New Directions in Global Economic Governance

Managing Globalisation in the Twenty-First Century

George M. von Furstenberg, John J. Kirton, John J. Kirton

• Publisher: Routledge
• Year: 2017
• ISBN:
  9781351753869
• Edition: 1
• Topic: Politics & International Relations
• Subtopic: International Relations
• Index: Politics & International Relations

This title was first published in 2001. Containing a wide array of intellectual perspectives, this illuminating text takes an authoritative look at the rules, decision-making procedures and organizational resources at the heart of the institutions of global governance and provides a much-needed Asian perspective on key issues, dealing with new questions raised at the Okinawa summit. Particularly suitable for graduate courses in political science, international political economy, international organizations, corporate strategy and international business, as well as having implications for the public policy community.

Part I
New Challenges in Global ‘New Economy’ Governance

2 Managing Globalisation and the New Economy: The Contribution of the G8 Summit

NICHOLAS BAYNE

The Okinawa G7/8 Summit, held on 21-23 July 2000, was the 26th such summit in an unbroken sequence going back to 1975. The first summit had only six members — the United States, Japan, Germany, France, the United Kingdom, and Italy. Canada and the European Union (EU) were soon added, forming the G7. Russia made it up to G8 at the Birmingham Summit of 1998.

The summits were created for three purposes, which remain just as valid today as they were at the beginning:

• To provide collective management of the world economy, with Europe, Japan, and Canada sharing responsibility with the United States;
• To reconcile the tensions of what began as interdependence but is now recognised as globalisation. These tensions arise because external factors increasingly interact with domestic economic policy;
• To generate political leadership, where heads of state and government take co-operation further than their officials and ministers can.

This chapter examines progress against the second of these objectives.¹ For almost two decades after the foundation of the G7 in 1975, globalisation was not in the summit vocabulary. Instead, the key concept was interdependence. When the G7 leaders held their third meeting in Japan, at Tokyo in 1993, they did not recognise the advance of globalisation; the first reference to it was in their communique from Naples in 1994. Despite this slow start, however, the recognition of globalisation and the response to it came to dominate the summits of the 1990s. It was still top of the agenda at Okinawa 2000, at the start of a new decade.

This chapter analyses this response to globalisation by the G7 and G8, focussing on the new message from the Okinawa Summit. The main findings are as follows:

• Okinawa continued the response to globalisation begun at Birmingham in 1998, but with a shift in priorities to reflect the emergence of the new economy.
• With the G7 economies so buoyant, domestic anxieties about jobs and crime were in abeyance, while calm had returned to the financial system.
• The problems of the poorest countries caused the greatest concern. But Okinawa was frustrated by debt relief and made little progress on trade and aid. The most promising advance was in improving health.
• Okinawa was most innovative in its treatment of information technology (IT) and the new economy, which it identified as the key to many of the benefits of globalisation. But it failed to advance the benefits available from the trading system or to resolve differences over the environment. Okinawa marked a further evolution in the G8's treatment of globalisation.

After giving priority to the international consequences and to domestic anxieties, in 2000 the G8 leaders turned their attention to the beneficial aspects of globalisation.

Globalisation at the Summits of the 1990s

The summits of the mid 1990s, starting with Naples 1994, thought that globalisation held no fears for the G7 member countries themselves. After all, they had been dealing with the tensions of interdependence since 1975 and even earlier; they thought that globalisation was all gain for them. However, they doubted whether the international economic system could stand the strains generated by globalisation; for four years, up to the Denver Summit in 1997, they concentrated on the reform of multilateral institutions. This had intrinsic value, since it involved the G7 leaders more closely in the institutions, replacing their earlier aloof attitude. This was a necessary response, and work on the international system continues today. But it was not a sufficient response.

As those years passed, the G7 leaders came to realise that globalisation placed new demands on them at home, as well as internationally. To harvest the benefits of globalisation, they needed dynamic and competitive market economies — but that was not enough. They also needed to intervene to set and implement the rules for those markets and to help the weak that fell behind and were marginalised by globalisation. Above all, they had to counter public fears about globalisation, as their populations worried about becoming vulnerable to external forces beyond their control.

So Birmingham 1998 marked a turning point in the summit's treatment of globalisation, and not only because it was the first G8 summit with the Russians as full members, and the first where the heads of government met on their own, without supporting ministers. For Birmingham, the leaders chose an agenda focussed on four themes. These might be called the four evil spirits of globalisation, as they are the issues that generate the strongest public concern about globalisation. They are loss of jobs, crime and internal disorder, financial panic, and world poverty. None of these is a new subject for the G8; many of them go back to the dawn of summitry. But globalisation requires the summits to tackle them in a new way.²

Cologne in 1999 and Okinawa in 2000 expanded the definition of these themes, but the four evil spirits still form the foundation of the G8 agenda. The G8 response to globalisation so far, as reflected in the record of Birmingham and Cologne and augmented by Okinawa can be analysed under four broad headings:

• Domestic Penetration;
• The International Financial System;
• International Development;
• Helping the Good Spirits — IT, Trade, and the Environment.

This chapter examines each in turn, concentrating on the contribution from Okinawa.

Domestic Penetration

The first pair of topics — jobs and crime — draws the G8 deeper and deeper into domestic policy issues. This is as expected — globalisation requires more international action on issues formerly considered domestic. The discussion of employability at Birmingham expanded to cover education and social protection at Cologne. It was further expanded in the preparations for Okinawa to encompass policies for older citizens. In these discussions, the leaders learn from each other and develop standards of good practice. The treatment of crime has also spread to cover conflict prevention. This topic involves strengthening justice, human rights, and public order within countries. But it also means fighting international criminal movements. Regrettably, globalisation and new technology facilitate these, just as they encourage more honest activities.

These topics are well chosen, because they merit persistent attention from heads of state and government. But they have two pitfalls. First, even with the attentions of the heads, progress toward their objectives of higher employment levels for all and lower crime rates is bound to be slow. There is a danger of creating expectations of quick results, which will later be disappointed. Second, when G7 economies are buoyant and prosperous, the political salience of these issues declines and momentum is lost.

This could be observed at Okinawa, where the exchanges among the heads on these topics were lively but fairly inconclusive. Ageing, featured earlier by the Japanese hosts in the preparations, was barely touched. The discussion on crime and drug smuggling concentrated on various international events, such as the United Nations Convention on Organised Crime and another conference on high-tech crime, to be held later in the year.³ The heads endorsed the substantial work done on conflict prevention by the G8 foreign ministers meeting in Miyazaki a week before. There was also interest, among the G7 heads, in the laundering of the proceeds of crime, a subject considered under the next heading.

The International Financial System

The second pair of themes — financial panic and world poverty — focusses more on the international system. The summits' work on the international response to globalisation, begun in 1994, is far from complete. Some measures agreed on earlier have proved insufficient or the problems they addressed have returned in a different form. On these issues, the summits conduct an iterative dialogue with international institutions. This iteration is necessary because the summits do not always find the best solution in their first attempt. After all, only the most intractable problems come up to the heads of state and government — easy ones are resolved at lower levels.

This applies very clearly to the international financial architecture. The reforms to the financial system, agreed at Halifax in 1995 in response to the Mexican crisis, did not suffice to prevent the more serious speculative crises of 1997-98, in Asia, Russia, and Brazil.⁴ For nearly three years, after the outbreak of the Asian crisis in 1997, the G7 gave high priority to creating a new international financial architecture. The summits at Birmingham in 1998 and again at Cologne in 1999 devoted much attention to devising the necessary reforms. By the time of Okinawa, most of these were in place at the International Monetary Fund (IMF) and the World Bank, and calm had returned to the world financial system. But the new systems had yet to be tested under stress and no one knew if they would be robust enough to deter or to withstand future crises The exact division of roles between the IMF and the World Bank also remained in debate. The work rather lost momentum once the crisis atmosphere receded, especially as large parts of the world economy — notably the U.S. — remained dynamic and even those areas hit hardest were recovering strongly.⁵

The G7 leaders addressed these issues when they met, without Russia, for two hours on the first afternoon at Okinawa. Their discussion covered the following:

• The world economy: The exchange on world economic prospects revealed everyone as very confident, apart from some worries over oil prices.
• Financial architecture: The leaders endorsed a report agreed by their finance ministers in Fukuoka ten days earlier, adding nothing of their own. This document was essentially a progress report on action to implement the measures agreed at Cologne, especially in the reform of the IMF and the multilateral development banks. There was little new, except for a positive reference to regional arrangements, in recognition of recent Japanese moves.
• Money laundering and related issues: The leaders again endorsed a report prepared by their finance ministers, adding nothing substantial. This report, called 'Actions Against Abuse of the Global Financial System', contained more original elements, as it picked up and brought together the work done by the Financial Action Task Force (FATF) on money laundering, by the Organisation for Economic Co-operation and Development (OECD) on harmful tax competition and by the Financial Stability Forum (FSF) on offshore financial centres. In each area, delinquent countries had been identified and named. The G7 offered to help them mend their ways, identifying eight areas of improvement, but hinted at sanctions if they did not reform.

Although serious work was done on the latter two issues by the finance ministers, none of these issues was central to the exchanges at the Okinawa Summit itself.

International Development

The low-profile treatment at Okinawa both of the domestic concerns provoked by globalisation, such as jobs and crime, and of the international financial system, reflected a sense that these issues, for the moment at least, were not a source of major preoccupation. This was not true of the fourth of the evil spirits — world poverty. This provided the main source of anxiety at Okinawa.

Since the late 1990s, the summits had paid growing attention to the issues concerned with development. French president Jacques Chirac started this, when the Lyon Summit of 1996 took the reform of development institutions as its main theme. The heads of the institutions — the World Bank, the IMF, the World Trade Organization (WTO), and the United Nations (UN) — were invited there to meet the G7 leaders. The next year U.S. president Bill Clinton devoted much of the Denver Summit to the problems of Africa. British prime minister Tony Blair at Birmingham 1998 and German chancellor Gerhart Schroeder at Cologne 1999 both chose debt relief as a key topic. Okinawa addressed a wide range of development issues. This priority reflected the explicit recognition by the G8 of two important consequences of globalisation. First, any international economic measures they proposed must benefit all countries, developing as well as developed. Second, the poorest countries risked being marginalised, without special efforts to enable them to share in the advantages of globalisation.

The most valuable contribution of the previous summits to helping the poorest countries had been in debt relief. This again illustrates the practice of iteration. From the Toronto Summit of 1988 onward, the summits launched a succession of debt relief programmes, each more ambitious than the last, as the leaders came to realise the extent of the debt burdens that weighed on poor countries. The leaders engaged their own reputations on this issue and were ready to override their finance ministers, if needed. The Cologne Summit of 1999 made a major advance, promising both faster and deeper debt relief for eligible poor countries, linked to programmes to direct more funds to development purposes. This raised the hopes of Jubilee 2000, a world-wide group of nongovernmental organisations (NGOs) campaigning for debt relief to release funds for education and health.⁶

But as the Okinawa Summit approached, it became clear that both on debt relief and on other issues of concern to poor countries, the G8's intentions were good but its performance was sluggish or inadequate. For example:

• Since Cologne the movement toward the targets set for debt relief had been too slow and not enough countries were benefitting. Jubilee 2000 was very disappointed.
• At Birmingham, the G8 promised to work on untying bilateral aid. But the members failed to agree on the necessary measures at a meeting of the OECD a month before the summit.
• The measures to help Africa pledged by the U.S. at Denver were only endorsed by Congress early in 2000, after nearly three years' delay.
• Duty-free trade access for the exports of the poorest countries, first proposed at the Lyon Summit in 1996, was promised by G7 members at the WTO ministerial meeting in Seattle in late 1999. But the G7 made so many exceptions as to remove most of the value of this pledge.
• Over the 1990s, total aid spending had shrank in real terms. As reports published in 2000 showed, efforts to reduce poverty had fallen short of targets set during the 1990s. As many people still lived in deep poverty as a decade ago, although this was a smaller share of world population. These failures to honour its own pledges were deeply damaging to the G8's reputation.⁷

Debt Relief for the Poorest Countries

This was the most difficult subject for the G7 leaders at their meeting on the first afternoon at Okinawa. Blair led off, stressing the extent of public feeling on the topic. He had received 150 000 postcards and 100 000 e-mail messages during the previous three months. The problem for the G7 was that, despite some considerable efforts, their major initiative from Cologne in 1999 was falling behind schedule. Bilaterally, the G7 had in fact gone beyond its Cologne commitments, since all members had agreed to give 100 percent reduction of commercial debt, instead of the 90 percent reduction promised a year before. But the multilateral aspects were the source of obstacles. The requirement for beneficiary countries to conclude 'poverty reduction strategies' was slowing things down. There was doubt whether pledges made to compensate the World Bank would be met. Many eligible countries in Africa were being undermined by conflict, either internal or external, so that they could not meet the conditions required.

The Cologne Summit had set a target of getting three quarters of the 41 eligible countries to their 'decision point', when the scale of debt relief was agreed, by the end of 2000. This target, which had been added by the heads of state and government themselves, would clearly not be met. Only nine countries had qualified so far, and 11 more should have made it by the end of the year. The leaders were clearly frustrated by this. But the G7 could not offer any radical measures to speed things up and made clear their anxiety about conflict in Africa (see Appendix B). For this they were bitterly denounced by Jubilee 2000, which said it was 'totally dismayed' by the statement issued after the G7 meeting.⁸

Blair and Chirac returned to this subject in the G8 meeting the next day, urging greater efforts to show that the summit leaders cared about the poorest countries. The G8 Communique contained extended provisions on development, discussed below. But it could not offer more on debt relief, beyond aiming to get a total of 20 countries to decision point by the end of the year.

Other Development Issues

There was wide-ranging discussion of development among the G8 heads at their meeting on the second morning at Okinawa, refle...