Published for Wall Street Journal, June 19th, 2012
The G-20 heads of state gather this week in Los Cabos, Mexico, for what may be their most important meeting since their first summit in November 2008. The Group of 20 set three objectives at that meeting: restore global growth, strengthen the international financial system, and reform financial institutions.
That work is far from complete. Another recession has begun in Europe, and the U.S. economy remains sluggish. Developing economies are weakening. And the problem of what to do about too-big-to-fail financial institutions is still unresolved.
The G-20 is well situated to help meet some of these challenges. Free of the stultifying bureaucracy and pomposity of many multilaterals, the group has the advantage of flexibility and informality.
Yet now it’s facing a crisis of legitimacy. When the G-20 was established in 1999, membership was decided without any definitive, objective standards. It was based loosely on country size, but politics were clearly a factor too. The arbitrary selection process has been a sore point for nations that weren’t anointed. Many observers have noted that the lack of membership criteria has diminished international trust in the G-20’s decisions and activities.
The G-20 needs clear admission standards, and in a study sponsored by the National Taxpayers Union, we propose a set of seven criteria that correspond to the group’s stated policy objectives. These criteria measure: 1) a nation’s economic size and global economic importance, 2) its adherence to the rule of law and other principles consistent with market-based economics, and 3) the scope of its financial interconnectedness with other nations.