The power of eight

The G8 economic club is losing influence in a fast-changing world. But next week’s summit at Lough Erne, in Co Fermanagh, is still the most powerful gathering ever in Ireland


Never before have so many of the world’s most powerful people gathered on this island. As G8 delegations fly into Belfast and Dublin this weekend to attend next week’s summit, British prime minister David Cameron has done the entire island a favour by hosting the annual gathering of one of the world’s most exclusive clubs on the shore of Lough Erne, in Co Fermanagh.

If nothing else it will put Ireland in the world’s spotlight for reasons other than those that have brought it to international attention in recent times: recession, bank crashes and bailouts.

But will the wielders of so much power deliver – for inhabitants of this island, its neighbour or anyone else – when they tackle the three issues on a typically eclectic G8 agenda: tax, trade and transparency? To a very large extent the answer depends on a much more profound question: in a world in which power is becoming more evenly dispersed, is the G8 club a relic of decades past when the West ruled the roost or is the Europe-North America big-state bloc with its Japanese appendage a spent force?

The answer to the second question is that the G8 countries still matter a great deal in global affairs. But their collective clout is waning. In recent years it has been waning fast, both because of real weaknesses in the US, Europe and Japan on the one hand and, on the other, explosive economic growth in most of the rest of the world.

The main reason the eight still matter is money. Together their economies accounted for half of the wealth created last year, as measured by gross domestic product (and they managed this with less than a seventh of the planet’s population). In terms of accumulated wealth – stocks, shares, bonds, property and the like – they are even more dominant. With the overwhelming majority of the world’s biggest companies headquartered in G8 countries, their economic clout remains enormous.

But it is the still pivotal global role of the US that really makes the G8 a force to be reckoned with. Despite talk over decades that it is a nation in decline, it remains the world’s sole superpower. Militarily it is a colossus, spending more on its defence forces than the next 10 biggest national spenders combined. Politically, in every region of the world it remains a major power, if not the major power. Underpinning all this is its economic might: its economy is by far the biggest and twice the size of China’s, its nearest rival.

But if that snapshot of global power in 2013 shows the West still forming the core of the international system, it does nothing to illustrate the changing dynamics of world politics.

For the G8 countries recent times have been abysmal, causing their long relative decline to accelerate. The US economy has had its worst five-year period since the Great Depression, and its increasingly polarised politics has weakened it at home and abroad.

Japan is close to marking a quarter of a century of economic stagnation and is one of the oldest, and most rapidly ageing, societies. Russia remains largely an extractive, commodity-based economy, and, like all autocracies, it is politically brittle.

Multiple weaknesses
And then there is Europe. Italy has less going for it than any other G8 member. France is paralysed and seemingly unreformable. Britain appears to be shaping up to leave the EU. Germany may be the strongest of the weak in Europe, but it is as exposed as any country, if not more so, to the continent’s failing currency union.

The threat of the euro crisis re-erupting hangs over Europe, and, collectively, it is hard to see the EU co-operation model ever regaining the lustre that has been lost as a result of that crisis and its mishandling.

In contrast to the malaise in the advanced economies, the developing world is powering ahead. Although developing countries are not without their own problems – social, political and environmental, to name but a few – they have accounted for most of the growth in the global economy in recent years.

Nothing illustrates the geopolitical change afoot better than the eclipse of the G8 by the G20 – a much wider group of countries that includes most of the big developing world economies. It was set up in the closing months of the last century, then steadily gained ground on other forums. By November 2008, just as the western financial system teetered on the brink of meltdown, G8 leaders formally declared the primacy of the G20 in co-ordinating responses to the great cross-border questions of economic management.

Given all this, one might wonder whether next week’s gathering in Enniskillen is a mere photo-opportunity for leaders of old powers in relative, if not absolute decline. But, despite everything, the coming together of the established powers’ leaders still matters, and it can make a difference. Putting items on their agenda can give a push to a cause or add momentum to one already rising up the global agenda. Whether that happens depends very much on the issue. The prospects for progress on the three matters up for discussion next week illustrate this well.

Tax evasion and avoidance have been rising up national priority lists for some time. Although international co-operation on clamping down on (illegal) cross-border tax evasion has been ramping up for many years, the change in posture of many governments towards (legal) cross-border tax avoidance is much more recent. The speed with which it has risen up the global agenda has been striking, illustrated not least by the prioritisation given the matter by the G8 now.

Last month, writing in the Wall Street Journal, the British prime minister had this to say when flagging his priorities for Enniskillen: “We must tackle aggressive tax avoidance by encouraging better global reporting to tax authorities in both the developed and developing world; and by letting tax collectors and law enforcement find out who really owns and controls each company.”

This might seem a bit rich, particularly given the tax-haven status of some of Britain’s overseas territories and dominions, but the UK treasury may now be losing more than it gains as a result of the creativity of big companies’ clever accountants. And, even if it weren’t so, British taxpayers are roundly fed up hearing that corporate behemoths pay a pittance in tax while they endure austerity. Political pressure on Cameron to act is too great to resist.

Although tax matters will be discussed next month when the G20 meets, if the eight make a strong statement of intent in their end-of-summit communique next week, it will make concrete action in July more likely.

All the talk of closing international tax loopholes is closely connected to the second of the three items on the G8 agenda: transparency. Indeed, part of the wide-ranging transparency agenda overlaps with the objective of closing down tax loopholes because efforts at increasing exchanges of information among governments on many financial and legal issues are needed both for reasons of transparency and tax compliance.

But much of the thrust of the G8’s transparency agenda relates to natural resources in the developing world. Energy and mining have long been among the most murky of industries. Politicians and officials in developing countries have all too often sought (and obtained) bribes from energy companies or been corrupted by them. With the clamour to secure supplies of raw materials becoming more frenetic, in large part owing to new competition from big developing countries, the established powers have become more interested in open and rules-based arrangements.

Quite apart from cynicism in the developing world about the West’s sudden interest in transparency, there is deep suspicion in China about the motive of G8 members. Beijing has aggressively sought raw materials contracts in the developing world, and with no pretence towards an ethical foreign policy it has used all means to secure supplies. Whatever happens in Northern Ireland next week, it will use the G20 forum, where it is a leading player, to stymie any agreement that would hinder its freedom of manoeuvre.

All that said, a web of technical international agreements and protocols on transparency exists. As G8 leaders have taken up the issue it will spur their officials to work harder and faster to strengthen them. As such, the discussion in Enniskillen will likely advance the global transparency agency, if not by much.

The third item on the agenda is the liberalisation of cross-border trade, something economists believe could significantly boost world economic growth. Ireland has a major interest in this issue. As one of the few economies whose exports exceed its annual GDP, freer trade would benefit exporters based here.

This is in stark contrast with an earlier era. In decades past, if Europe and the US could settle their differences at the WTO, global trade deals were done with little further ado. That is far from the case now, because big developing countries, and blocs of smaller ones, have much greater clout and are not easily dissuaded from exercising the veto power all member countries wield.

The changing power dynamics in the WTO reflect well the relative decline of the West and the rise of the rest. But in the absence of wars, geopolitical change tends to happen slowly. The rebalancing of global power will continue to take place gradually, with the established powers doing all they can to preserve their influence. It is for this reason that the G8 is likely be around for some time yet.

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