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Financial Post, Weekly edition, Mon 08 Apr 91, page 8. Editorial.


Co-operating on economic policy

Is it possible for the international community to achieve a level of economic policy co-operation that can help avoid the damaging consequences of countries acting at cross purposes with each other?

Attempts at economic policy co-operation reach back to the 1920s and 1930s, but the 1980s ushered in a new era of co-operation through the activities of the Group of Five and Group of Seven industrial countries. It is these activities that Wendy Dobson has addressed in a study prepared for the Washington-based Institute for International Economics.

Dobson is well suited to examine this issue. Formerly associate deputy minister of Finance and president of the C.D. Howe Institute, Dobson is a visiting fellow at the IIE. While at Finance she had a key role in preparing for G-7 summit meetings.

Dobson acknowledges that attempts at policy co-operation in recent years - the Plaza Agreement of 1985, the Louvre Accord of 1987, and agreements made at various summit meetings - have received mixed reviews. But positive results have been obtained.

For example, Dobson says, ''The Plaza Agreement and the concerted foreign-exchange intervention that followed were, at a minimum, a factor in dampening protectionist pressures [in the U.S. Congress] . . . Co-ordination also probably averted a more serious economic crisis in 1987, in the wake of the global stock market collapse. Another aspect of the G-7's sucessful preventive maintenance has been its participants' consistent joint emphasis on the need to keep their markets open to international trade.''

Dobson argues that ''if it is too soon to praise unreservedly the G-7's achievements, neither is the time come to bury the process.'' She would build on the system to make it more effective. For example, she recommends involving central bankers more closely in the process. This would impart better information about monetary policy developments, make it less likely that monetary policy would have to bear most of the burden for adjustment policies, and add another dimension of expertise to the discussions.

Another Dobson recommendation is to remove the artificial separation at G-7 discussions of exchange rate and macroeconomic considerations. She also calls for an independent secretariat to provide improved support for the G-7, and changes in the links between the G-7 co-ordination process and the annual economic summits to strengthen accountability and the implementation of policy commitments.

Dobson also recommends that when European integration is complete, the G-7 be rationalized into a G-3 (Europe, Japan and the U.S.) or a G-4 (those three plus Canada). Reduction in the number of participants, Dobson says, will improve efficiency, reduce costs and encourage remedial actions. In terms of economic clout, Canada does not rank with Europe, Japan and the U.S., but, as Dobson recognizes, Canada would clearly object to allowing the U.S. to speak for it. (If Canada's claim to membership is to be reviewed, think of how its chances of staying in the club will be diminished if Quebec separates.)

The study by Dobson is an important and useful signpost for the improvement of international economic co-operation. She aptly concludes, ''As a single world economy emerges, there will be no room for complacency in meeting the challenges of interdependence.''

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Revised: June 3, 1995

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