G8 and Global Governance

By Tom Barry, Foreign Policy in Focus Vol. 6, no. 27, July 2001

Key Points

• The G8/G7, has situated itself at the center of global governance.
• G8 is beset with concerns about its representation and legitimacy.
• The G8/G7 exercises tremendous influence over the multilateral institutions of global governance.

The G8/G7, a self-constituted forum of the major free-market democracies, has situated itself at the center of global governance. Its deliberations and declarations shape key decisions in the management of global political and economic affairs. Most of the world's major economic and security initiatives are discussed first by the G8/G7 leaders and their ministers before the other multilateral organizations take action.

The G8/G7's origins can be traced to the economic turmoil of the early 1970s, when the Bretton Woods monetary system collapsed and the world was hit by the first OPEC-induced oil crisis. This was also a time when U.S. post-World War II hegemony was being widely challenged by an emerging movement of nonaligned countries, proponents of a New International Economic Order, and third world insurgent forces, notably in Cuba and Vietnam. The type of control the U.S. exercised over the global economy and institutions of global governance was also being challenged by other industrialized nations, who were increasingly competing with the U.S. for international markets. At home, the U.S. was suffering stagflation, while its external affairs also looked grim, with no end in sight to the Vietnam war and with its first trade deficit since 1947.

In 1971, President Nixon delinked the dollar from the gold standard, thereby unilaterally destroying the prevailing monetary system. Under this system, member countries pegged their currency to a fixed quantity of gold-but only a handful (in practice mostly the U.S.) actually committed to selling gold on demand to the central banks of other members at that price. By saying it would no longer sell its gold reserves for the surplus dollars held overseas, Washington sent a clear signal that the U.S. could no longer be counted on to ensure the stability of the world's capitalist economies.

In April 1973 the finance ministers of the U.S., West Germany, France, and the United Kingdom met in the White House library to discuss the tumultuous state of the international economic order. This Library Group quickly evolved into regular ministerial meetings and an annual summit of the leaders of the most powerful capitalist nations. Beginning in 1975 as the G6 (with the inclusion of Japan and Italy), this elite group of industrialized capitalist nations became the G7 in 1976 when the U.S. insisted that Canada be invited to the leaders' summit. Together, these industrialized nations assumed the responsibility for ensuring the stability of a new monetary system of floating exchange rates.

While its initial focus was the coordination of the macroeconomic policies of its members, the G7 leadership-all cold war allies-soon also began discussing political/security issues, condemning the 1979 Soviet invasion of Afghanistan, for example. In the 1980s, the G7 was at the same time deeply involved in advancing the Uruguay Round trade talks and formulating multilateral strategies to address the acute debt crisis in Latin America.

Following the collapse of the Soviet Union, the G7 invited Russia to a post-summit dialogue in 1991. Initially excluded from the financial discussions of the G7 leaders, Russia officially gained full membership in 1998, and the annual gathering became known as the G8. The G7 countries have continued to hold ministerial and informal presidential meetings that exclude Russia. Moscow's dependence on IMF financing, its unstable transition to capitalism, and its war in Chechnya are among the factors that separate it from its partners in the G8-hence the schizophrenic designation, G8/G7.

By virtue of its combined economic, military, and diplomatic power and influence, the G8/G7 exercises tremendous influence over the multilateral institutions of global governance. This power gives the G8/G7 great influence on the policies, programs, and decisions of the UN Security Council, World Trade Organization (WTO), International Monetary Fund (IMF), World Bank, and Organization for Economic Cooperation and Development (OECD). This is the case despite the fact that, unlike these institutions, the G8/G7 has no permanent staff, no headquarters, no set of rules governing its operations, and no formal or legal powers. For those negatively impacted by the policy agendas advanced by the G8/G7, and for countries excluded from its deliberations, the G8/G7's influential role in global governance is highly resented and frequently criticized.

The 2001 summit in Genoa will be a crucial test of the ability of the G7 nations to coalesce around a common agenda on global economic governance. The summit can be expected to endorse a new round of WTO trade negotiations. Unless G7 countries can resolve longstanding differences over such issues as market access for developing countries and reduction of agricultural subsidies, however, the WTO ministerial meeting in November 2001 may suffer the same fate as the 1999 ministerial in Seattle-an eventuality that would please the antiglobalization movement and the bloc of less developed countries.

As the protesters in Genoa's streets will make clear, the fundamental challenge facing the G7 leaders is to address the mounting concerns about economic globalization and the power of transnational corporations. Critics of the G7 leadership also fault that the world's most powerful nations for not adopting policies that boost broad development in the world's poorest nations. But rather than acknowledging the shortcomings of free trade as a development strategy, the G7 leaders can be expected to make the standard declarations about the benefits of liberalized trade and investment.

Problems with Current U.S. Policy

Key Problems

• The G8/G7 has failed to advance solutions to the array of economic, political/security, and transnational issues.
• The G8/G7 has shown little leadership in addressing the deepening crisis of global governance.
• The G8/G7 has contributed to this crisis by supporting policy solutions that bypass the UN.

In the past quarter of a century, other groupings of nations have come and gone, but the G8/G7 has endured. From its origins as an informal meeting of the heads of state of the wealthiest nations, the G8/G7 leaders' summit has become an international forum full of pomp and ceremony. The declarations of its leaders and ministers reflect the consensus of the world's most powerful nations about an expanding array of international issues. By its own standards, the G8/G7 can point to a history of achievements. The consultations of the early years succeeded in stabilizing the international monetary system after it abruptly shifted from the limited gold standard. President Reagan credited the peaceful conclusion of the cold war in favor of capitalism to the hanging together of the G7 powers. The G7 played a key role in the conclusion of the Uruguay Round and the creation of the WTO with the dispute-settlement function as its centerpiece. As it enters a new century, the G8/G7 can rightfully claim to have played a key role in maintaining mutual trust among the industrialized nations and in expanding the realm of free-market democracies.

But the failure of the G8/G7 to advance solutions to the array of economic, political/security, and transnational issues it now addresses is just as evident. On the economic front, its call for a new round of trade/investment negotiations fell flat at the WTO meeting in Seattle and may do so again at the November 2001 ministerial meeting in Qatar. The G7's 1998 promise to advance reform of the global financial architecture has devolved into a focus on promoting national financial reforms among emerging-market countries. While acknowledging the urgent need to ensure increasing, widely shared prosperity and to put a human face on globalization, it has not moved beyond this now-tired rhetoric. Britain and Canada played a key role in having the G8/G7 declare its commitment to debt relief for the poorest nations at the 1999 Cologne Summit, but the G7 finance ministers have not put their muscle behind a strong debt relief initiative-not insisting, for example, that the IMF and World Bank erase multilateral debts for poor nations. Increasingly, the G8/G7 declarations are largely a laundry list of transnational problems and a compendium of promises-many of which are subsequently broken.

As it moves forward, the G8/G7 is beset with problems of representation and legitimacy. Having evolved from its initial focus on economic policy coordination of member states, to assuming an agenda-setting role for global governance, the G8/G7 is faced with mounting criticism that it is unrepresentative. How can such an elite club fairly shape an agenda that will affect all peoples and nations?

In 1999 the G8/G7, responding to a U.S. initiative, formed an associated forum called the G20 to involve a broader spectrum of nations of mostly emerging markets in deliberations about financial policy reform. Thus far, however, the G20 functions mostly as a sounding board for G7 policy initiatives, doing little to alter the G8/G7's elite character.

What type of countries should be represented in a forum limited to what the G8/G7 itself has called systemically important countries? Strong arguments have been made for the inclusion of China, clearly one the world's most important players in security issues and in the global economy. Others contend, however, that with the entry of authoritarian China, the G8/G7 would no longer be a forum of like-minded nations, making it all the more difficult for the member nations to reach consensus. There also exist representation questions about other emerging market economies like Brazil, South Korea, and India, whose economic power have greatly expanded since the founding of the G7. Conversely, it is not clear why lesser powers like Italy and Canada should remain members.

The G8/G7 is criticized routinely as a wealthy club whose main concern is maintaining the global economic and political stability necessary for its members to continue accumulating wealth. Expanding its membership to developing countries would give the appearance of being more representative. But it's likely that the U.S. and its allies would continue to meet apart from any expanded forum-just as the G7 (particularly in ministerial meetings) continues to function alongside the G8.

Clearly, the wealthiest and most powerful nations have a right to meet formally or informally, just as other groupings of countries with similar interests and concerns do-such as the G77 forum of developing nations. The fundamental legitimacy problem associated with the G8/G7 is not its right to exist. Rather it's the way that the G8/G7 has maneuvered to promote itself as the central player in global governance-and in the process undermined the influence of the United Nations. It's likely, for example, that the governance structure of the new UN fund targeting infectious diseases will be decided not by the UN but by the G8/G7 ministers.

In the aftermath of World War II, the U.S. and other G8/G7 members created a visionary system of global governance designed to preserve peace and promote prosperity through intergovernmental institutions, mainly the United Nations. Today, these institutions are plagued with identity and representational crises and find themselves ineffective in the face of new global challenges, such as responding to the outbreak of intrastate conflicts, stopping financial crisis contagion, and regulating transnational corporations. Structural reform is necessary if the WTO, World Bank, IMF, and UN are to meet some of these challenges, while other global problems will require new, visionary agendas of global governance-and new institutions. Unfortunately, the G8/G7 has shown little leadership in addressing the deepening crisis of global governance. Indeed it has contributed to this crisis by supporting policy solutions that bypass the UN and that favor transnational corporations over public welfare.

Toward a New Foreign Policy Key Recommendations

• The G8/G7 should address the grave security, economic, and environmental problems for which these countries are themselves primarily responsible.
• The G8/G7 could play a key role in highlighting the need for substantial reforms in the decisionmaking institutions of global governance.
• Policies are needed that will ensure a system of global governance that has both strong decisionmaking institutions at its center, and informal, consultative groups around the perimeter.

Global governance lies in shambles, but there is little indication that the world's most powerful political leaders have the inclination or will to reform current institutions or create new ones. Within the multilateral institutions, blame and recriminations abound, leaving no room for self-criticism and change. Neither have the various groupings of like-minded nations-the G8/G7 and the G77 being the most prominent-provided the kind of enlightened leadership necessary to upgrade global governance.

Due to its powerful economy, its lead in information technology, and its lack of military competitors, the U.S. once again exercises hegemonic power in the capitalist world-which now encompasses virtually the entire planet. Washington and the other G8/G7 leaders could begin by taking the representation and legitimacy critiques more seriously. Within successful global governance, there can be a constructive role for self-constituted groupings of like-minded countries such as the G8/G7. The G8/G7-with its annual summits, ministerial meetings, and consensus process of agenda-setting-has established a valuable process for setting international policy agendas for groups of countries with similar interests and concerns. However, without the presence of other similarly strong country groupings (particularly of developing countries) and in the absence of more democratically constituted multilateral institutions, the G8/G7 countries have assumed an unhealthy degree of power.

Rather than working to foster forums of other like-minded nations, the U.S. has historically sought to undermine groups that it cannot or does not control. Just as the wealthy industrialized countries benefit from sessions involving only other like-minded nations and leaders, so too will poor and developing countries benefit from strategy meetings with their counterparts throughout the South and in the transitional states. The concerted campaign in the 1970s led by the U.S. to crush the factions within the UN supporting a new international economic order and its aid embargo against leaders of the nonaligned movement are cases in point. The reemergence of the G77 at a meeting in April 2000 is a positive development that deserves U.S. support and encouragement, and more weight needs to be given to the G24, a smaller grouping of developing countries and emerging markets.

Standing at the center of global governance there must be effective, representative intergovernmental institutions, starting with the United Nations. The representation and legitimacy problems of the G8/G7 need to be addressed, but these problems cannot be solved without first addressing the representation and structural problems that beset the UN. One reason the G8/G7 has grown to be a such an influential player in global governance is the out-dated structure of the UN Security Council, whose permanent membership is limited to five nuclear powers, thereby keeping G8/G7 members Japan and Germany on the outside. If there are strong, credible, effective, and representative institutions at the center of global governance, the legitimacy of self-constituted forums like the G8/G7 will be less of an issue. Policies are needed that will ensure a system of global governance that has both strong decisionmaking institutions at the center and informal, consultative groups around the perimeter.

In their role as responsible global leaders, G8/G7 policymakers should adopt agendas that foster such a global governance system. At the same time the leaders and ministers can advocate policies that will go a long way toward meeting its stated objective in 1975 of strengthening democratic societies everywhere. These include:

• Proceed with earlier commitments made during the Asian financial crisis to reform the international financial architecture to address the problem of large, speculative capital flows instead of its present focus on patching the architecture's cracks and its asymmetric attention to reforming the policies of borrowing nations.
• Increase economic aid commitments at least to the UN target of 0.7% of the donor's gross domestic product. (The U.S. contributes less than one-seventh of this target, the lowest level of any major industrialized nation.)
• Substantially expand the 1999 Cologne summit's commitment to IMF/World Bank debt relief programs, eliminating 100% of the bilateral and multilateral debt of the poorest nations.
• Commit (without demanding parallel commitments from developing countries) to substantial cuts in carbon emissions at least as deep as those called for in the Kyoto Protocol.

Finally, return to where it began-macroeconomic policy coordination among industrialized nations-with policy recommendations to address the structural problems in their own economies that could jeopardize global economic stability. First up for review should be the U.S. economy, with its unsustainable trade deficits and private debt-both of which are at record highs. Also, in keeping with a renewed focus on macroeconomic policy coordination, the G8/G7 should strive for an agreement among Washington, Brussels (EU), and Tokyo to reduce the volatility of the three key exchange rates of the current international financial system by agreeing to impose upper and lower bands on the euro-dollar, dollar-yen, and euro-yen exchange rates, along with measures-such as a currency exchange tax-to reduce speculative attacks on these rates.

The G8/G7 would go a long way toward improving its credibility as an important forum of global leaders if it distanced itself from the professions of belief in free trade ideology that have characterized past summits. At the same time, the G7 leaders should refocus their attention on the grave global affairs crises-including security (arms proliferation), economic (increasing social polarization and marginalization), and environmental problems (global climate change)-for which the wealthy nations are primarily responsible.

Tom Barry (tom@irc-online.org), a senior analyst at the Interhemispheric Resource Center, is co-director of Foreign Policy In Focus.