The G7 Summit is underway in Japan and the global economy is at the top of the agenda, yet the groups unrivaled influence over it is no more. Its share of world GDP has declined from close to 70 percent in the early 1990s to just over 45 percent today. Emerging and developing economies are converging economically with the old industrial nations that governed the post-war period. In 2009, the G20 became the premier global economic policy-making forum, eclipsing the G7’s influence given the rising economic weight of the rest of the world.
But advanced economies still hold a disproportionate level of influence in the world, with 60 percent of world GDP and 15 percent of the world population. There is still good and desired reason for the key advanced economies (G7) to meet with each other. Their economies are more similar to each other than those of developing countries. They share common challenges around the need for fiscal policy to support demand growth and in the navigation of unconventional monetary policies in an era of low growth, low inflation and low interest rates. They share common responsibilities as post-industrial nations in the fight against climate change. And perhaps most importantly, they share a common ideology on a liberal world order and a global economic system based on liberal values.
The inability of the existing global economic institutions like the International Monetary Fund and the World Bank to accommodate the rising influence of emerging market and developing economies has led, understandably so, to the creation of new institutions by and for EMDEVs themselves. The New Development Bank (or BRICS Bank) is one example, and the China-led Asian Infrastructure Investment Bank is the most prominent example where many Western countries have signed up despite initial opposition from the U.S. Given massive infrastructure investment and development needs (over $50 trillion by 2030), these new institutions are more than welcome. Where groups like the G7 can remain useful in the global economic system is to support and ensure that an evolving global economic system remains rules-based and liberal.
A converging playing field between the G7 and the rest provides a check on the old industrial powers. It is necessary for G7 countries to not resist new realities, but it is also necessary for the rest of the world to continue to partner with them. The G7 remains relevant, albeit in a new world in the midst of transformation.