There is great expectation that the G-7 summit at Cornwall will endorse something like a “Cornwall consensus” to displace the “Washington consensus.” The summit is of unusual historical interest. After the Donald Trump years, there is palpable relief that the summit has both an air of normalcy and a substantive agenda. The G-7 is back in action. The most significant expectation of the summit is that it will help determine the shape of globalisation. There has been much discussion of the possibility of the G-7 pushing for global coordination on minimum corporate taxation and clamping down on tax havens.
But the summit also seeks to redefine the broader relationship between states and markets in three ways. First, to simplify somewhat, states are reasserting control over the terms on which markets operate. “Neoliberalism” is an unwieldy and imprecise term. But it did convey the idea that states should follow where the market leads, or step in only where there is a market failure. Think of the phrase “the market will discipline states,” that was routinely used. This account of the relationship between states and markets had four deleterious consequences. It provided a misleading picture of what makes economies vibrant. It led to a sense of loss of collective control over our economic future. It led to great inequality. And, in some fields like technology, it created new forms of corporate power. The populist revolt, or the leftward turn, required the state to reverse some of these consequences. But this cannot be done without some coordination at the global level — on taxation, or treatment of technology monopolies.
Second, think of the global role of the G-7 or even the G-20. At one level, these groups were something like the political steering committee for global capitalism. Ironically, their most useful political roles were during the financial crisis, when global financial coordination was required. In short, they picked up the pieces after private risk-taking had inflicted damage on the global economy at risk. But there was relatively little attention to the systemic vulnerabilities that globalisation might create. These could be vulnerabilities because of the way supply chains were distributed, or those that arose from the creation of winners and losers within globalisation. Many of these have to be addressed through domestic political action. But the global rules seemed to constrain what domestic actors felt they could do. Most importantly, there was short shrift given to global public goods like health. The Covid crisis has reminded us of all of these vulnerabilities. The commitment of G-7 to provide one billion vaccine doses is a welcome step. But whether this crisis-driven commitment will translate into an enduring and just framework for providing global public goods on health and environment remains to be seen. The recognition that global interdependence cannot be managed without global public goods is long overdue.
The third is the geopolitical context. There are two geopolitical “cold wars” that cast a shadow on the G-7, even if they are not explicitly named. The first, of course, involves China. How China and the global economic order will now respond to each other is still an open question. But in the context of rising geopolitical tensions with China, greater coordination and unity of purpose amongst the G-7 will become more important. The second is a more diffuse threat of authoritarian disruption. This comes not just from states like Russia and Belaraus, but forces that might want to subvert democracy are now at the heart of many western democracies, including the US and Europe. Greater global disarray strengthens the possibility of giving political succour to these political tendencies. It is important, therefore, to demonstrate that the G-7 countries are part of a functional democratic civilisation.
But one should be under no illusion that as reassuring as the directional change might be, many of the central distributive conflicts that beset globalisation are likely to continue. The talk of global public goods works only in a context where the advanced economies themselves experience the vulnerabilities of globalisation. Take the G-7 proposal for the coordination of taxation. In principle, this is not a bad idea, if it can close off tax havens and prevent a global race to the bottom. But the devil is going to be in the details. In this context, it is sobering to read the Tax Justice Network’s “The State of Tax Justice Report” 2020. According to this report, the United States, Netherlands and United Kingdom are three of the top five countries (along with Cayman Islands and Luxembourg) responsible for tax losses inflicted on other countries. The US, Switzerland, Singapore and Hong Kong are amongst the highest on the Financial Secrecy Index, countries whose financial systems allow individuals to hide their finances from other countries. So, the visible corporate tax rate, or taxing at point of sales, may just be the window dressing the global tax problem that allows countries to hold onto their privileges. This should be the site of hard-nosed bargaining.
Similarly, on climate change. There is a lot of encouraging talk of ambitious targets, investment-led transformations. There is also going to be a renewed focus on labour standards and linking them to trade. Intelligently done, this might be for the good. But it could also repeat the familiar pattern of regulation serving to preserve the dominance of advanced economies.
There is also, in the talk of a new global economic order, the curious absence of discussions on finance. Trade liberalisation and the winners and losers it produces get far more political attention. That’s in part because finance tends to be more economically and socially powerful in the political economy of most countries than even industrial capital. But if one is looking at potential sources of vulnerability, the ability to create winners and losers, and possible threats to global resilience, then regulation and coordination of global finance deserves more attention.
It is reassuring to see the G-7 think in the right direction. But if the G-7 wants to truly exercise more leadership, it will have to convince the world that all its wonderful new principles, resilience, inclusion, global public goods, are not simply ruses to serve only the interests of the developed world. Or that important gestures like providing vaccines are not just one-off interventions in the aftermath of a crisis. Only then will the Cornwall consensus be more than a nice alliteration.
Pratap Bhanu Mehta writes: If the G-7 wants to truly exercise more leadership, it will have to convince the world that all its new principles are not simply ruses to serve only the interests of the developed world.
This article was originally published on The Indian Express. Views in this article are author’s own and do not necessarily reflect CGS policy.