EU a model of good governance compared to enfeebling gridlock of G8

Expect only bland remarks on major issues at these G8 talks

G8s have become a ritualised part of the global constitution. Each year world leaders gather in some intriguing part of each other’s country – this year the Lough Erne Resort in Co Fermanagh. The host country first downplays any chance of agreement on whatever it is that is the issue of the moment, and then plays up a form of agreed words in the final communique – this year, cracking down on global tax evasion – as a global breakthrough.

There are photo-ops. The leader in question looks good, has achieved something and his or her poll ratings climb. Cynical journalists say the whole affair is a waste of time, but then consecrate acres of newsprint or video to whatever it is that has been agreed. After all, what the leaders of the eight most powerful democracies on earth say is not irrelevant. Then everyone goes home, and as the dust settles it becomes obvious that once again nothing much has happened.

It would be a harmless ritual – except the globe does need to be governed, and with so many global multilateral institutions and initiatives gridlocked, unless there is agreement at G8 the globe will be ungoverned.

For the ultra-free marketeer or nationalist that might not be a problem. But for the rest of us this is a matter of growing concern. There do need to be global rules on bank capital, the fishing of the seas, cybersecurity, the use of drones, carbon emissions, trade and tax havens, to name but a few. There is a global public interest. There are global commons. If nothing, or little effective, can be agreed or implemented, then everyone is the poorer, and the world is more dangerous.


The difficulty is that while every country can see the benefit of there being global commons, any individual country wants a particular break to suit its interest – and if there is no global hegemonic power to knock heads together and impose order, then the result is an enfeebling gridlock.

The post-war American Empire had few friends, but it was a regime that opened up worldwide free trade, minimised beggar-my-neighbour devaluations and confined conflict to well-known trouble spots. Now a gridlocked America whose share of world GDP has fallen to a fifth is unable, even if it wanted, to impose its will: and quite whether it could find a will to deal with contentious issues like climate change or a pandemic of tax evasion is another matter.

So the eight countries in the G8 have to do it – suspicious of each other and keenly aware that an even more dysfunctional G20 is breathing down their necks as an alternative source of global government. Not only that, but as Thomas Hale, David Held and Kevin Young argue in their despairing assessment of global governance Gridlock, the issues that need confronting are multiplying and growing more complicated.

The Americans and British could design multilateral institutions like the IMF and Bretton Woods semi-fixed exchange rate regime in 1944 essentially as a bilateral conversation – and rely on the fact that the world was sufficiently simple for the exchange rate regime to be the chief economic problem, along with trade, to be handled. In 2013 the array of issues ranges from mobile phone standards through bank capital requirements to carbon dioxide emissions. Trying to find global agreement is a game of three-dimensional chess played by dozens of players. Small wonder effective governance is so difficult.

In that respect David Cameron has been quite smart at this summit. The British may have a useless economy but they remain smart diplomats. The only chance of getting any agreement in such a context is to find lowest common denominator issues where everyone is a winner - and the British identified tax, trade and transparency as potential winners. After all no government wants openly to acknowledge it connives in tax evasion; every government has to pay lip service to transparency ; and everyone knows that the more trade, usually the more growth. Some countries may benefit more than others, but in general a rising tide of trade lifts all boats.

But even this has been hard pounding. France was prepared to block the entire trade deal between the US and the EU if its film industry was not protected. Putin does not want to close down favoured oligarchs’ capacity to shelter their fortunes from tax, while Obama will be worried how much he can get past a low-tax obsessed House of Representatives run by the Tea Party crowd who see tax evasion as a public duty.

Everybody is in favour of transparency except in their own murky political and economic dealings. Even on issues as lowest common denominator as these there will be little substantive progress. For example, Cameron will boast that requiring fictional companies registered in tax havens to disclose their beneficial owners to government registers for the information to be shared is a major breakthrough: and in fairness it is better than nothing, and has certainly forced the UK government to act on its network of tax havens.

But it is far short of the co-ordinated global framework needed to ensure that multinationals and the super-rich can no longer choose what tax they pay. And again, on transparency, at least France, the UK and the US have signed an agreement to require their companies to disclose to the governments of less developed countries what has happened to their taxable revenues. It is an advance, but nobody expects Russia to sign, let alone China.

As for the really “wicked” global issues, we can expect nothing more than anodyne and bland remarks. Nothing binding or with any force will be said about carbon emissions and growing climate variability. The question of how to derisk the global financial system and reduce the massive overhang of financial claims on the global real economy will be left unanswered – as will be how to recapitalise the global banking system.

Each country will be congratulated and not censored for its very different economic policies: Germany, Japan and Britain will all find words of endorsement – despite the fact that their policies are mutually contradictory. There will be fine words about the need for more innovation. President Assad will have his fingers rapped for murdering his own people, but there is no appetite for another Iraq or Afghanistan-style engagement.

It is profoundly worrying. We essentially live in an ungoverned world. The ideology is that markets and private economic actors will always arrive at best or near-best solutions – and that governmental and especially intergovernmental initiatives are by definition futile. Yet it was governments who had to bail out the western banking system involving trillions of dollars. Private and public in any reasonable universe are co-dependent, but not globally.

Whipping boy
Beside the G8 the EU - everyone's favoured whipping boy - is a model of good supranational, multilateral governance. The recent deal on toughening up the Common Fisheries Policy could never be agreed by the G8, for example. At least the EU tries to make some progress: it will be the EU that takes forward the initiatives on tax – or on finding a common line on bank capital, or on almost anything that the G8 cannot go near.

An ungoverned world is the friend of the plutocrat, the tax cheat, the monopolist, the drug baron and the unaccountable big battalions. The EU gets a rotten press in the Anglo Saxon world. But it is all there is. Hang on to nurse for fear of something worse.

Will Hutton is principal of Hertford College, chairman of the Big Innovation Centre and a columnist for the Observer