Financial Post G7


Free Search | Search by Year | Search by Country | Search by Issue (Subject) | G8 Centre

Financial Post Articles


Some critics say the Group of Seven industrialized countries should get bigger: others say it should get smaller. But most agree the pre-eminent forum for world leaders must become more relevant

Peter Morton, Washington Bureau Chief

Financial Post, Weekly edition, Saturday, May 16, 1998

Are you a bureaucrat who loves to talk?

If you do, there are meetings of the G7, or G7+1 -- aka the G8 -- as well as the G10, the G15, the G22, the G24, APEC, ASEAN and the FTAA.

Then there's the WTO, the OAS, the OECD, the ILO, the IMO, the IMF, the IRDB, the IDB and the IAB. In all, there are more than 32,000 IGOs (inter-governmental organizations) and NGOs (non-governmental organizations). They even have their own union -- the Union of International Associations -- to represent them. Canada is a member of 2,106 of them.

Given the cost of all those organizations, talk is not exactly cheap. But it is ubiquitous. As world business and communications inexorably shrink, the number of global meetings and institutions is growing to the point at which there is concern little is really being done at many of them beyond handing out bland communiques.

"I think there's a little bit too much," says Robert Wolfe of the School of Policy Analysis at Queen's University in Kingston, Ont. Wolfe tells organization jokes, like the one about a group called Asia-Pacific Economic Co-operation. "You know what APEC stands for? A Perfect Excuse to Chat."

With the start of the Group of Seven meeting in Birmingham, England, this weekend, much of the recent focus on global institutional reform has been focused at the most important level -- the G7.

The original G7 -- Britain, Canada, Germany, France, Japan, Italy and the U.S. -- have formally brought Russia in as a new member, making it a G7/G8 meeting. The addition of a new member to the exclusive, 23-year-old club, coupled with complaints about the G7's effectiveness in dealing with economic issues, has led to accusations that the G7 is declining in relevance and should be drastically overhauled.

"I think what is happening to the G7 is like what happened to the U.S.," says economist Adam Posen with the Washington-based Institute for International Economics. "Its relative role in the world is getting weaker, but that doesn't mean it is not a major player."

Not surprisingly, views on just how the G7 should be reformed vary dramatically. There is a school of thought being promoted by two economists from the IIE that suggests the G7 no longer has any clout and should be reduced to a G3 reflecting the globe's true economic powers -- the European Union, Japan and the U.S. Then there are those on the other side, such as Michel Camdessus, managing director of the International Monetary Fund, who wants to see the G7 expanded to a G24. In between, many favor creation of a G9 that includes China.

Some, like President Bill Clinton's former foreign affairs adviser, Daniel Tarillo, insist the great decline of the G7 has already started. "The current structure of the G7 is not going to last this way," he said last week.

And of course some, like University of Toronto G7 specialist John Kirton, insist there is nothing to fix because there is nothing broken. "The G7 is not in decline and not in need of radical institutional reform," says Kirton, who is at the G7/G8 meeting in Birmingham.

Yet few would disagree that the original role of the G7 has long since changed from its inception as a somewhat more casual annual meeting of world leaders.

The G7 had its roots in what was originally the G5 when, in 1973, then U.S. treasury secretary George Shultz convened a meeting of finance ministers from France, Britain, Germany and Japan. It was spurred by four major global events: the collapse of the Bretton-Woods monetary system of fixed exchange rates, the enlargement of the European Community, the first Organization of Petroleum Exporting Countries oil crisis and a subsequent recession among major industrialized countries.

In 1974, France and Germany pushed to make it a leaders' meeting, resulting in the first G6 summit in France in November 1975. Canada made it the G7 by joining in 1976.

The original G7 was set up to deal largely with major economic issues such as setting exchange rates, giving direction to the still largely toothless IMF and World Bank. Both had been created to replace the fixed exchange rate system.

The first summit Canada participated in was in June 1976 in Puerto Rico, where, besides issues of monetary reform, oil prices and economic growth, delegates discussed the Tokyo round of the General Agreement on Tariffs & Trade.

The annual summits initially focused on economic events, but by the 1980s the G7 had begun to tackle political agendas. The 1981 Ottawa summit included, for the first time, a separate political statement, on terrorism, notes Kirton. By the 1982 Versailles summit, the G7 was consumed with the Israeli invasion of Lebanon, the Williamsburg summit in 1983 dwelt on arms control and the 1984 London summit addressed the Iran-Iraq war.

As the decade wore on, economics increasingly took a back seat to the Chernobyl disaster, AIDS, narcotics, United Nations peacekeeping, biological weapons and global warming.

Finally, in 1991, the G7 departed radically from its roots when then Soviet president Mikhail Gorbachev was invited to the London summit as an observer.

At the same time, increasing concern began to develop about the ability of the G7's finance ministers to respond to economic crises such as the collapse of the Mexican peso. The U.S. finally took it upon itself to bail Mexico out.

"The major source of G7 decline," says economist Randall Henning in his latest treatise on G7 reform, "is a growing consensus within the group that effective co-ordination is beyond its grasp."

Despite Clinton's vow to "revitalize the G7," Henning and colleague Fred Bergsten argue that the organization is effectively paralyzed, largely by the internal economic problems faced by its own members, including Europe's chronically high unemployment and Japan's economic weakness.

Henning says there should be a move to create a G3 once the European Union can speak as one entity. He's proposing that a new G3 would have a stronger economic focus, including setting targets for exchange rates. "It makes a lot of sense," he says.

But what is less than clear is how a new G3 would evolve. With Europe as one member and Japan as another, the odd member out is Canada, which, presumably, would be represented by the U.S.

But Canadian economists in particular argue Canada's role is vital in a G7 body, mainly because of its unique economy. "Canada is the biggest of the small economies, and smallest of the biggest economies," says Wolfe. "That puts Canada in a unique position."

Besides, asks Kirton, "Who is going to kick Canada out?"

Likewise, Britain remains a key economic centre, even though it has not signed on to the European economic and monetary union that led to the creation of the single currency, the euro.

While the G3 may be a non-starter, at least from a political perspective, others like Tarillo and Goldman Sachs economist Robert Hormats argue that the newest economic superpower, China, must now be included in the G7 along with Russia.

"It's the perfect time to include China," says Hormats. "The G7 will decrease in relevance unless it brings in the fastest growing economy in the world."

Kirton argues, however, that despite its huge economic clout, China is a long way from meeting basic G7 membership standards.

It is not a democracy and has no plans to be one; it does not have an open market system; and despite its huge size, its per-capita economy is low, he says. "It will be a fairly long time before China is ready."

Perhaps out of self-interest, Camdessus argued last week the G7 should be held every other year with the heads of state on the IMF board to ensure there is continuity between the international institutions and their leaders. Few have jumped on the idea, however.

Yet despite its shortcomings, there is still some consensus that having the leaders from the top industrialized countries meet every year has some value. "The largest and most influential economies do send signals to the rest of the world," says Wolfe.

One flaw in the G7 summit has been to let Russia play too large a role, says Kirton. Last year's Denver summit had Russian leader Boris Yeltsin in virtually every discussion, leaving no time for the G7 leaders themselves to talk.

While Yeltsin will, no doubt, have a major influence on the critical political event dominating the agenda -- India's nuclear weapons testing -- Kirton says the Birmingham summit will devote more time to discussions among the G7 leaders.

"There will be a more substantial meeting of the G7," he says.

And that may be crucial for the G7. Posen argues G7 leaders should devote more energy to issues rather than worry about photo ops or their latest G7 gift. (In Denver, Clinton handed out cowboy boots.) "There's no need for something to be done to the G7," he says. "There's a need for the G7 to do something."

Source: This information is provided by the Financial Post.

[University of Toronto G7 Information Centre]
[Top of

This Information System is provided by the University of Toronto Library and the G7 Research Group at the University of Toronto.
Please send comments to:
Revised: August 17, 1998.

All contents copyright, 1998 University of Toronto unless otherwise stated. All rights reserved.