Development agenda to enhance G20’s legitimacy

It is historic that Korea, the first non-Western and non-G8 country, chairs the fifth G20 leaders meeting in Seoul this week. Once among the poorest economies, Korea now takes center stage at one of the world’s premier forums and can contribute to the inception of a post-crisis global architecture through the development agenda. The formal inclusion of a Korea initiative on development as a focus of the Seoul G20 agenda is aimed at bridging the 172 non-G20 countries and G20 members.

Ahn Choong-yong

Seoul provides alternative to one-size-fits-all formula

By Ahn Choong –yong

It is historic that Korea, the first non-Western and non-G8 country, chairs the fifth G20 leaders meeting in Seoul this week. Once among the poorest economies, Korea now takes center stage at one of the world’s premier forums and can contribute to the inception of a post-crisis global architecture through the development agenda. The formal inclusion of a Korea initiative on development as a focus of the Seoul G20 agenda is aimed at bridging the 172 non-G20 countries and G20 members.

The collective effort of the G20 since the eruption of the unprecedented financial crisis has proved effective in bringing about a quick recovery, albeit with varying degrees of success in individual countries, making it the premier forum to redesign the post-crisis global economic architecture.

However, questions about the legitimacy of the G20 process have naturally been raised because it is a self-selected grouping. But legitimacy even for an informal group like the G20 depends on its ability to deliver on the objectives of its members. In this context, Korea's idea of putting development issues on the G20’s Seoul agenda signifies a new stage in the group’s evolution. Leaders at the Toronto summit accepted the Korean proposal to establish a development agenda and multi-year action plan.

In order to gain outside support, the G20 should recognize that the fruits of strong and sustainable growth need to be shared evenly among all nations, including the poorest. To this end, member countries need to look beyond their own interests and take on the responsibility of reaching out to non-G20 nations.

Indeed, narrowing the development gap and reducing poverty in low-income countries is integral to the G20’s objective of achieving strong, sustainable and balanced global economic growth. In the absence of convergent growth, the G20 will be perceived as an expansion of the rich nations’ cartel to maximize the benefits of globalization at the expense of poorer countries.

In its development approach, the G20 needs to focus on measures to assist developing countries and to promote economic growth and resilience based on the hypothesis that 80 percent of poverty reduction is due to growth.

A key aspect of development is that the people must be major participants in the process that brings structural change to an economy. Development topics can include resource mobilization for global public good, improvement of aid effectiveness, achievement of the United Nations Millennium Development Goals (MDGs) and work on the social dimensions of development. Given the diverse development landscape, it is especially important for the G20 to support existing initiatives such as the MDGs and projects carried out by development banks, while avoiding unnecessary overlaps.

Development cum growth fits with the objectives of the G20, especially because it also mitigates global imbalances. The critical challenge in seeking to achieve strong, sustainable and balanced economic growth is how to generate new sources of aggregate global demand. The rising consumption and investment of emerging economies such as Brazil, Russia, India and China indicate they could fulfill this role. Global demand rebalancing needs to be viewed as an integral part of the larger objectives of the G20. Emerging, developing and low income countries are an important part of the solution and must be considered equal partners in achieving a more resilient and balanced global economy.

The G20 should be committed to assisting developing countries achieve their maximum growth potential. Given the diversity among developing countries, there is no one-size-fits-all formula for development success. Some key pillars of development include infrastructure development, inducing private investment and job creation, human resource development, global trade facilitation, effective financial services to small and medium-sized enterprises, food security and good governance, to name a few important ones..

Most importantly, the G20 needs to focus on the indigenous capacity building that is suitable to the needs of developing countries. Any scheme based on a one-way flow from advanced countries to their developing counterparts is not likely to be effective. Proactive participation on the part of developing countries is crucial for the legitimacy and sustainability of the G20 process. In this regards, it is crucial to focus more on human resource development with skills training and education.

Given the importance of combating on-going climate change, the green growth paradigm can also integrate the objectives of poverty reduction, job creation, environmental sustainability and energy security. The G20 should at least design a scheme to allow the free flow of green growth knowledge between environmentally advanced and lagging nations.

As an implementation scheme, Korea has already proposed a “knowledge-sharing platform” for development. However, linking one country’s development knowledge and resources with those of other countries will not be sufficient.

An immediate link between the advanced and developing world is found in mutually beneficial cross-border foreign investment. In this context, the G20 needs to work on helping developing and low-income countries build their capacity to absorb inbound foreign direct investment, and cross-border movement of labor also needs to be addressed.

Being one of the latecomers to modern industrial development, Korea’s compressed development history could serve as a success story in the knowledge sharing process between developed and developing countries.

Korea’s human resource development, rural modernization and manufacturing efficiency offer a practical menu of models to emulate. In 2009, Korea became the first country to evolve from being an aid recipient to an aid provider when it joined the Development Assistance Committee of the Organization for Economic Cooperation and Development.

The Korea initiative development agenda, once widely agreed on directional guideline with a concrete implementation strategy at the G20 Seoul Summit, is likely to enhance the G20 as the premier global forum to bring a sustainable and balanced global growth in the years to come.

The writer is a distinguished professor of economics at Chung-Ang University. He is currently the Foreign Investment Ombudsman of Korea and chairman of Korea’s Regulatory Reform Committee.