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A Further Perspective
It’s Time to Rethink the G-8
Guess who’s not big enough to be a member?
What is the sound of one hand clapping? Ask the Group of Eight, also known as the G-8 — which just assembled in Canada to discuss the state of the world at the picturesque and historic Deerhurst Resort in Muskoka, Ontario. Its members include Canada, France, Germany, Italy, Japan, Russia, the United Kingdom, and the United States.
What was remarkable about this summit, and indeed about the G-8 itself, is that it excluded the People’s Republic of China, the world’s second largest economy in terms of purchasing power parity, and the world’s third largest based on current exchange rates. One must wonder why its membership includes Italy, hardly a world power by most standards, and Russia, whose standards of governance can make it a high risk environment.
It is difficult to imagine a country with such a complicated profile as China. It is a trade partner, a formidable competitor in manufacturing, and a potential adversary in the quest for oil and mineral resources. Its economic success in recent decades is nothing short of miraculous: China is now the second largest consumer of oil as well as the world’s largest exporter. Having moved hundreds of millions of its population into an aspiring and new middle class, the China economic model may also offer insights to other emerging nations, particularly regarding the importance of foreign direct investment and an export driven economy.
Relegated to G-20 status (at the subsequent meetings of that Group in Muskoka), China is therefore optically positioned as a second tier global player, along with countries such as Argentina, Australia, Indonesia, and South Korea.
Relations with China embrace a wide matrix of issues. They include charges of currency manipulation resulting in huge trade imbalances and holdings of U.S. monetary instruments; a control freak export economy; weapons sales to Taiwan; relations with the exiled Dalai Lama; differences over human rights; intrusions in cyberspace and Internet censorship; world climate policy; the ascent of a blue water navy and the projection of power; and support for the so-called axis of evil. Very recently, India and Brazil have joined American and European calls for an upward movement of China’s controlled currency, the Renminbi also known as the Yuan, making economic relations no longer an issue among China and Western or former colonial powers, but rather with the entire world.
At the G-8 summit, North Korea was criticized for its nuclear weapons development, with the G-8 calling for cessation of such activity. North Korea was further castigated for its alleged sinking of a South Korean warship. Further concerns were expressed over Iran’s continuing nuclear aspirations and expressed commitment to enrichment activity.
China, of course, has more influence than most with those two rogue regimes. As noted by the Council on Foreign Relations in a July 2009 publication, China is the leading sponsor of North Korea since 1950, and its largest provider of weapons, fuel and food, also having opposed economic sanctions against the government of Kim Jong Il. In the case of Iran, China imports an estimated 15% of its oil from that country, its second most important supplier after Saudi Arabia. China has also vigorously opposed sanctions against Tehran.
Obviously, something is wrong with this picture. A nuclear-armed country with extensive ties with two of the most dangerous nations on earth is not at the table as a first class citizen in the august G-8. A country with aspirations that challenge the current world order and the naval power of the United States in the Pacific is seen but not heard as a peer.
China’s disrespect for human rights and the way it has mandated economic development are at odds with principles of liberal democracy. And there is also fear of China’s increasing military capacity, as evidenced by a report of the U.S. Naval Institute in March 2009 regarding Chinese efforts to produce a Mach ten anti-ship missile for use against U.S. Carrier Strike Groups.
There are no simple formulas to govern relations with China, but engagement is preferable to isolation. And given China’s surreal economic progress and power, as well as the composition of the G-8 which includes peripheral world players as well as a Russia that is fundamentally hostile to U.S. and European interests, it’s time to rethink the criteria for membership in the club.
About the Author
Frank Schell is a business consultant and former international banking executive. He serves on the Dean’s International Council of the Harris School of Public Policy Studies, University of Chicago, where he is a lecturer, and on the editorial board of the Chicago-based National Strategy Forum, which focuses on national security issues.
Letter to the Editor View all comments (29) | Leave a comment
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Neil| 7.8.10 @ 7:04AM
Italy has a bigger economy than Canada, so before you question Italy in the G8, why didn't you question Canada first ? Is it because you have a grudge towards Italy ? Maybe your wife ran off with an Italian man ?
old white guy| 7.8.10 @ 9:16AM
italy may on paper have a bigger economy but they certainly do not have the wealth of canada. the us will be sucking at canada's teat for decades to come for energy and other resources. try and spend italys currency anywhere out side italy.
Joe Schmuckatelli| 7.8.10 @ 10:39AM
Yo tard, the Italian currency is the Euro.
Brian H| 7.8.10 @ 1:24PM
I.e., Italy gets to use a stable currency without earning it, while Canada's dollar gets stronger and stronger based on stable and conservative banking and natural resource wealth, plus stable governance. Italy has none of the above.
Louis Jenkins| 7.8.10 @ 8:54AM
More swill. It would be best to do away with the G-8, the G-20, and all the other Gs. These countries work for domination over all the world. We should shudder to think of the plans these people have for us. Instead we go along for the ride hoping that it will be best for us. China is not a member of the G-8? Big deal. They already own most of the US's debt and that makes them the boss and the US a puppet.
Stuart Koehl| 7.8.10 @ 10:58AM
"They already own most of the US's debt and that makes them the boss and the US a puppet."
Actually, I think it makes China the U.S.' butt monkey. Just as we thought certain banks and corporations are "too big to fail" because so much of our economy depend upon them, so the U.S. is too big for China to let us fail. After all, China is an export-driven economy. Without U.S. imports from China, how will China maintain the double-digit growth it needs to avoid social implosion? Sure, China holds our paper. What are they going to do with it? Burn it? Stuff it in a mattress? If they kill our economy by calling in all of our bonds, then they kill their own sovereign wealth at the same time--and they collapse their own domestic economy, since a U.S. stuck in depression won't have the money to buy shoddy Chinese products even at knock-down prices. The debt bomb is more like the legendary nuclear hand grenade: it has a lethal radius of 100 yards, but can only be thrown fifty. Using it will destroy the enemy--but it won't be good for your health, either.
Let's try to remember we heard all this crap thirty years ago, only then the Yellow Peril was Japan, not China. Where is Japan today, one wonders? Maybe China isn't the next superpower. Maybe China is just the next Japan.
Believer| 7.8.10 @ 10:15AM
Obama said that the U.S. would gladly give up her position to China at the G-8 in exchange for all the I.O.U.s China holds on the American debt.
Stuart Koehl| 7.8.10 @ 11:35AM
Perhaps membership in the G-8 should be keyed not to national GDP but to per capita GDP. If that were the case, then membership would be:
1. Luxembourg
2. Norway
3. Qatar
4. Switzerland
5. Denmark
6, Ireland
7. Netherlands
8. United Arab Emirates
We would only rank 9th, and so wouldn't have to put up with the expense of hosting these meetings anymore.
Or, we could eliminate countries whose principal source of income is oil, in which case membership would be:
1. Luxembourg
2. Switzerland
3. Denmark
4. Ireland
5. Netherlands
6. United States
7. Austria
8. Australia
I admit I find this group of countries far more congenial than the present members, and I submit that G-8 meetings would be a lot more fun if we revised membership as shown above.
Charles Martel| 7.8.10 @ 5:58PM
That got me thinking: what happens when you compare the two lists? I took a list of the largest sovereign economies (by GDP, using purchasing power parity) and started checking off those countries that also topped the list when sorted per capita. The result was disappointing for anyone hoping to shuffle the deck.
(My source, by the way, was the online CIA World Factbook, and I omitted non-sovereign economies -- specifically, the European Union as a whole, which ranked #1 by total GDP, and Hong Kong, which, while autonomous, is a territory of the PRC.)
Here's what I came up with. The numbers in parentheses are each country's place on the total-GDP list followed by its place on the per-capita list.
1. United States (2/11)
2. Japan (4/41)
3. Germany (6/37)
4. Great Britain (7/34)
5. Russia (8/75)
6. France (9/40)
7. Italy (11/44)
8. Spain (13/38)
If keeping Canada in the group is a sine qua non, then the group could expand to ten.
9. South Korea (14/49)
10. Canada (15/27)
Australia (19/21) would also be a fine candidate, but then so would Taiwan (20/47), and I can just see the feathers flying if that were to be suggested.
So, who got left off the list because, though their economies are large, their populations are too, putting them low on the per capita list? China (3/128), India (5/164), Brazil (10/105), Mexico (12/83), and Indonesia (16/155) top that group, and they show up for "G20" anyway, as does South Korea -- plus several other countries that aren't even in the top 20.
All of which begs the question: what happens if you do it backwards -- that is, start with the per-capita list and seat the eight largest economies? Norway, the US, Switzerland, Austria, Canada, Sweden, Belgium, and Great Britain would get chairs on the dais, and you'd have to expand it to 12 in order to keep Germany, France, and Japan. One more reason for this never happening: Greece would get seated before Italy.
Enough of this now, because everyone knows the seating arrangement is set by the Trilateral Commission, the CFR, and the Bilderbergs; so everybody else just shut up and take it.
+++
RWinks| 7.9.10 @ 12:38AM
Obama would gladly give up the US to anyone.
Dixie Pixie| 7.8.10 @ 6:05PM
G8 or not to G8 is not the question.
If Obama keeps spending and borrowing at the current rate the USA will eventually find the debt will grow larger than the total net-worth of the USA.
When that occurs our creditors are certain to intervene to change the current governmental structure to insure the debt is repaid.
Like a bad company with incompetent management, the USA will then find itself under the control of a consortium of foreign investors.
That may be the reason Obama seems unconcerned about upcoming elections. If Obama plans to hand over the US Government to a group of investors then is does not matter how the elections turn out. If this theory is correct we will soon know if this is true in a few months.
RWinks| 7.9.10 @ 12:52AM
Just how do creditors "intervene"? It's a well known fact that when someone extends enough credit, they have little leverage over the borrower. They become hostage to the well being of the borrower if they don't wish to take a complete write-off.
No one knows what our position will be after two more years of Barry's Gangster Government but our military still swings a pretty big stick.
Stuart Koehl| 7.9.10 @ 9:41PM
As the old adage goes, "The man who owes a thousand dollars has creditors. The man who owes a million dollars has investors".
Dixie Pixie| 7.9.10 @ 1:04PM
That is a very good question RWinks.
If there is someone on this thread who is a specialist in corporate takeovers, please jump in to explain the steps required to take over a large company. A financial takeover of the USA should follow a similar path.
Stuart Koehl| 7.9.10 @ 9:43PM
Nobody bothers to read American history. The United States was a debtor nation for most of the 19th century (and pretty much a deadbeat one for the first half of that). This country was built on foreign capital investment, mainly British. But we don't sing "God Save the Queen" before baseball games.
Get a grip, you economic illiterates!
Believer| 7.9.10 @ 5:01PM
Dixie Pixie- The U.S. wont hand over anything to any one as any jobs left will be Police and Emergency jobs. We will have an economy that no one in their right minds would want and more importantly no will lend money to. Perhaps when all this happens then voters will finally vote politicians in who will balance the budget and get our Mfg. base started again at home and not in other countrys.
Dixie Pixie| 7.11.10 @ 2:35PM
Greetings Believer and Stuart Koehl
There are a few small details that you missed.
The current economic situation is not the same as during the industrialization period of American history. In the industrialization period foreign investors had a reasonable expectation of gaining more money than money invested. The foreign investor also had the use of a reasonably effective legal system to enforce the terms of the investment contract.
Today it has been the Federal Governments policy is to deindustrialize America since the late 1970's.
At the current rate of borrowing and spending the total amount of money borrowed will soon exceed GDP. When that happens the foreign investors can expect to receive a fraction of their money invested.
They also can expect the US Government not to help recover the money as they are the ones swindling the investors.
Historically when a country refuses to repay foreign investors, gunboats and armed troops are sent out to recover the money. Hence the term gunboat diplomacy. Latin American countries have long known what happens when the creditors are swindled. For example, Argentina was late on their IMF payments, so the IMF simply had every Argentina bank account confiscated.
One mitigating factor is the Federal Reserve is loaning money at 0% interest to the banks. The banks, some foreign owned, then turn around and loans the same dollars to the US Treasury at 3% interest. Thus money is created out of thin air. Unfortunately thin air is all that is supporting the Federal Governments spending. Some day the foreign banks and governments will notice. When that day comes they will want something of real value such as Florida.