The G20 and the inequality crisis
Almost a decade ago, facing a near-collapse of the financial system and the risk of a depression, the world needed a new form of leadership to navigate and restore confidence in the global economy. That’s why, in 2009, at his first global summit as US president, Barack Obama joined then-British Prime Minister Gordon Brown to spearhead the G20’s upgrade, making it the world’s preeminent economic forum. What they created helped solve one immediate problem, but it let linger another global challenge.
With the Obama-Brown upgrade, the G20 – comprising 19 of the world’s largest advanced and emerging economies, plus the European Union – took over the role played by the G7 (Canada, France, Germany, Italy, Japan, the United Kingdom, and the US). Obama and Brown knew that a group that did not include rising economic powers, like China and India, could not propose effective solutions to the global economy’s biggest problems.
Whatever one thinks of the G20 – and it is by no means perfect – this more inclusive grouping helped to overcome the consequences of the 2008 global financial crisis. With an expanded coterie of world leaders taking charge, jittery financial markets stabilized, and the G20 then helped launch, and sustain, a global economic stimulus, led by China, which reversed the downward spiral.
Today, the G20, now meeting in Hamburg for its annual summit, must confront the challenge of inequality. With the world’s richest 1% now owning 40% of its assets, the benefits of growth are not being shared in a way that is either economically efficient or politically sustainable.
This crisis had been building for many decades, but it accelerated sharply after the global financial meltdown that the G20 helped stem. As a result, disillusioned and disaffected voters in advanced economies are challenging established political parties to find solutions or cede power, while millions of people from poor countries, unable to envision a future at home, are risking their lives by crossing deserts and seas in search of economic opportunity.
It is up to the G20 to deal with the global inequality crisis with the same urgency it showed during the Great Recession of 2008-2009. Just as Obama and Brown led the way then, German Chancellor Angela Merkel must respond purposefully and powerfully to the widening divide between rich and poor, which has become an acute danger to the world economy, and to social cohesion and political stability.
The G20, which Germany now leads, could take many steps to address the crisis of inequality, but three are most important.
First, the G20 needs to get serious about accelerating work on the UN’s Sustainable Development Goals. The SDGs set a bold but achievable agenda for addressing poverty, reducing inequality, improving education and health, and protecting the planet. But almost two years after their launch, a business-as-usual approach prevails in most countries, and accountability has been reduced to exercises in collecting data. The G20 countries, which collectively account for most of the world’s population and resources, should lead by translating the SDGs into national policies, and by harnessing government budgets and their private sectors to drive implementation.
Second, the G20 must crack down on economic abuses that weaken states and markets, and erode public trust. Tax avoidance by big corporations and wealthy individuals, which by some estimates cost poor countries $200 billion a year, is a case in point. Many business leaders do understand that the future of the world economy, and their own companies, depends on reducing poverty, and that this is becomes harder to achieve as inequality widens. But to tackle a crisis of this scale, the entire business community must be on board.
Finally, the G20 should lead the way toward giving every child access to quality education by 2030. This is the real game changer when it comes to addressing inequality. For example, teaching all students in poor countries to read could help pull more than 170 million people out of poverty, equal to a 12% decline in the number of poor people worldwide.
But this would require a dramatic increase in education spending, including more funding for existing programs, like Education Cannot Wait, which supports the continuation of schooling for children in disaster areas, and the Global Partnership for Education, which provides grants to support education in countries with the most need. It must also include investment in proposed initiatives, like the International Finance Facility for Education, which aims to bring public and private donors together to increase global education financing by more than $10 billion dollars a year.
The G20 is still the world’s leading forum when it comes to the global economy. It helped us through the global financial crisis. Now is the time for the G20 to step up again, and to act with genuine resolve, to address the global inequality crisis.