Taxing times: the G7 and international economic cooperation

The leaders of the G7 will arrive in Cornwall to try to reshape an international order that is clearly in flux. The worst fears that the pandemic would lead to a global economic depression appear to be behind us, but the world is still in a perilous state. COVID-19 has caused enormous economic damage and perhaps even greater harm to the liberal ideals of how the global economy works.

The G7 brings together the self-appointed leaders of the liberal world, the seven democratic states with the largest economies (and the European Union as a bloc). It is the kind of international institution appealing to Brexit Britain as it is based on loose cooperation and coordination rather than legalism: it produces declarations (non-legally binding) not laws. However, the other side of that coin is that there is no guarantee that anything will be implemented. This touches on the general problem of international relations: if all states are truly sovereign, there can be no global authority, which makes collective action difficult. Clever efforts at global governance such as the Paris Climate Change Agreement try to square the circle by relying on peer pressure/moral suasion and economic pressure to get countries to make and fulfil public commitments.

The G7 has another, more specific problem: representation. Save for Japan, the G7’s membership consists overwhelmingly of white Judeo-Christian countries, which is decidedly non-representative of the wider world. For this summit, the UK has invited Australia, India, South Korea, and South Africa but that still excludes, China, Russia, Brazil and other major powers. The G20 grouping (including these and other large developing countries) has a more appropriate make-up. Indeed it was the G20 (led by then Prime Minister Gordon Brown) that took the most significant action in response to the financial crisis of 2008. That said the US, the EU, the UK, Japan and Canada could still exert enormous influence if they agree on common policies. In the era of Trump, one could expect little from the G7 beyond the provision of internet memes, but the Biden administration has revitalised America’s leadership in international institutions.

So, what is on the agenda? The UK government has a specific trade track aiming to revitalise free and fair trade and thus lead global economic recovery. Yet the previously dominant ideal of free trade () has been greatly damaged by the events of the past five years, culminating in the pandemic. The notion that countries could rely on global markets and global supply chains has been challenged due to the scarcity of medical equipment and now vaccines. In both cases, it has been painfully evident that, in a time of crisis, it is better to have production facilities than to be reliant on purchasing goods on the open market. Wealthy governments and geoeconomic blocs such as the EU are intervening in the economy in an uncoordinated fashion. The UK’s agenda for the summit includes reform of the WTO, managing digital trade, trade and health, and the link between trade and climate change. These are all important topics, but it is not clear how much can be achieved at the summit. Reform of the WTO, for example, is multi-faceted, complex and will need the approval of its 164 members. Perhaps the most important issue is not covered in the trade section but in broader finance. The Biden Administration has made a revolutionary proposal for a minimum corporate tax level globally.

The inability to make transnational companies (and the super wealthy more generally) pay their fair share of tax has defined the global economy since the 1970s. It has been exacerbated by the rise of big tech companies that find it particularly easy to allocate profits in the lowest tax jurisdictions. As different states compete for investment, private economic actors can pick and choose. An agreement on this in principle at the G7 would be a very powerful first step towards ‘building back better’. Liberalism as an idea has different strands, including economic freedom as well as a belief in the power of free cooperation and rationally designed institutions to improve the human condition. An excessive emphasis on free trade and financial flows has inspired different kinds of populist revolts throughout the world. G7 collaboration on tax could begin to reassert the balance between liberal economic principles and broader liberal principles of cooperation between states for the public good.

Find out more about about the person behind the research – meet Dr Patrick Holden

G7: Examining the evidence for global action

On 11 June 2021, G7 leaders and invited guests meet in Carbis Bay, Cornwall, UK to explore solutions to some of the greatest global challenges and, united through shared values, take decisive action.  

Facing a climate emergency while still in the midst of a global pandemic and its resultant economic devastation – many look to the G7 to understand where do we go from here? We asked Plymouth researchers, leaders in their fields, to give their expert perspective on exactly what should be examined. From future global health threats, addressing the climate change crisis, to tackling education inequality and driving global corporation taxes and investment into natural disaster infrastructure – they provide the evidence for global action.

Discover #PlymouthPerspectives

Carbis Bay, St. Ives, Cornwall

Carbis Bay, St. Ives, Cornwall