Today's date:
Spring 2011

It Is a G-Zero, Not a G-20, World

Nouriel Roubini is chairman of Roubini Global Economics (, professor of economics at New York University’s Stern School of Business and co-author of Crisis Economics: A Crash Course in the Future of Finance. This is based on an article co-authored with Ian Bremmer and published in the March-April issues of Foreign Affairs (

New York—We live in a world where, formally, global economic and political governance is supposed to take place at the G-20 level. Economic, financial and security issues are transnational and require international cooperation, where both advanced economies and systemically important emerging markets are at the table. Indeed the G-7, the club of advanced economies, became obsolete and a broader group also representing the most important emerging markets became necessary; this led to the birth of the G-20. 

But in practice there is no global leadership and there is severe disarray and disagreements among the G-20 members not only about monetary and fiscal policy, exchange rates and global imbalances but also about global climate change, trade, financial stability, the international monetary system, energy and food security and global security. We are thus in a world where major powers see these issues as zero-sum games rather than positive-sum games. Thus, this is effectively a G-Zero world rather than a G-20 world.

Historically, the G-7 group of advanced economies was effectively a G-1, as the United States was the stable hegemonic power providing leadership for advanced economies and providing to the world economy a variety of global public goods: security, free trade, financial stability, market-oriented policies. In the 19th century the stable hegemon was the United Kingdom, with the British Empire imposing the global public goods of free trade, free capital mobility, the gold standard and the British pound as the major global reserve currency.

In the 20th century, after the decline of the British Empire, the US imposed its Pax Americana, providing security to most of Western Europe, Asia, the Middle East and Latin America while dominating the Bretton Woods institutions—the International Monetary Fund, the World Bank and later the World Trade Organization. It determined the global rules for trade and international finance, with the US dollar becoming the leading reserve currency. In this century the US “empire” is in relative decline and is fiscally over-stretched! At the same time, the rising power, China, which is not a liberal democracy, is pursuing a model of state capitalism and is free riding on the current global system rather than sharing in the provision of global public goods. And while there is general unhappiness with the US dollar the Chinese yuan is still far from becoming a major global reserve currency, let alone the dominant one. This vacuum of power reinforces the leadership void of the G-Zero. 

While the rise of the BRICs (Brazil, Russa, India and China) and other systemically important economies has led to the idea that the new and old powers in the world can sit down and collaborate on all the major issues of global governance, historically the balance of great powers has been highly unstable and eventually led to conflict, economic if not military. The Congress of Vienna—the height of the doctrine of the balance of great powers—led to peace and stability for about only 20 years, followed again by a return to conflict. The only periods of protracted global peace have been when there has been a stable hegemonic power or when, as during the Cold War, the balance of terror or of mutual assured destruction prevented global conflicts.

The G-20 is the latest attempt at global governance. But with the exception of the London Summit during the recent economic and financial crisis—when a consensus was reached on a join monetary and fiscal stimulus to prevent the Great Recession from turning into a new Great Depression—the G-20 has become another bureaucratic forum where much is discussed but little agreed upon and a lot disagreed upon.

Indeed the global economic powers bicker over whether we need more monetary and fiscal stimulus or less of it. The US and the Eurozone are at odds on fundamental macro policy issues: the European Central Bank is bent on not starting a monetary tightening while the US Federal Reserve is still implementing QE2; Eurozone members and England are starting fiscal austerity while the US has just passed another two-year trillion-dollar tax cut. Major disagreements exist on whether to reduce global current account imbalances and the role that currency movements should play in this adjustment. China, emerging markets and Germany are resisting US calls for agreement on current account balance targets and on allowing faster Chinese currency appreciation to achieve such targets. Not only the US but also Japan, Korea, India, Brazil and other countries are concerned about Chinese currency policy. Currency tensions are leading to currency wars—in the words of the Brazilians—and, eventually, these could lead to trade wars and protectionism. The Doha round of negotiations for multilateral trade liberalization is effectively dead because it has been impossible to reach an agreement among the major trading powers about further liberalization of trade in goods and services, with issues regarding intellectual property rights also a sticking point. Meanwhile, there is also a rising risk of financial protectionism as countries restrict inward foreign direct investment. The China National Offshore Oil Company-Unocal case and the Dubai Ports case are the most obvious examples. Further, many emerging markets are now imposing capital controls on inflows of volatile capital as a way to prevent excessive currency appreciation.

There is no consensus on how to reform the system of regulation and supervision of financial institutions with US, EU and other advanced economies disagreeing, while emerging market economies—which did not experience a severe banking crisis—are skeptical of new and draconian regulations. And there is even less consensus on how to the reform an international monetary system based on flexible exchange rates and the central role of the US dollar as the leading reserve currency.

China and France have come up with ideas for reforming the system, including a potential greater role for the Special Drawing Rights (SDR), while the US is resisting including the Chinese currency in the SDR basket as long as China maintains capital controls and a rigid exchange rate regime.

Meetings to reach agreements on controlling greenhouse emissions and global climate change have repeatedly ended in failure. There are disagreements on how to deal with food and energy security at the time when oil, energy, food and commodity prices are sharply rising. There is a new scramble—or great game—for global resources, with China in the forefront of ensuring supplies of commodities by massive investments in resource-rich economies, from Latin America to Africa and the Middle East.

And on global geopolitical issues—from the tensions in the Korean Peninsula, to the issue of how to prevent the nuclear proliferation of Iran, to how to resolve the Israeli-Arab conflict, to how to stabilize Afghanistan and Pakistan, to how to manage the political transition in autocratic Middle East regimes that are now in turmoil—the great powers disagree and are impotent in imposing stable solutions, even in cases like Libya, where a despot is brutally oppressing his own people.

So this is not a G-20 world; it is rather a G-Zero world. With each passing summit of the G-20 it becomes clearer that the expanded table is as likely to become an arena of conflict as a forum for multilateral cooperation.

There are several reasons why this is so. First, when discussion moves beyond generic principles into detailed policy proposals, it’s much more difficult to reach clear agreements among 20 negotiators than among seven. The G-20 meetings have become a rigid and bureaucratic forum where endless prepared speeches by each nation’s leader take most of the discussion time. Thus little substantial dialogue and bargaining take place. The G-20 communiques have become—like those of the old G-7—long and tedious documents in which disagreements are papered over with an attempt to find the minimum, often mediocre, common denominator.

Second, G-7 leaders share the belief in the power of free markets to generate long-term prosperity and the importance of democracy for political stability and social justice. The G-20, on the other hand, includes autocratic governments with quite different views about the role of the state in the economy—often models of state capitalism—and differing views on rule of law, property rights, transparency and freedom of speech.

Third, the Western powers now lack the domestic political consensus and the financial resources to drive an international agenda. Washington is tied down with domestic political battles and must at some point begin to reduce its unsustainable budget deficit. Europe is fully occupied with its attempt to patch up and save the Eurozone and has no common foreign or defense policy. Japan, already in serious long-term economic decline and in political stalemate on structural reforms, is further preoccupied with recovery from the earthquake and tsunami.

Finally, rising powers like China, India and Brazil are far too focused on managing the next stage in their respective domestic developments to take on the financial and political costs that come with new international responsibilities. They are thus often free riding on the global economic and trading system rather than contributing to the provision of global public goods.

For the first time since the end of World War II, no country or strong alliance of countries has the political will and economic leverage to place its goals on the global stage. This vacuum may encourage, as in previous historical periods, the ambitious and the aggressive to seek their own advantage. In such a world, the absence of a high-level agreement on creating a new collective security system—one focused on economics rather than the 20th-century dynamic of military power—is not merely irresponsible but dangerous. A G-Zero world without leadership and global cooperation is an unstable equilibrium that threatens both economic prosperity and security.

The argument that we live in a G-Zero rather than a G-20 world should not be taken as a normative statement. It is rather just an analytical statement of the world we are in rather than the world of cooperation we should be in. Since most global issues are transnational, with global spillover effects, the need for dialogue, coordination and cooperation is more necessary than ever. And it is possible that the great powers will realize that most global issues—economic, trading, financial, security—are not a zero-sum game but rather a positive-sum game, where mutually beneficial agreements can and should be reached. But true dialogue may require less rigid and bureaucratic fora, where true dialogue and robust discussion may eventually lead to cooperation and agreement on a wide range of issues that includes not only governments but also non-governmental organizations and representatives of the private sector. That is why fora such as the 21st Century Council can be less formal and more substantial spaces, where there is the real dialogue and debates that are necessary precursors to eventual international cooperation and coordination can take place.