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> Analysis on L'Aquila Summit

Economic Issues Fit for the G8 at L'Aquila 2009

George M. von Furstenberg
J.H. Rudy Professor of Economics Indiana University
G8 Research Group
vonfurst@indiana.edu
July 8, 2009

Groups of advanced industrial countries, such as the G8, that engage in regular exercises of joint decision-making in areas of systemic significance have been pressed to extend membership to other countries regardless of their qualifications. The inflation of the Gs is commonly driven by the alleged need for greater inclusiveness and legitimacy.  However, for a system of setting rules and imposing standards to be legitimate does not require all the “stakeholders” that are affected by the system to have a direct voice in its design. Often all that is needed is that the system should pass the political and economic market test of being widely adopted and also that it prove adaptable as innovative system alternatives emerge.

To clarify this point by analogy: producers and consumers of an item both have a stake in its design and quality, but they generally do not get together beforehand in market system to decide what is to be produced. Rather, producers decide what they want to offer, and the reaction of consumers to that offer is registered in the sales figures and profit margins achieved. Focus groups and test marketing may reduce uncertainty about consumer acceptance, but it is ultimately the market test where producers and consumer connect and learn in what direction the invisible hand is pointing. Of course, the invisible hand cannot rest its arm and point clearly if the market is allowed to function in a way that does not serve to reveal crucial aspects of product quality and of user or investor risk.

It thus becomes clear that there are distinct roles for producers, the givers of international public goods, and those who also utilize those public goods as adopters or consumers. What then do the G8 have to give to a much greater measure than broader groups?

The G8 l’Aquila Communiqué on the Economy has centered on common action in the three areas identified above. The G8 comprises the group of countries most competent, and in some sense therefore most legitimate, to lay down the “law” in these matters.  This note has tried to show that there is nothing functionally useful about arranging consumer-producer groups like the G20 to decide on the best method of supplying international public goods that should be adopted by the G8. It is for the producers, and not those who only consume such goods, to determine for the G8 how much is to be supplied by when by each of its members.  This does not mean that arguments and pleas from non-G8 countries, like consumer suggestions and complaints in business, should not be heard and carefully considered on their merits in the G8’s own decision process.


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