Setting the Stage for Germany: Turkey and China made G20 more relevant for the developing countries

I see mostly continuity in the agenda of G20 when I look from the Antalya communique in December 2015 to the Hangzhou communique in September 2016. Turkey has started a process to make the G20 more relevant for developing countries and China has actually laid bare a quantifiable framework to achieve the aforementioned objective. I see German leadership of the G20 in 2017 as a great opportunity to design an implementable agenda to make the G20 more relevant for developing countries.

The G20 was established as a meeting of finance ministers and central bank governers right after the 1998 financial crisis. Remember that the crisis had started in South East Asia before spreading to all developing countries. The objective at the time was to find a mechanism to establish stability in global financial markets. The countries chosen for G20 were all important stakeholders in the global economy and in global financial markets. These were the countries that acted as enablers of global trade and financial flows, hence the countries that made globalization function the way it does.

Today, it is possible to see three major types of countries within G20. These are the developed capitalist economies at the center, the BRICS [Brazil-Russia-India-China-South Africa] and the MIKTA [Mexico-Indonesia-Korea-Turkey-Australia] countries. Developed capitalist economies initiated the process of globalization as their companies turned into multinational companies (MNCs), operating value chains throughout the globe and further deepening the globalization process.

Both BRICS and MIKTA are mostly composed of countries from the periphery. While BRICS is composed of countries that have the capacity to influence global developments due to their sheer size, MIKTA is composed of countries that are more open to the world, yet do not wield much power over global trends. Except for South Africa, the BRICS all have the power to limit the impact of global developments on their economies and have the capacity to influence global markets due to the sheer size of their economies. South Africa appears to be an outlier within this group. In fact, it appears more likely to be part of the MIKTA group of Mexico, Indonesia, Korea, Turkey and Australia. These countries are relatively open to global influence, yet do not have much power to exert a direct impact on the global economy. Both taxonomies reflect the size of the economies in question. These groups leave aside Saudi Arabia, which - unlike all other members of the G20 - does not appear to be integrated but rather joined to the world economy due to its oil production capacity. Hence Saudi Arabia reflects the concerns of oil producing countries within the G20.

Why are developing countries included in a mechanism to govern the globalization process? Besides the growing importance of developing countries in the globalization process, they were seen as the reason for the 1998 financial crisis, when G20 had its first meeting. At the time, in economic literature, financial crises were considered to be the result of populist, definitely unsustainable, and mostly fiscally irresponsible policies of governments in developing countries. Original sin in emerging and developing countries was still at the core of the financial crisis literature in the 1990s. The belief at the time was that such populist policies could be found only in developing countries where institutions are weak. No parallel focus for developed countries could be found in the late 1990s financial crisis literature. The immunity of developed or core countries to such mishaps was taken for granted at the time. The 2008 US banking crisis has changed that error of perception forever, thereby widening the scope of global policy cooperation.

With the great crisis of 2008 at the center of the system, two things have happened regarding the G20. Firstly, the G20 was elevated to summit level. Now that the financial problem was at the center of the global system, its sustainability required an intervention at the level where the leaders themselves needed to agree to abstain from protectionism in order to guarantee global trade and financial flows. Secondly, global policy cooperation became a major issue. Global leaders came together for global policy coordination and cooperation. That was how the G20 “saved” the world: by ensuring policy cooperation and avoiding protectionism. Developing countries have continued to open their markets to global flows and the global system continued to function despite the crisis at the center. Multinational companies (MNCs) continued to operate their global value chains (GVCs) against odds created by the financial crisis.

That said, as of 2014, while the G20 had not yet become relevant for developing countries per se, it had become very relevant for the global system as it was. The G20 had become a relevant channel of communication to discuss global policy cooperation issues, yet it had not become a mechanism to enhance the role of developing countries within the global system. It served its purpose in terms of maintaining the system as it was.

The Australian Presidency in 2014 had clarified the G20's now-crowded agenda by focusing on jobs and the growth objectives. The latter was to accelerate global growth by an additional 2 percentage points by 2018. G20 countries pledged to focus on infrastructure investments and structural reforms in Brisbane, Australia. This goal of accelarating global growth was  kept under the Turkish Presidency.  National plans for infrastructure investment were prepared and an accountability report (to show whether G20 countries are keeping their promises) was issued for the first time in G20 history. Yet those country specific investment plans were not juxtaposed with national plans for SDGs in the Chinese year. From one perspective, the pledge in Brisbane to achieve an additional 2 percentage points in growth seemed to have been lost in 2015 and 2016. Yet it could also be argued that the poorly designed, rather one-dimenisonal Brisbane global growth targets were in fact further enriched by discussions that were held in both the Turkish and the Chinese years to make the G20 more relevant for developing countries.  

I see three areas of continuity when it comes to Turkish and Chinese efforts to make the G20 more relevant for developing countries:

INCLUSIVITY . First of all, in 2015 and 2016 we have heard quite a bit about "inclusivity." It was one of the three i’s of the Turkish Presidency and one of the four i’s of the Chinese Presidency. The Turkish i’s were inclusiveness, investment and implementation, whereas the Chinese were talking about an innovative, invigorated, interconnected and inclusive world economy. Inclusiveness was common to both Presidencies together with the objective to make the G20 more relevant to developing countries. Here it is possible to make a distinction between the Turkish and Chinese Presidencies. Whereas the Turkish Presidency contributed by organizing 170 global events aimed as turning the G20 into a more inclusive forum about global policy cooperation, the Chinese Presidency has contributed by reorienting the content of the global debate towards developing nations.

INNOVATION-TECHNOLOGY DIVIDE.  The new debate about the innovation-technology divide is one such example at the forefront. It is now about the dissemination of global knowledge and the transfer of technology to developing countries to contribute to productivity growth.  During the Turkish Presidency, the debate regarding the innovation-technology divide between developed and developing countries was proposed by the Think-20 (T20) outreach group as an item to shape the future agenda of the G20, and the Chinese adopted the theme as an official G20 agenda item.  This theme is emphasized again under “New Industrial Revolution”, below.

SOVEREIGN DEBT RESTRUCTURING.  A second example of inclusiveness could be the addition of sovereign debt restructuring schemes to the G20 lexicon. The issue did not give way to an effective mechanism to design a global public sovereign debt restructuring scheme in either the Turkish or the Chinese Presidencies. Yet the inadequacy of the current private sector-based sovereign debt restructuring schemes were underlined in a move towards making the G20 more relevant to the problems of developing countries. On this topic, the recent example of Argentina was raised throughout the discussion.

SMALL- AND MEDIUM-SIZED ENTERPRISES (SMEs).  A third related example could be the addition of SMEs to the G20 agenda during the Turkish Presidency by the establishment of the World SME Forum as the first global policy advocacy platform for SMEs. This is important, since the G20 is usually considered as a forum only for Multinational Companies (MNCs) to find their way within the system of nation states. The task forces of the Business-20's (B20) outreach group were totally outsourced to MNCs before the Turkish Presidency. While Turkey has paved the way for the inclusion of domestic SMEs within the global policy debate, the Chinese have focused on the content of the global debate about SMEs. In terms of inclusiveness, the Chinese contribution was their focus on the relationship between global value chains (GVCs) and SMEs in different countries. In this manner, the focus was shifted to the relationship between MNCs at the global level and SMEs at the national level, together with the whole issue of structural reforms to increase the readiness of national SMEs to GVC standards. Inclusiveness is the first area of continuity that I am seeing from the Antalya Communique in 2015 to the Hangzhou Communique in 2016.


The second area of continuity is about ending the asymmetry between the finance and the development tracks in the G20 agenda. Since the G20 was established in response to the financial crises of 1998 and then of 2008, the finance track of G20 has been more focused than the development or Sherpa track, which was first created under the Korean Presidency in 2010. Global policy cooperation is rather well structured when it comes to the finance track. The objectives and tools of policy cooperation are rather well defined, yet there is no such focus when it comes to the development agenda of the G20. There is this asymmetry between the finance and development tracks of G20 in terms of the focus, structure and content of global policy cooperation. The finance track is more systematic, while the development or Sherpa track is rather haphazard.

One reason for this asymmetry could be the fact that it only comes down to the IMF to determine the framework of the global policy cooperation debate in the finance track. In the case of the development track however, the World Bank, the OECD and the UNDP all play a role. The IMF was successful in transforming itself and committing to the new reality of the G20 as a global governance tool, yet the World Bank could not achieve the same transformation throughout its perpetual restructuring processes over the last two decades. I do consider this as an incompetence - or perhaps an inability -  on the part of the World Bank in totally committing itself to the G20 as a new governance tool. 

A second reason for the asymmetry between the finance and development tracks of the G20 is the fact that the finance track is valid both for developed and developing countries as a tool for global policy cooperation to achieve stability, jobs and growth. On the other hand, the development track has been designed exclusively for developing countries at the outset as a kind of a public relations effort. Developed countries have not shown enough interest in the way that the development track has been designed.

The third reason for the asymmetry between finance and development tracks of the G20 is of course historical. While the G20 was itself established in response to a global financial crisis, it was elevated to the summit level in response to another, deeper crisis in 2008. When compared to the finance track, the development track is a late comer, not having emerged until 2010 -  12 years after the inception of G20 as a forum for global policy cooperation.

A new situation has emerged with the UNDP-led Sustainable Development Goals (SDGs) in 2015, and later with the COP21 Paris Climate Deal. The latter is now also reinforced by the new industrial revolution that is taking shape in the core countries. For the first time in G20 history, it has become possible to define a coherent development track around the idea of sustainability. This time sustainability could be defined as something that is valid both for developing countries and developed countries. The SDGs address social, economic and environmental vulnerabilities that afflict both developed and developing countries. With the shaping of the SDG agenda in 2015, global inequalities have entered the lexicon of the G20 within the sustainability debate.

Currently, there is a strong emphasis on SDGs, climate change, energy access and the refugee crisis - all of which could be considered under the general heading of sustainability. A similar focus could also been seen in the Chinese year, but with more content. I presume that this has come from the focus of the Hangzhou Leaders’ Communique on innovation, technology transfer and the New Industrial Revolution.

Let me give a specific example about what has changed here. In the past, the debate about environmental sustainability was totally different from the one that we have today. In the past, there was a positive correlation between carbon emissions and growth due to our carbon-based technologies. Carbon based technologies bring carbon-based growth. So, in the past, any demand from developed countries to developing countries about lowering carbon emissions meant foregoing growth, employment and hence delaying welfare gains to nations.


The New Industrial revolution (NIR) is about decoupling carbon emissions and growth. The latter is also already happening in developed countries like the Netherlands. NIR heralds a new epoch in defining a more sustainable globe, through international policy cooperation on technology transfer and structural reforms to ensure technology diffusion among international companies. The development track or development agenda is all about innovation, technology transfer and technology diffusion in this new setting. The debate about a stronger, SDG-based development track began as a rhetorical shift under the Turkish Presidency. More was done under T20 during this period on this new link between innovation, technology transfer and technology diffusion. In this manner, the rather privately started Innovation Forum of the Australian Presidency was turned into an integral part of the official Antalya Summit under the auspices of the T20 Summit. Note that the link between the objective of ending the innovation divide and that of defining a stronger development track became more evident under the Chinese Leadership.

Yet we still do not see strong links between policies which would end the innovation divide and end global carbon-based growth.  This link will launch a new non-carbon-based growth era. Joining these policies will allow the G20 to combine the finance and development tracks in a coherent manner. Closing the international innovation divide and improving productivity levels in developing countries appears to be the new basis for a stronger global jobs and growth agenda, so to speak. The latter could only be realized with a stronger commitment to technology transfer, knowledge sharing and technology diffusion, together with the necessary national structural reforms and a well targeted global climate finance scheme. This could be interpreted as the third area of continuity from the Antalya to the Hangzhou communique.

By adding innovation as an engine for global growth to the G20 lexicon, the G20 China underlines the importance of innovation and technology transfer for sustainable growth in the developing world, thereby breathing new life into other agenda items including growth, infrastructure, trade and employment. This also speaks directly to the developmental concerns of developing countries, in turn initiating a groundbreaking global policy dialogue. If previous G20 agendas can be characterized as being mostly operational or transactional– in the sense that they only address immediate challenges - the Chinese focus was more transformational in nature.

The contribution of technology and innovation to sustainable growth and development was the main focus of Turkey’s Think-20, led by TEPAV (Economic Policy Research Foundation of Turkey ) in 2015. The Turkish Presidency had asked the T20 to foster the debate for innovation and technology transfer within the T20 and to shape the future agenda of the G20 to make it more relevant to the developing countries. This was a Turkish innovation to prepare the ground for a future official G20 discussion, and it worked. This is precisely why China’s move is an important step forward to make the G20 more relevant to the developing world.

The new agenda item regarding innovation-driven growth and technology transfer also has the capacity to enrich the rather one-sided or one-dimensional global growth agenda of Brisbane, which focused on infrastructure investment. Whereas structural reforms are hard to define in a jobs and growth target arising from infrastructure investment, technology diffusion requires a more comprehensive agenda of structural reforms. Whereas the infrastructure investment-driven jobs and growth target is more conducive to MNCs, the innovation-driven jobs and growth agenda better suits the companies of the developing world, without forgetting the importance of GVCs where MNCs are the prime actors.

Notice that the “innovation-driven jobs- and growth- agenda” coupled with technology transfer to developing countries and technology diffusion in these countries also has the capacity to give a totally new meaning to the whole climate finance debate.

After the Antalya and Hangzhou Summits, the stage is set for a more enriched and diversified jobs and growth target by taking the priorities and growth agendas of developing countries into account. Even in the case of infrastructure investments, the selective focus on  connectivity-enhancing infrastructure projects is a novelty of the Chinese leadership. If infrastructure projects are to connect nations and to end regional disparities, then the global growth impact could be amplified. Now the issue is to bring together country-specific investment plans and national action plans for SDGs. This is one issue that could be achieved by the German Leadership of the G20 in 2017.

From Antalya to Hangzhou, the refugee crisis was another issue that was tackled. In 2016, the number of displaced people and refugees has reached a post-WWII peak. The capacity constraints and blind spots of international agencies in dealing with refugees have become all the more evident. This prompted the G20 Summits in Antalya and Hangzhou to start deliberating about the refugee situation. In order to turn current transit countries into destination countries, it has to be understood that the refugee flow creates a restraint on the quality of and the capacity to provide public services in host countries. Consequently, the refugee flow increases social tensions and has negative effects on social cohesion. A new mode of global policy cooperation needs to be defined and operationalized under German Leadership. Yet it is obvious that there is a role for G20 in the refugee crisis of our age. The refugee issue fits nicely into the sustainability debate.

The G20 was fundamental in the economic recovery process of especially advanced economies after the 2008 crisis. Developing countries kept their markets open to western MNCs. It was mostly good for the advanced economies. Hence the G20 has been very relevant for developed countries since 1998. On the other hand, from Antalya to Hangzhou, a framework was put in place to make the G20 more inclusive and more relevant for developing countries. This has now turned into a more transformational agenda in which NIR, non-carbon-based growth, technology transfer, technology diffusion and SDGs can all fit together. The finance track meets with the development track in this new G20 agenda. As a problem for both developed and developing countries, the refugee crisis fits nicely into the SDG framework as well. With this transformational agenda, the G20 will be more inclusive and that is good for the developing world when it comes to the global governance system.

The G20 has been in need of a more humane face for some time. With this new agenda, it now has the capacity to become “an international economic governance forum to shape medium to long term policies.” From 2015 to 2016, the G20 ingeniously crafted a new incentive-compatible agenda framework, asking both developed and developing countries to come out of their national trenches and cooperate.