Just as the World Trade Organisation does not manage world trade, the World Bank is not the world’s banker and the International Monetary Fund does not manage the world’s money, the influence political leaders have over international macroeconomic questions is marginal at best.
World leaders, along with many thousands of demonstrators, will next month head towards Gleneagles in Scotland. The annual summit of the Group of Eight includes the world’s leading industrialised countries – France, Germany, Japan, the UK and the US – and Canada, Italy and Russia, which would like to be counted among the world’s leading industrialised countries. The agenda will be mainly, although not exclusively, economic.
Perhaps you remember the “summit of the arch” in Paris in 1989? Or the Halifax meeting of 1995? If you do not, you are in good company. A straw poll of my economist acquaintances failed to evoke recollection of anything decided at a G8 meeting. Some mentioned the Plaza accords of 1985, which was a good try, but not quite right. An agreement to provoke a devaluation of the dollar was indeed reached at that grand hotel opposite Central Park in New York. This was not an official summit but a side meeting of finance ministers.
Other colleagues recalled the notoriously lavish hospitality in Okinawa in 2000 and the police riots in Genoa the following year. But the wine and the brutality were the only aspects that came readily to mind. And one person remembered that the first G6 meeting had been held in 1975 at Rambouillet, an elegant chateau near Paris. The world economy was reeling from the oil shock and the explosion of inflation, the first big setback to economic progress since the second world war. But recovery owed more to the actions of individuals such as Paul Volcker, then Federal Reserve chairman, and Margaret Thatcher, than any co-ordinated action that followed the Rambouillet summit.
At Rambouillet, world leaders decided on the desirability of co-ordinated action and the need to save energy. They agreed that the plight of poor countries demanded attention and that financial stability was important. They concluded that further discussions were required. As they have done more or less every year since. It does not betray any secrets of international diplomacy to reveal that the way officials begin to prepare the agenda and communiqué is to take down the agenda and communiqué for last year and blow off the dust.
It is possible, although not easy, to be unduly cynical about international meetings. Sometimes there is substance behind the elegant receptions and the bland communiqués. The later Rambouillet conference on Yugoslavia and the Camp David and Oslo exchanges between Israelis and Palestinians were significant international events. What happened affected the lives of millions. Conferences at Yalta and Potsdam defined the post-1945 settlement. Students still learn about the Congress of Berlin and the Treaty of Versailles.
These meetings mattered because their agenda derived from specific and urgent events and because they concerned issues, such as peace and war and the division of territory, that fall directly within the competence of political leaders. International macroeconomic questions do not lend themselves to resolution in similar ways. The influence political leaders have over them is marginal at best. The real point is not that economic power has now shifted to Microsoft’s Bill Gates and General Electric’s Jeff Immelt but that power in a complex and global modern economy is very widely diffused. Analogies between the balance of military power and the balance of economic power are consequently misconceived, and meetings of “the world’s leading industrialised nations” do not have the significance in the 21st century that those of “the Great Powers” had in the 19th and the 20th.
They do not have much significance at all. The World Trade Organisation does not manage world trade, the World Bank is not the world’s banker and the International Monetary Fund does not manage the world’s money. The defining characteristic of a market economy is that no individual, or corporation, or small group, determines its directions. But since this is hard to grasp, the fallacy that decisions of big import for the world economy are being made in these conference rooms is sustained by both preening politicians inside and protesting demonstrators outside.
So can such a forum really make poverty history? That is a question to which I shall return next week.