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Boris Johnson and Joe Biden, G7 Summit 2021

Boris Johnson and Joe Biden, G7 Summit 2021. Photo: Simon Dawson / No 10 Downing Street / Flickr / CC BY-NC-ND 2.0, license linked at bottom of article

The G7 fantasy of returning to the pre-pandemic 'normal' isn't going to solve the economic crisis or the breakdown of the climate, argues Michael Roberts

On the weekend, the leaders of the ‘free world’ flew in by gas-guzzling planes and helicopters to attend the first physical meeting of the G7 nations since the pandemic. They met in Cornwall, at the tiny end of England, causing much disruption and significant costs to taxpayers. The G7 involves the top imperialist economies of the world. The G7’s main enemies, China and Russia, were not invited, but like-minded leaders from ‘friendly’ Australia, India, South Africa, and South Korea were there.

What were the G7 leaders discussing in the Carbis Bay holiday resort surrounded by a huge security apparatus keeping protests well away? Well, the G7 agenda included climate change, global ‘action’ on the Covid pandemic and dealing with inequality.

The major capitalist economies are fast recovering from the pandemic slump of last year as businesses come out of lockdowns and vaccination rates rise. The World Bank, in its latest report, now expects the world economy real GDP to rise 5.6% by the end of 2021 compared to 2020. This would mark the fastest post-recession recovery in 80 years, with the US set to grow 6.8% and China even more at 8.5%.

But it is not all good news. The poorest countries in the world (not represented in the Cornwall deliberations) are set to grow by only 2.9% this year, the slowest pace in the past 20 years. Most ‘developing nations’ are still struggling with the Covid virus and lack sufficient vaccinations. The World Bank reckons that while 90% of rich nations of the ‘Global North’ are expected to regain their pre-pandemic levels of GDP per person by the end of 2022 (still 18 months away), only one-third of the ‘Global South’ would do so.

The G7 meeting announced a pledge to provide 1bn coronavirus vaccine doses to poorer countries as part of a plan to “vaccinate the world” by the end of 2022.  But they are not ending the patent control of vaccines held by the Big Pharma companies. The World Bank opposes allowing poor countries the right to produce vaccines themselves. G7 host nation Britain is also refusing to waive Covid vaccine patents. In other words, vaccines cannot be made and supplied unless big pharma makes a profit from it – so no ‘people’s vaccines’ from the G7, even though much of research and development was funded by public money.

Letting the rich get richer

What are the G7 leaders doing about the huge inequalities of wealth and income that have accelerated under the pandemic slump? While hundreds of millions have been driven into poverty during the Covid pandemic slump, the extreme rich have got even richer. And they continue to pay very little tax on their wealth. The richest 25 Americans reportedly paid a ‘true tax rate’ of 3.4% between 2014 and 2018, according to an investigation by ProPublica, despite their collective net worth rising by more than $400bn in the same period. And the huge multi-nationals in Big Tech, Big Pharma and Big Banks have made massive profits over the last 18 months, bolstered by zero interest rates set by central banks, huge injections of credit and record-breaking fiscal subsidies to ‘bail them out’ during the slump.

The only G7 proposal is a tentative agreement on a ‘global minimum corporate tax rate’. This is supposed to make multi-national companies pay tax where they make their profits rather than hiving them off into ‘tax haven’ countries, which is estimated to cost low-income countries alone some $200bn a year in tax revenues. 

But the agreement is full of holes. First, most countries have higher rates than 15%, so it does not affect them. "It's absurd for the G7 to claim it is 'overhauling' a broken global tax system by setting up a global minimum corporate tax rate that is similar to the soft rates charged by tax havens like Ireland, Switzerland and Singapore," said Oxfam's executive director Gabriela Bucher. "They are setting the bar so low that companies can just step over it."

Second, the global minimum tax only applies to corporate profit 'margins' above 10% and accounting tricks can easily ensure that breaking this threshold can be avoided. And anyway, only 20% of any margin above 10% will be reallocated. Moreover, it seems that 'sales' will be defined as where they are exported not where they are consumed, thus hitting poorer exporting countries and actually boosting profits to G7 nations.

Ironically, a 15% minimum tax means that Biden in the US will now not proceed to raise corporate taxes in the US as originally promised! Moreover, digital services taxes that had been introduced by several G7 countries to tax the mega tech companies will now be dropped. TaxWatch, a think-tank, has calculated that Big Tech companies will pay less tax in the UK under the G7 plan than they currently do under the country’s digital services tax! Then there are demands for exemptions that could scupper any tax revenues for governments. The UK wants an exemption on financial services.  And Paris, Berlin, Copenhagen and Luxembourg are also trying to persuade the EU commission support exemption for their banks. 

This agreement (which may not even be ratified by national assemblies) does little to reverse the dramatic fall in corporate profit tax rates over the last 40 years. Back in the early 1980s, the average corporate tax rate was 40%. Most important, it’s not higher corporate taxes that are needed to reverse inequality; what’s needed is ownership and control of the multi-nationals and the closure of tax haven operations. Of course, the G7 has no intention of doing anything like that.

Fuelling the climate crisis

And what action is the G7 planning on global warming and climate change in preparation for the international climate conference in November this year? Basically, nothing. A recent UN report found that out of the $14.6 trillion the top 50 national governments have spent on Covid-19, just $368 billion (or 2.5%) was being directed towards 'green initiatives'. The UN reckons that ‘green spending’ needs to at least triple in real terms by 2030 and increase four-fold by 2050 if the world is to meet its climate change, biodiversity and land degradation targets.  

There is little chance that the G7 nations will act to do that. Indeed, the G7 has no intention of reducing subsidies to fossil fuel industries, let alone bringing them into public ownership in order to plan the phasing out of these carbon emitting companies. Instead, heavily subsidised private oil companies will continue to enjoy the profits of oil extraction while the rest of us pay in taxes, human rights abuses and an unliveable climate. Instead, the G7 spent its time discussing ways of isolating China and Russia in trade, investment and technology in order to maintain its hegemony.

Return to the pre-pandemic crisis

Economic recovery may be under way in the G7 now as businesses reopen, fiscal spending is boosted and monetary largesse from central banks continues, but this is only creating what some have called a ‘sugar-rush economy’ as consumer spending shoots up temporarily before the hangover. After the initial burst of economic expansion after the end of the Covid pandemic this year and into next, the world economy will fall back into its previous crawling pace of economic growth experienced before the pandemic. That will mean that most major economies will not return to even the previous trajectory of weak real GDP and investment growth.

The global economy was already growing very weakly in 2019. That’s because capitalism grows sustainably and strongly only if profitability increases and average profitability was already very low before the pandemic, and in some countries, it was at the lowest level since the end of the Second World War. Profitability will only revive if some rotten layers of capital are removed in what is called ‘creative destruction’ of the weak to help the strong.

Instead, up to now, cheap money and fiscal support in the G7 nations have kept alive the ‘living dead’, so-called zombie companies, which make little profit and can only just cover their debts. About 15-20% of companies in the G7 are in this situation and they keep investment and productivity low, hindering the more efficient parts of the economy from expanding and growing. It’s possible that these companies will go bust if governments and central banks withdraw the measures that have helped keep them alive during the pandemic. That could cause a chain reaction across the G7 economies, provoking a new slump. 

So the economic bounce back that the G7 leaders are currently celebrating will either resume the crawling depression of the 2010s or drop into a new slump of the 2020s.

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