How The G7 Lost Its Mojo

The self-anointed club of countries that have run the world for sixty years are facing a new economic order.

While a summit of global leaders to reinvent our international financial institutions sounds, well, very French, and while that shouldn’t be too surprising since it was proposed by the man best known as Carla Bruni’s husband (Nicholas Sarkozy), there’s something big going on beneath the surface of this event, now scheduled to take place November 15th in Washington. World changing, in fact.

For some, discussion of the International Monetary Fund or the World Bank means one thing: sex scandals. (Who knew conditional financing was an aphrodisiac?) For others, the two institutions evoke a different reaction. Anger mostly. Mixed with resentment and distrust.

Making the people of emerging economies do a dance choreographed in Washington for the money they need produces that kind of reaction—especially when to many in the countries that are supposed to be helped it seems like much of the money ends up siphoned off by corrupt leaders or wasted on bloated infrastructure projects. It’s little wonder that in Brazil for years I.M.F. has stood for International Mother Fuckers.

Summit organizers remade the world the moment they sent out invitations, redefining the leadership of the international economic community.

But set aside those preconceived notions of long, boring meetings discussing balance of payments problems and consider what the upcoming summit is likely to achieve. First, it will seek to create a system that will help prevent a financial crisis like the current one from happening again. That will entail creating the global supervisory and regulatory mechanisms we lack and beefing up the ones we have got. It will also mean taking the Fund and the Bank by the elbow and walking them into the 21st Century.

This will be difficult. Bush, who agreed to the summit during a Camp David meeting with Sarkozy, has already started to make unconstructive noises. Administration officials have said we don’t need more effective global regulation, we just need better cooperation among national regulators. This despite abundant clear evidence to the contrary that such voluntary cooperation hasn’t worked—from Jim Cramer cowering under his desk at CNBC to our ever-diminishing 401K statements.

Without global supervision and regulation, the weakest national regulatory scheme will end up setting the rules for the rest of the international markets as the dubious and the dishonest financial operators gravitate to the places they are least likely to get caught. Furthermore, this past crisis was only a symptom of what happens when you have a massive, complex, opaque global financial system that has grown both radically different from anything current institutions were designed to manage and well beyond the ken of current regulators.

And reforming the IMF and the World Bank may prove to be just as hard. The one thing big bureaucracies do well is resist change.

But whether or not the meetings end up making progress, in one sense the organizers remade the world the moment they sent out invitations to the summit. Because they realized that for the summit to have a chance at creating institutions that reflect the new global financial order, they would have to redefine the concept of who are the leaders of the international economic community. And while many of the old gang who have been at every such meeting since the victors set up the ground rules for the Post-World War II era in 1945 will be there, it’s the new faces who will really underscore the sea-change that is taking place.

Among the few apparent positive outcomes of this crisis is that it has made it clear that the old self-anointed club of countries that have run the economic world for as long as anyone working can remember, the G7, simply can’t get it done any more. With the G1 (that’s us, folks) bending under $11 trillion in debt and others in the group (ciao, Italy) who clearly aren’t in the same league as some who have too long been absent (the Chinese, from whom we have borrowed $500 billion, India, and Brazil), a change in the seating arrangement at the world’s head table is long overdue.