Upgrading the G7: and revamping its agenda.

Author:White, William R.

How might changes in the way the G7 functions improve the overall process of international cooperation in the economics sphere? How might this in turn produce better policies in the support of the "strong, sustainable,

and inclusive growth" desired by the G20?

The global economy is a complex, adaptive system like many others in nature and society. As in all such systems, its agents have evolved over time in response to changes in their environment. They either evolve, showing their fitness to survive, or they die. The G7 group of developed economies seems to be facing such an existential threat in the form of the G20, a broader grouping that includes the important emerging market economies. These fast-growing economies are increasingly interrelated among themselves and with the G7. In short, the G7 can neither "call the shots" nor can it "go it alone." The threat, as the G20 cooperative process surely improves with time, is that the G7 structure and meetings will seem increasingly irrelevant. The G7, therefore, must evolve, or it will cease to exist.

The end of the G7 would be a pity, since working together these nations still have a lot to offer in terms of policy advice. They have been developed economies for a long time and have a long history of analytical reflection on the difficulties of achieving "strong, sustainable, and inclusive growth." Moreover, they remain an important part of the global economy, and still dominate the financial area. In short, the reflections of the G7 still need to be listened to. Further, their capacity to lead by example remains a significant source of influence on others.

How might the G7 evolve to maximize its contribution to the global policy debate on economic issues? To start, the G7 should withdraw from the business of offering short- to medium-term policy advice about macroeconomic issues. They should leave this to the G20. The G7 should instead focus on identifying the longer-term problems common to almost all of the G20, along with suggestions as to how cooperative actions might serve to mitigate these problems.

An explicitly longer-term focus--essentially on improving rules and frameworks--would provide a useful counterbalance to the "short termism" seen almost everywhere in the economics sphere. This longer-term focus would also increase the attention paid to the unintended consequences of short-term policy "fixes." Finally, a longer-term focus would increase the likelihood of an early response to problems that might otherwise prove unmanageable over time. Inadequate private pension funding and the off-balance-sheet obligations of government promises are important examples. Issues arising from the G7 process would then be suggested for the G20 agenda. Implementation would be a matter for the G20.

A useful organizing principle is that all government institutions should have an explicit mandate, a set of powers or instruments that can be used in pursuit of that mandate, and a process for ensuring democratic accountability. This principle guides the following reflections on how the role of the G7 in the process of international cooperation might be improved.


Implementing agreed policy solutions actually requires rising to at least three challenges to international cooperation. These I refer to as the "should," "could," and "would" challenges.

The first of these is in the realm of economics. Identifying common, longer-term economic problems, along with cooperative policy solutions that might help to alleviate them: this is the question of what should be done.

The second challenge--what could be done--is in the realm of law. It involves identifying national regulatory and legal impediments to achieving the desired degree of international cooperation, and suggesting how these impediments might be removed.

The third challenge is in the realm of politics, and likely the most intractable: What would be done? The challenge is to identify factors impeding the will to act, and offer suggestions for dealing with them.


Identifying not only problems that are common to many countries, but also problems of long standing, is not difficult. Virtually all members of the G7 share the ailments identified below, as do increasingly many members of the larger G20.

* Bad demographics.

* Declining growth rates of total factor productivity.

* Low rates of capital investment.

* Fears of deflation.

* Low interest rates.

* Skewed factor shares (high profits and low wages).

* Rising domestic inequality.

* Imbalances in financial markets.

* High levels of both private and public debt.

* Highly volatile international...

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