SALVAGING THE G-7

G. John Ikenberry

Building a Post-Gold War Architecture

W
ITH 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 encour-
aging. 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 leader-
ship 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
communiques that paper over dysfunctions in the global eco-
nomic system, or vague joint commitments to growth and pros-
perity that substitute for actual accord. Such shallow protocol is
inadequate for dealing with real tensions arising from trade con-
flicts, global economic malaise or alliance burden-sharing.

G. John Ikenberry is a Senior Associate at the Carnegie Endowment for

International Peace and an Associate Professor of Political Science at the
University of Pennsylvania. He is author of the forthcoming book. Moments of
Creation: TTie Rebuilding of International Order, 1815, 1919, 1945, 1990.
 SALVAGING THE G-7 133
It is ironic today that trilateral relations are so poorly main-
tained. 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 non-
liberal 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 unprece-
dented, 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 reorgani-
zation 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 collec-
tive responses to economic issues as well as pressing security and
environmental problems. The G-7 countries account for 64 per-
cent of world GNP; they are the leading sponsors of the world's
dominant multilateral institutions. The world's most prosperous
nations niust 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.

Growth of an Ad Hoc Process

T 'HE 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 offi-
cials have litde capacity to make or keep agreements.
Consultations focus narrowly on monetary and exchange rate
issues, and the process has litde institutional memory or impetus
for developing common ideas to broaden trilateral cooperation.
The process began in 1975 in die aftermadi 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 rel-
evant. After 1973, widi the breakdown of the gold-dollar stan-
dard, the IMF was largely removed from exchange rate coordina-
134 FOREIGN AFFAIRS
tion, and the G-7 worked episodically in its place, although not
very effectively. At first, G-7 summits were informal and unstruc-
tured, with government leaders discussing common economic
problems with litde staff assistance or follow-up. Summits
achieved little in the way of consistent and ongoing policy coop-
eration, and there was no serious effort to make the G-7 a per-
manent mechanism for coordination.
In the 1970s the high watermark of G-7 summitry was the
1978 Bonn summit. There, the United States made a commit-
ment 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 v^dth 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 script-
ed, 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 macroeco-
nomic policies. Despite large deficits, the United States main-
tained 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 ofjoint agreements the leading indus-
trial states sought to bring the dollar back into line and to stabi-
lize 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
 SALVAGING THE G-7 135
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.

Obstacles to G-7 Cooperation

n p H E MOST SERIOUS obstacle to G-7 cooperation is
_L 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 gov-
erning coalitions—constrains joint efforts to stimulate global eco-
nomic growth or to manage monetary and trade relations, pre-
venting G-7 governments from pursuing disciplined and syn-
chronized 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 vari-
ous 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 prob-
ably more advantageous to work America's Pacific and Atlantic
flanks separately.
Perhaps the greatest obstacle to cooperation is the failure to
136 FOREIGN AFFAIRS
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 prop-
er understanding on both sides of the Atiantic 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 obsta-
cles to greater cooperation, however, will require more than a
recognition of the fundamental, underlying unity of the industri-
al democratic world. It will also require a clear and persuasive
articulation by the leaders of the West.

Institutional Reform

T HE 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 gov-
ernment 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 coordina-
tion. Finally, the secretariat would provide the G-7 with an insti-
tutional memory. The elected leaders of the G-7 countries
change frequentiy, and the secretariat would play a key role in
maintaining continuity of purpose.
 SALVAGING THE G-7 137
Only with a common intellectual framework can the G-7
countries shape agreements that can be sustained and moni-
tored. The secretariat would be a vehicle for fostering policy
development—an institution where G-7 policy staff could regis-
ter views, generate and pool sta-
tistical and odier empirical " O n l y w i t h a c o m -
information and shape, where • n
possible, common policy orien- m o n l n t e i l e c t u a i
tations. It would concentrate framework can the
G-7 analytic capabilities and G-7 countries shape
enhance routine exchanges . *^
among participating govern- a g r e e m e n t s t h a t c a n
ments, providing a place where b e s u s t a i n e d a n d
policy options and initiatives m o n i t o r e d . "
could be honed and then pre-
sented to G-7 leaders.
The specific institutional character of the G-7 Secretariat, and
its links to other functional organizations, could take several dif-
ferent forms. The staff could be recruited independent of the
G-7 governments or composed of individuals posted by govern-
ment ministers or other leaders. Regardless, the G-7 Secretariat
would nurture its links to other international organizations, par-
ticularly the IMF and OECD. These organizations already have cer-
tain 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 sev-
en 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

'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.
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.
138 FOREIGN AFFAIRS
discussion. The G-7 Council would be composed of foreign and
treasury ministers, and its membership would also vary accord-
ing to topic. Unlike in the EC, however, the G-7 Council would
not have voting or decision-making rules; it would not be creat-
ed by treaty. It would merely be a deliberative body where min-
isters 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 institution-
al embodiment of ongoing and routine G-7 deliberations. In con-
trast to the largely formal and scripted annual G-7 summits, the
semiannual meetings of ministers and the more frequent meet-
ings 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 policy-
making 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 gov-
ernment policy to private trade and financial systems; the prob-
lems of cooperation are not simply those between major govern-
ments 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 glob-
al trading system. G-7 nations could formulate a common under-
standing of" the overall goals of the evolving GATT system, dis-
cussing 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 transi-
tional "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 state-
 SALVAGING THE G-7 139
ment of principles and responsibilities shared by the leading
industrial democracies. It would be inspired by the Adantic
Charter, which helped lay down the goals of a postwar interna-
tional order. The Adantic-Pacific Charter would build on the
bilateral declarations that the United States has signed with
Japan and the European Community. A more general declara-
tion of Adantic-Pacific relations would simply begin to articulate
the ideas that will guide future G-7 relations.

A Liberal Concert of Powers?

HE GOAL OF G-7 REFORM is ultimately to trans-
T form the nature of cooperation among the major demo-
cratic industrial countries—to turn an ad hoc and episodic
process of economic consultation into a coherent set of institu-
tions 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 demo-
cratic 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 eco-
nomic, 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 coordi-
nate; they lack the capacity to provide collective leadership with-
in and outside the West's own sphere. Only once they do so can
the West claim finally to have won the Cold War. ^