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Financial Post, Weekly edition, May 13, 1978


Summits don't produce solutions

As the leaders of the seven industrialized nations of the West approach their fourth economic summit meeting in July, it's a good time to put these gatherings in proper perspective. It's better to do it ahead of time, because these summits, with all the media attention they get, have a tendency to create an impression of achievement, notwithstanding the fact that there are no binding commitments made at the meetings.

It is of course better to have summit meetings than not to have them. It is better for heads of government to talk to each other than not to talk. It is valuable for senior advisers and civil servants to know the views of their opposite numbers in other countries.

But it is also important to recognize that little can reasonably be expected from these gatherings. Exchanges of views can be helpful, but no hard economic policies will emerge from the talks at Bonn. All seven nations - Canada, U.S., Germany, Japan, Britain, France and Italy - are still democracies and no leader can unilaterally commit his country to any important economic move.

At the most recent economic summit, in London last May, all countries pledged to achieve stated growth targets. But there were no penalties for those that failed to meet their goal, or for those that didn't do their best to help the others to meet their goals.

At the Bonn summit there will no doubt be more exhortations to Germany and Japan, the countries with big balance of payments surpluses, to loosen up their purse strings so the countries with big deficits will have a chance to sell them more and get out of the red. Germany and Japan will no doubt once again say they will do their best, but will object to too much stimulus for fear of triggering even more inflation.

It is easy to point to the German and Japanese surpluses as the cause of other countries' woes; financing these surpluses does put other countries into debt. But it is also true that Germany and Japan have some justification for saying the industrialized nations that are running big deficits - on other than oil - got into that position because they lacked the self discipline to be sufficiently competitive.

Furthermore, the surplus nations can point to the fact that although a large part of the U.S.'s $20-billion trade deficit is due to its huge oil imports, the country still doesn't have a strong energy conservation and development policy. And both Canada and the U.S. are likely to hear criticism at the summit for not being sufficiently anxious to support their currencies; the low C$ and US$ do, after all, give both countries an export advantage.

Meantime, some small gestures of support for the deficit nations may continue. Recently, for example, a 91-man Japanese trade delegation went scurrying around the U.S. looking for American products to import. In the first few days they spent $1 billion on raw materials and another $1 billion on finished goods ranging from machine tools to fur coats. There is, in fact, something sobering about the chief of the delegation offering the mighty U.S. the use of a ship that the Japanese have used to exhibit their products around the world.

The Bonn summit may lead to more ad hoc moves, such as the Japanese trade delegation, merely by focusing attention on the serious imbalance of trade that sees a handful of nations with big surpluses and everybody else in the red. But the solutions to the imbalance, and to the rise of protectionism (world trade grew only by 4% in 1977, compared to 11% in 1976) won't come at Bonn. The tough decisions must be made by national governments. In Canada's case, this means closer federal-provincial co-operation toward achieving a strongly competitive manufacturing sector.

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