Phoenix Rising? The Group of 7 System

May 17, 2016
Phoenix Rising? The Group of 7 System
Richard Woodward
Richard Woodward Non-Resident Fellow - International Economics

The leaders of the Group of 7 (G7) countries will convene for their 42nd Annual Summit in Ise-Shima, Japan on 26-27 May. The G7 originated in a series of ad hoc meetings convened by finance ministers grappling with the aftermath of the collapse of the Bretton Woods system. Sensing the promise of these informal, private meetings they swiftly evolved into summits between the leaders of the major advanced industrialised countries designed to promote cooperative solutions to the world’s economic (and later) political problems.

Today serious question marks surround why the G7 is meeting at all. The G7 has been regularly derided as a meaningless talking shop, a ‘global hot tub party’ or ‘ritualised photo-op’ for world leaders. Others have taken it to task for a lack of legitimacy arising from its opacity, exclusivity and seeming inability to move beyond insipid statements of intent. This cacophony of criticism became more audible with the expanding political and economic clout of non-G7 members. Recognising that the governance of global challenges necessitated a rapprochement with the rising powers, the G8 (as it had become following Russia’s incorporation in 1998) tried several impromptu fixes to solicit their input. This culminated in the launch of the Heiligendamm Process at G8 Summit of 2007. The purpose of the Heiligendamm Process was to institutionalise dialogue between the G8 and five leading emerging economies (China, Mexico, India, Brazil and South Africa). Before this process could run its course the global financial crisis intervened. One consequence of this, in an echo of the G7, was that the Group of 20 (G20) Finance Ministers and Central Bank Governors which first convened in 1999 was now upgraded to a Summit of G20 leaders. At the Pittsburgh Summit in 2009, the G20 leaders “designated the G20 to be the premier forum for our international economic cooperation” seemingly consigning the G8 to the scrapheap.

Nevertheless, the G7 (as it once again became when Russia’s invasion of the Crimea led to its suspension in 2014) survives. Indeed the G7 continues to serve a number of important functions both to the members and the wider ensemble of global governance. The G7 is frequently upbraided for being long on statements and short on results. Tempting as it is to dismiss G7 Communiqués as trite proclamations of diplomatic contrivance, in many respects what the G7 is and what it says are as important as what it does. As a club of rich, market democracies, the G7’s statements signify its members’ support for and commitment to the rules, norms and institutions that have nourished the liberal international order established after the Second World War and, by extension, are an implicit rebuke to those who contravene them or promote alternatives. Russia’s expulsion from the G7, for violating Ukraine’s territorial integrity, could likewise be viewed as a figurative condemnation for flouting an indispensable international norm.

The G7 may no longer be able to govern problems in isolation, nevertheless as a caucus it plays a vital role in setting and maintaining the momentum behind agendas in other international forums. Although the most attention is lavished on the annual summit it is, as the name infers, the pinnacle of a wider G7 system involving various Ministerial meetings and regular contacts amongst the sherpas (the personal representatives of government heads that prepare the Summit). The G7 is also part of a wider circus of international summitry. As a tight-knit alliance of likeminded countries, the G7 is capable of arriving at a consensus that is not feasible in larger, more eclectic institutions (it is worth noting the G20’s tribulations in this regard which further strengthen the utility of the G7 in the eyes of its members). The G7 carries this consensus forward into formal decision-making contexts using its collective economic heft to agitate for stronger action on selected issues. As well as being a catalyst for change, the G7 has also demonstrated its value as a venue where negotiations that have reached an impasse elsewhere can be rekindled or finally resolved. Frenetic Sherpa activity as the Summit approaches tapers the gap between country positions to the point where direct discussions between national leaders can bridge them.

Thus, for all its shortcomings the G7 continues to provide leadership in the international system. A brief glance at the Ise-Shima Island Summit schedule demonstrates the importance of that leadership. Topping the agenda are the global economy and trade. For all the ferment about the ‘rise of the rest’, G7 states continue to weigh heavily in global production, finance and trade and the international organisations responsible for governing them. According to the World Trade Organisation (WTO) G7 countries accounted for 35.4% of world merchandise imports and 31.1% of exports in 2014. Although this is substantially down from its peak of over 50% in the early 1990s, the progress of WTO negotiations remains critically dependent on G7 support. Indeed the G7 Summit Communique would not be complete without the obligatory exhortation for members to cooperate towards the completion of the current Doha trade round. Similarly while the G7 may no longer be the main engines of economic growth they still constitute around one-third of global GDP. Furthermore recessions in Brazil and Russia and ongoing worries about the health of China’s financial system are symptomatic of the flaws in the alternative economic paradigms championed by the BRICS. The 2016 Summit is a timely opportunity to remind the world of the virtues of the G7 economic model predicated on open markets, robust institutions, and the rule of law. This reminder will be all the more potent if G7 countries can conjure effective cooperation to reinvigorate their own economies and promote inclusive growth elsewhere.

Climate change also features prominently on the Ise-Shima agenda. As John Kirton and Ella Kokotsis’ have detailed, the G7 has been intimately involved in the development and evolution of the climate change regime since the late 1970s. This regime was recently buoyed by the first universal, legally binding global climate agreement reached at the Paris Conference in 2015. Delivering on this agreement will be contingent on the engagement and leadership of the G7, not least because together they account for 22% of greenhouse gas emissions. The initial signs are promising. A fortnight ahead of the summit the first formal meeting of G7 Environment Ministers since 2009 will seek to harmonize national positions. Speculation is mounting that some high-profile initiatives, such as concrete action to meet promises made at the G20 to end fossil fuel subsidies, may emerge from the Summit. Nevertheless, the main benefit of the Summit is likely to be more subtle with the G7 using its common position to instigate, intensify or orient cooperative ventures in a host of other organs of global governance. As well as helping to maintain the impetus from the Paris conference, these undertakings will help to install or mainstream environmental concerns onto the agendas of international bodies concerned with health, development, security, transport, and agriculture.

The 2016 G7 Summit will not miraculously resolve the many intractable problems of global governance. Nevertheless, like its predecessors, the meeting will play a potent symbolic and catalytic role. As a coalition of powerful, likeminded countries the G7 is emblematic of the superiority of capitalism and democracy as organising principles of global governance. Equally the ability of these countries to develop a collective position at the G7 in turn produces the leverage required to stimulate, nudge, direct or lead agendas in related international institutions.