Jeffrey Sachs follows the decline of American economic leadership and explains how collective action, through bodies like the G-20, "needs to suceed."

The world has a new problem-solver. The summit of the Group of 20 in Pittsburgh last week confirmed that the leading economic powers, developed and developing, have cast their lot with collective economic leadership and systematic peer review. American conservatives are dyspeptic. The G20 seems to them both a fantasy in grand planning and a misguided sell-out of capitalist democracies to the miscreants of the third world. These fears are absurdly exaggerated but they do at least hint at an important truth: the G20 is an experiment. On its makeshift scaffolding the success of the planet now rests.

The G20's true significance is not in the passing of a baton from the G7/G8 but from the G1, the US. Even during the 33 years of the G7 economic forum, the US called the important economic shots. Although the US constitutes only about 20 per cent of the world economy, it has until recently been the indispensable leader, the key to nearly every significant regional military alliance and to global trade, finance and cutting-edge technology.

In fact, US economic leadership had already begun to wane a quarter-century ago but this was obscured by the collapse of the Soviet Union and by the US-led revolution in information and communication technology. Both events seemed to suggest a boost of US economic dominance - but that was illusory, especially as technologies and market-led growth spread to China and other emerging markets.

America's leadership was also undercut by problems at home: low and declining saving rates, widening income inequality, poor educational attainments, anti-tax paranoia leading to insufficient public investments and chronic budget deficits, and rising political corruption, corporate malfeasance and excessive sway of special interests. George W. Bush and colleagues fantasised about the US as the New Rome, but military disasters abroad, the dismantling of financial and environmental regulations and policies such as tax cuts for the rich gravely exacerbated US weaknesses.