What, exactly, is the G7 for?

·6-min read
Chancellor Rishi Sunak chaired the two-day G7 finance ministers meeting (PA Wire)
Chancellor Rishi Sunak chaired the two-day G7 finance ministers meeting (PA Wire)

Many of us feared that post-Brexit Britain would become both more inward-looking and more backward-looking. It may well become so. But, for the moment, the slogan “Global Britain” provides the government with a good, albeit threadbare, mask to hide behind.

Boris Johnson has been fortunate in inheriting commitments to host the Cop26 conference at the end of the year and the G7 summit this week. Both provide the opportunity to offer the appearance, and perhaps the reality, of leading the way on global issues.

The G7 meeting in Cornwall got off to an auspicious start with the prior agreement between its finance ministers on corporate tax. Companies will pay a minimum 15 per cent tax on profits, and tax will accrue where the profits are earned rather than in the country where the company is headquartered. As a result, more tax should be paid by the big digital companies in particular.

It would be churlish to minimise the achievement of getting the US and Europe to agree and to cooperate. But the agreement still allows for plenty of “tax arbitrage” (polite language for tax dodging) since 15 per cent is far lower than the norm (soon to be 25 per cent in the UK; 28 per cent in the US). Tax havens will be kept busy, as will tax accountants. It remains very easy to manipulate tax accounts when there are so many intangible items like the valuation of intellectual property.

The deal also has to get through US Congress (though there are hopes that cross-party loathing of Facebook will produce rare consensus). And the rest of the world has to agree, including developing economies whose quarrels with multinationals over tax are often about different issues. But... a positive start.

The second big G7 issue is Covid and the fact that parts of the world, notably Africa, have barely begun vaccination while the US and UK (and much of Europe) are well on the way to majority (even “herd”) immunity. The rich countries now have a large potential surplus of vaccines.

The assumption that hotter and more youthful parts of the world were somehow largely immune from Covid has been punctured by the apocalyptic experience of India, with the pandemic still raging in rural areas, but unrecorded, and spreading to the rest of south and southeast Asia. Africa has yet to experience the full force of Covid.

Yet in the rich west we seem to have forgotten the adage that “no one is safe until everyone is safe”. New mutations circulating in unvaccinated areas can break through the shield of immunity elsewhere. Even so, those of us who are vaccinated are enjoying a false sense of invulnerability and feel that the end of the pandemic is nigh. Economies are booming again. In the UK the main controversy is frustration over obstacles to enjoying our Basic Human Right to fly off for a Mediterranean holiday in the sun. At a time when African medical staff cannot get access to vaccines for themselves, let alone the public, we are luxuriating in a fools’ paradise.

For the world outside the G7, the worst is probably to come and can only be alleviated by a massive programme of vaccine transfer through the World Health Organisation’s Covax programme. The G7 will have to commit the funding needed to build up the necessary manufacturing capacity and then get the vaccine delivered into billions of arms in the next year or so.

There are reasons to be optimistic that something will now happen. The motivation will not primarily be based on solidarity or generosity, or even epidemiological self-interest. Poorer countries realise that they have some leverage and are threatening to scupper the forthcoming climate talks. And the Chinese are rapidly putting the G7 to shame by distributing their own – inferior, but adequate – alternative vaccine.

Overall, however, Covid has done terrible and lasting economic and social damage. In India, tens of millions have slipped back into extreme poverty, undoing decades of development, and that story is emerging in other developing and low income economies too. They will need a lot of help well beyond the pandemic.

For the UK to be cutting its aid budget at this time is crass and selfish in the extreme and a terrible reflection on Rishi Sunak whose attempts to curry favour with the Tory right have backfired badly. Hopefully, a climb-down will be negotiated soon.

The economic discussion does however highlight the questionable nature of the G7’s claim to represent the commanding heights of the world economy. The G7 accounted for 65 per cent of global GDP in 2000. That number is now at 45 per cent. If GDP is calculated on a purchasing power parity basis (the measure used by the IMF, the World Bank) and if economic size were the qualification for membership, Britain would be thrown out of the G7 along with France, Italy and Canada to be replaced by China, India, Russia and Indonesia (with Brazil next in line).

As a consequence, the economic summit which really matters is the more inclusive G20, meeting in Italy in October.

So what is the G7 for? It has become an institution which represents “the west”. We used to see “the west” as the ideological and military adversary of the Iron Curtain countries. It is now a club of rich countries which also subscribe to democracy. The democratic dimension has unfortunately become decidedly wobbly thanks to Donald Trump – who may soon be back. And an exclusive rich man’s club is not an attractive concept.

These limitations are understood by President Biden who is doing his best to restore the reputation of the US as a democracy and a leader in international cooperation. But attempts to build bridges with the big players outside the G7 are fraught with problems: Russia is a “rogue state”; India’s democratic credentials are in doubt; Brazil has its own home-grown Trump. Then there is China.

For the Americans in particular the G7 is now the anti-China front: a posse of the like-minded to confront and contain what is seen as a threatening new superpower as was the USSR in the past (but much more competent, economically successful and technologically sophisticated). Recent Chinese behaviour has provided ammunition for the posse.

But confrontation and containment may not be a viable strategy. Some of the G7 (Germany, France and Italy) favour active economic engagement with China. All agree that there is no alternative to cooperation with China over global warming. Japan is not looking for conflict or to risk its economic ties. Much of the rest of the world is not inclined to pick sides. Furthermore, the Chinese are throwing down a challenge to the G7 to match its involvement in African development and vaccine distribution.

The challenge to the Johnson government and its G7 partners will be to do a lot more than fulminating against a new (partial) adversary. It must deliver on its declared values and commitments. Only then will “Global Britain” become more than a threadbare mask.

Sir Vince Cable is the former leader of the Liberal Democrats and served as secretary of state for business, innovation and skills from 2010 to 2015

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