Paul Martin, Father of the G-20 & Other Stories

Due to an unfortunate circumstance, I have had yet another miserable experience of coming across pseudo-anti-globalization figure Naomi Klein's typically inaccurate ramblings on how Larry Summers was the creator of the G-2o. In some scribblings prior to last year's G-20 gathering in Toronto, she wrote the G-20 is "a global menace invented by Larry Summers." As you would expect from a habitually factually challenged individual, this assertion is not true. Instead, the G-20 is the brainchild of a comparatively lesser known Canadian.

Is Larry "Wooden Racquets" Summers indeed the father of the G-20? I beg to differ. To be sure, he remains a most controversial character. From being one of the chief architects of high-era neoliberalism during the Clinton administration, he's become a deficit lubber par excellence as of late. As long as it was poor countries feeling the pinch of the standard gospel of liberalization, privatization and deregulation, there was no problem with it for him. But now that the United States has experienced being down in the dumps--probably for good, even--he's turned into the most avid cheerleader for Obamanite deliberalization, nationalization, and reregulation. Typical American hypocrisy.

That said, Larry Summers did not invent the G-20. Rather, proper attribution would give that honour--or dishonour if you're a Naomi Klein fanboy (poor you)--to former Canadian Finance and Prime Minister Paul Martin. Be forewarned that he is highly regarded in these parts, having first explained the rationale for and then implementing fiscal cuts in Canada that have spared it from American-style gridlock over budgetary matters.

In the interest of historical accuracy, the Globe and Mail has the authoritative story (which also came out during the time of last year's G-20 summit in Toronto) on how the G-20 came to be. Shortly after the Asian financial crisis, yes, Larry Summers recognized that there was a growing need to include more voices that the G-7 on matters of global economic governance. However, Summers did not come up with a workable idea until Martin suggested the creation of a diverse group of twenty countries. That done, Summers and Martin began drawing up the list of G-20 participants:

Paul Martin sat in Lawrence Summers' spacious office in the Greek-columned U.S. Treasury building in Washington, searching in vain for a piece of paper. With none in sight, the two men grabbed a brown manila envelope, put it on the table between them, and began sketching the framework of a new world order.

It was April 27, 1999. For the past five years, the global economy had shuddered under a string of massive debt defaults – first in Mexico, and then in Southeast Asia and Russia. In each case, Western leaders and bankers responded by prescribing harsh fixes, throwing one developing economy after another into recession.

As crisis followed crisis, Mr. Martin, then Canada's finance minister, became convinced that major developing nations had to be given a voice – not just an ultimatum – when it came to discussing their place in the global economy. But in the capitals of Europe and the corridors of Washington, the answer was always the same: It's our club, and there are no vacancies.

Or at least it was the same answer until that April day when Mr. Martin visited Mr. Summers, then Bill Clinton's nominee for treasury secretary, to press his case. He argued that they couldn't keep imposing solutions on developing countries. The G7 had to be expanded – at least at the finance-ministers' level. Mr. Summers quickly agreed. But that was the simple part. Much thornier was the issue of who would be admitted to the club.

With the manila envelope in hand, the two began jotting down countries. China, India, Brazil, Mexico – these were obvious choices. So was South Africa, the biggest economy on its continent. But who else? “I felt very strongly that it had to be the regional powers,” recalls Mr. Martin. “Larry felt that, and then he also had geopolitical concerns. I would love to say we sat down and ran the numbers on whose GDP was bigger, but we didn't. We both had a pretty good perspective on where things lay.

Thailand was the nexus of the Asian banking crisis, but Indonesia was more influential in the region. Indonesia in; Thailand out. Chile was tempting, because it was democratic and well-run, but Argentina was a bigger player. Argentina got the seat. Saudi Arabia was strategically important and a good friend of the United States. The Saudis would get an invite.

So it went until they had compiled a working list of roughly 20 countries – literally, a back-of-the-envelope blueprint for what would become, today, the most powerful forum on economic and political matters in the world: the G20.

I have just excerpted the introduction above; the rest is of course required reading for anyone with an interest in global governance. It is disconcerting that a supposedly more inclusive club representing about 80% of the world economy was effectively drawn up by two powerful white men, but that's indeed the case. Still, it's up to developing countries whether they can use their voices effectively in global governance matters such as IMF succession where they've squandered a perfectly good opportunity.

Also see Martin's 2005 article in Foreign Affairs that lays out his rationale for expanding mechanisms for global governance. To give credit (or blame) where it's due, Paul Martin is the father of the G-20.