G7 performance on macroeconomic policy

Alissa Wang, researcher, G7 Research Group, shares the data on G7 compliance with its macroeconomic policy commitments and details the measures that can boost compliance on this central issue

The G7 has governed macroeconomic policy since its first summit in 1975. Macroeconomic policy was at the heart of G7 governance for a long time and remains a central issue on the G7 agenda. However, there has been a general decline in several aspects of G7 performance on this subject. The G7 must now increase its attention to macroeconomic policy, while maintaining strong compliance with its macroeconomic policy commitments.

Conclusions

The G7 has given substantial attention to macroeconomic policy from its first summit at Rambouillet in 1975 through to its most recent regular one at Biarritz in 2019. G7 leaders devoted a total of 27,554 words to this subject in their communiqués across the summits. Although they produced no dedicated documents on the subject, they addressed macroeconomic policy in a total of 70 documents.

However, there have been several spikes and dips. The first spike came in 1985 to 1,040 words, followed by a dip in 1994 to only 290 words. The second spike came in 1998 to 1,089 words, followed by dips to 111 words in 2002 and only 66 words in 2006. The third spike came in 2009, to 1,436 words. The most recent and most significant spike came in 2019, to 2,240 words.

As a proportion of overall words in the communiqués, macroeconomic policy passed through three phases with a declining trend. In the first phase, from 1975 to 1985, it accounted for an average of 30% of words. In the second phase, from 1986 to 2001, the average dropped to 10%. In the third phase, from 2002 to 2019, it dropped again to 5%.

Commitments

Between 1975 and 2019, G7 leaders made 259 public, collective, precise, future-oriented, politically binding commitments on macroeconomic policy, as identified by the G7 Research Group. Those commitments account for 4.6% of the total of 5,601 commitments across all subjects. Compared with the number of G7 commitments on other subjects, macroeconomic policy ranks ninth, after development, energy, health, terrorism, trade, climate change, weapons proliferation, and crime and corruption. It ranks higher than the other 24 subjects on which G7 leaders have made commitments.

G7 decision-making on macroeconomic policy passed through two phases, with a significant drop between the first and second. From 1975 to 1987, macroeconomic commitments averaged 20% at each summit. From 1987 to 2019, the average dropped to 4%.

The absolute number of commitments has risen and fallen several times. At the first peak in 1978, G7 leaders made 14 commitments, or 28% of their overall commitments. The second peak in 1983 had 11 commitments, for 29%. The third peak came in 1987 with 17 commitments, or 33%. The fourth peak was in 2013, with 16 commitments, or 8%. The fifth and most recent peak came in 2016 with a historic high of 18 commitments, or 5%. No macroeconomic policy commitments were made in 1990, 2006, 2010 and 2019.

At their first emergency summit, held by videoconference on 16 March 2020, in response to the COVID-19 crisis, G7 leaders made 10 commitments on macroeconomic policy, or 37% of the 27 they made in total.

Compliance

G7 members have had high compliance with their macroeconomic policy commitments. The G7 Research Group has assessed 17 commitments for compliance, which averaged 86%. This is higher than the G7’s all-time average compliance across subjects of 76%.

Over the years, G7 compliance in this area has been stable, with only two dips. The first came with commitments made in 2003 and 2004, when compliance was 63% and 61% respectively. The second dip arrived for the 2016 summit, when compliance was 63%.

On average, Canada and the United States – each at 91% – had the highest compliance on macroeconomic policy. At 75%, Italy had the lowest compliance.

Corrections

To maintain or improve high compliance on the G7 macroeconomic policy commitments, G7 leaders can use low-cost accountability measures that are directly under their control. A reference to a private-sector partnership in a commitment on macroeconomic policy correlates with higher compliance. Indeed, the 2012 commitment mentioning support for small businesses and public-private partnerships had 100% compliance. Conversely, leaders should avoid using any other such compliance catalyst or element embedded in the commitment text that provides direction for implementation. The mere presence of a compliance catalyst does not correlate with increased compliance. Indeed, commitments with catalysts have had a 75% average compliance, compared with 88% for those with none.