far deeper than any scripted exchange or stilted photo-op. Yet Martin says his experience of summits was that individual rapport often mattered a great deal. “Personalities played much more than countries at the table,” he claims. It’s a more appealing notion, at least, than the jaded view that all the real work is done in advance by faceless officials pursuing entrenched interests. And for a middle power, the notion that the men and women at the table actually matter holds the hope of influence based on factors other than sheer size, even now that the size of the summit itself has irreversibly grown.