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NEWS ANALYSIS : G-7's Exclusivity May Keep It from Being Effective

Conference: As leaders gather for summit, some analysts say including those of politically dynamic nations would make it vital.

June 27, 1996|JAMES GERSTENZANG | TIMES STAFF WRITER

LYON, France — As the leaders of the world's leading industrial democracies begin their annual summit tonight in this ancient capital of Gaul, the comparatively quiescent state of the world's economy--and the dramatic global shifts of the last two decades--raise questions as to why they continue to meet with such regularity.

True, there is much to talk about.

President Clinton and the leaders of the other six nations--Britain, Canada, France, Germany, Italy and Japan--are facing decisions on what to do about the staggering debt that is keeping the people of much of Africa in wrenching poverty.

Closer to home, job growth--which many economists say has been limited in Europe by the costly social policies now under attack in Germany and elsewhere--remains a pressing concern here, just as the stagnation of wages does in the United States.

Clinton also is nearly certain to face hostility over U.S. efforts to block trade with Cuba, Iran and Libya and other outcast nations by imposing what amount to secondary boycotts on foreign companies that maintain such commerce.

And the leaders are certain to discuss the truck bombing in Saudi Arabia on Tuesday.

Time will be devoted, too, to the emerging roles of the international financial institutions--the World Bank, the International Monetary Fund, the World Trade Organization--and to the United Nations in general and their efforts to rebuild Bosnia-Herzegovina in particular.

But if the heads of government focus exclusively on immediate issues, as pressing and disturbing as they are, they will be ignoring the broader economic questions of the late 20th century. It was these that French President Valery Giscard d'Estaing had in mind when he began the annual summits in 1975 as a chance for the leaders of the largest industrial democracies to brainstorm about medium- and long-range economic trends so they could coordinate policies.

There is a growing body of opinion that--after the global embrace of the free market and the explosion of capital and international trade--it is time to pay greater heed to other nations, such as China and Russia, even if their adherence to democracy or their economic clout do not put them on a par with the G-7.

"The most dramatic trends are being driven by countries not in the G-7," said Jeffrey E. Garten, dean of the Yale University School of Management, who helped plan the initial meetings 21 years ago working for then-Secretary of State Henry A. Kissinger. What about India, Mexico and Brazil? he asks.

"The real conundrum is to make the G-7 a legitimate forum for dealing with key problems when so many important countries are not part of it. It's almost intractable," he said. "It faces irrelevance or the boredom of sheer routine unless it comes to grips with the private markets and technology and the rising economies."

This may not be the best group to tackle the problem, say critics, a number of whom have worked in senior government positions and helped set the agenda for previous summits.

This is because the summit participants are, collectively, practical politicians rewarded for solving immediate problems rather than for being visionaries.

"They only think in the short term, through June, July and November," said Rimmer DeVries, recently retired chief economist of Morgan Guaranty Trust Co. "It's the way politics works these days. It's all damage control."

In a thought-provoking study just published, C. Fred Bergsten, director of the Institute for International Economics, and C. Randall Henning of American University said the G-7, demonstrating growing ineffectiveness, has failed in the 1990s to stem high unemployment in Europe and Japan, wage stagnation in America, U.S.-Japan trade imbalances, and currency crises.

"There is a wide consensus from people involved in the process that it has gone downhill . . . and that something needs to be done," Bergsten said.

Still, the consensus seems to be that for now, the exercise is still useful. Treasury Secretary Robert E. Rubin rejects criticism that the summit risks irrelevance.

"The G-7 is a dynamic process, doing what needs to be done," he said.

And even Garten conceded in a recent phone interview: "Over the last 20 years, the growth of international trade and finance and business has been so dramatic that even though the summits have become a yawn for the public, they have been useful for the participants."

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