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G-8: Failing Model of Global Governance

In order to regain its lost legitimacy, G8 forum must move away from its free trade ideology which has led to increasing social and economic polarization.
 
 
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The G8 summit in 2001, which sparked massive street demonstrations in Genoa, raised new questions about the legitimacy and value of this annual gathering of world leaders. To avoid a clash with anti-globalization protesters, the isolated Canadian town of Kananaskis was chosen as the site for the 2002 summit. Although questions about the legitimacy of the G8 persist, the summit did offer a welcome opportunity for world leaders to discuss ways to improve international cooperation.

Africa's development, fighting terrorism, and the stagnating global economy were the preestablished priorities of the summit. The G8 leaders were also slated to review progress on priorities from previous meetings, including promoting universal primary education, fighting infectious diseases primarily HIV/AIDS, bridging the digital divide, and debt reduction.

While summit pronouncements were expected on all these topics, the expectations for the 2002 summit were uniformly low. Newly aggressive U.S. unilateralism has created new fractures in the cross-Atlantic and cross-Pacific alliances, thus undermining one of the original reasons for the summit-namely, to reduce U.S. hegemony and build collective global leadership. Since the mid-1990s, the annual summits have incorporated more social issues and developing country concerns into their agendas, but they have failed to demonstrate much progress on these issues. Similarly, the G8 has failed to produce the kind of global leadership necessary to jettison the failed neoliberal model for managing the global economy. For many NGOs and developing countries, the G8 summit remains a symbol of elite global governance, but concerns about the legitimacy of this self-constituted forum are increasingly overshadowed by criticisms of the forum's ineffectiveness.

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 and its unstable transition to capitalism and representative democracy are among the factors that separate it from its partners in the G8-hence the schizophrenic designation, "G8/G7."

Problems with Current U.S. Policy

By virtue of its combined economic, military, and diplomatic power and influence, the G8/G7 can exercise 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.

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, despite increasing attention to poverty, development, and health issues, the G8 has failed to address head-on the failures of the neoliberal and corporate-driven model of globalization that industrial world under U.S. leadership has embraced. Although 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. As the main sources of development aid, the G8 countries have rightly addressed questions of debt relief, global public health programs, and aid for universal education. But they have failed to deliver on promises, while compounding these problems by insisting that its aid be tied to debilitating structural adjustment programs. The new attention to Africa's development problems is welcome, although it's likely that any increased aid from G8 nations will be accompanied by this same type of conditionality.

The G8 is promoting a package of policies to address terrorism, including new multilateral measures to stop terrorism-related money laundering. To its credit, this initiative has not adopted the "war on terrorism" rhetoric of Washington but addressed terrorism as an international crime. There is rising concern about the Bush administration's use of its war on terrorism as a dispensation for its new military interventionism and high-handed diplomatic posture. But there are few signs that disgruntled European partners are willing to publicly challenge the U.S. on these matters, preferring instead to issue consensus statements that paper over these challenges to multilateral global governance.

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.

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.

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. A yet more fundamental challenge to global governance in the post-9.11 era is failure of Japan, Russia, and European nations to mount a challenge to the increasingly assertive U.S. expressions of hegemony and supremacy in military, economic, cultural, and diplomatic affairs.

Toward a New Foreign Policy

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. 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.

-- Provide leadership in countering international terrorism that focuses on multilateral action, maintains respect for human rights, and addresses crises like the Israeli-Palestinian conflict that spark terrorism.

-- 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, a senior analyst at the Interhemispheric Resource Center, is codirector of Foreign Policy In Focus.