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The G-7 and the Need for Reform

Cesare Merlini

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The Substance and Effectiveness of the G-7

Is the G-7 still functional for the individual and collective requirements of the countries that compose it and the rest of the system (system meaning the set of relations, rules and institutions in which the Seven have a position of influence, either singly or as a group)? The response given in the previous section to the doubts about the composition and the representativeness of the G-7, that is, that it must develop its own foreign policy, in some way provides an answer to this question as well.

Without dwelling on the importance of the G-7 in the past, suffice it to say that the articles in this collection generally present a positive view of this Group, but suggest that its efficacy is declining. This is mainly because it no longer concerns itself with macroeconomics coordination and that, in truth, it no longer wants to concern itself with macroeconomics coordination. The positive-sum "integrative bargaining" analyzed by Putnam in the eighties, (15) and considered one of the virtues of the G-7, has lost momentum.

In any case, although the contrary is commonly asserted, the decline has not been continuous. Garavoglia and Padoan identify strong and weak phases of macroeconomic coordination. The first phase, which was strong, with emerging multilateralism -replacing the lessened hegemonic leadership of the United States, stretched from the birth of the G-7 to the advent of Reagan. The second phase during the first half of the eighties was weaker: US unilateralism increased. In the third, again somewhat stronger phase, attempts were made to return to coordination with the Plaza and Louvre accords. But the end of the Cold War and emerging regionalism has ushered in another weak phase. Some, like those who considered fluctuating exchanges a good solution in the mid-seventies after the breakdown of the Bretton Woods system, see this new situation as positive. New rhetoric is appearing on both sides of the Atlantic: like the one about "geopolitics", which is actually an old category but, distorted as it is in the current debate, has become an alternative to integration as a way of dealing with interdependence.

It must be acknowledged that things tend to stop at the brink, as happened at the end of the Uruguay Round. And regionalism has produced institutional results, like the ratification of Maastricht and the beginning of the new process of enlargement in Europe, the ratification of NAFTA and the first high-level meeting of APEC. But trade tensions between the United States and Japan are intense once again and this is affecting exchange rates.

It seems increasingly evident that structural factors of dislocation are behind the current macroeconomic disorder. The movement of capital has become extremely easy throughout the West and its reaches, that is, countries with rapid economic growth and slow political and social evolution. The game of the costs of manpower and technology has become fierce. Aggravating factors are the environment and the current recession, which Europe has had difficulty overcoming.

In the absence of a regulating hegemon, macroeconomic coordination, the definition of rules, and even the identification of common interests has been difficult. But if the West has come out on top of the East, this complex work of economic integration must have contributed. Yet no one seems to be interested in common interests at the moment, while the problems of competitiveness are acute. In fact, implementing macroeconomic rules is rather like using string to tie a load onto a truck that is going to have to cover some very bumpy terrain.

The accent on microeconomics

The Americans recognize the problem and feel that the answer must be sought in microeconomics. This seems reasonable, but exactly what is to be done is still very vague. All the more so considering that the US is not particularly inclined to promoting or accepting new rules of the game, especially in the G-7 context, where compromise solutions with the "old" economies of Europe and Japan have to be negotiated. The tendency in the United States is to deal with the "young" economies of the Pacific, Asia and Latin America. This tendency has a typically American inclination towards the novelty associated with it. It could, therefore, fade in the not too distant future, especially given the difficulties in trans-Pacific relations (e.g. Hosakawa's trip to Washington and Christopher's trip to Beijing the first quarter of 1994).

The work presented in this collection suggests that the G-7 should be equipped to play a preparatory, consultative and monitoring role in microeconomics, both on its own and in conjunction with competent institutions. This was, in fact, what happened at the Detroit conference on unemployment with the specific tasks assigned to the OECD. This "prophylactic function" may seem a modest objective at first glance, but it lays the basis for a more substantial role, that of seeking compatibilities, minimizing reciprocal damages and perhaps defining some rules so that the game can result in a positive-sum.

This does not mean that more ambitious proposals have been given up. The tasks (including macroeconomic ones) assigned to the G-7 by the proposals for institutional strengthening mentioned at the beginning of this article and the risks involved if they are not taken into account are real. There is an urgent need for greater international aid to favor and orient development and deal with at least some-of the basic factors underlying such important phenomena as international migration, to give only one example. Solutions such as taxation of trade surpluses in favor of multilateral aid can be envisaged, but, as mentioned, the time is not ripe for such idea.

More preparation

It may be better to return to more modest proposals, that are, however, no less demanding in terms of G-7 structural capabilities: the consultation mechanisms that are below summit level and that take place year round, if and when necessary. As already mentioned, these mechanisms must not be reduced by virtue of misguided pursuit of the goal of streamlining and personalizing the G-7. As Hodges states in his contribution to this collection, recurrent meetings of the economic ministers constitute the 'engine room" of the G-7, but it requires both guidance and authorization from the "bridge". In order to fulfill these two functions adequately, summits must be prepared with even more care than in the past, especially if macroeconomic matters are to be discussed. This is a departure from the position of British Prime Minister Major who, in his speech to the House prepared summits. The point is that preparation of Commons, (16) called for less must be different from that of the past.

The engine room is not the only essential part of a ship. The same is true of the G-7, which can and must make use of the various institutional instruments made available by the West's heritage. Thus, a primary task for the G-7 in the immediate future should be the conception of a new world trade organization (WTO) to replace the GATT. This is not to be the exclusive responsibility of the Seven. But they do represent, along with the European Union, by far the greatest part of world trade and should therefore have a strong voice in the matter.

It has rightly been observed that the SEVEN are not exactly univocal and that repeated appeals at four summits (from Houston 1990 to Tokyo 1993) and the work of the "Quadrilateral" did not help much in finding a compromise solution to the Uruguay Round. But that was a negotiation, while the proposal being made here is to assign the G-7 a task of institutional promotion and harmonization, rather than negotiation.

Institutional promotion

We are all well aware of the fact that institutional promotion can also come up against negotiating difficulties, given the differences in approaches, especially since the United States has become less enthusiastic about multilateralism. In fact, it is unlikely that it would make any effort to commit itself to a multilateral WTO. Certainly, if the current trade war between Washington and Tokyo continues, and if the questions between Europe and the United States set aside at the Uruguay Round become conflictual once again, the differences in approach would be accentuated by a venomous atmosphere. It can only be hoped that, as had happened on other occasions, things are settled in extremis, and that the action of the summits is kept as distant as possible from the "ministers of the trade war".

The best way for the G-7 to contribute to the conception of a WTO is by nominating a "group of wisemen" who directly represent the heads of state. This group could make use of the important analytical capacities already present in the European Commission, and those that may develop in the framework of NAFTA and APEC, as pointed out by de Guttry elsewhere in this issue. Only when trade tensions have decreased considerably, can a return to the ministerial level be foreseen, but that would have to be decided at the time.

A similar institutional approach should be followed with regard to coordination of aid to Eastern Europe. Here, the problem is to continue along the road already taken, which led to the assignment of a leading role to the European Union and the formation around it of the Group of 24 and an ad hoc financial institution. In addition to economic aid, a division of labor is also emerging in the fields of foreign policy and security: the EU is slowly opening to the Central and Eastern European countries, while NATO is offering a framework for cooperation and, hopefully, crisis prevention to Russia and other CIS countries. At the next summit, the G-7 should give its blessing to this division of labor.

New development strategy

But Eastern Europe must not force more general problems of development into the background. Japan is right to complain about this kind of Eurocentrism. A new strategy of development is required, which is no longer formulated around global terms such as "Third World", "hunger", "debt", but differentiated by area or sub-area and by local socioeconomic models, each with its own cultural peculiarities.

Italy obviously has a special appreciation of the Mediterranean area and of the difficulties in finding the right mix of cooperation and protection to manage the divide separating two such different economic, demographic and cultural masses as Europe and North Africa. And it should take on responsibility for it in the Seven. Having a country willing to promote attention for local development could be an asset for the G-7 (the United States could do the same for Latin America, Japan for Southeast Asia, etc.). The relationship between the G-7 and .regional organizations will be discussed in greater detail in a subsequent section of this article.

Political and security matters

Mention has already been made of political and security matters. These can generally be broken down into crisis management and systemic problems. To deal with the latter, the G7- must become an even more vocal exponent of collective security. This can be achieved by 1) recognizing and strengthening the role of the United Nations as the most legitimate instrument of collective security; 2) putting Western capabilities in the matter at the disposal of the UN; and 3) claiming the right to take over this-capability if and when the decision-making process of the UN proves unable to act. This last function would weaken certain veto rights in the Security Council.

All this regards both conflict prevention and the strengthening of international regimes, such as those against proliferations of various kinds. Moscow's involvement in this function must be pursued as much as possible, not on y because it can make an important contribution to the achievement of results, but also because it would provide a factor of constraint and guidance for Russian foreign policy.

In crisis management, the role of the G-7 would inevitably be conditioned by the kind and timing of a crisis. If it breaks out on the eve of a summit, it is almost inevitable that the summit will take a position on the matter; the significance of such a position depends on the degree of convergence of the national views. At the same time, having to take a position favors convergence.

Bosnia may provide a significant example. After the common declaration adopted at the last summit in Tokyo, the positions of the Seven have diverged less than before, favoring the recent developments in NATO and the UN. Having called upon Russia to do its part has certainly strengthened the attempt to control the ongoing crisis. The Naples Summit could be an opportunity for the Seven, Plus the European Union and Russia (hence Nine), to draft a broader and more committed declaration on an arrangement for all of the former Yugoslavia. Such a solution seems more appropriate than a restricted conference. On the other hand, the same example shows that as soon as Moscow feels that it is playing an important role, it tends to want to impose its point of view. This is normal and would-also be acceptable if attempts were not made-as they so often are-to change the rules of the game.

If a crisis breaks out after the summit, different options exist: either an extraordinary meeting of heads of state and government or of foreign ministers can be called, or consultative procedures can be begun (among political directors). The first has never occurred, although it was vaguely considered on the occasion of the Gulf war. It would obviously be an important- even dramatic event, calling for an effective system of preparatory consultation to ascertain the minimum level of convergence without which the meeting would be counterproductive. Just below that is the hypothesis of an extraordinary meeting of foreign ministers. This could contrast, however, with other alternative meetings in such fora as NATO (perhaps with an invited representative from Moscow) or the European Union (perhaps with invited representatives from the Central and Eastern European countries) in keeping with the recent Anglo-italian proposal.

One factor in favor of having this kind of meeting take place in the G-7 framework is the possibility of involving Japan in important political acts related to major international crises. This is 'an important advantage. The feeling of marginalization that could be generated in Japan would otherwise be all the stronger if Russia were involved in any way in the NATO framework, as the partnership for Peace tends to do.

On the basis of the foregoing, it is difficult to assign the G-7 an essential crisis management task. This is-consistent with the affirmation that, in the field of politics and security, the G-7's potential is more manifest than its functionality.

Global issues

The G-7 is increasingly being called upon to deal with global issues in addition to political and economic matters. Global issues are problems that are both transnational (and transregional) and problems that are both political and economic in nature: the environment, migration, economic crime, drugs, terrorism, relations-with Russia and with Eastern Europe. It is important to point out here that this trend in some ways goes counter to that of having the summit discuss only a few important matters and abstain from making a long list of banal and diplomatic declarations. Hodges quotes an amusing passage from the Tokyo Declaration as an example of what the summits should refrain from doing; not by chance, it concerns environmental problems. Therefore, distinctions will have to be made in the final declarations at the end of the summits between qualifying and routine positions, between matters that have actually been discussed at the summit and matters that have been, assigned to the structure.

Once again it must be reiterated that while it is essential that the heads of state and government exchange views and concerns, these do not necessarily all have to be listed in communiqués and declarations. Some could be used to generate mandates to lower ministerial or official levels, whether permanent or ad hoc, for study and subsequent reference. In this way, the summit can fulfill its real task, that of giving momentum to common Positions in competent institutions.

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