Scholarly Publications and Papers
Help | Free Search | Search by Year | Search by Country | Search by Issue (Subject) | G8 Centre

Economic Co-operation: Summitry, Institutions, and Structural Change

by John Kirton

[Previous] [Documnet Contents] [Next]

Summitry: Trends and Issues

In the most general terms, the enhanced ability of the G7 to meet these expanded needs for international economic co-operation in the 1990's rests on two factors. The first is the need for an effective centre of global governance to address challenges that are increasing global, at a time which regional institutions are collectively inadequate, developing at different rates, and operating least robustly in those areas of the world where they are most needed. The second is the fundamental advantage the G7 offers, relative to competing potential centres of trans-regional connection and global governance, through its character as a modern international concert.

Despite the rapid development of regional economic arrangements in the 1990's, regionalism is likely to remain an inadequate response to the new challenges facing the international political economy. In the first instance, at a time of declining US economic predominance, and slow growth in Germany and Japan, no regional power has the economic resources or the political freedom to singularly bear the burden of crisis response and providing public goods for the entire international system, even if the demand arises in the first instance in its home region. The end of the USSR and cold war had the primary effect, less of restoring America's relative predominance within a fixed international system but of expanding the system to embrace the former “east” and “south”and the multiply the demands the international system bred from not just a contained western bloc of market democracies but from a much larger array of states from which only the People's Republic of China (PRC), among powers of consequence, is now excluded. Nor is a model of regional hegemony possible on capability and polarity grounds. The experience of Germany in the early 1990's shows it alone was unable to cope with post-communist Europe, let alone the major demands which await in the Middle East and Africa. Nor is Japan alone likely to be able or wanted to meet the needs of providing core public goods in Asia.

Rather, collective G7 leadership across regions has been consistently required and evident. Although the US took the lead in responding to Iraq's invasion of Kuwait in 1990, it was the G7 that was mobilized to secure the funds required to conduct the war through to its successful conclusion. Similarly, while Germany took an early lead in providing financial assistance to the USSR in the early 1990's, by 1993 it was the full G7, through a special ministerial meeting in Tokyo in April, that assembled a package of $43 billion to provide financial assistance to Russia. More recently, G7 members have repeatedly shown their attachment to the principle of providing financial assistance on an extraregional basis as part of a G7 club, as a means of demonstrating global solidarity, and easing the burden on their respective political systems. At the 1996 Lyon Summit, the Japanese successfully insisted that the Europeans contribute to a relief fund for the Korean peninsula, just as the Japanese had previously contributed to a similar fund for the former Yugoslavia (Kirton 1997b).

Secondly, the intense interconnections within a globalized international economy mean that shocks bred in one region are rapidly transmitted throughout the globe, and thus require a response on a fully global, and preferably co-ordinated basis. The Mexican peso devaluation of December 20, 1994 rapidly affected currency markets not only in South America but in Asia, emerging economies around the world, and even G7 member Canada (then approaching a year in which it held a referendum that could have led to the break-up of the country). And while the neighbouring and once-hegemonic United States moved initially to provide the needed financial resources to prevent a financial collapse, or a reimposition of border financial and trade barriers, it quickly secured $1.5 billion from NAFTA and G7 member Canada, and substantial sums from G7 colleague but distinctly extra- regional Japan. Moreover, despite initial German and European reluctance to view the peso devaluation as a systemic threat, they too eventually made a contribution through the International Monetary Fund. Moreover, the collapse of Barings Bank, which quickly followed the peso devaluation, involved a failure on the part of markets and supervisory authorities in three jurisdictions and two regions. Thirdly, regional institutions capable of performing key macroeconomic, microeconomic and trade functions are developing at different rates, and remain least developed where they are most needed. The European Union as it moves toward EMU offers the most replete array of regional institutions, but faces relatively few remaining challenges of deep integration, embraces mature and slow growing economies, and is highly resistant to admitting and assuming the burden of integrating the transition economies to the east, let alone assuming additional responsibility for those lying southward, across the Mediterranean, in the Middle East or in Sub-Saharan Africa. Within the Americas, the three years since NAFTA have seen the emergence of a system of more than fifty intergovernmental institutions, covering a wide array of functional fields, and actively mounting co- operative work programs leading to regulatory harmonization (Weintraub 1997). Yet the discomfort within the United States over NAFTA suggests it will not soon move toward deeper integration involving financial and other fields. Moreover the difficulties the Clinton administration faces in securing fast-track authority indicates that the region will be slow to meet its declared goal of hemispheric free trade by the year 2005.

In the Asia-Pacific region, the dominant forum by far is that for Asia-Pacific Economic Co-operation created in 1989. Yet its approach to expanding membership over the past seven years and until the year 2000 demonstrates that it is rigorously wedded to maintaining its seminal character as a trans-regional institution, with a balanced membership from Asia and the Americas. Economic and political incentives provide all its major power members and many of its lesser members with strong incentives to maintain this transregional embrace (Kirton 1997a). And despite the emergence of several stand alone ministerial forums for functional purposes pointed toward deeper integration (trade ministers in 1990, finance ministers in 1994, environment ministers in 1994, small business in 1994, and telecommunications and transport in 1994.), the high degree of diversity in such an expansive regional arena, and the approach of concerted unilateralism also points to slow progress in accomplishing the shallow integration to which it is now committed.(7) Yet it is in Asia where the high growth countries of the future, and the systemic shocks which they breed, are concentrated.

If the inadequacies of regionalism require an effective centre of global governance to address the challenges of deeper integration, the G7 possesses a decisive advantage over the competing United Nations-Bretton Woods system, through the character of the former as a modern international concert. The G7's character as a concert, and its consequent ability to effectively deliberate, set policy directions for the global community, and reach and respect ambitious, timely and well tailored agreements, rests on four fundamental features: concerted power (as a body containing both collective predominance of the international system as a whole and an effective equality among its members within); constricted participation, common purpose, and political control by democratically and popularly elected leaders (Kirton 1989, Kirton 1993). Moreover, during the 1990's the G7 has increased its character as a concert in the aggregate and along most of these four dimensions.

In the realm of concerted power, on such decisive dimensions as share of world GDP at current exchange rates, trade, currencies in world foreign exchange reserves and world private transactions, international monetary reserves and IMF quotas, the G7 retains its global dominance, while the generally diminishing share of the USA within the club generates a greater effective equality within. (Bergsten and Henning 1996, Kirton 1995b). Moreover, the advent of globalization, either as financial market contagion (as in the Tequila effect), transnational crime and money laundering, or the presence of common enemies (the 1986 Chernobyl nuclear explosion) produces an enhanced equality of vulnerability. Finally, the move of the G7 to discuss microeconomic and social policies and other national practices, in which the domestic experiences of each member are equally valuable as models or benchmarks, increases the sense of equality among the club, as the national experiences of each country have a commensurate value, as negative or positive models, for the others.(8)

In the realm of constricted participation, the G7 has since 1977 remained intact against the many recurrent efforts to expand it.(9) It has also shown a flexibility in adjusting membership according to function, by creating a trade ministers forum of only four members, a finance ministers forum expanded from five to seven, and several regimes such as the London Suppliers Group on nuclear materials and Missile Technology Control Regime where a G7 grouping provided the core around which an expanded international regime developed over time. During the 1990's the G7 has continued to ward off claimants for membership, while developing new consultative mechanisms that have increased its legitimacy and effectiveness vis-a-vis the developing world.(10) In regard to the Russians, it has retained its residual capacity, as shown at Halifax 1995 and Lyon 1996 respectively, to act “at seven” on areas, such as Bosnia and terrorism, where the Russians have been accorded full membership. Moreover, despite the major concessions made by its US host to transform the 1997 summit into the “Denver Summit of the Eight”, the forum will retain its real if invisible capacity to meet alone “at seven” to discuss core macroeconomic, microeconomic and trade issues, as well as political questions (such as Russia itself and Ukraine) where the seven do not want the Russians present. However the 1996 presence of the Russian at a post-Summit lunch of the G7 with the leaders of the world's four major international economic institutions (including the WTO to which the Russians do not belong), and the compression of time available for economic discussions “at seven” at Denver, do show the costs that expanded participation and legitimacy impose on effective action in core domains.

In the realm of common principles, the G7 has maintained the unanimity of its membership as comprising only and all of the world's countries that are simultaneously major powers, market-oriented economies and democratic polities. Russian admission came only after its presidential election confirmed the basic democratic character of its political system, and after a major if highly imperfect marketization of its economy. Excluded have been all other countries that have not simultaneously met these three criteria. Moreover, in keeping with the principles of a concert, the timely admission of a defeated rival and its new leadership has increased the bands of solidarity among the members of the club, and eliminated the danger of a rival state of the outside.

In addition to the commonality bred by shared attributes comes that constructed through collective political dialogue at the G7 itself. The ideological cleavages apparent across G7 governments and parties in power at the earlier stages have been substantially reduced, as communist parties have disappeared from members governments, along with the pronounced left-right divides of the Reagan- Mitterrand years.(11) Throughout the 1990's there has been a deep, enduring and widespread consensus on the core macroeconomic imperatives of fiscal consolidation and non-inflationary growth, the microeconomic advantages of deregulation and structural reform, trade and investment liberalization, and, more reluctantly, the need to manage the global commons through the practice of sustainable development and support for global conventions on climate change and biodiversity. Moreover, despite a dissent from G7 host France at the 1996 Lyon Summit, there emerged a reaffirmed consensus on the advantages of globalization, notwithstanding the difficulties of social exclusion and personal insecurity it was thought to bring. This new consensus is thus much broader and deeper than the “new consensus” grounded only in a shared belief in the impossibility of government management of globalized financial markets and the value of independent central banks (Bergsten and Henning 1996). It embraces the need to further the shallow integration of trade and investment liberalization through reduced government intervention at the border as well as manage the global commons through increased government intervention in domestic society, and the need to co-operate on domestic microeconomic and social policy.

Finally, the G7 during the 1990's has increased its political control by democratically and popularly elected leaders.(12) John Major's initiative for Summit reform in 1992 began a process of increasing the real control of leaders, by giving them more time together for genuine exchange, consensus formation and decision (Hodges 1994, Kirton 1994). The addition in 1996 of the ad hoc Moscow Nuclear Safety Summit in April expanded the occasions on which leaders met together, while preserving the time for economic discussions at the regular G7 Summit at Lyon in June. The proliferation of ministerial level G7 forums in the 1990's has increased the capacity for political control. And while the personal representatives of the leaders have tended to be officials with full-time positions in the national bureaucracies, the G7 has continued to resist the creation of a permanent Secretariat. It is the distinctive character of the G7 as a leaders and cabinet-level driven, rather than bureaucratically and organizationally confined forum that has provided the institution with the flexibility required to achieve success amidst the major transformations of the 1990's.(13)

The 1990's have also witnessed a substantial growth in the institutional depth of the G7.(14) As Table A indicates, prior to 1990, the Summit system was managed by the annual leaders meeting, and attendant and gatherings of the internationally and systemically-oriented ministers responsible for the shallow integration. The 1980's brought stand-alone ministerial forums for lowering border trade and investment barriers (through the trade ministers “Quadrilateral” established in 1982), addressing macroeconomic spillovers (the finance ministers' G7 in 1986), and managing nation-to-nation disagreements (the G7 foreign ministers annual dinner on the eve of the opening of the United Nations General Assembly in 1984). The 1990's have seen two major developments. The first is the flexible response to the Russian challenge through ad hoc summit and foreign and finance ministerial meetings (to deal with nuclear safety in 1996, financial assistance to Russia in 1993 and to financial assistance to the Ukraine in 1994). These have contained the disruption the Russian question has created for the central G7 forum and its agenda. The second is the proliferation of regular forums and ad hoc meetings of ministers responsible for the deeper integration embracing domestic affairs. The process began in 1992 with environment ministers meeting to address issues of the global commons, both in a stand alone ministerial called by German environment minister Klaus Tofler in the spring and again in a meeting of G7 ministers on-site at the RIO UNCED conference to maintain the consensus required to secure US support for the Climate Change convention.(15) The second extension came in 1994 with a conference of employment ministers at the “Detroit jobs summit” to compare labour markets practices, an initiative followed up by France at Lille in the spring of 1996. The absence of such a meeting in 1997, in part due to the hosting of the G7 by the United States where employment is not a priority problem, suggests that the summit's ministerial-level concern with its microeconomic agenda has yet to become routine.(16) Both 1995 and 1996, but not 1997, have seen meetings of G7 “domestic” ministers dealing with the global information society, and terrorism.(17)

The recent proliferation of ministerial meetings also reveals the expanding policy breadth of the G7, as the institution rapidly takes up subjects ever more deeply embedded in domestic affairs. The Toronto Summit of 1988 began the G7's strong and sustained focus on the global commons and economy-environment spillover issues of the natural environment, and on behind-the-border microeconomic issues, including such long-term social policy issues as literacy, education and the aging society. The subsequent years have seen an expansion of the attention devoted to such subjects, and to the number of component issues contained within. As it has expanded in institutional depth and policy breadth (see Table B), the G7 has maintained its authoritative reach, as a regime whose collective decisions positively constrain and induce compliance from the otherwise autonomous subsequent national actions of its members. The compliance of members with the economic and energy commitments encoded in the communique of the G7 summit from 1975 to 1989 fall in the positive range, if rather weakly, with striking variations among members and issue areas (Von Furstenberg and Daniels 1992). The variation across members provided general support for the core realist propositions in which self-contained nation-states operate in an anarchic system according to the dictates of relative capability, where the weak (Britain, Canada) comply with international commitments whereas the strong (the United States, France) do not. This is a sharp contrast with a world in which weak and strong alike are compelled to co-operate by the compounding, multidimensional sensitivities and intervulnerabilities which a world of intensifying interdependent brought. The variation across issue areas is consistent with a world, existing prior to the 1990's, in which successful government intervention was limited to producing the shallow integration of lowered border trade barriers, and coping with the limited interdependence of energy and, to a lesser degree macroeconomic spillovers. Thus compliance was highest with commitments on international trade (.734) where government action to reduce border barriers was central, and in energy (.660) where physical and economic interdependencies and security threats in the post 1973 and post-1979 periods were most intense and visible. Far more modest was compliance with commitments involving macroeconomic management: real GNP growth (.397), inflation multicountry (.266), aid and schedules .265, fiscal adjustments .259, demand composition .233, interest rate .221, and inflation rate .221. In contrast, compliance was sharply negative in the field of foreign exchange rate (-.700), indicating that governments in the year following the summit acted to produce or achieve an exchange value for their currency almost entirely the opposite of that collectively prescribed at the Summit. The era of globalization, conceived as governments unwilling and unable to collectively act against global financial markets to affect the value of their currencies, thus appears to have arrived long before the “new consensus” of the 1990's took hold. However the more limited evidence available from the 1990's does suggest that in the area of environment and development, and the issues of the global commons and redistribution embedded in them, the record of compliance by G7 members has increased from the earlier era. (Kokotsis and Kirton 1997)

This expanding policy breadth and authoritative reach in the 1990's has come as the G7 has generated ambitious, timely and well tailored agreements on the priority issues in the international system it has addressed, and across the broad array of issue areas that constitute its continuing and expanded agenda. Although the length of communiques is in itself no guarantee of G7 productivity, the written collective documentation of the 1996 Lyon communiqué encode a large number and broad array of “commitments,” which are central to the G7's role as a decisional forum.(18) For example, in the “global commons” domain of biodiversity and climate change, the G7 Summits from 1988 to 1995 generated 15 and 34 commitments respectively, with the annual number rising sharply from zero in 1988 to a peak of 13 in 1992, with a slow fall to a level of five each year from 1993 to 1995 By comparison, in the older, and redistributional if much narrower domain of developing country debt, the Summits from 1988 to 1995 generated 13 commitments, with activity peaking from 1990-1992 (Kokotsis and Kirton 1997).

The success of the G7 in catalysing collective action in the 1990's is even more apparent if one moves beyond its decisional role to include its directional and deliberative functions, and thus broadens the “trilateralist” conception that takes high government intervention through large wide-ranging package deals, embracing macroeconomic, trade and energy policy, as the desirable ideal, and the Bonn Summit or 1988 as the historic exemplar. The alternative conception of the G7 as a modern global concert, performing the core functions of stability maintenance through ongoing communication, consensus formation and crisis response, suggests that the institution has been highly successful in shaping the post-Cold War, rapidly globalizing system of the 1990's. The systemic changes of the 1990's, centred on the collapse of the Soviet Union, Communist bloc and cold war, and the resulting global spread of democratic polities, market economies and the globalization in finance, trade, investment and technology they allowed, were arguably greater than those which challenged the industrial world and broader international community in the early 1970's and early 1980's. Yet in sharp contrast to the stagflation and “crisis of governability” of the early 1970's and the deep recession, immobilized trade liberalization, rise of Eurocommunism and debt crisis of the early 1980's, the G7 has presided over, shaped and sustained an OECD and global economy with substantial strength.(19) It has substantially accomplished its central objectives of inflation reduction, fiscal consolidation, and trade expansion.(20) More impressively, it has done so, while maintaining historically above average levels of growth and employment.(21) It has done so largely by avoiding co- ordinated interventions aimed at macroeconomic fine tuning, in favour of defending and enlarging the policy framework within which transnational market forces can operate and within which modern microeconomic and social policy adjustments can be shared.

In particular, during the 1990's the G7 can be credited with five major achievements: extending the democratic and market revolution; reinforcing the process of liberalization and globalization; successfully responding to policy and market financial crises; catalysing international economic institutional reform, and engendering microeconomic and social policy reform.

In the broadest terms the G7 has extended the global democratic and market revolution through the adroit and adequate provision of financial assistance and political participation to Russia, the management of relations with other post- Communist societies such as Ukraine, and the threats from still closed polities such as Iraq, North Korea and China. While this task has preoccupied the G7 during the 1990's, and left leaders less time to focus on macroeconomic and exchange rate management, the successful performance of this G7-guided deepening and broadening of the democratic-market revolution has provided the essential foundation for globalization in finance, trade and investment liberalization. Indeed the task of reconstructing a consensus to replace that created by the original cold war and the new cold war of the 1980's, and to do so in an era when the new security threats offer few galvanizing clear and present dangers has been a formidable accomplishment. It is all the more remarkable, given the major differences in national interest among G7 members vis-a-vis Russia, ranging from a Japan whose territory continues to be militarily occupied by the Russia, through to a Germany eager to accommodate Russia for fear of the direct negative impacts a large and unstable neighbour can bring.

[Previous] [Documnet Contents] [Next]

G8 Centre
This Information System is provided by the University of Toronto Library and the G8 Research Group at the University of Toronto.
Please send comments to:
This page was last updated .

All contents copyright © 1995-99. University of Toronto unless otherwise stated. All rights reserved.