G20 : Economic Cooperation ahead

Can the G-7 give new direction to globalisation?

Note4Students

From UPSC perspective, the following things are important :

Prelims level : G-7 countries

Mains level : Paper 2- Relevance of G-7

The article highlights the challenges associated with the globalisation and important role G-7 can play in dealing with these challenges.

The context that makes this G-7 Summit significant

  • 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.
  • The summit also seeks to redefine the broader relationship between states and markets in three ways.

Redefining the relationship between states and market in 3 ways

1) States reasserting the control over markets

  • States are reasserting control over the terms on which markets operate.
  • The idea of Neoliberalism did convey the idea that states should follow where the market leads, or step in only where there is a market failure.
  • However, this account of the relationship between states and markets had four harmful consequences.
  • 1) It provided a misleading picture of what makes economies vibrant.
  • 2) It led to a sense of loss of collective control over our economic future.
  • 3) It led to great inequality.
  • 4) In some fields like technology, it created new forms of corporate power.
  • To reverse some of these consequences, some coordination at the global level on taxation, or treatment of technology monopolies etc is required.

2) Global interdependence cannot be managed without global public goods

  • At one level the global roles of the G-7 or even the G-20 were something like the political steering committee for global capitalism.
  • Their most useful political roles were during the financial crisis, when global financial coordination was required.
  • 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.
  • 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.

3) Geopolitical context

  •  There are two geopolitical “cold wars” that cast a shadow on the G-7.
  • The first involves China.
  • 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 threat of authoritarian disruption.
  • Greater global disarray strengthens the possibility of giving political support to these political tendencies.
  • It is important, therefore, to demonstrate that the G-7 countries are part of a functional democratic civilisation.

Challenges ahead

  • Despite the directional changes, 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 are at the receiving end.
  • 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.
  • However, 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.
  • 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.
  • Similarly, on climate change. There is a lot of encouraging talk of ambitious targets, investment-led transformations.
  • 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.
  • 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 deserve more attention.

Consider the question “What are the vulnerabilities associated with globalisation. Suggest the solutions to deal with these vulnerabilities.”

Conclusion

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.

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