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- The Group of Twenty is facing a crisis of its own. @AlexBrill_DC
- The G20 cannot achieve adequate legitimacy until it adopts clear criteria for membership.
- G20 legitimacy depends on having members capable of improving global financial markets and preventing economic crises.
A recent headline on the front page of the New York Times summed up the dire state of the efforts to remedy a weakening global economy: "In Economic Deluge, a World That's Unable to Bail Together."1
A key reason is that the organization established to do the job-the Group of Twenty, or G20-is facing a crisis of its own. On the eve of the June 18-19 meeting of G20 heads of state in Los Cabos, Mexico, critics say that it lacks the necessary will and authority to deal with the immense problems at hand.2
Remarkably, since its founding 13 years ago, the G20 has lacked transparent rules governing its membership. As a result, there has been an erosion of trust among the nearly 200 nations that are not part of the group but are affected by its decisions. Without legitimacy, the G20 cannot lead. This paper makes the case that correcting this deficiency is essential, and that the most important change must be made at the most basic level: the G20 cannot achieve adequate legitimacy until it adopts clear criteria for membership.
This paper identifies specific membership criteria and shows the effect they will have on the G20's composition. Setting clear criteria will be controversial-in part because it will require the replacement of several current members. Such change may be painful, but with another recession beginning in Europe, uncertainty over the future of the euro, sluggish growth in the United States, and weakness among developing economies, reform must happen soon if the G20 is to work constructively to help foster economic growth and financial-market stability.
The G20's legitimacy depends on having as members those nations most capable of improving global financial markets and preventing economic crises. Thus, the specific selection criteria must be based on the three objectives to which G20 heads of state agreed in 2008:
1. Restoring global growth,
2. Strengthening the international financial system, and
3. Reforming international financial institutions.3
With these goals in mind, we conclude that appropriate potential membership criteria should be based on measures of:
- A country's economic size and global economic importance,
- A country's adherence to rule of law and other principles consistent with market-based economies, and
- The size of a country's financial-services sector and the magnitude of inbound and outbound cross-border banking activity (financial interconnectedness).
Using these objective measures, we conclude that:
- Four current G20 countries do not qualify for membership in the G20. They are, in alphabetical order, Argentina, Indonesia, Mexico, and Russia.
- Four current nonmembers should replace them. They are Malaysia, Norway, Singapore, and Switzerland.
- These changes assume that the European Union (EU) would continue as a member of the G20 even though it is not a nation but that the number of EU nations in the G20 would be capped at four, as is currently the case.
Our intention in this paper is not to determine the specific hard-and-fast criteria for G20 membership but to offer one rules-based formula among several possibilities and to emphasize the urgency of finding a solution to a crisis of legitimacy.
Alex M. Brill is a research fellow at AEI. James K. Glassman is the executive director of the George W. Bush Institute and a member of the Investor Advisory Committee of the Securities and Exchange Commission.
1 Floyd Norris, "In Economic Deluge, a World That's Unable to Bail Together," New York Times, June 3, 2012.
2 In addition to the numerous critical pieces cited later in this paper, see Andrew F. Cooper, "The G20 and Its Regional Critics: The Search for Inclusion," Global Policy 2, no. 2 (May 2011): 203-209.
3 G20, "The Origins and Evolution of the G20," available at www.g20mexico.org/en/the-origins-and-evolution-of-the-g20