The G7/G8: Why Bother? (A Viewer’s Guide)

The G7 was originally conceived as a form of steering committee for the world economy (antecedents).  Existing formal governance mechanisms, around the IMF and the UN, seemed too cumbersome (and too inclusive) during the 1970s, with the breakdown of fixed exchange rates, assorted oil shocks, and the broader shift of economic initiative towards Western Europe and Japan.

And the G7 had some significant moments, particularly with regard to moving exchange rates in the 1980s.  More broadly, behind the scenes, it served as a communication mechanism between the world’s largest economies (“coordination” is a dirty word in G7 policymaking circles).  And it was probably a good thing in the 1990s that Russia wanted to join the G7 – hence the G8 once a year, although many of the most important technical meetings are just the G7.

But today, honestly, what’s the point?

The L’Aquila summit seems likely to achieve nothing, i.e., nothing that could not have been agreed upon in a conference call among deputy ministers.  Just because there’s a communiqué does not mean it has any real content.  Does this kind of expensive pageant make politicians today look important or frivolous? 

More broadly, three longer-run shifts mean the G7/G8 is increasingly anachronistic.

First, emerging markets have obviously risen in both respectable clout and ability to make trouble.  China’s exchange rate policy is a leading example, but think also about Mexico, Brazil, or India.  Having a global economic discussion (e.g., on climate change or aid to Africa) without these players fully at the table does not really make sense – particularly as the G20 now operates effectively at the heads of government level.  And inviting these countries to a dinner or other event on the fringes of the main meeting just adds insult to injury.

Second, the Europeans are now organized into a loose political union and all of the major economies – except the UK – are in a currency union.  What is the point of sitting down with Italy, Germany, France, and the UK separately?  It is much more effective when they – and other Europeans – work out common positions and bring those to the table collectively.  The European Union belongs to the G20 but not the G7. 

Third, the idea that the US and its allies “lead” by any kind of economic policy example is plainly in disarray.  The recent crisis focuses our attention, but we’ve seen two or three decades with irresponsible credit and throwing fiscal caution to the winds across these countries.  These countries traditionally position themselves as “G7 models” worth emulating; this message needs to be toned down.

President Obama obviously has a talent for diplomacy (e.g., at the April G20 summit).  He should use the Pittsburgh G20 summit in September to transition away from the dated emphasis on the importance of a G7/G8 heads of government meeting (e.g., reduce the excessive display of nothingness, lower the hype, have it feed into the G20 more explicitly).  Canada, chair of the G7 next year and usually very sensible on these kinds of issues, can help.

The G7 is still a useful forum for senior staff meetings on some technical issues, but it would be much more appropriate and effective for the high profile pinnacle organization to be the G20, not the G7. 

By Simon Johnson

18 thoughts on “The G7/G8: Why Bother? (A Viewer’s Guide)

  1. It’s interesting that Kenneth Rogoff (an economist at Harvard) said this morning on NPR that he has a positive outlook on the G7/8. I’m not knowledgeable enough to predict anything. Only hope.

    I hope that Obama and Geithner will FINALLY get tough with China. He needs to tell them if China wants to do business with the USA they need to stop making the skyline of China from looking like the breathing space of a mine shaft. Why do we sacrifice manufacturing jobs in America for a few fat cat exporters in the coastal cities of China?? The vast majority of these Chinese exports don’t even help the people of inland China. The workers of China are treated like slaves in factories so a few businessmen in the coastal cities of China can get rich.

    As long as the people of inland China are working for a pittance, the Chinese officials will expect America to demand the products the average Chinese cannot afford, so they can continue on. The Chinese officials’ friends/cronies on the coast getting richer selling exports to America, while the people of inland China slave for them. Many Chinese must be separated from their families in the countryside to find work. They migrate, to slave in the city, then send whatever they don’t spend on food back to their hometown. Why?–so the Chinese businessmen in the coastal cities of China can have American dollar deposits in the bank, 5+ homes and 3+ mistresses (in addition to his wife) etc etc….. You can laugh. It’s common.

    Meanwhile Americans don’t have manufacturing jobs, because our demand for Chinese goods replaces the lack of investment Chinese officials SHOULD (but don’t) make in their own people.

    We need to put pressure on Obama and Geithner to quit ENABLING this abuse of the inland Chinese. If Chinese businessmen want their products bought they need to provide their own people with a decent wage.

  2. couldnt be a better time in international politics when its too easy to communicate and get nothing done… if this is one of the tools used to bring about a better world… Id say keep it, lets do more nothing amongst brothers

  3. and teds rite… why de-industrialize when we need the advantage of not having to ship stuff here to compete/dominate in local markets… and everybody in the ‘free trade’ business tells government whats good for them
    if we are running 2 trillion deficits its not free trade, its government intervention and mismanagement

  4. Please add this to your list:

    Point 4)

    The movement of global capital and currencies has dramatically accelerated in the last 30 years. Yet G7/G8 meetings remain relatively infrequent. They are neither large nor inclusive enough to allow big/deep change (as SJ notes), but are not frequent enough so serve as a week-to-week policy coordination vehicle.

    If anything, the G7/G8 is harmful, because it gives our fearfully doe-eyed Treasury team an excuse to delay action that should be rapid and forceful.

    In this recent crisis, the only really big significant coordinated policy move (the simultaneous lowering of rates by central banks) occurred early in the crisis and without the benefit of a G7/G8 meeting. (It was one of the few things that gave us some hope of a real response, only to leave us feeling betrayed when it was followed by months of bickering and incompetence as the entire world economy ground to a halt.)

    The second largest policy initiative (more funding for the IMF) occurred at the G20 (and was carefully negotiated prior).

    Increasingly, the G7/G8 seems like an excuse to do nothing “until the next meeting”, while its member countries get eaten alive by their own inaction and their failure to respond to the mercantilist policies of their trading partners.

  5. Sir–

    To answer your questions in the order offered:

    Why Bother/What’s the Point? If Hu Jintao can’t answer this question, how can you expect me to? Neither of us heads up a G7 state, though he does have a better claim to public visibility than those of us down on the Rez.

    Important or frivolous? Compared to attending the Michael Jackson memorial service or answering questions raised by your prostitute, important. The minute public optics shift, the pageantry will be populated with B list. I daresay Hu left a Chinese observer behind when he returned to address more pressing matters. Maybe a ministry official of Sino-German heritage named Bi Lizst?

    Why talk individually to Germany, Italy, France and Britain? Because it makes the populations and policy elites of those countries feel more important than than if they were, say, Brazilian, Indian or Mexican. It’s not all about the American ego and self-centered complacency. Smug self-absorption is a developed world disease, not an American one.

    So, how’d I do on your little quiz?

  6. I thought it was primarily an opportunity for Michelle to show off her buff arms and swap recipes with other first wives. As such it’ll be a great triumph for America.

  7. Excellent observation.

    The G7 and G8 are certainly outdated.

    The BRIC, with Indonesia added, needs to be
    included in the world’s financial discussion.

    A conference call would also save tons of carbon emissions from leaders’ planes.

  8. Why bother with the G7/G8? Because European construction shows that it is better to talk issues to death rather than been killed by issues.

    There are clear perception splits between Americans and Europeans, and much more drastically with the Russians, who are still out there in a cold fog, fuming with the desire of getting even, and a miscomprehensions about the rights of other nations (many Russian advisers believe the USA should have a right to own the Americas, like Russia has a right to own the old USSR in its entirety).

    As Churchill put it, Jaw-jaw is better than war-war. War is what happened with Georgia, last summer.

    Patrice Ayme

  9. Yay Obama!! $15B in new agri-investment for 3rd world, that’s “why bother”.

  10. It is fairly useless, no doubt, except, if you insist on having it, why not let it establish some hard line issues for the upcoming meeting in Pittsburg. Then again, it has evidently generated some useful agricultural subsidies. If the big holes stand no hope of getting plugged, plug some small ones.

    Maybe next year they’ll just go with more G20’s and no G8.

  11. Why bother, you ask? Why else than to provide a lavish backdrop for the pigs that want to meet, eat expensive food, and appear to be doing the peoples’ business. The citizens of these eight nations would do well to combine to see to the trial and sentencing of these vermin for the larceny involved in the holding of these meetings alone. One day, when the little people of the world have endured enough of the kind of smug, relaxed conviviality enjoyed by this coterie of embezzlers, they will make memory of such occasions as way stations to their achievement of something more moral, more authentic.

  12. Yeah, you go tell ’em. Just grab Obama and Geithner by the scruft of the neck and knock some sense into their heads about outsourcing and our disappearing manufacturing base and their relation to the 19th century conditions prevailing in China. Why they’re just sure to listen to you and do something about it. And if they don’t, threaten to vote for somebody else next time, somebody else you’ll need to grab by the scruft of the neck and knock some sense into about outsourcing and our disappearing manufacturing base and their relation to the 19th century conditions prevailing in China.

    Some news: Obama and Geithner, Bush and Paulson are why these problems exist in the first place and why they will never see a solution in the context of the present system through the use of parliamentary remedies. Sometimes we grasp these things slowly.

  13. Such a waste of time.

    The man-made global warming hoax must be exposed before it’s getting too late.

  14. From the point of view of an average Vietnamese like me, France, Italy or Canada is no important than Thailand, Singapore or Indonesia in economic or politic clout. If there is any group of nations relevant to the world economy in 21 century, it should only be G3 (in that order): China, US and Eurozone.

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