Promises, losers and threats
The G7 summit is going to see a reassertion of American hegemony. But, asks Eddie Ford, will this really mean a return of the social democratic consensus?
At the weekend G7 luminaries and their entourages will descend on the slightly unlikely venue of Carbis Bay in Cornwall, one of the poorest areas in the country. In a near perfect act of symbolism, homeless and vulnerable people living in hotel rooms under ‘emergency’ rolling short-term contracts during the pandemic have been kicked out to make way for over 5,000 police and government officials attending the summit - who are all paying guests, of course.1 Casting judgement from afar, which is only right, a massive scrap metal sculpture is being built on the dunes facing out to Carbis Bay - mocked up to look like Mount Rushmore in South Dakota.2 The seven stern faces on this new Rushmore are Boris Johnson, Yoshihide Suga, Emmanuel Macron, Giuseppe Conte, Justin Trudeau, Angela Merkel and Joe Biden - though not all of them will be remembered by history.
In Britain at least, the summit has been partly foreshadowed by the row over severe cuts in foreign aid. This has seen Boris Johnson ditch the manifesto and possible legal commitment to spend 0.7% of gross national income overseas, reducing it to 0.5% (around £4 billion). At least 40 Tory MPs, including former prime minister Theresa May, are looking for ways to defy the government - concerned that the cuts will tarnish the reputation of British imperialism, especially at a time when it is hosting the G7 summit and thus presumably is meant to be providing ‘leadership’. Cutting aid to some of the world’s poorest countries by 42% during a global pandemic is hardly an inspiring advert for ‘global’ Britain.
There has been a lot of talk about Boris Johnson wanting the G7 countries to sign up to a new ‘Marshall Plan’ to help developing, or undeveloped, countries decarbonise their economies. This is pure hype, without a doubt, even though some sort of highly ambitious plan is objectively necessary if we are to have any chance of combating global warming and impending catastrophe.
New cold war?
But it is certainly the case that the summit is yet another illustration of continued US hegemony. In the words of the centre-right commentator, Rafael Behr, Joe Biden’s mission at the G7 summit is to “recruit allies for the next cold war”, as “the US risks being superseded by China as the prime global power within decades” - which for Washington is an “appalling” idea.3 Unlike Donald Trump, who essentially had no concept of historical alliances or strategic partnerships - seeming to regard European talk of a “rules-based international order” as the pitiful bleatings of enfeebled nations - Joe Biden’s stated purpose is bolstering that order so as to advance wider American interests. The president has called for a “renewed” and “unwavering” commitment to a transatlantic relationship, based on “shared democratic values”.
Now, there might be a degree of exaggeration at play here - the Biden spin machine at work. It is also important to add that any “cold war” with China will have entirely different dynamics to the previous confrontation with the Soviet Union. Regardless though, the tough-sounding anti-Chinese rhetoric coming from the Biden administration is not dissimilar to what we heard from the Trump presidency - except perhaps that Biden looks to have some sort of plan as to how to convert rhetoric into reality. That is, Biden is coming to the G7 summit in order to organise the USA’s economically most powerful allies in the struggle to halt the rise of China.
Here Britain is important, but less so. It is not exactly a secret that Biden and the Democrats in general treat Brexit with contempt, viewing it as a pointless self-inflicted wound. Historically, the White House wanted Britain to be a pro-US voice inside Europe - the very reason why Charles de Gaulle repeatedly said “non” to Britain’s applications to join. But, now Britain cannot perform that function any more … and America is not happy with Britain. No wonder Boris Johnson does not want to use the ‘special relationship’ phrase any more.
As for Biden, as well as reminding everyone about his Irish ancestry, he has underlined the US administration’s commitment to the Good Friday deal and the Northern Ireland protocol. That British sausages will have a problem getting onto the shelves of Northern Ireland’s supermarkets is a problem Britain brought upon itself. It should not expect, and nor will it get, any US help in its latest spat with the European Union.
The Cornwall summit represents a symbolic reassertion of US hegemony in another way. Yes, the ‘historic’ tax agreement that is supposed to tackle tax abuses by transnational and online technology companies by agreeing to a minimum global corporate tax rate for the first time. We are told by G7 finance ministers and tax campaigners alike that the deal will “change the world”.
So what has the G7 agreed? The first thing that has to be said is we could be facing years of further talks and negotiations before the rules actually come into force. There are two main pillars to the theoretically agreed reforms. One enables countries to tax some of the profits made by big companies based on the revenue they generate in that country, rather than where the firm is headquartered for tax purposes. The second pillar would see the G7 countries commit to a global minimum tax of “at least” 15% - actually lower than a 21% proposal put forward by Biden earlier this year (probably knowing full well that it would be rejected). The Organisation for Economic Cooperation and Development has estimated that as much as $81 billion in additional tax revenues each year would be raised.
Ireland is a big loser from the G7 agreement, of course, because it levies corporation tax at 12.5% and has lower rates for profits on patents. According to finance minister Paschal Donohoe, the country could lose up to €2 billion a year. Having said that, there are signs that the longstanding Irish consensus on taxation is beginning to change. Ireland’s Labour Party has backed a “small increase” in the country’s corporate tax rate, while Sinn Féin spokesman Pearse Doherty has questioned whether it would be “beneficial” for Ireland to adopt a 15% rate solely for multinationals and whether such a measure was possible.
All in all, the G7 deal does away with moves by various countries to tax American high-tech companies separately from a deal with the US - shifting it all onto corporation tax as such. This basically avoids tit-for-tat retaliation, which is entirely sensible from the US perspective. Indeed, in an embarrassment for European negotiators, Amazon is not expected to be caught by elements of the reform outlined in the first pillar because its profit margin in 2020 was only 6.3%. The same more or less goes for other US tech giants, including Google, Facebook and eBay, with the UK treasury standing to lose about £230 million from the taxes paid each year by these firms. TaxWatch says the UK tax bills paid by these companies would fall to just over £100 million under the G7 plan.
In other words, this is a deal that appears to be a move against the big-tech firms, but actually works in their favour by insisting on tax coordination. Hence the G7 agreement was promptly welcomed by the likes of Amazon and Facebook. The latter’s vice-president for global affairs, Nick Clegg, issued a statement saying his company “has long called for reform of the global tax rules” and supported “the important progress” made at the G7.4 Therefore the guess is that the deal will go through Congress precisely because it is designed to bar taxation at the point of delivery by non-US powers.
What has not been so well reported is an agreed G7 proposal to the G20 - which meets in Rome this October - that no part of the deal will bind any of the offshore jurisdictions run out of London (British Virgin Islands, Bermuda, the Cayman Islands, Isle of Man, Jersey and Guernsey, etc). Or, for that matter, the autonomous tax havens on the continent such as Monaco, Lichtenstein, San Marino and Andorra. In essence, the Irish are being sacrificed for the sake of a propaganda coup that will enhance US interests.
Imposing a global minimum taxation rate raises again the whole question of whether there has been a social democratic turn in the bourgeoisie of the global hegemon. It is undoubtedly true that there has been a change in rhetoric from the Biden team - taxing hi-tech firms at 21% or 15% easily fits in to that narrative. Clearly, Biden and the Democrats will be fighting on a very different platform in the mid-term elections compared to that of Clinton or Obama and what went before - going back to the early 1980s and the Thatcher/Reagan ‘revolution’ that saw the final abandonment of what could be called the social democratic consensus. Of course, we do not mean social democracy in the post-World War I sense of reforming capitalism into some form of ‘socialism’. Rather, we are talking about a managed capitalism, where the state plays a considerable and expanding role.
Whatever you call it exactly, there has been a discernible ideological shift - which helps the left, though not as a free gift from our enemies. But it ought to make it easier for us to put forward our programme, whether in the US or UK. In this context, it is worthwhile highlighting an interview John McDonnell gave last month with the BBC’s Newsnight. As the main author of Labour’s economic programme in the 2019 election, he claimed that Biden and ‘Bidenomics’ vindicated the stance taken by the Labour Party under Jeremy Corbyn - not to mention the “paradigm shift” which has seen strong state intervention in response to Covid, only strengthening the left’s policy agenda. It is hard to deny that there is a kernel of truth there.
Then again, one thing you can be sure of is that Joe Biden is not out to turn America socialist - rather, he is determined to save America for capitalism. The very fact that McDonnell is claiming an affinity with Biden tells you a lot more about the official Labour left than it does about the US president.
The Guardian June 8.↩︎