It is almost impossible to overstate the significance of the events last week in Pittsburgh.

The acceptance by all the major players of the role of the G20 as a rule maker for the conduct of the financial systems of member nations quite literally ushers in a new world economic order.

And this is not some kind of Orwellian nightmare in which a conspiracy of plutocrats (or Jews, or Masons, or Martians) use their might to enslave the wretched of the earth, but a genuine democratisation that directly includes two thirds of the world’s population and indirectly gives a voice to the rest.

The London meeting of the G20 in April proved that the new organisation could actually work; that the diverse array of interests could co-operate in reforms to a system in desperate need of them. Now the process has been formalised and we have a long-overdue representative body with the power and the will to lead the world out of the global economic crisis and towards a better and fairer model of interdependence for the future.

Unsurprisingly, the Australian media have made much of the fact that Australia, as an active member of the club, now has a seat at the top table and this is indeed a cause for rejoicing. But far more important is the part Australia played in its construction, which is a matter for genuine and bipartisan pride.

The G20 was born out of the G7, the clique of big, rich nations, which emerged as a result of the oil price shocks of the 1970s. It was centred around the Atlantic: Britain, Germany, France and Italy from Europe and the US and Canada from the Americas. Japan was included as the only developed economy to successfully manage the crisis. After the cold war ended Russia was added as a reward for converting to capitalism, and that was the G8.

It persisted long past its use-by date although there was some recognition that the world was changing; finance ministers, including Peter Costello, formed the first version of the G20 when it became obvious that the developing economies were becoming too big to ignore. China and India were included as a matter of course and Indonesia and South Korea joined them to represent the new power base in Asia. Argentina and Chile brought South America into the picture and South Africa and Saudi Arabia moved the group into new territories. In the name of inclusion, Turkey, Mexico and Australia were given guernseys and to placate the Europeans (who rather resented the presence of so many parvenus) an extra position was created for the European Union as a whole. Thus the G20.

Its founders from the G8 intended it only as an economic talk shop, not as an implementer of policy and certainly not as a gathering place for heads of government. But the global financial crisis gave it new life. The G20 co-ordinated stimulus plans worth a staggering $5 trillion (that’s $5,000,000,000) and another trillion for emergency aid where it was needed. It didn’t avert the crisis, but by golly it made a difference. The London meeting, which was attended by several presidents and prime minsters, including Kevin Rudd, effectively ended the panic and began the process towards recovery. The comparison with the G8, which did nothing useful at all, could not be overlooked.

And it wasn’t; certainly not by Rudd, who recognised the opportunity to consolidate and expand the group’s role to make it a permanent economic planner, co-ordinator and watchdog. He had powerful allies in China and India, who felt the role was theirs by right, and unsurprisingly the other smaller nations were eager to enhance their own positions. But the Europeans resisted. France in particular did not want the new group institutionalised and argued that if the G8 was to be expanded at all, 15 should be the cut-off point.

By what was probably not a coincidence, this would have excluded Australia: France did not want the Anglosphere to gain another active voice. However, Barack Obama swung his support behind Rudd, and the deal was done. It was a triumph for Rudd, and for effectiveness, good sense and fairness.

And it is a pointer to further international reform. Unlike John Howard, who preferred bilateral meetings, and not too many of those — unless, of course, they were with George W Bush. Rudd is a strong believer in multinational relationships and organisations, and one of his targets has long been the International Monetary Fund.

This dinosaur is precisely the kind of institution loathed by the left, a neo-liberal throwback under the effective control of the bankers of Washington. Although it has 186 countries as nominal members, only the US has a power of veto; with more than 16% of the voting power it can stymie the 85% needed for a binding resolution. By contrast Japan, as economy No.2, controls just over 6%, China three-and-a-half and Australia one-and-a-half. 165 countries — nearly 90% of the membership — have less than 29% between them. Clearly this has to change, and Rudd, from the platform of the G20, is determined to change it.

And after the IMF, the United Nations itself: the Security Council like the G8, needs to be brought up to date; expanded and made more representative to reflect the modern world. The General Assembly, with 192 members, is obviously hopelessly unwieldy, but at least the bloated bureaucracy that goes with it can be streamlined.

These may be ambitious goals for the leader of a small-to-middling country at the arse end of the world, but a couple of years ago the G20 looked an impossible dream. With determination and the right friends, it has become a brilliant reality. Yes, we can.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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