Last orders for a rich man's club?

The Group of Seven meets today with little expectation that it will achieve anything. In the era of globalisation, Vincent Cable explains why international bodies like G7 are being marginalised

The annual summit of the heads of the seven leading rich countries, the G7, is the nearest thing there is to global government. As governing bodies go, it is singularly emaciated. Since it gave up trying to co-ordinate economic policy a decade ago, it has generated photo opportunities rather than decisions. Even if there were decisions, there is no G7 administration - no equivalent of the Brussels bureaucrats - to follow them through. The agenda is limited: mainly economic. And attendance reflects the convention of a self-electing, like-minded, rich man's club, rather than a realistic weighing of economic and political power, which is why Italy and Canada attend and not China and India, and why Russia is allowed in only on sufferance.

Emaciated or not, the G7 summit has assumed one heavy burden this year, a commitment to reform the international public sector: the UN; the Bretton Woods institutions (the IMF and World Bank); and the new World Trade Organisation (the successor of Gatt). The question has become compelling since these institutions originated half a century ago, in the aftermath of war, in reaction to the Great Depression and in an intellectual climate that vested much faith in public institutions, national and global.

The current mood is quite different. When such solid bastions of national public service and enterprise as the British Treasury, Deutsche Telecom, Air France and the US Federal Housing Department are being prepared for the auctioneer's hammer or the management consultant's knife, international civil servants are not going to be spared from rationalisation and "downsizing".

The international economic institutions are especially vulnerable to critical review, since the market-led global economic integration of the last few decades has, in key respects, marginalised them. Global integration has occurred through national deregulation - mainly of capital markets, partly of trade. Foreign exchange markets, for example, are effectively self-regulating. With a daily turnover of a trillion dollars, more than the total official reserves of all governments, there is no longer any serious pretence, least of all by the IMF whose responsibility this once was, that exchange rates can be "managed" (short of complete monetary union). This is largely true also of the market in internationally traded securities, which grew in little over a decade to $20 trillion at the end of the late 1980s and has since multiplied many times through derivatives. These markets operate and expand without any supranational supervision.

The other dynamic elements in the international economic system have also been market driven, a product of liberalisation policies, mainly in G7 countries that owe little to global institutions; for example, the rapid growth of direct foreign investment flows - which multiplied by 400 per cent over six years during the 1980s and is now growing strongly again. And while the formal process of multinational trade negotiations can be credited with some of the trade expansion which has taken place, the most rapid growth of world trade has occurred in services - such as telecommunications and banking - without the help of a multilateral agreement. Furthermore, global standards are being created - for accounting; telecommunications interconnection, and quality control - on a largely voluntary, improvised, informal basis by the market players themselves.

The international public sector has been left with a diminished role and status. The IMF may seem overpowering to the small, mainly African and former Communist countries, for whom it has become a lender of last resort, but it is a shrunken shadow of the institution conceived by Keynes and his contemporaries. Its currency, the SDR, accounts for a tiny part of international liquidity. No industrial country of any importance has been subject to its policy conditions since Britain in the 1970s. Responsibility for systemic financial stability has been shifted elsewhere: to ad hoc committees of central bank officials meeting in Basel. The World Bank, despite its prestige, has also been marginalised. It is struggling to maintain its share of the shrinking pot of foreign aid, now down to 0.3 per cent of rich countries' GNP. Other UN agencies never had much of an economic role and are fighting to avoid outright closure.

Worse, the international institutions find they have few friends in the G7 countries. Free-market fundamentalists see no need for them. The left, and the environmental movement, has demonised them for some real, mostly imagined, sins against the world's poor and the planet. National politicians and officials, especially in the US, are jealous of their resources and their perks. The idealism and political energy that was once channelled into global multilateralism are now diverted into building regional institutions in Europe, North Africa, Latin America and the Asia Pacific. The global institutions have no popular constituency.

As a consequence of this experience there will be a strong argument at the Halifax Summit to the effect that, since market-led globalisation is working, why fix it? Why try to reinvent or re-engineer public sector institutions when a largely privatised world economy seems to work well enough?

This response would suit the current mood of budgetary cheeseparing. It would also satisfy the preference for low key, intergovernmental, informal fora - like the G7 itself - rather than powerful, supranational institutions. It is also potentially a recipe for disaster.

A world of highly integrated markets supported only by weak rules and institutions is a precarious one. It could crack.

There are signs of this happening even within the G7. One line of weakness is trade policy, as the new, unproven, World Trade Organisation seeks to establish a stronger sense of international legality in the face of a direct challenge from the United States (which is endeavouring to force open the Japanese market unilaterally). Whatever the particular rights and wrongs in the Japan-US dispute, a fundamental issue of principle has arisen: unless the world's most powerful country can be made to conform to the rules of a multilateral institution, the way would be open to a fragmentation of the world economy into bilateral and regional arrangements. This is an issue that the G7 cannot duck.

Another threat is created by the hazardous transition to open market economies being made by large numbers of developing and former Communist countries. The Mexican crisis was a reminder of the vulnerability of these countries to shocks. It also revealed the lack of preparedness of the international institutions to mobilise large sums in emergency lending to help to keep the reform process on track. The G7 has a choice: to support a bigger IMF and World Bank (which in practice also means more aid and debt relief); or to run the risk that many reforms will simply fail. Neither is palatable.

Beyond these immediate concerns, there is a bigger question of how to create strong rules and institutions for a highly integrated world economy. The G7, with its restricted membership and limited ambition, is not the right institution to oversee the international system; but it could perform a useful service by breathing new life into the existing global institutions.

Voices
voices
Life and Style
Upright, everything’s all right (to a point): remaining on one’s feet has its health benefits – though in moderation
HealthIf sitting is bad for your health, what happens when you stay on your feet for a whole month?
News
newsHad asteroid hit earlier or later in history, the creatures might have survived, say scientists
Arts and Entertainment
Peter Griffin holds forth in The Simpsons Family Guy crossover episode
arts + ents
PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Sport
Laura Trott with her gold
Commonwealth GamesJust 48 hours earlier cyclist was under the care of a doctor
Arts and Entertainment
Gal Gadot as Wonder Woman
arts + entsFilmmaker posted a picture of Israeli actress Gal Gadot on Twitter
News
Bryan had a bracelet given to him by his late father stolen during the raid
people
Arts and Entertainment
Chris Pratt stars in Guardians of the Galaxy
arts + ents
Arts and Entertainment
Pedro Pascal gives a weird look at the camera in the blooper reel
arts + entsPrince Oberyn nearly sets himself on fire with a flaming torch
News
Danny Nickerson, 6, has received 15,000 cards and presents from well-wishers around the world
newsDanny loves to see his name on paper, so his mother put out a request for cards - it went viral
Sport
France striker Loic Remy
sportThe QPR striker flew to Boston earlier in the week to complete deal
News
Orville and Keith Harris. He covered up his condition by getting people to read out scripts to him
People
Arts and Entertainment
Zoe Saldana stars in this summer's big hope Guardians of the Galaxy
filmHollywood's summer blockbusters are no longer money-spinners
Arts and Entertainment
O'Shaughnessy pictured at the Unicorn Theatre in London
tvFiona O'Shaughnessy explains where she ends and her strange and wonderful character begins
Life and Style
Workers in Seattle are paid 100 times as much as workers in Bangladesh
fashionSeattle company lets customers create their own clothes, then click 'buy' and wait for delivery
Independent
Travel Shop
the manor
Up to 70% off luxury travel
on city breaks Find out more
santorini
Up to 70% off luxury travel
on chic beach resorts Find out more
sardina foodie
Up to 70% off luxury travel
on country retreats Find out more
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Urgently looking for Qualified Teachers and NQT's

£110 - £120 per day: Randstad Education Chelmsford: Urgently looking for Quali...

Year 5 Teacher

£21000 - £32000 per annum: Randstad Education Chelmsford: KS2 Teacher Would yo...

Teacher

£100 - £120 per day + key stage 1, key stage 2: Randstad Education Chelmsford:...

Data Analyst

£30000 per annum: Ashdown Group: A highly reputable software house is looking ...

Day In a Page

A new Russian revolution: Cracks start to appear in Putin’s Kremlin power bloc

A new Russian revolution

Cracks start to appear in Putin’s Kremlin power bloc
Eugene de Kock: Apartheid’s sadistic killer that his country cannot forgive

Apartheid’s sadistic killer that his country cannot forgive

The debate rages in South Africa over whether Eugene de Kock should ever be released from jail
Standing my ground: If sitting is bad for your health, what happens when you stay on your feet for a whole month?

Standing my ground

If sitting is bad for your health, what happens when you stay on your feet for a whole month?
Commonwealth Games 2014: Dai Greene prays for chance to rebuild after injury agony

Greene prays for chance to rebuild after injury agony

Welsh hurdler was World, European and Commonwealth champion, but then the injuries crept in
Israel-Gaza conflict: Secret report helps Israelis to hide facts

Patrick Cockburn: Secret report helps Israel to hide facts

The slickness of Israel's spokesmen is rooted in directions set down by pollster Frank Luntz
The man who dared to go on holiday

The man who dared to go on holiday

New York's mayor has taken a vacation - in a nation that has still to enforce paid leave, it caused quite a stir, reports Rupert Cornwell
Best comedians: How the professionals go about their funny business, from Sarah Millican to Marcus Brigstocke

Best comedians: How the professionals go about their funny business

For all those wanting to know how stand-ups keep standing, here are some of the best moments
The Guest List 2014: Forget the Man Booker longlist, Literary Editor Katy Guest offers her alternative picks

The Guest List 2014

Forget the Man Booker longlist, Literary Editor Katy Guest offers her alternative picks
Jokes on Hollywood: 'With comedy film audiences shrinking, it’s time to move on'

Jokes on Hollywood

With comedy film audiences shrinking, it’s time to move on
It's the best of British art... but not all is on display

It's the best of British art... but not all is on display

Voted for by the British public, the artworks on Art Everywhere posters may be the only place where they can be seen
Critic claims 'I was the inspiration for Blanche DuBois'

Critic claims 'I was the inspiration for Blanche DuBois'

Blanche Marvin reveals how Tennessee Williams used her name and an off-the-cuff remark to create an iconic character
Sometimes it's hard to be a literary novelist

Sometimes it's hard to be a literary novelist

Websites offering your ebooks for nothing is only the latest disrespect the modern writer is subjected to, says DJ Taylor
Edinburgh Fringe 2014: The comedy highlights, from Bridget Christie to Jack Dee

Edinburgh Fringe 2014

The comedy highlights, from Bridget Christie to Jack Dee
Dame Jenny Abramsky: 'We have to rethink. If not, museums and parks will close'

Dame Jenny Abramsky: 'We have to rethink. If not, museums and parks will close'

The woman stepping down as chair of the Heritage Lottery Fund is worried