Preserving the World Economy
By Mitchell Eubanks
September 2007
SkyKing@uga.edu
?As the twentieth
century progresses and the power of the United States economic and
political engine becomes decreasingly less influential in comparative world
terms, the pressing need for a new system of global governance becomes
progressively paramount. As outlined in The Grand Alliance, an
integrated coalition of liberal democracies whose continued virtues in the
international system should become governors to the rest of the world. As
authoritarian capitalism gains momentum, the need for a new system of rules
outlining behavioral expectations in the global market gains more relevance. One
such proposal suggested to facilitate the creation of the Grand Alliance is the
strengthening of the G8 forum as the most feasible answer for a united body of
democracies. In order to preserve the world economic framework as we presently
know it, a new financial architecture growing out of the stronger G8 forum would
also need to be implemented. A second Bretton Woods system continuing in the
wake of the first collapse in 1971 is a viable first step in securing the
western economic model for the future. This report aims to reinforce the
proposal for a stronger G8 forum and why it is feasible as outlined in The
Grand Alliance of democracies in addition to explaining the implementation
of a new Bretton Woods financial order for the future by highlighting the
positives, negatives, and actionable proposals of each.
Why the G8 framework?
Currently the G8 forum stands
as an able-bodied financial roundtable in which the world’s industrialized
liberal democracies can unite on political issues. Constructed in 1975 as the
“Group of 6,?it enjoys numerous strengths which can be harnessed and elaborated
on in the future. Hosting worldwide summits annually, the organization already
enjoys a favorable historical track record and a high degree of recognition
globally. The markedly boisterous protests in the face of each G8 summit are
quite the proof of the organization’s “popularity.?As a whole, member nations
of the current G8 represent the world’s largest military force and an
overwhelming amount of economic capability, controlling over 50% of world GDP. Meetings
between member nations exhibit a flair for innovative new ideals and a
perseverance to find solutions to persistent problems. The intervention in the
Kosovo conflict in 1999 after repeated United Nations failures is a good
example. This is facilitated to a greater degree by the member nation’s success
in controlling bureaucracy and inefficiency, an example being the refusal of
the establishment of a secretariat. An obvious but important fact is the
longevity of ideals between member nations. Each of the eight democracies have
consistently shown a cohesive coherence of democratic capitalist ideals (ex.
good governance, transparency, etc.), which will not be jeopardized in the
future. This collective nature of the coalition will work powerfully to keep
ideals strong within each country. While opponents against the current system
claim a lack of enforcement against member countries, a strengthened system
will have an inherent enforcement mechanism, membership in the G8 itself.
Membership will include numerous incentives economic and politically. Last but
not least is the increasing level of openness by the United States regarding trade
agreements and policy action, a positive sign for future G8 success. As per The
Grand Alliance, the “star-shaped?alliance could be a fact of the past with
future cooperation between the United
States and its allies as diplomatic and
economic initiatives become more focused. Thus, the current G8 framework would
provide a concrete base for strengthening and expansion, with a historically
positive record paving the way for confidence domestically and abroad. Above
all else, it is the most logical transition in the implementation of the Grand
Alliance, as outlined in the book for the above reasons and those discussed
later.
Aim of a strengthened G8
?A newly structured
G8 forum transformed from an administrative role to a global governance
institution would first and foremost contribute to the stability of the world
economic market in a host of new means. Of the new G8 missions, the incentives
for non-member countries to democratize and adopt free market ideals would be
paramount. A future system of admittance into the G8 framework would also be a
possibility as an incentive which would take advantage of the economic liberalization
between member nations. As the rise of authoritarian China
becomes more and more apparent, the G8 also provides a vehicle to isolate China
until democratic cooperation may take place. This holds especially true for Japan, whose
financial assistance is of great importance to a rapidly growing Chinese
economy. Pressure from many of China’s
largest trading partners within the G8 would have the possibility of promoting
much needed change. Cooperation with private sector interests as well as
governmental agencies is another aim. As foreign direct investment (FDI)
spreads internationally through the forces of globalization, the G8 could
provide incentives to invest in democratic, free-market countries, both
developed and emerging. In the case of China
and its enormous level of FDI inflows, businesses would be increasingly warned
to the nature of China’s
political instability. As democratic India becomes another player in the
G8 (posed in The Grand Alliance as the G9), foreign investment could
increasingly be attracted to the country, putting pressure on its close
northern neighbor to reform. Another important player within the G8 is the
newly adopted country of Russia.
As of 1997, the former G7 “plus 1?forum became the G8 by the admittance of Russia. As
forecasted for the future, Russia
will control over 70% of the earth’s energy resources. As demand grows and
supplies reduce, an effective alliance with Russia will help to secure the
precious resources needed so dearly by the entire industrialized world.
A New Bretton Woods System
?In an age characterized
by the rise (not the decline) of authoritarian capitalism a la
Singapore and China, a new international financial system emphasizing increased
cooperation and a bolder set of rules and incentives among its non law abiding
participants is ever important. The current “Bretton Woods II?system proposal
by Doole, Folkerts-Landau and Garbe, which emphasizes U.S. and Asian cooperation in order to finance
American deficits are not in the best interest of the global system, especially
when the advocates suggest leaving Europe
behind, compromising geopolitical concerns.?
A completely new financial order based loosely off of the Bretton Woods
model of 1944 would encourage the many facets of economic participation between
the G8 nations. In the original vein of post-World War II economic cooperation,
a new financial architecture will maintain stability through the adoption of a
common monetary policy.?Of the perceived
benefits, the first would be trade liberalization between industrialized
nations. Public and private sector interests would capitalize from the
reduction in protectionist policies between the world’s richest industrialized
nations while also benefiting from a streamlined trade system. Much like the
previous Bretton Woods system, another important reform is the adoption of more
stable exchange rate policies.?While the
feasibility of a pegged rate (gold) of the previous system is outdated, a common
currency is still realistic. This common currency, combined with a new
symbiotic relationship between member central banks will facilitate stability. With
the strengthened political ties between the G8 member nations, an easy
coordination of economic policy between U.S, European, and Japanese central
banks would help to reduce currency exchange volatility, decrease speculative
attacks, and control capital flows. Increased banking coordination also
provides a stronger safety net in case of impending financial crisis. A new
system would also call for the restructuring of the institutions still alive,
including the International Monetary Fund (IMF). Increased transparency, more
accountability to pay back outstanding debts, and more coordination between
developed and developing nations would be the primary objectives of a reformed
IMF. In sum, a new Bretton Woods system working synonymously with the G8 is a
good step towards a harmonious balance between financial liberalization and
regulation.
Reforms to the current G8 and emerging challenges
?While many of the
successes have been highlighted earlier in this report, it is evident that
numerous challenges are present in the face of a reform of the G8 forum.?At the heart of the challenges is the danger
of the loss of its primary mission, as a non-institutional forum where industrialized
liberal democracies discuss pertinent topics.?
Coupled with this is a severe loss of credibility that is possible if
the newly strengthened global institution does not continue to hold true to its
actions and allow for growth multilaterally. As with any large governing body,
large bureaucratic tendencies and inefficiency stifle quick action and easy
implementation of policy. This holds especially true for the United Nations
whose intervention in Darfur (UNSCR 1706) has
been on the back burner due to bureaucratic difficulties and is an example of
how large organizations with heterogeneous members operate. While the
non-bureaucratic efforts are proven, the leadership will have to continue to fight
it in the future. Keeping a non rigid structure, keeping staff to a minimum, and
encouraging criticism both from within and outside are a few recommendations. Another
of the G8’s positive aspects discussed earlier may become its most daunting
challenge yet, a discontent public. Due to the enormous amounts of positive
(and negative) press that the G8 receives, public discontent is an influential
factor in the implementation of a stronger framework. Although, as events in
the middle-east, uneasy feelings towards economic cooperation with China, and a
lack of trust in much of the United Nations would definitely draw copious
amounts of support for an organization whose ideals are in line with the
majority of the democratic world and who supports multilateral action. In fact,
the outdated nature and bureaucratic gridlock of the United Nation’s Security
Council lends an even greater heir of credibility to the G8 whose policy
recommendations are persistent and ambitious by many views. As viewed by John
Bolton, former United States
ambassador to the U.N., “There's no such thing as the United Nations. If the
U.N. secretary building in New York
lost 10 stories, it wouldn't make a bit of difference.?o:p>
?When a newly
strengthened G8 emerges, the current controversy regarding the admittance and
presidency of Russia
will be an issue which can lead an overwhelming sense of confidence or a severe
loss of credibility for the administration. As Russia’s current president,
Vladimir Putin, continues to display increasing signs of a reversal to
authoritarian rule (shutting down media sources, arrests without due process, rigged
elections, marginal rule of law, etc), the G8 membership must enforce
democratic free-market ideals in order to preserve an economic union and
protect the credibility of the organization. This encompasses being firm with
reform and keeping dialogue open. Pushing for modernization of governmental
institutions, education, and infrastructure domestically as well as listening
to Russian concerns is a key step to stabilizing Russia.
?In conclusion, the
strengthening of the G8 as proposed in The Grand Alliance stands as the
feasible step towards the implementation of the actual Grand Alliance of
democracies. With the political and economic conditions of the world under
constant change and threat from numerous arenas, a body of international
governance becomes an increasingly vital step to secure a stable financial
future. The current G8 embodies the principles that the democratic world looks
to for leadership and an overall strengthening of effectiveness to promote
western economic and political ideals is a natural progression.
"The economic health of every country is a proper matter of concern
to all its neighbors, near and far."
- Franklin Roosevelt