G8: Hamish McRae: Politicians and protesters act as if the G8 is in control of the world economy – it isn't

To judge by the hullabaloo over next week's Group of Eight meeting, you might imagine that this is an exercise in economic power by the most important nations in the world economy. The leaders make their decisions and the world applauds or protests.

But that is wrong, on three counts. To begin with, two, arguably three, of the most important economies are not represented. Next, countries are no longer the prime force shaping the world economy: markets are. And finally, it is not clear that the G8 is doing the right thing by focusing on medium and long-term issues rather than immediate ones.

Consider the first: neither China nor India is at the summit. These countries are revolutionising the world economy, sucking in investment and driving down prices. China is the world's cheapest manufacturer, while India has the world's cheapest service industries. They should be there. Maybe Brazil should be too; it is the world's cheapest producer of farming produce. Individually, these countries are becoming more important. China will pass the UK in size this year to become the world's fourth-largest economy. It has become the world's second-largest importer of oil after the US. It increased its oil demand by 13.5 per cent last year, even faster than the growth of the economy.

That shift is obvious. The other great change, the shift of power away from governments and towards markets is more subtle. Markets have always been important. It was, after all, the oil market that led to the first economic summit, and it was the bond market which forced governments to bring in policies that controlled the inflation of the 1970s. But now, government power has ebbed even further. Capital is even more mobile, flowing to countries that the world markets believe are good bets. Companies are more mobile, locating subsidiaries in countries that offer the best tax arrangements – much of the Irish boom can be attributed to well-crafted taxation. And, information has become global, though we are still in the early stages of understanding what the internet will do to government power.

Government policies still matter andcan go in directions that are disliked by the markets – the slow pace of reform in much of continental Europe, for example – but the cost is more immediately evident.

None of this is to claim that economic summits are pointless. At the margin, they can reduce potential economic tensions between countries because they allow open discussion about such tension. A summit won't solve the row between Boeing and Airbus over subsidies but it will stop it escalating out of control.

Perhaps the most disturbing aspect of economic summitry is to see how little has been achieved and how the subjects now worrying the leaders are the same as they were a generation ago. Take the present – justified – preoccupation with Third-World debt. That has been on the agenda at almost every summit since 1980. In Tokyo in 1979 and Venice in 1980 the leaders agreed to press forward with energy conservation and the development of alternatives to oil. In Tokyo (again) in 1986 and Venice (again) in 1987 they held long discussions about the damage done by agricultural support policies such as the European Common Agricultural Policy.

A further problem is that the focus on Africa and on global warming – chosen by the UK as host – may be wrong for this moment. To say that is not to play down the importance of those two issues. But they are long and medium term matters, which could be addressed in other ways and at other times. There is an immediate one.

This is whether the world can cope with the strains caused by the high oil price and the dependence on the US consumer and the Chinese manufacturer to keep growth moving. Large financial imbalances threaten to bring the present growth phase to a halt. The large continental European countries are hardly growing at all, while the US has to borrow (largely from Japan and China) to finance itself and so pull along the rest of the world.

This cannot continue forever. At some stage during the next two to three years – no one can say when – there has to be an adjustment. The issue is whether this will happen in a benign manner or a destructive one. The role of the world's financial markets will be critical. Benign is better: vastly so. If the adjustment were sudden, a sequence of damaging shock waves would affect demand, investment, jobs – and, indeed, the help that the West would give Africa. The dollar could crash; confidence in the bond markets or share prices could be lost.

While the G8 countries cannot control the world's markets, they can at least listen to them, maintain their confidence and help shape their perceptions. In an ideal world, Gleneagles would be a quiet talk about these threats between the developed countries and the burgeoning "new" global players. It would be a place where the American administration could voice its fears about Chinese energy policy, where India and China could meet on neutral ground to relieve trade tensions. The high-unemployment countries in Europe could voice their worries about US exchange rate policy – or the lack of it.

But none of this will happen. The G8 countries need to adapt to the realities of power in the world. They need to focus on what summits can in practice achieve. And they need to prevent the impending train crash that the world faces if they get things wrong.