Sacrificing His Core Supporters in a Race Against Defeat
With the collapse of the Soviet Union a critical test facing the world is whether the liberal democratic states can build cooperative relations in the absence of a unifying threat. The answer so far is not encouraging. Economic coordination and collective action among the major industrial powers are rare these days. The problem is not just one of coordinating economic policy but also of laying a new political foundation for post-Cold War cooperation. The world stands at the brink of a new era and its major statesmen in Europe, Japan and the United States are having trouble with the "vision thing." Their inability to grapple with post-Cold War architecture constitutes an enormous failure of imagination and responsibility.
What currently passes for policy coordination is the so-called Group of Seven process of the largest industrial democracies. As a mechanism for synchronizing economic policy to exert leadership over the world economy, this process is largely a failure, so much so that at this year's World Economic Forum in Davos, Switzerland, the noted economist C. Fred Bergsten remarked that "the G-7 is dead."
The absence of meaningful policy coordination stands in stark contrast to the pomp of annual G-7 summits. Year after year the leaders of the United States, Germany, Japan, France, Great Britain, Canada and Italy meet in a ritualized photo opportunity. A huge intergovernmental operation churns out bland official communiqués that paper over dysfunctions in the global economic system, or vague joint commitments to growth and prosperity that substitute for actual accord. Such shallow protocol is inadequate for dealing with real tensions arising from trade conflicts, global economic malaise or alliance burden-sharing.
It is ironic today that trilateral relations are so poorly maintained. For the first time the great industrial powers are all market-oriented democracies; never before have the world's leading states shared so many political values and interests. History tells us that the relations among liberal democratic states are fundamentally different than those between liberal and nonliberal states. It is not that relations among liberal states are always benign and devoid of conflict, but rather that war or the threat of war between them is so unthinkable. The potential for building institutions of ongoing policy coordination is unprecedented, which makes the failure of the current G-7 process all the more glaring.
At this summer's summit in Tokyo the issue of G-7 reorganization will surely be on the table--and this comes just in time. The opportunity exists to create a kind of liberal great power "concert" in which G-7 countries organize to coordinate collective responses to economic issues as well as pressing security and environmental problems. The G-7 countries account for 64 percent of world GNP; they are the leading sponsors of the world's dominant multilateral institutions. The world's most prosperous nations must finally undertake a process of substantive policy coordination, not merely to shepherd the global economy but also to devise a stable political order for the post-Cold War world.
The current G-7 process is an ad hoc set of arrangements that has evolved over several decades. It is a reactive accumulation of consultations that usually springs to life only once a crisis has begun. In the months preceding the annual G-7 summits, talks intensify among deputy foreign and treasury ministers and subcabinet functionaries. But these officials have little capacity to make or keep agreements. Consultations focus narrowly on monetary and exchange rate issues, and the process has little institutional memory or impetus for developing common ideas to broaden trilateral cooperation.
The process began in 1975 in the aftermath of the first oil shock and the breakdown of the Bretton Woods system. The G-7 became important as the postwar economic institutions—particularly the International Monetary Fund—became less relevant. After 1973, with the breakdown of the gold-dollar standard, the IMF was largely removed from exchange rate coordination, and the G-7 worked episodically in its place, although not very effectively. At first, G-7 summits were informal and unstructured, with government leaders discussing common economic problems with little staff assistance or follow-up. Summits achieved little in the way of consistent and ongoing policy cooperation, and there was no serious effort to make the G-7 a permanent mechanism for coordination.
In the 1970s the high watermark of G-7 summitry was the 1978 Bonn summit. There, the United States made a commitment to decontrol domestic oil prices in exchange for German and Japanese assurances to attempt to reinflate their economies. Britain and France also signaled their resolve to break deadlocks in the Tokyo Round of talks on the General Agreement on Tariffs and Trade (GATT). G-7 leaders were thus able to make commitments to policies that they already essentially favored, allowing them to return home with added political capital to face down domestic opposition and bolstered by the news that they had secured "concessions" from counterparts abroad.
In the 1980s these summits became highly formal and scripted, and their agendas expanded to include security and regional political issues. Initially the Reagan administration showed little interest in policy coordination, as the United States and other leading industrial countries pursued widely divergent macroeconomic policies. Despite large deficits, the United States maintained a loose fiscal policy; Japan and Germany, despite large surpluses, kept fiscal policy restrained.
As the dollar appreciated and monetary and trade imbalances grew, however, American officials eventually desired to activate the G-7 process. In a series of joint agreements the leading industrial states sought to bring the dollar back into line and to stabilize the world monetary system. By mid-decade the G-7 had moved to the center of these intensive efforts. The 1985 Plaza Accord on the stabilization of exchange rates ushered in a new phase in G-7 attempts at economic cooperation. It was followed by a similar agreement in 1989 at the Louvre.
There is genuine debate over the success of the G-7 process as it relates to these concerted exchange rate interventions in the latter 1980s. There is no doubt, however, that macroeconomic policy coordination has been episodic and fleeting and that the G-7 has failed to evolve into an ongoing institution for dealing systematically with broader global economic and political issues.
Since last summer's Munich summit, dissatisfaction with the G-7 machinery has grown louder. Last fall British Prime Minister John Major circulated a confidential letter to the other heads of state calling for a shakeup of the annual meetings in order to reestablish the G-7's role in providing leadership over the world economy. At the London meeting of finance ministers in March 1993 German Finance Minister Theo Waigel also advanced ideas to strengthen the G-7 structure, including more frequent ministerial level meetings and closer cooperation with the IMF.
The most serious obstacle to G-7 cooperation is the inability of the major industrial states to make hard economic choices at home. Each government's emphasis on dealing with seemingly intractable domestic problems—slow growth, public debt, structural unemployment or vulnerable governing coalitions—constrains joint efforts to stimulate global economic growth or to manage monetary and trade relations, preventing G-7 governments from pursuing disciplined and synchronized fiscal and monetary policies.
Policy coordination is also hampered by the difficulty of the United States and Japan in working with a European Community undergoing radical transformation. The EC has become a multiheaded entity that is hard to negotiate with or to fit into traditional diplomatic channels. The problem is in part institutional: it is difficult to develop routine relations with various EC organizations while working with individual European governments. But it is also political: it is not easy to build better trilateral relations while Western Europe is preoccupied with its own unification. EC member-states are not even coordinated enough among themselves to advance consistent positions and, once a common policy is achieved, it is often rigid, fragile or nearly immutable in negotiations.
Another difficulty is rooted in America's own foreign policy inclinations. The United States has traditionally been ambivalent about conducting its relations through unwieldy multilateral venues, especially those it cannot dominate. This longstanding preference for bilateral over multilateral relations only intensified during the Bush administration. Many American officials are still not fully convinced that the United States is better off trying to work on a trilateral basis. They cling to the notion that it is probably more advantageous to work America's Pacific and Atlantic flanks separately.
Perhaps the greatest obstacle to cooperation is the failure to recognize the power of the social, cultural, civic and economic bonds that bind the West together as a single political order. The key step to improving G-7 relations is the development of a proper understanding on both sides of the Atlantic and Pacific of what the West is. It is not simply a collection of industrial democracies but rather, quite literally, one industrial democracy stretching from Tokyo to New York to Frankfurt. To get beyond the obstacles to greater cooperation, however, will require more than a recognition of the fundamental, underlying unity of the industrial democratic world. it will also require a clear and persuasive articulation by the leaders of the West.
The key objective of any effort to reform and upgrade G-7 mechanisms is to build structures for continual and routine policy coordination. A good first step is to de-emphasize the annual heads-of-state summits and to develop a council process that truly encourages joint policymaking.
Such an intergovernmental institution—if it is to succeed—must be crafted to reinforce the shared interests and values of G-7 nations. Toward this end, the institutional foundations of the G-7 process itself must be bolstered. A G-7 Secretariat and a Council of Ministers should be created, as well as a range of intergovernmental and private sector consultative bodies. The goal is to widen and deepen the G-7's institutional infrastructure for consultation and agreement.
The establishment of a G-7 Secretariat has both practical and symbolic purposes. The secretariat would consist of a small staff of policy specialists drawn from participating governments and dedicated to analyzing common problems and recommending joint policy action. Its purpose would be threefold. First, the staff would constitute a source of information and policy-oriented expertise dedicated entirely to trilateral economic and political relations. Such expertise is currently scattered in individual government offices and in the research bureaus of the IMF and the Organization for Economic Cooperation and Development (OECD). Second, it would gradually seek to develop common ideas and orientations and, by so doing, facilitate G-7 policy coordination. Finally, the secretariat would provide the G-7 with an institutional memory. The elected leaders of the G-7 countries change frequently, and the secretariat would play a key role in maintaining continuity of purpose.
Only with a common intellectual framework can the G-7 countries shape agreements that can be sustained and monitored. The secretariat would be a vehicle for fostering policy development—an institution where G-7 policy staff could register views, generate and pool statistical and other empirical information and shape, where possible, common policy orientations. It would concentrate G-7 analytic capabilities and enhance routine exchanges among participating governments, providing a place where policy options and initiatives could be honed and then presented to G-7 leaders.
The specific institutional character of the G-7 secretariat, and its links to other functional organizations, could take several different forms. The staff could be recruited independent of the G-7 governments or composed of individuals posted by government ministers or other leaders. Regardless, the G-7 secretariat would nurture its links to other international organizations, particularly the IMF and OECD. These organizations already have certain analytic and monitoring capabilities, and efforts should be made to develop shared capacities.
The other major institutional creation would be a G-7 Council of Ministers. This council would consist of the leaders of the seven governments and the appropriate department representatives. The heads of state would meet on an annual basis, as they now do, and foreign and treasury ministers would meet at least twice a year. The G-7 secretariat would be the administrative unit assigned to support the work of the council, providing research and planning, studying problems and recommending policy.
The G-7 Council would be modeled on the EC Council of Ministers, the main decision-making institution of the Community. Membership on the EC Council, which is composed of cabinet-level ministers, varies according to the subject under discussion. The G-7 Council would be composed of foreign and treasury ministers, and its membership would also vary according to topic. Unlike in the EC, however, the G-7 Council would not have voting or decision-making rules; it would not be created by treaty. It would merely be a deliberative body where ministers could make recommendations to the G-7 heads of state.
The creation of a G-7 Council is meant to have both real and symbolic value. Most important, it is meant to be the institutional embodiment of ongoing and routine G-7 deliberations. In contrast to the largely formal and scripted annual G-7 summits, the semiannual meetings of ministers and the more frequent meetings of deputies should be working sessions. Symbolically, the G-7 Council is meant to convey that the seven largest industrial democracies have linked themselves at a ministerial level. Such a body would reinforce the sense that the G-7 nations had found a way to intensify the process of cooperation and routine policymaking across the industrial world.
Finally, a private sector G-7 council could be formed, modeled on the various advisory groups that industrial countries have used in conjunction with periodic GATT talks. This council would provide a consultative group whose central function would be to recommend policy on various issues facing the G-7 Council of Ministers. A private sector council would help bridge G-7 government policy to private trade and financial systems; the problems of cooperation are not simply those between major governments but also between governments and the private sector.
The G-7 secretariat and Council of Ministers should have a mandate to discuss the full range of global economic, political and security issues and not merely to coordinate monetary and exchange rate policies. For example, the G-7 Council might first take up the topic of economic regionalism. Regardless of the fate of the Uruguay Round, the major industrial countries need to confront the relationship between free trade areas and the global trading system. G-7 nations could formulate a common understanding of the overall goals of the evolving GATT system, discussing norms, principles and institutions rather than negotiating specific trade matters. The G-7 Council could also deliberate on global and regional security issues, becoming a kind of transitional "security council" as Japan and Germany await the time when the U.N. Security Council undertakes the arduous task of granting them permanent seats.
The G-7 council should work toward the formulation of an Atlantic-Pacific Charter. Such a charter would consist of a statement of principles and responsibilities shared by the leading industrial democracies. It would be inspired by the Atlantic Charter, which helped lay down the goals of a postwar international order. The Atlantic-Pacific Charter would build on the bilateral declarations that the United States has signed with Japan and the European Community. A more general declaration of Atlantic-Pacific relations would simply begin to articulate the ideas that will guide future G-7 relations.
The goal of G-7 reform is ultimately to transform the nature of cooperation among the major democratic industrial countries—to turn an ad hoc and episodic process of economic consultation into a coherent set of institutions that will encourage and support collective action by the G-7 countries. These institutions should put the major industrial democracies in a position to formulate and pursue common strategic goals, ultimately resulting in the creation of a "concert" of liberal democratic powers.
It is not surprising that the end of the Cold War has raised anew the question of how the world's leading powers should relate to one another. In the aftermath of previous dramatic upheavals in the international system—the Napoleonic wars and the two world wars—statesmen were forced to confront issues of global architecture. As before, the imperative is not simply to design institutions to prevent war or manage exchange rates but to find ways to harness the collective power of the major states to address broader global problems. If the claims of liberal democratic exceptionalism mean anything, it is that these nations are embedded in a larger system of relations that links them all. This is surely true of the G-7—nations joined through common economic, social and cultural relations and traditions. In a profound sense they form a civilization. But the political "superstructure" of this Western system is remarkably underdeveloped. The major liberal democratic powers currently consult but rarely coordinate; they lack the capacity to provide collective leadership within and outside the West's own sphere. Only once they do so can the West claim finally to have won the Cold War.
 The IMF, for example, has responsibility for monitoring exchange rate policies, and the OECD monitors overall economic trends and policies within the larger set of industrial nations.
 The idea of a G-7 Council has been proposed by others. See The Summit Process and Collective Security: Future Responsibility Sharing, Washington (DC): Group of Thirty, 1991.