The international political economy of the 1990's is being transformed by several major forces. The first and most fundamental is the collapse of the USSR, cold war, and communist world, and the resulting spread of open market economies, and democratic polities on a substantially global basis. The second, flowing from and contributing to the first, is the globalization of financial markets, production networks, communications, technology, and corporate strategy, with attendant opportunities and challenges to national economies and societies, and their labour and resource-ecological foundations. The third, driven by market globalization and policy choice, is a rapid and widespread move from the shallow integration of lowered border barriers to trade and investment, to a deeper integration embracing the international convergence, harmonization and collective management of national standards in diverse fields such as environmental, labour, investment and competition policy. The fourth is a particularly intense move to intergovernmental economic integration on a regional basis, in Europe, the Americas and across the Asia-Pacific region. The final and most recent force is a trend, in response to globalization, deepening integration and regionalism, to reform the world's major multilateral economic institutions created half a century ago to better meet the needs of the post-cold war, globalizing twenty-first century world.
At the centre of the global effort to shape, sustain, control and direct these transformations stands the system of global governance constructed around the institutions of the G7, the club of the seven major industrial democracies, assisted by the European Union and, most, recently Russia, and based on the annual summit of their democratically, popularly elected leaders. From Mikhail Gorbachev's request to the G7 leaders at Paris in 1989 requesting the integration of the USSR into to the world economy, to the Denver "Summit of the Eight" in June 1997 at which Russia's Boris Yeltsin will appear to be a full participant throughout, the G7 of the 1990's has been preoccupied with successfully concluding the cold war, and ensuring the peaceful, stable transition of the post-communist world into a set of pacific, productive market democracies. Since 1989, the G7 has continued to address its seminal core issues of macroeconomic policy, trade and investment liberalization and north-south development and debt. However it has also taken up, and given sustained attention to the microeconomic, social and environmental issues that globalization and deeper integration are thrusting onto the international agenda. Moreover, beginning in 1994, the G7 took up the task of international institutional reform, aimed at adjusting the inherited institutional edifice to address the new challenges of the next century.
Perhaps not surprisingly, in the face of such numerous and far reaching global transformations and the resulting ambitious, wide-ranging Summit agenda, there are many who judge the G7 to have performed poorly in the 1990's, and to offer an inadequate foundation for the required system of global governance for the twenty-first century. One set of critiques come from those who conceive of the G7's central purpose as producing large package deals, embracing macroeconomic, trade and energy policy, through which governments can optimize economic performance through direct, collective government intervention. From this perspective the G7, continues to be a reactive rather than preventative institution, which has over the past decade failed to produce a coordinated growth strategy, dealt poorly with the Mexican currency crisis, currency misalignments and trade tensions, mishandled Russian reform, and failed to provide additional financial resources to the developing and post communist world (Bergsten and Henning 1996).(1) A second set of criticism deals more comprehensively with the G7's failure as a summit-level institution to respond to the new political and security as well as economic challenges of the post- cold war world. (Smeyser 1993, Ikenberry 1993, Whyman 1995). A third school bases its skepticism on doubts about representativeness and legitimacy, indicting the G7 for unfairly and unwisely excluding emerging powers, such as Russia, China, Indonesia, Brazil and dynamic Asian middlepowers. Such additional members would increase the G7's collective power, its sensitivity to, and thus legitimacy with, developing countries, and its effectiveness in dealing with issues where non-members' interests and resources are critical. (Commission on Global Governance 1995, ul Haq 1994, Jayarwardena 1989, Labbohm 1995). In contrast, with rare exceptions (Bayne 1995, Ionescu 1995), those who defend the institution tend to do so in prescriptive rather than empirical terms and on classic security grounds - notably, in integrating a menacing Russia - rather than for its contribution to managing the international political economy at a time of major change (Lewis 1991-2, Odum 1995).(2)
This chapter offers a different view. It argues that the contemporary changes in the international economy have increased the need for and movement toward international economic policy co-operation at the global level and that the G7, by virtue of its particular institutional characteristics and recent performance, is serving effectively as the centre of global governance for the new generation of issues arising as the turn of the century approaches. During the 1990's, rapidly intensifying economic, physical and psychological interdependencies are increasing the classic rationales for international, intergovernmental policy co- operation, and doing so on a transregional, broadly global rather than restricted, geographically regional basis. During this time the G7 is developing the institutional depth, policy breadth, and authoritative reach required to direct the governmental and societal response to this new generation of issues, while its strengthening features as a modern international concert enables it to effectively deliver the ambitious collective agreements that catalyze required change in critical areas. In particular, the G7 has helped produce a substantially complete, non-violent, non- destabilizing democratic and market revolution on a virtually global basis, is maintaining an international consensus and global momentum for continuing globalization, and serving as the primary transregional connector to manage the proliferating regional economic arrangements. In the monetary and financial field, the G7 is allowing market forces to flourish in a vibrantly growing G7 and global economy, while managing the political difficulties associated with financial disruptions and currency changes, and directing a comprehensive reform of international financial institutions. In the trade and investment field it provided the critical impetus to complete the Uruguay Round and create the WTO, is managing trade tensions between the US and its partners in Europe, Japan and Canada and is injecting impetus and direction into the next stage of liberalization. Finally, it is now starting to confront in a major way the new generation of structural issues, dealing with labour and social policy, labour and environmental standards, and competition, information and technology policy, that more directly affect the corporate strategy of global firms.
To develop these arguments this paper first outlines the enhanced rationales for international economic co-operation in a globalized world of deepening integration, and how they reinforce the role of the G7, rather than the new regional or old multilateral institutions, as the centre of global governance. It then examines the contemporary development of the G7's institutional depth, policy breadth, authoritative reach, and its capacity to produce ambitious, timely and well tailored agreements on the critical issues facing the international economy. It finally explores the record of, and forces behind, recent G7 accomplishments in the areas of money and finance, trade and investment, and microeconomic and related social policy.
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