Has the G-7 outlived its usefulness?

The conclusion of the G-7 economic summit was among the strangest in the group’s history. It produced no significant accomplishments, unless one counts President Trump signaling a willingness to meet with Iranian President Hassan Rouhani about Iran’s nuclear program, and chatter about possibly including Russia in next year’s G-7 meeting.

Otherwise there were well-intended, but empty pledges of unity among a group of countries that find themselves with increasingly little in common.

The group was formed in 1975 by the United States, the United Kingdom, France, Germany, Italy and Japan to provide a forum where governments of non-communist countries could discuss global issues of mutual interest. Canada joined the next year. At that time, the group’s common denominator was winning the cold war and halting the spread of communism.

Now that the group no longer has its anti-communist bond, it struggles to find common ground in addressing global economic issues. The group even struggles to agree on an agenda, and it shows.

Host country France prioritized fighting inequality, with a focus on adopting “progressive legislative frameworks” for gender equality. This theme went over about as well as the proverbial lead balloon with the U.S., which argued that France was focused on “niche issues” instead of the core global issues that the G7 should be addressing, such as worldwide economic growth and trade.

The U.S. is correct. Most economic research shows that legislating gender equality will do little to advance women’s economic well-being in the G-7 and may even backfire. Research shows that the main reason women earn less is not discrimination but their tendency to stay at home with the kids.

Women tend to earn the same as men within narrowly defined occupations. But they also tend to choose occupations that have much more schedule flexibility, more predictable hours, and that do not require many evening hours or early morning hours.

Jobs that have these characteristics tend to pay less. For example, women physicians now dominate pediatrics, which pays on average about $200,000 per year. Surgeon positions, which pay much more, do not have this type of job flexibility, and are dominated by men.

Unless you think families need government telling them how to organize their work and family lives, gender equality legislation will do little good, and may depress economic growth by unintentionally restricting opportunities for women. If a business expects that hiring a woman may be costly in terms of potential regulations and litigation, then qualified women candidates may not be hired.

The climate session was also divisive. Trump did not attend the meeting, though the U.S. was represented at the session. The U.S. remains alone in abandoning the Paris climate accord and places less priority on climate issues than other G-7 members. The only agreement to come from this G-7 was funding for firefighting in the Amazon, which Brazil promptly rejected. 

There is no doubt that the G-7 is becoming fractured, as common interests fade and domestic politics almost exclusively guide the leaders of these countries.

Emmanuel Macron, the French president, is scraping by to survive politically, with only about one-third of French voters approving of his job performance. His focus on gender equality and other “niche issues” was as much about trying to improve his domestic standing as anything else.

Boris Johnson, the new British prime minister, is under enormous pressure to deliver a clean Brexit deal, or be replaced.

Giuseppe Conte, Italy’s prime minister, just resigned, throwing Italy into domestic political chaos. Whatever government emerges from this chaos must confront an Italian economy in which per capita real GDP has not grown in twenty years.

Japan must deal with a rapidly aging society, and a politically unpopular tax increase that is being implemented to finally address Japan’s enormous level of government debt.

The only headline that Canada made last week at the G-7 was the tete-a-tete photograph between Canadian Prime Minister Justin Trudeau and First Lady Melania Trump, which has now gone viral.

The recent surge in populism that is affecting all of these countries is making it difficult for political leaders to govern, and international economic policy coordination now takes a far back seat to domestic issues.

The G-7 is not what it used to be, and likely will never achieve the prominence that it had when these countries shared the important goal of advancing world freedom and democracy.

Lee E. Ohanian is an economics professor and director of the Ettinger Family Program in Macroeconomic Research at the University of California, Los Angeles, a senior fellow at the Hoover Institution at Stanford University and associate director of the Center for the Advanced Study in Economic Efficiency at Arizona State University. He advises the Federal Reserve Bank of Minneapolis and has advised other Fed banks, foreign central banks, the National Science Foundation and several presidential campaigns. The views expressed herein are those of the author and not necessarily those of the Federal Reserve Bank of Minneapolis or the Federal Reserve System.