Financial Post G7 Record

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Financial Post, Weekly edition, Mon 15 Jun 87, page 8. Editorial.


Summiteers should deal in reality

year's meeting of the leaders of the seven major industrial economies: the statements issued from the summit impress with that city's sense of eerie emptiness, the feeling that one is walking through a museum. The seven could do little but reaffirm past agreements, some already outdated; new measures were each time blocked or eviscerated by one or another participant.

Not all was discord. The leaders locked arms against AIDS, apartheid, terrorism, drug-running, and the closing of the Strait of Hormuz, with varying commitments to action. But on the world economy, ostensibly the summit's focus, very little was achieved.

The summiteers endorsed U.S. Treasury Secretary James Baker's two-year-old plan for easing the Third World debt crisis, a program now considered all but dead in view of commercial bank uneasiness. North American attempts to speed progress on cutting farm subsidies; French efforts to bind industrial nations to development aid targets; international calls for cuts in U.S. public borrowing - all dissolved into meaningless vapor in the final communique.

On the central issue of debate, trade imbalances and related currency shifts, it is perhaps best that talk was all there was. With the rage these days all for macroeconomic policy co-ordination, the leaders endorsed their finance ministers' plan to monitor each other's behavior via a long list of economic indicators.

Since these indicators may be relied upon to point in contradictory directions more often than not, the usefulness of watching all of them at once is in doubt. Some, such as real growth and employment, are not properly targets of macroeconomic policy at all. Not that this really matters, however, because none of the participants has any real intention of trimming its economy to others' wishes.

Indeed, the summit was notable for the renewed confidence with which West Germany and Japan resisted demands for reflation. This will irritate those who find an appealing symmetry in the see-saw imagery of economic equilateralism: if the U.S. lowers its budget deficit, Japan and Germany should raise theirs. But this misstates both the cause and the cure of the U.S. trade deficit, which lies with U.S. economic policy alone.

More to the point, such thinking is rooted in phony internationalism. A nation's obligation is to follow sound economic policies for its own benefit. As it happens, fiscal and monetary integrity and liberal trade also help stabilize the world economy. But the measure of bad policy is domestic, not foreign. The U.S. budget deficit is wrong not because of what it does to the rest of the world, but because of what it has done to the U.S.; Japanese trade barriers are wrong not because they irritate Japan's trading partners, but because they cheat its own consumers. And so forth.

None of this is to discount international co-operation altogether. But it should be seen for what it is: a political device, not a moral imperative. In this regard, the summiteers might shift their collective focus from macro- to microeconomics - cutting back on market interference, eliminating barriers to trade, and removing restrictions on the flow of capital between countries. Not only is this more realistic, it avoids the distasteful spectacle of the U.S. instructing West Germany and Japan in arts of fiscal and monetary policy in which they are patently more expert.

If summit settings are a guide, however, don't expect any new morn of realism at next year's affair in Toronto. One suggested site is Casa Loma, an eccentric financier's mediaeval folly.

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Revised: June 3, 1995

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