Economy: G7 must accept that it cannot rule the world – 05/24/2023 – Martin Wolf
“Goodbye G7, hello G20.” That was the title of an article in The Economist about the first Group of 20 summit in Washington in 2008, arguing that it represented “a decisive change in the old order”. Today, the hopes for a cooperative global economic order, which reached their zenith at the G20 summit in London in April 2009, have evaporated.
However, it’s hardly a case of “Goodbye G20, hello G7”. The former world of G7 domination is even more distant than that of G20 cooperation. Neither global cooperation nor Western domination seems viable. What can happen? Unfortunately, “division” might be one answer and “anarchy” another.
This is not what the communiqué from the G7 heads of government meeting in Hiroshima, Japan, which is incredibly comprehensive, suggests.
Includes: Ukraine; disarmament and non-proliferation; the Indo-Pacific region; the global economy; climate change; the environment; energy, including clean energy; economic resilience and economic security; business; food security; health; work; education; digital; science and technology; gender; human rights, refugees, migration and democracy; terrorism, violent extremism and transnational organized crime; and relations with China, Afghanistan and Iran (among other countries).
At 19,000 words, it reads like a manifesto for a world government. In contrast, the communiqué from the G20 summit in London in April 2009 was just over 3,000 words. This comparison is unfair, given the focus on the economic crisis at that time. However, an unfocused wish list cannot be helpful: when everything is a priority, nothing is.
Furthermore, both America’s “unipolar” momentum and the economic dominance of the G7 are history.
It is true that the latter is still the most powerful and cohesive economic bloc in the world. It continues, for example, to produce all major reserve currencies. However, between 2000 and 2023, their share of global output (in purchasing power) will have fallen from 44% to 30%, while that of all high-income countries will have fallen from 57% to 41%. Meanwhile, China’s share will have risen from 7% to 19%.
China is now an economic superpower. Through its Belt and Road Initiative (BRI or, New Silk Road), it has become a major investor in (and creditor of) developing countries, although, predictably, it is having to deal with the ensuing bad debts so familiar to G7 countries.
For some emerging and developing countries, China is a more important economic partner than the G7: Brazil is an example. President Luiz Inácio Lula da Silva may have participated in the G7, but he cannot reasonably ignore the weight of China.
The G7 is catching up with others too: its meeting in Japan included India, Brazil, Indonesia, Vietnam, Australia and South Korea. But 19 countries have apparently applied to join the Brics, which already includes Brazil, Russia, India, China and South Africa.
When Jim O’Neill invented the Brics, in 2001, he thought it would be an economically relevant category. I thought the Brics would just be China and India. Economically, he was right. However, the Brics now seem to be on their way to being a relevant world grouping.
Clearly, what unites its members is a desire not to depend on the whims of the US and its close allies, which have dominated the world for the past two centuries. How long, after all, can (or indeed should) the G7, with 10% of the world’s population, continue like this?
Sometimes one simply has to adjust to reality. Leave aside for now the political objectives of the G7 members, which include precisely the need to preserve democracy at home and defend its borders – today, above all, in Ukraine.
This is indeed the struggle of the West, but it is unlikely to ever be that of the world, most of which have other, more pressing problems and concerns. It was good that President Volodymir Zelensky attended the summit. However, only the West will determine Ukraine’s survival.
If we turn to economics, it is also good that the notion of decoupling, a harmful nonsense, has turned into an idea of ”risk elimination”. If this can be turned into focused and rational policy-making, that will be even better, but it will be much more difficult to do so than many now seem to realize.
It makes sense to diversify supplies of energy, raw materials and vital components. However, to use a notable example, just diversifying Taiwan’s supply of advanced chips will be really difficult.
An even bigger question is how the global economy should be managed.
Will the IMF and World Bank be bastions of G7 power in an increasingly divided world? If so, how and when will they get the new capabilities they need to deal with today’s challenges?
How will they also coordinate with the organizations that China and its allies are creating? Wouldn’t it be better to admit reality and adjust quotas and shares, recognize the great changes in economic power in the world?
China will not disappear. Why shouldn’t we allow her more say in exchange for full participation in debt negotiations? Similarly, why shouldn’t we revive the WTO (World Trade Organization) in return for the Asian giant’s acknowledgment that it can no longer expect to be treated as a developing country?
In addition to all this, we must recognize that any talk of “reducing risk” that does not focus on the two greatest threats we face – those of war and climate – is straining out mosquitoes while swallowing camels.
Yes, the G7 must defend its values and its interests, but it cannot govern the world, even if the destiny of the world is also that of its members. We need to find a way to cooperate once again.
Translated by Luiz Roberto Gonçalves