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July 14, 1994
"Russia an Odd 8th at the G-7"
San Jose Mercury News
By Timothy Taylor
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THE G-7 economic summit had a semi-official eighth visitor: Russia. The effect was as if a member of the gourmet club invited a vodka-swilling hamburger eater to the regular meeting. There was nothing terribly hurtful about Russia's participation, but it tended to distract attention from what were, in theory, the reasons for the gathering.

Of course, the G-7 countries themselves -- the United States, Japan, Germany, France, Italy, the United Kingdom and Canada -- have always been a bit fuzzy about the purpose of these annual economic summits.

One impetus behind last week's summit seems to be the vague thought that gathering the political leaders of the countries that represent about two- thirds of the global economy offers a useful opportunity of some sort.

But the world's largest economies have changed since the G-7 economic summits started 20 years ago. For example, the economies of both Spain and China have overtaken Canada in size. On sheer size, they have a better claim to participate in the economic summit than Russia. Moreover, it is China's economy, not Russia's, that has been growing explosively over the last 15 years.

Russia does make the list as the 10th-largest economy in the world. But surely, it would be rather arbitrary (given the inherent difficulties of comparing the economies of very different countries) to say that Russia's gross domestic product of $387 billion justifies a spot in the G-7 economic summit, but that Brazil at $360 billion and Mexico at $320 billion are not equally deserving.

So why was Russia invited?

Perhaps the predominantly European group of G-7 countries tend to see any issues involving Russia as particularly salient and immediate, while issues involving China, Brazil, and Mexico seem distant. But in an increasingly interconnected world, this is sheer parochialism.

Or perhaps decades of Cold War thinking have left a residual longing for summits between the West and Russia. After the disintegration of the Soviet Union, those arguments over strategic arms limitation and anti-ballistic missiles don't have quite the same kick. So we invite Boris Yeltsin to the economic summit instead, and give the translators a chance to tune up their Russian.

From an economic point of view, Russia has yet to demonstrate that it deserves much notice.

Of course, countries like Russia and Ukraine keep whining about how they would love to carry out sweeping economic reforms, if only their friends in the G-7 would supply a few billion dollars more in economic aid.

But high-growth areas from Latin America to India and Asia are demonstrating that if a nation carries sensible economic reforms -- control budget deficits and inflation, open up to international trade, ease back on price controls, stress education and investment -- then international capital markets will bring waves of money to your door. Nations must realize that economic reform is not something you do for foreign aid, but something you do for your own good.

At the G-7 economic summit, they were afraid to say much about exchange rates, both for fear of roiling the markets, and because no one had a firm proposal. They were afraid to say much about world trade, because the agreements from last year's GATT talks have yet to be ratified. They didn't talk much about Japanese trade barriers, because Japan's new prime minister was hospitalized with stomach flu.

The summiteers managed to agree on the goals of economic growth, low inflation, stable currencies, peace in Bosnia and North Korea, better-trained workers, and more flexible labor markets. But how those worthy goals should actually be accomplished was left comfortably vague.

With that milquetoast record, I suspect that the real reason for inviting Russia to the G-7 economic summit (although the reason may not have been fully conscious) was that the event needed spicing up.

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