In the past month three significant international groups have met: the G7, G20 and BRICS. For most of us the "G this and the G that" " could just as easily be Gee Whiz and Gee Willikers and BRICS might as well be the Pink Floyd lyric, "all in all, you're just another BRICS in the wall." But these groups actually do matter because they affect the international economic system and over time can affect the prices we pay for everyday goods and the jobs of many Americans.
In this blog I'll focus on who these groups are and what they are trying to do. In another entry I'l try to shed light on the structure of the international economic system and the forces that may lead to major changes in the next decade or so.
T he Group of Seven (a short enough name you'd think they wouldn't really need an acronym) is the "Big Rich Guys" club -- the seven largest advanced capitalist economies: Canada, France, Gernany, Italy, Japan, the UK and the United States -- and the European Union as a "non-enumerated member." Since 1975 the G7 has held two meetings a year, one with heads of state, and the other with finance ministers. The major goal is to coordinate economic policies to try to stabilize the international, economic system. It has been a major force supporting economic liberalization, the spread of open markets and liberal democratic values. For example, the G7 played a major role in preventing the 2008 international financial crisis from becoming a global depression. The G7 members (other than Japan and the non-enumerated EU)) were present at the creation of the contemporary international order and remain its strongest advocates.
The G7 accounts for over half of global net worth, 35-40% of Gross World Product, and 10% of the world's population.
In the 1980's and 1990's sustained economic development fueled in part by international borrowing moved several large countries from the ranks of the less developed into middle income status. But the reliance on loans to kick start growth led to problems that threatened not just the debtor countries but the wealthy G7 group. The problems of excess debt and sporadic economic crises led to the creation of an organization that included both the very rich and large middle income countries in hopes of coordinating policies and stabilizing the global economy. The group started with 19 countries and the European Union in 1999 and then added the African Union (perhaps because all the stationary and business cards and email accounts said "G20" it seemed easier to leave it at that rather than re-brand everything as the G21.)
The G20 meets once a year in a three day session featuring heads of state and finance ministers. The emphasis of the meetings has typically been reforms to the international economic system to improve terms of trade and access to international finance for the middle income members of the group. Recent meetings have also addressed climate change and some global political issues. The meetings have typically ended with a consensus joint communique that more often than not offers lip service to shared values and goals but no concrete commitments to specific changes. This year's meeting chaired by India's Prime Minister Modi was more contentious than most, in part because of the Russian invasion of the Ukraine. The 2022 joint communique condemned the invasion and expressed support for Ukraine but this time Russia and China strongly opposed any statement and several members, including host India, Turkey and the African Union were ambivalent. This year's final communique avoided explicitly criticizing Russia while proclaiming support for territorial integrity of states and expressing a desire for peaceful resolution of conflicts.
The G20 accounts for 80% of the Gross World Product, 75% of international trade and two-thirds of the world population
Was initiated by diplomats from Brazil, Russia, India and China who met during the UN General Assembly session in 2006, taking its name from an article by an American economist about large emerging economies. It held its first summit in 2009 and added South Africa (making BRIC into BRICS) the following year. BRICS countries account for about 27% of the Gross World Product and 42% of the world's population. The group has become increasingly tight knit and aspires to serve as an alternative to the dominant international financial institutions like the IMF and the World Bank which are seen as biased against them as well as the rest of the global South.
Using "North" to refer to the advanced capitalist countries-- all of whom are in the northern hemisphere -- and 'South" to refer to everyone else, or sometimes just the leas developed countries, not all of whom are in the southern hemisphere, is more of a rhetorical device implying good guys and bad guys than a useful categorization of stages of economic development.
The International Monetary Fund (IMF) and World Bank are at the center of "the liberal international order" created by the United States and Western Europe after World War II. An analysis of the current state of the global economic institutions will have to wait for the next blog.
China and Russia have been the most vocal advocates of creating a powerful counter weight to the dominance of the G7 and Western capitalist, liberal democratic values but the other BRICS share the sentiment. In an attempt to bolster the power of BRICS, the 2023 summit in South Africa invited six emerging market group countries (Argentina, Egypt, Ethiopia, Iran, Saudi Arabia, and the United Arab Emirates) to join the bloc.
So What?
The G7 has been the most successful of the three blocs in coordinating policy and actions among its members. The 2008 financial crisis could have been much worse if the G7 members had focused on their own narrow and immediate self interest. Instead they managed to coordinate their responses and avoid the worst potential damage to the global economy. In a host of more mundane and seemingly trivial ways, the G7 have synchronized and coordinated policies to prevent problems. Cooperation that prevents bad things from happening does not make news nor does it make us feel good. (An example of the broader principle that the satisfaction from a gain is less than the pain from a loss.)
The G20 has been far less successful in getting the already rich global actors and the middle income, rising powers on the same page on any key issues. That is in part because of dissatisfaction with the way the IMF, World Bank and other institutions like the World Trade Organization make decisions and in part because the non-G7 members are quite diverse and often have conflicting interests. It is nonetheless, I think, useful for two reasons. First, it provides a venue for the developing nations to articulate their interests and be heard. For example, its meetings have been an opportunity to advocate for compensation and assistance in coping with the consequences of climate change for less well off countries that have not been emitting tons and tons of CO2 for the past two centuries. Secondly, it is an opportunity for national leaders to meet on the sidelines for private discussions and negotiations without the glare of publicity and extensive preparation that a state visit or summit requires.
BRICS has an ambitious long range goal of creating a set of new international financial institutions to rival the western dominated IMF, World Bank and the central position of the U.S. dollar in trade and finance. As the BRICS see it, the world today is bipolar -- the global North (the rich G7 countries) on one side and the global South (everyone else) on the other. The BRICS, particularly Russia and China, aspire to a multipolar world in which the rising middle income countries are the third side in the global economy. In particular they would like to see currencies other than the dollar used as the international standard in trade, loans for development projects that don't come with environmental or social strings, and less emphasis on capitalist and democratic values. Optimists see the addition of six more members next year as a major step toward a multipolar world, comparing it to the Bandung Conference of 1955,* Skeptics point to the great disparity of national interests, economic systems and international trading patterns that would make actually implementing a new scheme extremely difficult.
*The Bandung Conference was the first meeting of post-colonial Asia and African countries that launched the non-aligned movement as a counterweight to the Cold War US-USSR conflict. It is doubtful that the non-aligned movement had a significant impact.
The international financial system is not something we think about every day (at least I don't, perhaps you do) but it impacts our lives every day. For example, the IMF is central to world trade, using the U.S. dollar as the basis for setting prices for imports and exports. So when a store in California wants to order blouses form Bangladesh (taka), jeans from Viet Nam (dong), tv sets from Samsung (South Korean won), or Polish hams (zlotys) it does not have to worry about how much a taka or zloty is worth in "real" money or come up with a big wad of dongs to pay for the goods. The factory in Bangladesh or Korea sets its prices in dollars and accepts dollars in payment. That makes the imported goods less expensive than if buyers and sellers had to go physically exchange one currency for the other and pay an exchange fee. The impact on the price of a car, with parts produced from several countries around the world would be even more noticeable.
For us in the United States, the fact that the current system rests on the dollar as the common currency means that there is a large and consistent market for U.S. Treasury bonds which funds the national debt.
The current system does at times impose our values on other countries. The G7 countries dominate the World Bank and often insist that loans for development projects include environmental protections or promote educational or economic opportunities for women and girls.
That is not to say that this is the best of all possible worlds or that there are not some valid points raised by critics of the current system. We will try to look at some of those in a future blog post.
