All Commentaries

G7 Summit: 1997

Key Points The G-7 was formed in 1975 to provide an informal forum for coordination of economic policy among leaders of prominent industrialized nations. Since 1975 the agenda and scope of the G-7 has steadily expanded under pressures of continuing economic and political crises. The G-7 directly influences international financial and trade institutions by virtue of its disproportionate economic power. The G-7, composed of Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States, will hold its 23rd annual summit in Denver, Colorado, from June 20 to 22, 1997. The impetus for the first summit in 1975 was the perceived need on the part of the leaders of the leading Western industrialized nations to coordinate their responses to the shared economic crises of the early 1970s, most notably the removal of the U.S. dollar from the gold standard, the dramatic increase in the price of oil, and rising inflation and unemployment. It was hoped that a relatively small and informal gathering of leaders modeled on the periodic and productive meetings of finance ministers that had been held in the library of the White House since 1973 would facilitate the reconciliation of policy differences and the development of the collective leadership needed to reimpose some measure of order on the international economic system. Membership in the G-7 has been fixed since the addition of Canada in 1976. Since 1977, however, representatives of the European Union have attended the summits, and Russia (or its predecessor, the USSR) has been invited to meet with the G-7 at every summit since 1991. Despite President Clintons move to formally recognize the participation of Russia by designating the Denver summit as the Summit of Eight,” Russia is not yet considered a full member of the G-7 and does not attend all of the summit’s sessions. Though membership in the G-7 has not expanded over the past two decades, its agenda and scope clearly have. In addition to economic deliberations, a full day of meetings during each summit is now devoted to the discussion of noneconomic issues, such as terrorism, nuclear weapons and energy, and areas of conflict such as Bosnia. The size of each country’s delegation has also expanded as leaders have come to be accompanied by larger teams of advisors and press aides as well as by their key ministers. In addition, officials now meet throughout the year to plan the summit agenda, and separate meetings for G-7 ministers to deal with pressing issues (such as jobs or the environment) between summits have become more common. This recent growth in the G-7 process has prompted some leaders to express concern that the summit’s cherished intimacy and informality have been compromised. Over the years, the summits have played a key role in enabling the seven member countries to work through their differences on such crucial matters as exchange rates, international trade, and Western policy towards the Soviet Union and Russia. The G-7 meetings have been credited with providing the political will and the momentum needed to ensure the successful completion of the last round of GATT negotiations, which led to the creation of the World Trade Organization (WTO), and with assisting the International Monetary Fund (IMF) in developing mechanisms to forestall currency crises such as that which afflicted the Mexican peso at the end of 1994. The agreements reached by the G-7 leaders profoundly influence the direction of policy within such international bodies as the World Bank, the IMF, the Organization for Economic Cooperation and Development (OECD), the WTO, and NATO. This is the case despite the fact that, unlike these bodies, the G-7 has no permanent staff, no headquarters, no set of rules governing its operations, and no formal or legal powers. The influence of the G-7 derives from its disproportionate economic clout—in 1993, the seven member nations had a combined GDP of $16 trillion, which represented almost 70% of global economic output—as well as from the strategically important position that G-7 countries such as the U.S., France, and the UK (all three of which are nuclear powers and members of the UN security council) continue to occupy, for better or for worse, in international affairs. Problems with Current U.S. Policy Key Problems Persistently high unemployment in G-7 countries and growing economic inequality worldwide indicate that G-7 economic policy has been misdirected. The G-7 countries have failed to act on several important commitments undertaken at global summits. A more serious problem is the questionable legitimacy of the G-7; though it contains only 12% of the world’s population, its decisions affect the whole planet. Though the G-7 has helped the West to navigate through many of the economic and political crises it has faced, its current overall policy direction is suspect. In 1996 the seven leaders asserted that within the G-7 “the economic fundamentals remain sound and well-oriented” and that globally “economic prospects also look very encouraging.” Such optimism hardly seems justified, given that 22 million people were unemployed in the G-7 countries in 1995. Youth unemployment within the G-7 is particularly severe, topping 12% in the U.S., 15% in the UK and Canada, 25% in France, and 30% in Italy. At the same time, despite the fact that the global economy has been growing, the United Nations Development Program reported in 1996 that “the world has become more polarized, and the gulf between the poor and rich of the world has widened even further.” In the face of these developments, the content of recent summit communiqués has been disappointing, focusing primarily on promoting the free movement of capital across national borders. The G-7 has committed itself to continue to further reduce public deficits, to promote greater flexibility in labor markets and the elimination of unnecessary regulations, and to resist protectionism and ensure open markets throughout the world. Aggravating the failure to alleviate unemployment in the North and inequality more globally, there is growing evidence that these neoliberal economic policies are actually damaging the economic performance of the G-7 countries themselves. The OECD’s Employment Outlook 1996 warned that in countries such as the U.S., cuts to social programs and the deregulation of labor markets have resulted in an exclusion of large numbers of citizens from the economic mainstream, which is ultimately costly for society and a drag on the economy. The U.S. and the other G-7 nations have failed to match a number of their summit commitments with significant actions. Though the G-7 has declared its intention to “show leadership in improving the environment,” it is not on track to fulfilling the promise made by industrialized countries at the 1992 Rio Summit to level off emissions of carbon dioxide gas (the combined CO2 emissions of Western countries actually grew by at least 4% between 1990 and 1995). Similarly, the G-7 has said it is concerned about the “excessive transfer of conventional arms.” Yet four of the G-7 countries (the U.S., Germany, France, and Britain) are among the top six arms suppliers in the world. In 1994, the G-7 as a whole accounted for 62% of the world’s exports of conventional weapons to developing countries; the U.S. alone accounted for 47 percent. Because the G-7 is simply the agent of the seven member nations, it has no independent power to call its members to account for these discrepancies between their words and actions. A deeper problem is the questionable legitimacy of the G-7 as a global policy entity. The group is democratic in the sense that all of its members are democracies whose leaders have been elected to office. Yet while the G-7’s combined population represents only 12% of the world’s total, its explicit efforts to manage global economic and political affairs clearly affect the whole planet. The other nations of the world have neither mandated the G-7 to conduct this management on their behalf, nor have they any means of formally contributing to the G-7’s deliberations. G-7 leaders and officials meet behind closed doors, and there is no elected congress or council of nations to whom they must answer. The Commission on Global Governance, a policy studies center in Britain, concluded that: “The Group of Seven is the nearest the world comes to having an apex body concerned with the global economy… But it is neither representative of the world’s population as a whole nor very effective… The development issues that concern most of humanity have low priority on its agenda. Looking decades ahead, it will become more and more anachronistic that non-OECD economies that account for a large and growing slice of the world economy are not represented in the main body with an overview of international economic issues.” Toward a New Foreign Policy Key Recommendations The U.S. government will set the agenda for the Denver summit; it could take this opportunity to prepare a bold agenda that attempts to redress the G-7’s previous failures. The U.S. government could also provide leadership to the G-7 by initiating a series of consultations about G-7 policy with non-G-7 countries and NGOs. Over the long term, emphasis should be placed on developing more democratic institutions at the international level, such as an economic security council, which would then take over the responsibility for managing the global economy from the G-7. Much of the debate over reforming the G-7 has focused first on whether the group should be further institutionalized by establishing a permanent secretariat or council of ministers, and second on whether membership in the G-7 should be expanded. Both moves would likely meet with resistance from the seven governments, which generally prefer the model of small, informal summits among countries with a similar approach to global issues. It is also far from certain that a more institutionalized or a marginally expanded G-7 would actually produce the changes in its policy orientation required for the G-7 to become more responsive to the needs of both its citizens and those of the rest of the world. In the short term, however, there is considerable opportunity for President Clinton to use the Denver Summit to begin to improve the G-7’s policy and process. First, given that the host country has the responsibility for shaping the direction and themes of each year’s summit, Clinton should prepare a bold agenda for the Denver meetings. Such an agenda should include a detailed and public review of the record of the seven nations in meeting their obligations under various environmental accords (including those reached in Rio), a declaration that the seven leaders will attend the review of progress made since Rio to be held at the special session of the UN General Assembly from June 23 to 27, and a commitment by the seven leaders to enter into further environmental agreements in areas such as forest management. It should also include the decision to take concrete steps to promote human rights by directing the G-7 trade ministers to collectively scrutinize and publicize the activities of multinational corporations currently active in countries such as Burma and Nigeria. The Clinton administration should undertake on behalf of the G-7 to consult both with other nations and with nongovernmental organizations (NGOs). Specifically, the G-7 should initiate a regular series of meetings with developing and newly industrialized nations, and agree to meet with a delegation from the countersummit of NGOs and social justice activists, which will be held alongside the G-7 meeting in Denver. Countersummits have been held in the same city as the G-7 in almost every year since 1981 and are the source of innovative and practical policy proposals focused on achieving a more economically and environmentally sustainable and just world. Consultations of this type would not be unprecedented. At the 1989 G-7 summit in Paris, French President Mitterrand hosted a presummit meeting with the leaders of several developing countries; the Japanese prime minister met with the president of Indonesia, a leader of the nonaligned movement, prior to the Tokyo summit of 1993; and the Canadian government consulted widely with its counterparts in the Commonwealth and la Francophonie (the French Commonwealth) as part of its preparations for the 1995 Halifax summit. In addition, a delegate from Mitterrand’s government officially received the countersummit’s communiqué in 1989, and environmental NGOs were invited to a working session with G-7 environmental ministers prior to the 1996 summit in Lyon. A U.S. initiative in Denver to build on these precedents, and specifically to make them a regular and more prominent part of the G-7 process, would not only constitute a significant acknowledgment of the G-7’s wider responsibilities but would also provide representatives of the wider international community with the opportunity both to confront the G-7 with their concerns and to have some input into G-7 deliberations. Over the long term, however, U.S. foreign policy should also be directed to the goal of developing and strengthening democratic institutions and practices at the international level so that much of the responsibility for managing the global economy could be effectively removed from the G-7. The Commission on Global Governance, for example, has suggested the establishment at the UN of an Economic Security Council, a body that “would exist to give political leadership and promote consensus on international economic issues” and that “would be concerned with the overall state of the world economy and with the promotion of sustainable development.” The competency and authority of a more representative and transparent body such as this could be enhanced over time so that eventually it would be able to take priority over the G-7 in providing direction to the World Bank, the IMF, and the WTO. Likewise, an Economic Security Council could focus on the task of defining and enforcing at the international level a minimal set of social, economic, and labor rights and obligations (such as those listed in the Social Chapter of the European Union’s Maastricht Agreement), as well as creating environmental standards that would provide a common global framework for free economic activity. Such changes would add what sociologist David Held has called the “discipline of democracy” to the discipline of the market. A G-7 that operated within the context of such a democratic global economic framework could continue to coordinate policy among its members while avoiding the pitfalls currently associated with its present role as a de facto executive committee overseeing the operation of the international economic system. Sources for More Information Organizations New Economics Foundation 112-116 Whitechapel Road First Floor, Vine Court London, E1 1JE UK Voice: (171) 377-5696 Fax: (171) 377-5720 Email: Contact: Ed Mayo (Director) Sierra Club 408 C Street NE Washington, DC 20002 Email: Website: Contact: Dan Seligman The Centre for the Study of Global Governance St. Phillips Building London School of Economics Houghton Street London, WC2A 2AE UK Voice: (171) 955-7585 Fax: (171) 955-7591 The Other Economic Summit (TOES-USA) 777 UN Plaza, Suite 3C New York City, NY 10017 Email: Fax: (212) 972-9878 Contact: Ward Morehouse (Chair) Publications Commission on Global Governance, Our Global Neighbourhood: The Report of the Commission on Global Governance (Oxford: Oxford University Press, 1995). Paul Ekins, The Living Economy: A New Economics in the Making (London: Routledge & Keegan Paul, 1987). International Spectator , special issue on the future of the G-7 summits, Volume XXIX, No. 2 (April-June 1994). Sylvia Ostry and Gilbert R. Winham (eds.), The Halifax G-7 Summit: Issues on the Table (Halifax: Centre for Foreign Policy Studies, Dalhousie University, 1995). Andrew Parkin, “Moving Mountains: The Counter-Summit Confronts the G-7,” Dollars and Sense (May-June 1997). Robert D. Putnam and Nicholas Bayne, Hanging Together: Cooperation and Conflict in the Seven- Power Summits , revised edition (Cambridge, MA: Harvard University Press, 1987). Real World International and Real World Banking . Available from: Dollars and Sense One Summer Street Sommerville, MA 02143 Voice: (617) 628-8411 Fax: (617) 628-2025 Email: Website: William E. Whyman, “We Can’t Go On Meeting Like This: Revitalizing the G-7 Process,” The Washington Quarterly , Volume 18, No. 3 (1995). World Wide Web TOES ‘97 (The Other Economic Summit) University of Toronto G7 Summit Information Centre to receive weekly commentary and expert analysis via our Progressive Response ezine. 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