Corporate, Public and Global Governance (Global Finance)

CORPORATE, PUBLIC AND GLOBAL GOVERNANCE Global Finance Series Edited by John J. Kirton, Munk Centre for International...

Author: Kirton

93 downloads 1657 Views 999KB Size Report

This content was uploaded by our users and we assume good faith they have the permission to share this book. If you own the copyright to this book and it is wrongfully on our website, we offer a simple DMCA procedure to remove your content from our site. Start by pressing the button below!

Report copyright / DMCA form

DOWNLOAD PDF

CORPORATE, PUBLIC AND GLOBAL GOVERNANCE

Global Finance Series Edited by John J. Kirton, Munk Centre for International Studies, Trinity College Canada, Michele Fratianni, Indiana University, USA and Paolo Savona, LUISS University, Italy The intensifying globalisation of the twenty-ﬁrst century has brought a myriad of new managerial and political challenges for governing international ﬁnance. The return of synchronous global slowdown, mounting developed country debt, and new economy volatility have overturned established economic certainties. Proliferating ﬁnancial crises, transnational terrorism, currency consolidation, and increasing demands that international ﬁnance should better serve public goods such as social and environmental security have all arisen to compound the problem. The new public and private international institutions that are emerging to govern global ﬁnance have only just begun to comprehend and respond to this new world. Embracing international ﬁnancial ﬂows and foreign direct investment, in both the private and public sector dimensions, this series focuses on the challenges and opportunities faced by ﬁrms, national governments, and international institutions, and their roles in creating a new system of global ﬁnance. Also published in the series Governing Global Finance New Challenges, G7 and IMF Contributions Edited by Michele Fratianni, Paolo Savona and John J. Kirton ISBN 0 7546 0880 8 Sustaining Global Growth and Development G7 and IMF Governance Edited by Michele Fratianni, Paolo Savona and John J. Kirton ISBN 0 7546 3529 5 Global Financial Crime Terrorism, Money Laundering and Offshore Centres Edited by Donato Masciandaro ISBN 0 7546 3707 7 Governing Global Banking The Basel Committee and the Politics of Financial Globalisation Duncan Wood ISBN 0 7546 1906 0 Elements of the Euro Area Integrating Financial Markets Edited by Jesper Berg, Mauro Grande and Francesco Paulo Mongelli ISBN 0 7546 4320 4 New Perspectives in Global Governance Why America Needs the G8 Edited by Michele Fratianni, John J. Kirton, Alan M. Rugman and Paolo Savona 0 7546 4477 4

Corporate, Public and Global Governance The G8 Contribution

Edited by MICHELE FRATIANNI Indiana University, Bloomington, USA PAOLO SAVONA LUISS Guido Carli University of Rome, Italy JOHN J. KIRTON University of Toronto, Canada

© Michele Fratianni, Paolo Savona and John J. Kirton 2007 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise without the prior permission of the publisher. Michele Fratianni, Paolo Savona and John J. Kirton have asserted their right under the Copyright, Designs and Patents Act, 1988, to be identiﬁed as the editors of this work. Published by Ashgate Publishing Limited Gower House Croft Road Aldershot Hampshire GU11 3HR England

Ashgate Publishing Company Suite 420 101 Cherry Street Burlington, VT 05401-4405 USA

Ashgate website: http://www.ashgate.com British Library Cataloguing in Publication Data Corporate, public and global governance : the G8 contribution. - (Global ﬁnance series) 1. Group of Eight (Organization) 2. International economic relations 3. Globalization 4. Corporate governance 5. Economic policy I. Fratianni, Michele II. Savona, Paolo, 1936- III. Kirton, John J. 337 Library of Congress Cataloging-in-Publication Data Corporate, public and global governance : the G8 contribution / edited by Michele Fratianni, Paolo Savona, and John J. Kirton. p. cm -- (Global Finance) Includes bibliographical references and index. ISBN-13: 978-0-7546-4046-2 (alk. paper) 1. International organization. 2. Public administration. 3. Corporate governance. 4. Group of Eight (Organization) I. Fratianni, Michele. II. Savona, Paolo, 1936- III. Kirton, John J. JZ1318.C687 2007 351--dc22 2006034019

ISBN 13: 978-0-7546-4046-2

Printed and bound in Great Britain by TJ International Ltd, Padstow, Cornwall.

To Sylvia Ostry Scholar and Statesperson Dr. Sylvia Ostry served with distinction as the Personal Representative of the Prime Minister of Canada at the G7 summits from 1984 to 1988, capping her G7 career as the host ‘sherpa’ for the 1988 G7 summit in Toronto. As one of the longestserving sherpas, she helped guide the G7 and the global community through the transformational decade of the 1980s, bringing to the G7 and global governance a new emphasis on microeconomic cooperation, trade liberalisation, the process and principles that led to the creation of the World Trade Organization, and debt relief for the poorest countries through the pioneering Toronto Terms on debt relief. Born in 1927 in Winnipeg, Manitoba, she received her BA in 1948 and her MA in 1950 in Economics at McGill University, and her PhD at McGill University and Cambridge University. After teaching and research at several Canadian universities and the University of Oxford Institute of Statistics, she joined the Government of Canada in 1964. Among the posts she held were Chief Statistician, Deputy Minister of Consumer and Corporate Affairs, Chair of the Economic Council of Canada, and Ambassador for Multilateral Trade Negotiations. From 1979 to 1983, she was Head of the Economics and Statistics Department of the Organisation for Economic Co-operation and Development. In 1989 she was the Volvo Distinguished Visiting Fellow at the Council on Foreign Relations in New York. In 1990 Dr. Ostry resumed her scholarly career as Chair of the Centre for International Studies at the University of Toronto and, in 1997, became the ﬁrst Distinguished Research Fellow of the Munk Centre for International Studies. Dr. Ostry’s work has been recognised with 19 honorary degrees from universities in Canada and abroad. In 1987, she received the Outstanding Achievement Award of the Government of Canada. In 1990, she was made a Companion of the Order of Canada, the highest award in the Canadian national system of honours. In 1991, she was admitted as a Fellow of the Royal Society of Canada. Dr. Ostry is an expert advisor to the Commission on Transnational Corporations of the United Nations, a member of the Board of Distinguished Advisors for the Center for the Study of Central Banks, a member of the Group of Thirty in Washington, and a founding member of the Paciﬁc Council on International Policy. In 1992, the Sylvia Ostry Foundation annual lecture series was launched by Sadako Ogata, then the United Nations High Commissioner for Refugees. An economist of the ﬁrst order, Dr. Ostry has written numerous books and articles on various aspects of the international economy, with a particular emphasis on the development and elaboration of the multilateral trading system as well as the impact of globalisation. As the ﬁrst woman to serve as a G7 sherpa, and the only woman to this day to have been a deputy minister in the Government of Canada, she has inspired women seeking to contribute to public service and global governance at the highest level in Canada and throughout the world.

This page intentionally left blank

Contents List of Tables List of Contributors Foreword Preface and Acknowledgements List of Abbreviations

xi xiii xv xxi xxv

PART I INTRODUCTION 1

Governance amid Globalisation: Corporations, Governments, and the G8 Michele Fratianni, Paolo Savona, and John J. Kirton

3

PART II GLOBALISATION’S CHALLENGES FOR GOVERNANCE 2

3

4

The Needs and Challenges of Global Governance Olivier Giscard d’Estaing

23

Globalisation, Governance and the G8 Summit Seiichi Kondo

27

Cracks in the Concrete: The Global Order under Threat of Collapse Kimon Valaskakis

35

PART III CORPORATE GOVERNANCE 5

6

7

Corporate Governance in the Twenty-First Century Donald J.S. Brean and Christopher Kobrak

55

Regional Multinationals and Regional Trade Policy: The End of Multilateralism Alan M. Rugman

77

The Growth of Population and Technological Innovation in the New Order Paolo Savona

87

viii

Corporate, Public and Global Governance: The G8 Contribution

PART IV PUBLIC GOVERNANCE 8

9

Toward Accountability? The G8, the World Trade Organization and Global Governance Heidi K. Ullrich Governance and Conﬂicts of Interest in International Financial Institutions Michele Fratianni and John C. Pattison

99

127

PART V THE GOVERNANCE OF GLOBALISATION 10

11

Where Do We Stand with Global Governance? Pierre Jacquet

149

Governing Globalisation: The Social and Sustainability Institutions Pierre Marc Johnson

163

PART VI THE G8 CONTRIBUTION 12

13

14

G8 Process and Performance: Past, Present, and Future Nicholas Bayne

171

Commitments Kept or Promises Broken? Assessing G8 Compliance at Kananaskis 2002 Ella Kokotsis

187

Coming Together: The Evian Legacy John J. Kirton and Victoria V. Panova

201

Documentary Appendices A B C D

E F

Statement of the G7 Finance Ministers and Central Bank Governors Paris, 23 February 2003 Statement of the G7 Finance Ministers and Central Bank Governors Washington DC, 12 April 2003 G8 Finance Ministers Statement Deauville, France, 17 May 2003 G8 Declaration: Fostering Growth and Promoting a Responsible Market Economy Evian, 2 June 2003 Fighting Corruption and Improving Transparency: A G8 Declaration Evian, 2 June 2003 Science and Technology for Sustainable Development: A G8 Action Plan Evian, 2 June 2003

233 235 239

249 253 257

Contents

G H I

Chair’s Summary Evian, 3 June 2003 Statement of the G7 Finance Ministers and Central Bank Governors Dubai, 20 September 2003 G20 Finance Ministers and Central Bank Governors Communiqué Morelia, Mexico, 26–27 October 2003

Bibliography Index

ix

261 267 271 275 289

This page intentionally left blank

List of Tables Table 5.1 Table 5.2 Table 6.1 Table 6.2 Table 6.3 Table 6.4 Table 6.5 Table 7.1 Table 7.2 Table 13.1 Table 13.2

Insider and outsider models: conﬁguration of control Insider and outsider models: advantages and disadvantages U.S. consumption of petroleum, by country of origin, 2001 U.S. petroleum imports, 2001 Intra-regional trade in the triad, 1980–2000 The top 25 home-region-based companies 2001 Classiﬁcation of the top 500 multinational corporations, 2001 Population and gross domestic product in some geographical areas, 2001 Expenditure in research and development G8 compliance assessments by country, 1996–2002 2002 Kananaskis compliance scores

60 61 80 80 81 84 85 90 90 190 195

This page intentionally left blank

List of Contributors Nicholas Bayne, KCMG, Fellow at the International Trade Policy Unit, London School of Economics and Political Science. Donald J.S. Brean, Professor of Finance and Economics, Rotman School of Management, University of Toronto. Michele Fratianni, W. George Pinnell Professor and Chair of Business Economics and Public Policy, Kelley School of Business, Indiana University in Bloomington, Indiana. Olivier Giscard d’Estaing, Chair, Comité pour un Parlement Mondial, Chair, INSEAD Foundation, and founding dean and director general of INSEAD. Pierre Jacquet, Executive Director and Chief Economist, Agence française du développement. Pierre Marc Johnson, Senior Counsel, Heenan Blaikie and former premier of the province of Quebec. John J. Kirton, Director of the G8 Research Group, Associate Professor of Political Science, Munk Centre, University of Toronto. Christopher Kobrak, Certiﬁed Public Accountant and Professor of Finance at ESCP-EAP, Paris. Ella Kokotsis, Director of Analytical Studies, University of Toronto G8 Research Group. Seiichi Kondo, Japan’s ambassador to the United Nations Educational, Social and Cultural Organization, and former Deputy Secretary-General, Organisation for Economic Co-operation and Development. Victoria V. Panova, Department of International Relations and Foreign Policy of Russia, Moscow State University of International Relations, and Director, Moscow Ofﬁce, G8 Research Group. John C. Pattison, Senior Vice-President of Regulatory and Corporate Affairs, Canadian Imperial Bank of Commerce.

xiv

Corporate, Public and Global Governance: The G8 Contribution

Alan M. Rugman, L. Leslie Waters Chair in International Business, Kelley School of Business, Indiana University in Bloomington, Indiana. Paolo Savona, Professor of Political Economy, LUISS Guido Carli University in Rome, Italy. Heidi K. Ullrich, Visiting Lecturer, London School of Economic and Political Science and Director, London Ofﬁce, G8 Research Group. Kimon Valaskakis, President, Global Governance Group–New School of Athens.

Foreword The 1998 Birmingham Summit marked the moment when private ﬁrms and nongovernmental organisations (NGOs) became involved in the global network of networks. At its origins, the group of major industrial powers came together in 1975 to work out a common response to the problems of interdependence, which had been highlighted by the ﬁrst oil shock, the incorporation of Japan into the world trading system, and the related issues of monetary control, inﬂation, and the exchange rate regime. The heads of state or government met at Rambouillet, France, hosted by Valèry Giscard d’Estaing with the aim to get his fellow leaders to talk about their common problems around the ﬁreplace. The approach was unashamedly state-centric and elitist: the authority of states over markets had become diffused, justifying a combination of efforts to reassert state management through cooperative endeavours, notably among the ﬁve major economic powers. More than two decades later, membership of the lead group had widened to eight, the communist system is no more, the United States is the sole great power, a plural universe of multinational corporations (MNCs), NGOs, terrorist networks, and media giants are refashioning the world polity, and for the ﬁrst time since 1914 world markets are inclusive. This volume, Corporate, Public and Global Governance: The G8 Contribution, tracks the expansion of the G8 agenda from 1998 through to the Evian Summit of 2003, and beyond, when world leaders face an ever-widening range of challenges. Two related themes in particular stand out from the chapters: the legitimacy, or lack thereof, of the G8 process, and the authority of the world community to act on humanity’s behalf. My contention is that both are endemic, not susceptible to solution, and hence generative of indeﬁnite frustration both for those who argue the urgency of world governance, and those who consider its advent a nightmare-in-waiting. The transformation of the world polity may be presented in the form of four distinct but inter-related elements. The ﬁrst of these is the transformation of the state system, associated with the collapse of the communist system, the primacy of the U.S., and the trend to fragmentation of political authority, as the number of states multiply and the variety of regulatory bodies proliferate. The second element is the relentless retreat of any alternative forms of government to market democracy, as various forms of despotism collapse, populations become better informed, market scope widens, and institutional competition takes its toll. The third element is the recreation of the world market under the aegis of the western powers, and by the United States in particular, to reach a level of integration unknown since the ﬁrst decade of the twentieth century. But unlike the earlier period, trade and investments after 1945 have been overwhelmingly made by large industrial corporations, ﬁnanced by the explosive growth of global ﬁnancial markets. The fourth element is the growth of the industrial or service corporation, initially based in a home

xvi

Corporate, Public and Global Governance: The G8 Contribution

country, and with subsidiaries or market outlets in host countries, toward becoming a transnational group with subsidiaries and markets located around the globe, and with a widely dispersed shareholder community, and a non-national recruitment policy. All available indicators, such as the estimated global sales of foreign subsidiaries, point to the continued expansion of international production and the deepening of interdependence in the world economy, beyond that achieved by international trade alone. These four, inter-related elements of the ongoing global transformation are simultaneous in that they interact in a myriad of ways over the years. But each one of them moves at its own rhythm and according to very different components. The argument here is that simultaneity and non-synchronisation in the dynamics of transformation have led the old dialectics of the Cold War system to be replaced by a global process of change at the level of markets, societies, and cultures. Corporations are the leading revolutionaries in this process. Given the multiple linkages between the elements of the world’s transformation and their simultaneous non-synchronisation, and in particular the intimate interactions between porous frontiers and the legacies of human history, the least that can be said is that the future deﬁnitely is not traced out in linear form. Global governance under such conditions is likely to be a hazardous undertaking, vital to chart humanity’s path towards a global civilisation, but difﬁcult to achieve, as the chapters in this volume indicate. Why this should be is generally explained in terms of one of two longer-term trends. One narrative has the world converging on western political norms, on western economic policy, and on a market-driven process of world integration. These developments require the creation of a new architecture for global governance. It is at this point that the political debate becomes more audible. Market liberals with a penchant for government intervention consider that more open world markets have to be organised from above, through government cooperation, and through international organisation. This global elitism is necessary to mitigate inter-state rivalries, and the abuse of political or corporate power by the strong. Ultimately, a global public interest is best served by international organisations, governments, and NGOs working together for the good of the international community (Kaul et al. 1999). By contrast to this essentially elitist prescription, classical liberals argue that a complex international political economy has to be built from the bottom up, on the basis of domestic national orders (Henderson 1998). If governments choose for political reasons to prefer some protectionism, then it is their choice. They should be left the beneﬁt of the doubt that the economic penalties incurred are less than the political penalties that they have sought to avoid. Domestic political support for a diverse and in general open world economy may be thereby secured, without having to construct a distant and unaccountable global institutional architecture. As world markets develop, a universal brotherhood emerges that binds peoples together in a web of private property rights, governed by private law, and relying on tradition and trust. The more the visible hand of politics replaces the spontaneity of market processes, the more trading relations between rich and poor will appear as imperialism in new guise. Overall, the vision is of a radiant future for humankind. The world will be increasingly wealthy and inclusive as global civil society develops a public law that overrides state sovereignties. Problems of adaptation to the new

Foreword

xvii

technologies, the uses to which they may be put, and imbalances in world labour or ﬁnancial markets will be facilitated by the power of the forces impelling the world towards unity. Wealth creation, the assumption is, will act as a great dissolvent on the tensions inherent to humankind’s progress to a higher civilisation. An alternative narrative has the world diverging, in that the density of interactions among peoples that we generally refer to as ‘globalisation’ is not a dissolvent to old conﬂicts, so much as a stimulus to old tensions as well as to new. The historical world in which we live is one of inherited inequalities among states or classes, and very diverse motivations among peoples of differing religions or cultures. States, for instance, have very different adaptive capabilities which are forged in discrete, historic circumstances, yielding not one but a diversity of capitalisms (Weiss 1998; Crouch and Streeck 1997). One result is that national governments project their own demands into international institutions, so that the system of global governance under construction is a negotiated construct, which reﬂects the institutional arrangements — national, regional, or global — from which they emerged (Whitely 1997). Governance in this global economy is necessarily multi-tiered, as in the Middle Ages, where nation-states are one class of power in a complex system of power from world to local levels. For others, who see the world in terms of religions or cultures, globalisation brings frictions between peoples from different civilizations. ‘The great divisions among humankind and the dominating source of conﬂict will be cultural’, Samuel Huntington (1993) has suggested. Resistance to convergence on a western norm will take the form of an assertion of a separate cultural identity. Post– Cold War prophets of apocalypse go further, and declare that global capitalism seeks to impose its own world view of market democracy on a diverse world. The project is being implemented with radical disregard to the likely political consequences, and is as unrealisable as was world-wide communism (Goldsmith 1994; Gray 1998; Soros 1998). Overall, the world of history introduces discretion in the human affairs, diversity, and divergence, rather than linearity, integration, and convergence. The proposition advanced here to explain why global governance is a hazardous undertaking is that the new world system to have emerged in recent years is characterised by complementary opposites: a diversity of states in a nonhomogeneous world, penetrated and shaped by global markets, operating powerfully to create a more homogeneous world civilisation; alongside aspirations to create a system of global governance out of the world’s existing institutional framework as the counterpart to a world of relentless competition among states, cultures, corporations, or currencies. The impact of the world’s driving forces on this system generates the ongoing process of transformation, which is captured by the juxtaposition of present prospects for an increasingly wealthy and inclusive world as global civil society develops toward a higher civilisation, and a world of history where the forces of globalisation operate as a stimulant to divergence, to conﬂicts and to a ruthless competition between peoples, states, and corporations. It is this double movement between the forces driving toward the prospect of a radiant future and the world’s very divergent capabilities to adapt that lie at the heart of the new dialectics in global affairs. Cold War dialectics was structured by the global conﬁguration of the international system; the post–Cold War dialectics is a global process working at the levels of cultures, markets, and politics.

xviii

Corporate, Public and Global Governance: The G8 Contribution

In such a world, it can be no surprise that there is a race for meaning, a competition among ideologies, whose disciples seek all-embracing explanations for the purpose of their activities, or for what they think they observe. The phenomenon may be explained in terms of the tension between ‘world’ and ‘local time’ (see Laïdi 1994). World time lives in world markets, ﬂourishes on communications, substitutes memory for choice and trade-offs, embraces all populations of the world, and offers the means to satisfy desires for reward and retribution that have lain dormant in the dreams of individuals or even more of civilisations. Local time stretches far beyond the life of individuals into mythologised pasts that populate the many mental landscapes of the world’s peoples, with holy places, ruins, and legends. It is conditioned by long-dead technologies and its distances are measurable in the hours, days, weeks, or months that journeys took by foot or horseback. It is bound by history and geography. It is rooted in the malleable memories of communities, in their habits and languages. Its rationality is exclusive of choice, of trade-offs, and of aliens. Its appeal is to the inner wellsprings of loyalties on which it draws. Local time cultivates trust and tribalism, as two sides of the same coin. It is patient and particularist. Its expressions are secretive, and its reﬂexes are coded. But it also lives in, uses, and is seduced by world time. The juxtaposition of the two categories of time is the wellspring of the world’s turmoil. David Kennedy (2001, 122) expresses a very similar idea when he writes: ‘Within the cosmopolis, at least, “culture” is about persuasion and communication, governance a matter of deposits and withdrawals from a legitimacy stockpile in an “international community” where everyone speaks the language of missiles and messages, sanctions and sanctimony. Outside the cosmopolis, however, culture means local and particularist commitments, altogether different from the secular, rational and pragmatic communicative methods of cosmopolitan governance.’ Local time, in other words, holds its own exigencies, and there is no foregone certainty that the strains of adjustment to the whims of world time will not become too great to bear. It may also seek to realise collective ambitions or reek unconsummated vengeance through the means of modernity available to it. In this sense, international markets are a constant barometer tracking and shaping the varied world population’s exploration of its future. The present process of globalisation is a prisoner of that historical condition, and the path it takes depends on the multiple links it permanently reestablishes with the many political geographies which are the essential components of the world system. The most enduring of those political geographies are states, and the great majority of states are states of many nations. This is the condition in which global governance, and G8 meetings, must be played out. Yet the unresolved problem of global governance remains, as ever: who represents the world community, the power, the international institutions, or a combination of them? Without precluding the various answers and suggestions that are advanced in the following pages, I would like to focus on one issue, that of authority in a plural world. One analogy of the present world is that of its resemblance to Europe’s medieval period. After three centuries in which state authority over society was centralised, we have moved toward a ‘new medievalism’ of dispersed power, and competing authorities (Strange 1996). There is no pope, as the world is materialist, driven by greed and self-interest, while the emperor — the U.S. — is

Foreword

xix

unwilling or unable to behave responsibly. The best way to describe this world is through the lens of pluralism, halfway to a world economy and a world society. The pluralist perspective reduces the signiﬁcance of the traditional distinction between domestic and international, and populates the world system with more authorities than states. This deﬁnition presents politics as ubiquitous, and populates its arena with a broad fauna of organisations and individuals. In this deﬁnition of multiple authorities with power to allocate values and multiple markets in a pluralist world where politics reaches beyond states, multiple authorities are substituted for states, multiple markets for the market, multiple values for any convergent ideologies, and multiple social groups, understood as states, classes, generations, genders, or multiple social groups. If this is a reasonable description of the world as it is, it follows that world politics is a process without solution. If the U.S. as the world’s sole power decides to act as world tyrant to prevent a greater evil of lawlessness in the ‘medieval’ world, it is accused of unilateralism. If the world powers act in concert, they lack legitimacy. If the world’s international organisations are invited to draw up standards and norms for the rest of the world to follow, it is not difﬁcult to reveal that their own procedures do not measure up to their prescriptions. If a fragmented world of states is considered the source of the world’s ills, the substitute of world governance or regional unity as likely as not is considered even less desirable. Prescriptions for minimalist ambitions are readily weighed against the magnitude of the challenges facing humanity, just as maximalist proposals are readily usurped for particularist purposes. That leaves two keys to the future: the importance of promoting a sense of a global civilisation, and the limits to power in the global arena. As this volume shows, the world of the twenty-ﬁrst century is not a comfortable bed for ideologues. Jonathan Story Shell Fellow in Economic Transformation Professor of International Political Economy INSEAD References Crouch, Colin and Wolfgang Streeck (eds.) (1997). Political Economy of Modern Capitalism: Mapping Convergence and Diversity (London: Sage Publications). Goldsmith, James (1994). The Trap (London: Macmillan). Gray, John (1998). False Dawn: The Delusions of Global Capitalism (London: Granta). Henderson, David (1998). The Changing Fortunes of Economic Liberalism: Yesterday, Today, and Tomorrow (London: Institute of Economic Affairs). Huntington, Samuel P. (1993). ‘The Clash of Civilizations’. Foreign Affairs, vol. 72, no. 3, pp. 22–49. Kaul, Inge, Isabelle Grunberg and Marc A. Stern (1999). Global Public Goods: International Cooperation in the 21st Century (New York: Oxford University Press for the United Nations Development Programme).

xx

Corporate, Public and Global Governance: The G8 Contribution

Kennedy, David (2001). ‘The Forgotten Politics of International Governance’. European Human Rights Law Review, no. 2, pp. 117–125. Laïdi, Zaki (1994). Un monde privé de sens (Paris: Fayard). Soros, George (1998). The Crisis of Global Capitalism (New York: Public Affairs). Strange, Susan (1996). The Retreat of the State: The Diffusion of Power in the World Economy (Cambridge: Cambridge University Press). Weiss, Linda (1998). The Myth of the Powerless State: Governing the Economy in a Global Era (Cambridge: Polity Press). Whitely, Richard (1997). ‘Internationalization and Varieties of Capitalism: The Limited Effects of Cross-National Coordination of Economic Activities on the Nature of Business Systems’. Review of International Political Economy, vol. 5, no. 3, pp. 445–481.

Preface and Acknowledgements This book is the seventh in Ashgate Publishing’s Global Finance series. It continues a tradition, begun in 1998, of using the annual G7/8 summit as a catalyst for edited volumes that explore the central themes in the emerging dynamic of global governance. The current volume considers the work of the G7 and G8 leading up to and ﬂowing from the 2003 Evian Summit, and thus expands the series’ coverage in three ways. First, it focusses on the ﬁrm level, through a central concern with corporate governance, at a time when this issue has become of vital consequence to the prevention and resolution of international ﬁnancial crises, to investor and consumer conﬁdence and thus to macroeconomic growth in developed economies, to foreign direct investment (FDI) in developing countries, and therefore G7/8 and global governance as a whole. Second, the book deals directly with how public authorities at the national level and among intergovernmental institutions regulate their own ﬁrms and others, through both hard and soft law mechanisms, across an ever expanding array of areas. Third, it explores how the G8 itself has moved beyond macroeconomic and microeconomic management to govern directly the activities of individual ﬁrms, including the world’s largest multinational corporations (MNCs), as they operate around the world. In the face of the critics’ charges that G8 governance is essentially a recipe for corporate neo-liberal globalisation driven by the already rich, large multinational ﬁrms of the North, this volume examines how — and how well — the G8 has become an effective global centre of corporate governance, in the interest of the global community and the global public good as a whole. To delve into these new questions, the Research Group on Global Financial Governance, a joint venture between the Associazione Guido Carli and the G8 Research Group, partnered with the Global Governance Group, the Club of Athens, Futuribles, le Comité pour un Parlement Mondial, and INSEAD to mount the research programme on which this volume is based. This volume thus synthesises the results of work in several ongoing research programmes. The ﬁrst is the work of the Associazione Guido Carli on the international monetary system, a programme in which Paolo Savona and Michele Fratianni have been central ﬁgures. The second is the G8 Research Group’s ongoing exploration of international ﬁnance and trade, in which John Kirton, Nicholas Bayne, Pierre Marc Johnson, Alan Rugman, Ella Kokotsis, Heidi Ullrich, Pierre Jacquet, Don Brean, and Victoria Panova are involved. The third and fourth are the University of Toronto’s Centre for International Studies project on ‘Securing Canada’s Environmental Community Through International Regime Reform’ (the EnviReform project) and the Department of Political Science’s project on ‘After Anarchy: Cooperation, Coherence, and Change in the G8 Concert’, both ﬁnanced by the Social Science and Humanities Research Council of Canada. John Kirton, Ella Kokotsis, and Alan Rugman have been involved in these projects.

xxii

Corporate, Public and Global Governance: The G8 Contribution

The ﬁfth is the work o the Global Governance Group and New School of Athens, led by Kimon Valaskakis and involving Olivier Giscard d’Estaing. This book draws its contributors from all of the G8’s constituent regions of North America, Europe, and Japan, and all its constituent countries. It also reaches out to involve leading scholars and practitioners who bring ﬁrst-hand continuing professional experience with the Organisation for Economic Co-operation and Development (OECD) and the European Union. These contributors come from the disciplines of economics, the international political economy ﬁeld of political science, management studies, and sustainable development and from leading universities and institutions in France, the United States, Canada, Italy, Britain, Germany, Japan, and Russia. Many of the authors have experience at senior levels in core governmental and intergovernmental institutions involved in managing and governing the international economy or have served in senior advisory capacities. With this wide variety of perspectives, analytical approaches, and judgements, the collection combines the insights of scholars and practitioners who draw on a rich assortment of regional experiences, theoretical traditions, interpretative frameworks, and concluding convictions, on a G8-wide and fully global scale. Acknowledgements In producing this volume, we have enjoyed the exceptional support of those who contributed in many different ways. Our ﬁrst debt is to Antonio Fazio, governor of the Bank of Italy, who as chair of the Associazione Guido Carli provided part of the funding that made our research possible. We are also grateful to David Dodge, governor of the Bank of Canada, his senior advisor John Murray, and Jonathan Fried, as Canada’s assistant deputy minister of ﬁnance, for their support of the Research Group on Global Financial Governance. We also owe much to Canada’s Department of Foreign Affairs and International Trade (now Foreign Affairs Canada and International Trade Canada), where Gordon Venner and his colleagues raised the resources and provided the background needed. We are grateful to Kimon Valaskakis of the Global Governance Group, who saw the potential of this effort at an early stage and worked tirelessly to make it a success. We have a special debt to Olivier Giscard d’Estaing, long a pioneer of intellectual and institutional innovation in Europe, who came forth to join our partnership and provided the indispensable links with INSEAD and the Government of France. We further thank INSEAD and its outstanding dean of the faculty, Landis Gabel, who saw the exceptional opportunity that such a project offered, provided essential support, rich collegiality, and warm hospitality, and mobilised the superb intellectual resources of INSEAD. We also acknowledge the ﬁnancial support of the Social Sciences and Humanities Research Council of Canada, through the research projects noted above. We further appreciate the willingness to take a major role in our project of several members of the G8 Research Group’s Professional Advisory Council: Nicholas Bayne, Alan Rugman, Pierre Jacquet, and Pierre Marc Johnson. We also appreciate the contributions of Johannah Bernstein, Stéphane Doumbé-Billé, Desirée McGraw, Yoshiji Nogami, and Mary O’Sullivan.

Preface and Acknowledgements

xxiii

We very much appreciate the efﬁcient help from the staff at INSEAD. In Rome and Milan, Francesca Camilli and Sabrina Canossi were models of tireless efﬁciency and co-operation. In Toronto, we owe a special word of thanks to the indefatigable Madeline Koch, the managing director of the G8 Research Group, whose managerial and editorial skills were essential in helping organise the contributions and ensuring that initial thoughts and rough drafts were transformed into a polished integrated book. We are also grateful to Helen Walsh, president of Think Content, for her vital role in ensuring that a global audience could participate in our research project through the magic of webcasting. More broadly, we note with deep appreciation the indispensable contributions of Sandra Larmour, the director of Development of the G8 Research Group and of Shinichiro Uda, Director of the G8 Research Group’s ofﬁce in Japan. In France, Lynn Robertson was a source of constant encouragement and assistance. At the University of Toronto, we are grateful to former president Robert Birgeneau, Carolyn Tuohy, and their colleagues for their support. We also acknowledge the continuing support of our colleagues at the Centre for International Studies: its director, Louis Pauly, who oversees our research activities, and Peter I. Hajnal, who assumed the essential task of securing the anonymous referees who reviewed our draft manuscript and who collectively approved it for publication. We owe much to the comments of our referees, whose often trenchant but always supportive comments have been taken fully into account. At Trinity College, we acknowledge the critical support of provost Margaret MacMillan, bursar Geoffrey Seaborn who manages the G8 Research Group’s accounts, head librarian Linda Corman, who oversees the development of the G8 Research Library Collection, and Robert Bothwell, Coordinator of the International Relations Programme. At the Department of Political Science, chairs Rob Vipond and David Cameron provided encouragement and support. At the University of Toronto Library, chief librarian Carole Moore and web design associate Richard Hydal have been indispensable. As always, we reserve a special word of thanks for Kirstin Howgate, and her colleagues at Ashgate, for recognising the virtue of producing this volume and for working so effectively and potentially to ensure the smooth adoption and publication of the manuscript. Finally, we acknowledge the understanding, patience, and support of our families as we laboured to convert raw drafts into published text. We are also indebted to the alumni of the G8 Research Group and our students at universities throughout the G8. They provide a constant source of inspiration and constructive criticism as we pursue our work. It is to this next generation of scholars on global ﬁnancial governance that we dedicate this book. Michele Fratianni, Paolo Savona, and John J. Kirton 2007

This page intentionally left blank

List of Abbreviations AFEP AML/CFT APR ASEAN BIS CAC CAP CAS CCL CEO CFO CFSP CIS CNPF CPA CPIA CTAG CTC DAC DDA Dot Force ECA ECOSOC EITI FATF FDI FSF FTAA FY G5 G7 G8 G10

Association Française des Enterprises Privées anti-money laundering and combating ﬁnancing of terrorism African personal representative (of a G8 leader) Association of Southeast Asian Nations Bank for International Settlements collective action clause Common Agricultural Policy country assistance strategy contingent credit line chief executive ofﬁcer chief ﬁnancial ofﬁcer common foreign and security policy (of the European Union) Commonwealth of Independent States Conseil National du Patronat Français certiﬁed public accountant country policy and institutional assessment Counter-Terrorism Action Group United Nations Counter-Terrorism Committee Development Assistance Committee (of the Organisation for Economic Co-operation and Development) Doha Development Agenda Digital Opportunity Task Force United Nations Economic Commission for Africa United Nations Economic and Social Council Extractive Industries Transparency Initiative Financial Action Task Force foreign direct investment Financial Stability Forum Free Trade Agreement of the Americas ﬁscal year Group of Five (France, Germany, Italy, the United Kingdom, and the United States) Group of Seven (Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States) Group of Eight (G7 plus Russia) Group of Ten (G7 plus Belgium, the Netherlands, Sweden, and Switzerland)

xxvi

G20

Corporate, Public and Global Governance: The G8 Contribution

Group of Twenty ﬁnance ministers and central bank governors (G8 plus Argentina, Australia, Brazil, China, India, Indonesia, Mexico, Saudi Arabia, South Korea, and Turkey) G77 Group of Seventy-Seven (a loose coalition of developing countries) GAAP generally accepted accounting principles GAP Global Accountability Project GATS General Agreement on Trade in Services GATT General Agreement on Tariffs and Trade GDDS General Data Dissemination System GDP gross domestic product GNP gross national product HIPC heavily indebted poor countries IAEA International Atomic Energy Agency IAS International Accounting Standards ICAO International Civil Aviation Organization ICT information and communication technology IDA International Development Association IEA International Energy Agency IEO Independent Evaluation Ofﬁce (of the International Monetary Fund) IFI international ﬁnancial institution ILO International Labour Organization IMF International Monetary Fund IMFC International Monetary and Financial Committee IMO International Maritime Organization IOSCO International Organization of Securities Commissions ISO International Standards Organization L20 Group of Twenty Leaders or Leaders Twenty (undetermined) LDC less developed country LTCM Long-Term Capital Management MANPADS shoulder-launched surface-to-air missiles MAI Multilateral Agreement on Investment MDB multilateral development bank MDG Millennium Development Goal MNC multinational corporation NAFTA North American Free Trade Agreement NAM Non-Aligned Movement NATO North Atlantic Treaty Organization NEPAD New Partnership for Africa’s Development NGO nongovernmental organisation ODA ofﬁcial development assistance OECD Organisation for Economic Co-operation and Development OFC offshore ﬁnancial centre OPEC Organization of the Petroleum Exporting Countries PDG président directeur-générale PFMA public ﬁnancial management and accountability PIN public information notice

List of Abbreviations

PRSP Quad R&D ROSC SARS SDDS SDRM SEC SMP SRF TOES TRIPS UNEP UNSC USTR WCO WEO WHO WMD WSSD WTO

poverty reduction spending paper Quadrilateral Trade Ministers (Canada, the European Union, Japan, and the United States) research and development report on the observance of standards and codes severe acute respiratory syndrome Special Data Dissemination Standard sovereign debt restructuring mechanism U.S. Securities and Exchange Commission staff-monitored programme supplemental reserve facility The Other Economic Summit Trade-Related Aspects of Intellectual Property United Nations Environment Programme United Nations Security Council United States Trade Representative World Customs Organization World Environment Organization World Health Organization weapons of mass destruction World Summit on Sustainable Development (Rio Summit) World Trade Organization

xxvii

This page intentionally left blank

PART I Introduction

This page intentionally left blank

Chapter 1

Governance amid Globalisation: Corporations, Governments, and the G8 Michele Fratianni, Paolo Savona, and John J. Kirton

The New Challenges of Corporate and Public Governance At the beginning of the 1990s, the world rejoiced in the transformation of the Soviet Union and bloc into free market economies with autonomous private sector corporations, regulated under the rule of law by democratic national governments and supported by the principles and power of international organisations — from the old International Monetary Fund (IMF) to the new World Trade Organization (WTO) — devoted to making their choice of free market capitalism work. The booming U.S. economy led many to believe that the free market–oriented American model of corporate, public, and global governance was the harbinger for the national experiences and global regime that would dominate the 21st century. The U.S.hosted summit of the Group of Eight market democracies in 1997 in Denver seemed to suggest that all the world’s major powers were united in their acceptance of this approach to the new world. Then came the 1997–99 Asian-turned-global ﬁnancial crisis, which infected America itself with the collapse of the Long-Term Capital Management (LTCM) hedge fund in the autumn of 1998. At the same time, a stagnant continental Europe and Japan offered no convincing alternative model of how to proceed. During the ﬁnancial crisis, Russia defaulted — raising doubts about how devoted it would be to its new capitalist path. Subsequent ﬁnancial crises and defaults in Brazil and Argentina raised further questions about how the American-pioneered model would work in the emerging developing countries, and how the global institutions should respond or reform. As the 21st century dawned, the collapse of America’s dot.com-fuelled stock market and economy further assaulted conﬁdence in the American model. The subsequent terrorist attacks on the U.S. on 11 September 2001 strongly suggested that the U.S. would fundamentally alter the rules to privilege the state and its security concerns over those of the private sector and its efﬁciency and proﬁtability drive. Soon after came the spectacular sequence of corporate scandals: from Enron, WorldCom, Tyco, and Global Crossing in the U.S. through Nortel in Canada and Parmalat in Europe to collapsing ﬁnancial institutions in Japan. Yet just as these collapses led to greater modesty among all members of the G8 about the virtues of their traditional national models of corporate and public governance, the divisions

4

Corporate, Public and Global Governance: The G8 Contribution

bred by the U.S.-led invasion of Iraq in the spring of 2003 made it difﬁcult for the world’s leading powers to come together to chart a new way ahead. Thus, at the start of the new century, the intensifying pace of globalisation and the shocks it has brought have called into ever more serious question the traditional approaches to governance at the corporate, national government, and global levels. The need for new global approaches in response has been rendered more acute. Within the corporate community, the old model of national ﬁrms based in national markets regulated by national governments is fading fast. It is being banished by the strengthening forces of globalisation and the corresponding shifts in corporate strategy toward the regional and global supply chain and marketplace. Globalisation is forcing ﬁrms radically to alter longstanding production, marketing, and management strategies in order to survive and thrive in a more densely interconnected world (Lawton 2001). Compounding the pressure is accumulating evidence from the three regions of the G8 that the old ways no longer work. In the United States, the collapse of the dot.com boom and the outbreak of corporate accounting scandals at many of America’s other leading and once most trusted ﬁrms have led to widespread calls for reform and far-reaching action in response. In Canada, accounting failures in leading ﬁrms such as Nortel have produced a similar response. In Japan, the collapse of several major ﬁrms, the heavy debt burden and opaque reporting practices of ﬁnancial institutions, and the failure of past government efforts at reform have brought mounting concern throughout the country and beyond. In Europe, contracting or collapsing corporations shrouded in scandal, such as Italy’s Parmalat, have generated anxiety across a continent mired in sluggish growth. In Russia, the assault on Yukos has raised deep concerns about the survival of the rule of law for domestic ﬁrms, about a welcoming environment for investment by foreign multinational corporations (MNCs), and even about the government’s commitment to basic democratic values (Goldman 2005; Porshakov 2006). In rapidly emerging giants such as China, and emerging economies and developing countries in transition everywhere, professional, transparent, responsible corporate governance, an end to corruption, and respect for the rule of law are widely seen as the key drivers of economic growth, social cohesion, and good democratic political governance as well (Whalen 2005; Imle 1999). Throughout the world, there are thus growing demands for major reforms of the corporate sector so that ﬁrms might effectively perform their role as rational productivity-enhancing economic actors underpinning the G8 and global growth (Fratianni et al. 2003; Gourevitch and Shinn 2005; Gourevitch 2003). At the same time, a newly empowered civil society and an intensely interested array of employees, investors, pensioners, suppliers, customers, consumers, and those in the surrounding local communities are placing greater economic and social demands on ﬁrms from the outside (Kirton and Hajnal 2006; Winston 2002). As most major national governments struggle with burgeoning ﬁscal deﬁcits and move to concentrate scarce budget resources on a new generation of security threats, ﬁrms are being asked to meet ever higher and broader standards of corporate responsibility to cope with the social and environmental concerns, on a global scale, demanded by this empowered citizenry (Prakash and Hart 1999; Estrin 2002; Kirton and Trebilcock 2004; Clapp 2005; Wrage and Wrage 2005).

Governance amid Globalisation

5

As a result, national governments are confronting stronger demands for new ways to regulate ‘their’ corporations, both to generate growth and to fulﬁl their social responsibilities in an increasingly competitive world. And they have responded, none with more speed and severity than the United States with the swift passage of the far-reaching Sarbanes-Oxley Act in 2002. That act used the nation-state’s legal power to impose new requirements and penalties on private sector ﬁrms in the U.S., and on those from abroad that wish to do business there. Yet it immediately raised an outcry from America’s closest partners about its unilateral effort to impose a system extraterritorially that assaulted many others’ historically embedded national practices and that had doubtful global beneﬁts (Engelen 2004a, 2004b; Gersemann 2004; Legrain 2004; Whalen 2003, 2004, 2006). And, within a few years, America’s own ﬁrms were highlighting the act’s disadvantages with such ferocity that some in the U.S. government seemed willing to back off. In part, America’s rethinking ﬂowed from the fact that globalisation is limiting government’s ability to regulate corporations, especially in the face of vigorous competition from China and other countries where lesser standards prevail. The dark side of globalisation, in the form of the terrorist attacks of September 11, 2001, and an upsurge in transnational crime, is bringing more onerous demands from national governments to put public security ﬁrst. At the same time, a more open global marketplace makes it easier for ﬁrms to ﬂee to jurisdictions where regulatory costs are lower, the public infrastructure more supportive, and governments more willing to let private sector actors behave freely. In the face of these intensiﬁed pressures of globalisation, even the most powerful national governments are losing faith that the historical, publicly supported models of corporate governance that served them so well for so long are adequate for the new age (Brean 2001). The ‘insider’ institutional model favoured by Japan and Germany now seems to be a recipe for inefﬁciency, inﬂexibility, stagnation, and deﬂation. Yet the ‘outsider’ market model long heralded by the U.S., Britain, and Canada, and offered as the model for the new Russia, no longer appears to be a certain recipe for vibrant growth, leapfrogging productivity, income equality, and good jobs. National governments know they need to change and all major governments are looking to one another in their search for the proper ways to act. They do so to discover a better model to meet their own needs. They do so also because they know their neighbours’ choices will directly affect how well their own approaches will work at home. Thus, corporate governance — a subject long the preserve of national and even sub-federal governments — is now intruding onto the international agenda, and indeed ‘going global’ at an accelerating pace. The result is an enhanced need for international cooperation, not only to harmonise or otherwise reduce friction between different national systems (Ostry 1997), but now also to collectively deﬁne the best way for all to proceed in the new age. Yet this new need and ensuing effort come at a time when the international institutions that have long led such activity — notably those of the Organisation for Economic Co-operation and Development (OECD) and the United Nations — are facing new challenges of their own. In all these established organisations, ﬁrms are demanding a greater and more direct role in international governance, even as other sectors of civil society demand a similar role for themselves to offset the disproportionate power that they claim business

6

Corporate, Public and Global Governance: The G8 Contribution

already has (Hajnal 2002). At the same time, the international institutions know they need the participation and resources that business and the other stakeholders bring. With UN secretary general Koﬁ Annan’s Global Compact, as well as the work of the IMF, the Financial Stability Forum, and other ﬁnancial institutions in developing codes and standards, a substantial start has been made (Cragg 2000; Sethi 2002; Aaronson 2002). Yet larger issues remain at the forefront of both corporate and public concern. In the most general terms, should the emphasis be placed on a freely functioning marketplace, guaranteed by transparency, stakeholder accountability, and voluntary standards? Or does the new globalising era require a new generation of intergovernmental institutions and regulation, comparable in magnitude to the UN–Bretton Woods galaxy created more than half a century ago, but far different in design? In the ﬁeld of international ﬁnance, the issue has been highlighted by the debate over the need for a formal, global sovereign debt-restructuring mechanism, beyond the collective action clauses in bond contracts preferred by the private sector and governments such as Mexico. In the ﬁeld of international trade, the dilemma is well expressed by the outstanding question of how much and how ﬁrms’ intellectual property rights should be overridden by public health concerns. And in the ﬁeld of environmentally sustainable development, it arises again in the Kyoto Protocol’s demand for hard law requirements with targets and timetables, as opposed to the preference expressed at the World Summit on Sustainable Development (WSSD) in Johannesburg for public-private partnerships and a voluntary, market-based approach. Even in the reigning political-security question of rebuilding Iraq, the instinct to write off accumulated debts for the new government on an ad hoc basis, at the request of a few sponsor states, competes with the call to create a new intergovernmental regime with ﬁrm rules and independent judges to determine which of the world’s many debt-burdened governments can fairly secure their claim. The G8 Response It is thus not surprising that the issues of corporate and public governance, and their interconnections, increasingly command the attention of the G7 and G8 major market democracies. The G7/8 summit and system have long been concerned with corporate governance, as their initial focus in the 1970s on macroeconomic policy gave way in the 1980s to microeconomic issues and then, in the 1990s, to the behaviour of ﬁrms themselves. The G7/8’s interest in corporate behaviour and its regulation initially focussed outside the G7, as the democratic revolution in Russia and the transition economies, and the global ﬁnancial crisis directed attention to how poor corporate governance in once distant countries could badly harm the global economy and thus the G7 itself. The seminal shocks of the collapse of Britain’s Barings Bank in 1995 and America’s LTCM in 1998 brutally brought the issue home (Baker 2006). The G8’s corporate governance agenda of the 21st century has thus come to centre on how things work within the individual ﬁrms within the G8 countries. It is a question so close to home, so domestic and so intimate, that no G8 government is willing to delegate its treatment to the international organisations of the UN or even the

Governance amid Globalisation

7

broadly multilateral institutions where G8 governments have greater control. The G8 is thus emerging, in terms of the new corporate governance agenda, as the global governor of ﬁrst and last resort. The 1995 Halifax Summit marked the G7’s ﬁrst major foray into the issue of corporate governance, due to the springtime collapse of Barings Bank and the summit’s focus on whether the world’s existing international institutions could cope with the global community’s 21st-century needs. At Halifax, the leaders asked for private pension plans to bear more of the burden of an aging society, welcomed private sector participation in the Global Information Society, and concentrated on the supervision of international ﬁnancial institutions (IFIs), especially in the ﬁelds of banking and securities. As the dynamics of globalisation intensiﬁed, and the 1997–99 global ﬁnancial crisis took hold, the G7/8’s agenda and action on corporate governance, as well as its related public and global governance dimensions, expanded commensurately. The G7/8 rapidly came to address the behaviour of large MNCs themselves. With regard to countries such as Russia, it took up the need for a stable rule of law for companies and a corporate culture to convince investors and other stakeholders that rational market-oriented behaviour is replacing the gangster capitalism of old. The global ﬁnancial crisis bred a G7-led effort to create global codes of conduct to govern the behaviour of ﬁnancial institutions and corporations in developing and emerging economies, bringing the issue of corporate governance to centre stage (Kaiser et al. 2000). At Cologne in 1999 and Okinawa in 2000 the G8 placed a new emphasis on transparency and accountability, on combating money laundering and tax evasion, on having corporate behaviour promote the new priorities of human security, and on setting the rules to shape the information technology revolution. These moves made corporate governance of core concern to the G8 over a broad policy terrain. Genoa 2001 signalled that good governance, in both its corporate and national government dimensions, on issues such as corruption, is essential to development in very poor regions such as Africa as well. The following year, 2002, saw the G8 take a major step forward, as the September 11 terrorist attacks and the Enron and WorldCom scandals forced North American leaders to act (Masciandaro 2004). Meeting in Halifax on 15 June, the G7 ﬁnance ministers called on Russia to ‘strengthen the ﬁnancial sector, improve corporate governance and the investment climate, and combat money laundering and terrorist ﬁnancing’ as the key to self-sustaining democratisation and growth (G7 Finance Ministers 2002). Immediately afterward, the G8 leaders, in their G8 Africa Action Plan, welcomed ‘the adoption on June 11 by the NEPAD Heads of State and Government Implementation Committee of the Declaration on Democracy, Political, Economic and Corporate Governance and the African Peer Review Mechanism’ and called for ‘strengthening public ﬁnancial management and accountability, protecting the integrity of monetary and ﬁnancial systems, strengthening accounting and auditing systems, and developing an effective corporate governance framework’ (G8 2002). Issues of corporate and public governance were at the centre of the 2003 G8 summit in Evian, as the G8 took up the formidable task of charting a new path for the world. That summit, the ﬁrst in a new cycle, dealt with a French government proposal

8

Corporate, Public and Global Governance: The G8 Contribution

to strengthen corporate governance, in the wake of Enron and other scandals that had broken on the eve of the G8 summit the year before. The French sought ways to strengthen corporate responsibility and build a responsible market economy. The British mounted the Extractive Industries Transparency Initiative (EITI), intended to increase transparency about the large sums of money ﬂowing from resource industries to the coffers of national governments that recurrently sought concessional loans and debt relief from the IFIs. At the G8 ﬁnance ministers meeting on the road to Evian, France raised the issue of regulating international credit rating agencies. France was aiming to secure a transparent, accountable set of principles, agreed upon by the agencies themselves, to deal with potential conﬂicts of interest in one of the remaining unregulated components of the international ﬁnancial industry. The Evian Summit itself dealt more broadly with the need to reform the banking and ﬁnancial sector in Japan and Germany as part of an enhanced effort to generate global growth. In its larger development agenda, it privileged sectors such as water, where the practices of the world’s major MNCs, in public-private partnerships, were a prime concern. And in the political-security ﬁeld, with combating terrorism through controlling weapons of mass destruction (WMD), preventing conﬂict, and constructing a new Iraq on the agenda, the G8 saw that corporations also played a critical role. Corporate and public governance — and coherence — was essential throughout the summit agenda. While Evian marked the G8’s advent into corporate, public, and global governance as a primary concern, the 2004 Sea Island Summit made important advances as well. One was in the ﬁght against corruption, where a detailed new framework was established and backed by speciﬁc plans of cooperative G8–national government action with willing partners around the world. Yet despite such advances, and despite the new spirit of cooperation overtaking the divisions regarding the spring 2003 war in Iraq, pronounced differences among G8 partners remained. They easily agreed on the centrality of combating corruption and fostering good governance as keys to development in poor countries. But they remained at odds over the emphasis to be placed on investing in an institutional capacity or demanding campaigns against corruption as a precondition for concessional resource transfers, and on whether the onus to act lay on corporations or governments, in developed or developing countries. And they authorised both the British-driven EITI and the American-led framework against corruption, rather than integrating the competing approaches into a single, G8-wide regime. These divisions remained for the British-hosted 2005 summit at Gleneagles, Scotland. They were exacerbated as soaring oil prices and demands for far-reaching debt relief and ofﬁcial development assistance (ODA) led to questions about the best way to ensure that a now democratic, oil-rich but still poor Nigeria was placed ﬁrmly on the track to sustainable development. New issues of transparency arose in regard to poorly regulated hedge funds, which, claimed the Germans in particular, were responsible for the rapid rise in world oil prices that was threatening growth in developing countries, the G8, and the world as a whole. And in the face of an American government resisting extensive action to control climate change, it was clear that to get the job done the British hosts and their other G8 partners would have

Governance amid Globalisation

9

to look to the private sector in the U.S. and to public authorities at the state and local levels as key instruments. At the 2006 St. Petersburg Summit, G8 leaders continued to focus on the role of ﬁrms and their governance to a major degree. On the summit centrepiece theme of energy security, they underscored the need for maintaining open, transparent, competitive, efﬁcient market mechanisms, establishing effective legal and regulatory frameworks, upholding contracts, promoting good governance, and discouraging corruption. On their second priority theme of infectious disease, the G8 moved to strengthen ethical standards in clinical trials of drugs and to strengthen intellectual property rights. They issued separate statements on ‘Fighting High Level Corruption’ and ‘Combating IPR Piracy and Counterfeiting’ and continued to act against corruption in Africa. They also inspired the ‘Global Forum for Partnerships between Government and Businesses to Counter-Terrorism’, with the ﬁrst meeting to be held in November 2006. Public-private partnerships were also endorsed in the ﬁelds of energy, health, and education. Yet despite this sustained effort at G8 governance, the challenges of corporate, national, and global governance remain. New concerns have arisen in the U.S. about the illegal backdating of stock options granted to managers, the need for better disclosure of executives’ compensation, the struggle to ensure the solvency of corporate pension plans, and the issue of how to regulate the world’s 8,000 hedge funds that manage more than US$1 trillion in assets — and whose collapse could not only endanger pension funds that invest in them but also the national and global ﬁnancial system itself. In neighbouring Canada, the dominant worry is the higher accounting costs imposed on national ﬁrms that now need to abide by America’s unilaterally imposed Sarbanes-Oxley Act, and whether Canada’s new rules governing conﬂict of interests by mutual fund managers should be less stringent than those in the United States. In Europe, the debate is over whether the stringent Sarbanes-Oxley Act is driving the world’s ﬁrms to take their new listings to exchanges in London and Hong Kong rather than New York, and whether the trans-Atlantic merger of exchanges will end America’s longstanding global ﬁnancial dominance or import Sarbanes-Oxley into a Europe still determined to follow its own distinctive path of corporate governance. At the same time, an outburst of ‘economic patriotism’ in France, Italy, and Spain is signalling strong European resistance to the globalisation — or even regionalisation — of business, and reinforcing the arguments of ﬁrms in Russia that they should be allowed to follow national rules of their own. Uniting these concerns is a newly acute version of the perennial question of how much a single set of global rules governing corporate behaviour and its relationship with the public sector is possible, likely, and desirable, and how best it can be shaped. The Purpose The G8 has thus come a long way in recent years in its effort to pioneer a new generation of integrated and comprehensive corporate, public, and global governance for the world. But there are still several serious uncertainties, complexities, and challenges. This volume deals with the most central of these outstanding issues, by

10

Corporate, Public and Global Governance: The G8 Contribution

focussing on three basic questions. First, how is contemporary globalisation affecting the inherited approaches to corporate, public, and global governance as the 21st century unfolds? Second, what forms of corporate, public, and global governance are most appropriate in this new age? Third, how well has the G8, working by itself, or with and through other international institutions, helped its member and outside governments and corporations work together to design and deliver a superior approach? The Contributors To address these questions, this volume includes the contributions of 16 leading scholars and practitioners. They come from virtually all the G8 countries, from the academic disciplines of management studies, economics, political science, and environmental studies, and from the university, research, business, government, and international organisation communities. This group features individuals who have, or have had, senior-level experience in the corporate or government sectors, and are thus able to compare and integrate the experience of these all-too-often separated worlds. They also balance and bridge the worlds of continental Europe on the one hand, and the larger Atlantic and Paciﬁc communities on the other, across which the gulfs can often seem to be very wide indeed. The Contributions These authors address this volume’s central questions in ﬁve successive sections. Following this introduction, Part II, ‘Globalisation’s Challenges for Governance’, looks at the governance challenges facing the corporate and public sectors and those created by the combination of those sectors. In Chapter 2, ‘The Needs and Challenges of Global Governance’, Olivier Giscard d’Estaing asks why heads of state and government are now addressing corporate governance as a major issue, including at the G8. He answers that it is because the issue is critical to creating the conﬁdence needed for economic growth and productivity, by inspiring consumers to consume and businesses to invest. Two approaches to creating such conﬁdence exist. One is the legal approach, the value of which has been underscored by the striking rise of an autonomous but regulated market economy in Russia. The second is the ethical approach, as exempliﬁed in the Caux Round Table principles for corporate behaviour. The G8’s role in strengthening both approaches is to improve education and media coverage and to bring about structural changes in global governance. This latter task involves creating, at the global level, a democratic structure comparable to that of the regional European Union, and raising the necessary money to provide global public goods by imposing taxes on oil production and transportation, arms exports, and intercontinental transportation. In Chapter 3, ‘Globalisation, Governance, and the G8 Summit’, Seiichi Kondo examines the challenges posed by contemporary globalisation for public governance at the national and international levels, and the role played the G8 in response. He

Governance amid Globalisation

11

argues that globalisation profoundly affects four players in the international system — states, international organisations, business, and civil society — and that all must improve their own governance and interact in this pursuit. This new interactive quadripartite model of global governance, brought about by the decline of the traditional segmented approach fuelled by science and rationalism, is already evident in embryonic form in recent initiatives of the WTO, the UN, and the OECD. Since its very start in 1975, the G7/8 has provided an interlinked, comprehensive agenda and interdisciplinary approach, and has more recently brought other countries as well as international organisations into its governance forums. But if the G8 is to realise its potential as a key quadripartite network of networks in a globalising age, it must maintain solidarity among its existing members and broaden its continuing core values of open democracy, individual liberty, and social advance. It made a good start on the second of these challenges in 2003 at the Evian Summit, and made some further advances at Sea Island in 2004. But there remained much more to do in the summits at Gleneagles in 2005 and St. Petersburg in 2006. In Chapter 4, ‘Cracks in the Concrete: The Global Order under Threat of Collapse’, Kimon Valaskakis argues that major historical forces at the beginning of the 21st century are assaulting the Westphalian world order, which is based on exclusive territorial national sovereignty and which may now be close to complete collapse. He examines the principal characteristics of the present world order, the impact of globalisation, and three ‘earthquakes’ that have shaken its long-term sustainability. Then he considers approaches to create a new, more effective, and more legitimate way of managing the world. Valaskakis sees the current system still grounded in the Westphalian principles of national sovereignty over physical territory, with national governments as the most powerful players, treaties as the basis of international law, and war as a legitimate instrument of international relations. Yet contemporary globalisation has pushed sovereignty upward to supranational organisations, downward to sub-federal governments, and sideways to market forces, while territorial control has become a less important source of power and non-state actors have arisen to rival the capabilities of many states. The 2001 terrorist attacks, the eruption of corporate scandals, and the political controversy over the 2003 Iraq war have raised fundamental questions about these Westphalian pillars. As neither a reformed multilateralism nor new American imperium appear to be adequate responses, the task of constructing through a multi-stakeholder process — a ‘Westphalia II’ order — must now begin. Part III, ‘Corporate Governance’, looks in detail at the prevailing and prospective approaches to corporate governance in North America and Europe, the broader patterns of foreign direct investment (FDI), and the even broader issue of the growth in population and technology in the new world. In Chapter 5, ‘Corporate Governance in the Twenty-First Century’, Donald Brean and Christopher Kobrak review the different modes of corporate governance, their mechanisms of control, their advantages and disadvantages, and recent recommendations and regulations introduced in the U.S., Germany, France, and the EU. Addressing structural differences in corporate governance systems among industrial nations, they categorise approaches to corporate governance as insider- or outsider-based control systems. They argue that choices made by states about which

12

Corporate, Public and Global Governance: The G8 Contribution

type of system to encourage reﬂect deeply held national priorities that have evolved over time and are difﬁcult to change in the absence of a crisis. Quick international convergence to a common system seems unlikely on its own and ill advised as a policy response, as others have argued with regard to cognate ﬁelds (Pauly and Reich 1997). The evolution of idiosyncratic national systems involves path dependence and political accident along with economic and political structures that are difﬁcult to reshape to ﬁt external or international criteria. Moreover, each national system has strengths and weaknesses in terms of the governance that relates best to industrial efﬁciency and corporate stability. Insofar as radical change comes at signiﬁcant social cost, governments and society would be better off focussing on incremental adaptation of their own systems, building on existing strengths, and drawing on minimal international standards of corporate administration and national principles of corporate ethos. A corporate culture of control is more important than institutional controls, and better business education and professional norms for business can thus help. In Chapter 6, ‘Regional Multinationals and Regional Trade Policy: The End of Multilateralism’, Alan Rugman explores the current interaction between states and ﬁrms within the institutional context of international trade and investment agreements. He argues that today, MNCs largely operate within markets in their home triads (the regions of the EU, the North American Free Trade Agreement [NAFTA], and Asia), or, at best, are bi-regional (competing across only two of the triads). Few MNCs are global by this deﬁnition and thus few are truly interested in multinational trade and investment agreements. Instead, most of the largest MNCs are interested in the deepening of regional agreements in Europe, the Americas, and Asia. This lack of economic and energy globalisation means a lack of political multilateralism. The U.S. can achieve all of its post–September 11 national security desires within NAFTA. It does not need Europe or Asia. Canada and Mexico, in general, experience the economic beneﬁts of NAFTA and have learned to ﬁnesse U.S. political power. The Europeans, with the exception of the United Kingdom, need to learn some of this ﬁnesse. The G8 should serve as the classroom for this purpose. In Chapter 7, ‘The Growth of Population and Technological Innovation in the New Order’, Paolo Savona asks whether technological innovation or population is the most important factor in raising the real rate of growth. Through the use of logical deduction and empirical analysis, he sustains the case for population, while also emphasising that the right mix of the factors in varying circumstances is essential. He thus suggests that policy makers in the G8 and elsewhere moderate their current enthusiasm for technological innovation and examine more closely the problems of population. Part IV, ‘Public Governance’, turns to public governance in the critical global ﬁelds of trade and ﬁnance. In Chapter 8, ‘Toward Accountability? The G8, the World Trade Organization, and Global Governance’, Heidi Ullrich asserts that in order to ensure good governance in international trade, in the corporate, public and global dimensions, the G8 and the membership of the WTO must require more accountability from their leadership. Given the faltering global political and economic environment after the shocks of September 11 and ‘Enronitis’, the Evian Summit provided a critical opportunity to fuel the success of the WTO’s Doha

Governance amid Globalisation

13

Development Agenda. Ullrich ﬁrst applies Jacques Chirac’s four themes for Evian of responsibility, democracy, solidarity, and security to efforts by the G8 and the WTO to bring the Doha negotiations to a successful end. She then examines different forms of democracy and responsibility and how they arise in the transparency, participation, and representation of the governance of both the G8 and the WTO. Ullrich concludes that there is much missing. She recommends ways the G8 and WTO can offer more accountable leadership in international trade. In Chapter 9, ‘Governance and Conﬂicts of Interest in International Financial Institutions’, Michele Fratianni and John Pattison explore the governance structures of IFIs, with particular emphasis on the IMF. Here, residual control rights are vested with the critical shareholders of the IFIs, a small group of industrial nations that includes the U.S., Germany, and Japan and can stretch to include the G7 ﬁnance ministers. This group controls vast ﬁnancial resources and enjoys the highest regulatory and governance standards among IMF members. Yet given the weaknesses of IFI governance structures, the IFIs should not be exempt from the same codes of behaviour that apply to the private sector. The principal implication of club theory — that international cooperation requires the leadership of large countries that incur a disproportionate share of the costs and beneﬁts of cooperation — is at odds with the requirements of legitimacy and full participation of all member countries on an equal and democratic basis. This is an important practical design hurdle for IFIs, one that is consistent with post–Bretton Woods developments. Part V, ‘The Governance of Globalisation’, looks more broadly at how prevailing and prospective practices of global governance dominate globalisation in the economic and social ﬁelds. In Chapter 10, ‘Where Do We Stand with Global Governance?’, Pierre Jacquet addresses global governance in its institutional, regulatory, and political dimensions amid the declining solidarity of the West in the post–Cold War era, the now evident downside of globalisation, and the criticism of multilateral institutions mounted by an assertive civil society. He assesses the current state of affairs, then reviews the main sources of dissent that deﬁne the contemporary debate, and offers selected recommendations for governance in general and for the European approach in particular. Jacquet offers ﬁve guidelines, for mandate clarity, political support, coordination based on balanced representation, subsidiarity, and solidarity. For the European approach, he suggests more coherent representation for Europe within the G7/8 and multilateral organisations, creating a stronger International Labour Organization (ILO) and establishing a World Environment Organization (WEO), and giving developing countries a greater place. In Chapter 11, ‘Governing Globalisation: The Social and Sustainability Institutions’, Pierre Marc Johnson addresses contemporary globalisation as a process that moves goods, capital, people, and ideas across international borders in a way never witnessed before. He argues that as the globalisation process has been fuelled by ever more expansive trade liberalisation, it has intersected with the broader values that ﬂourish within the global community and that raise important issues of the impact of globalisation on the environment, equity, human rights, and the knowledge divide. The G8 has made some effort to address these issues and their connection to trade. However, there remains an urgent need for a much more integrated and inclusive approach to the governance of these global issues, and one in which civil

14

Corporate, Public and Global Governance: The G8 Contribution

society needs to be involved in a far more democratic way. The Evian Summit, with its inclusion of the leaders from several developing countries from around the world, represented a promising step toward such an integrated, inclusive approach. But given the longstanding, domestically rooted reluctance of the U.S. to join in the multilateral effort to build this needed new generation of global governance, the large challenge remains. Part VI, ‘The G8 Contribution’, concludes with a look at the G7/8’s role generally as well as in regard to corporate, public, and global governance, in the recent past, at present, and in the years ahead. In Chapter 12, ‘G8 Process and Performance: Past, Present, and Future’, Nicholas Bayne examines the development of the summits between Birmingham 1998 and Evian 2003, and how they are unfolding in the sixth series of summits that began with Kananaskis in 2002. He considers some broad consequences for the process as a whole, analyses whether these changes have had a clear impact, for good or ill, on the substantive results from the Evian Summit, and considers the current series, sparked by the shocks of September 11 and Enron. Bayne concludes that recent summits have enhanced the strengths of the G8 process, but have not corrected some prevailing weaknesses. They have revived the G8’s capacity for political leadership, but have often failed to overcome domestic resistance to international cooperation. Still, despite the deep differences over Iraq, Evian showed that collective management among North America, Europe, and Japan remains a shared objective of all G8 members. More broadly, since Kananaskis in 2002 the summits have focussed on the ﬁght against terrorism and on issues that combine economic and political elements, with Russia fully integrated and non-G8 leaders participating. This new process, seen at Evian in 2003, Sea Island in 2004, and Gleneagles in 2005, continued when Russia hosted at St. Petersburg in 2006. In Chapter 13, ‘Commitments Kept or Promises Broken? Assessing G8 Compliance at Kananaskis 2002’, Ella Kokotsis assesses compliance with the commitments of the Kananaskis Summit, both in general and in relation to the G8’s corporate governance agenda that the summit pioneered. She ﬁnds that Kananaskis proved to be a most productive decisional summit, producing 189 commitments, with 70 percent devoted to Africa alone. However, in their compliance with these commitments in the year following Kananaskis, the G8 countries did less well, living up to their priority commitments only 35 percent of the time. In the areas related to corporate governance, compliance was particularly poor. This is despite the fact that the ‘extended hosting effect’ should have led Canada, France, and the U.S., as G8 hosts in 2002, 2003, and 2004 respectively, to have done very well in addressing the many corporate governance failures that erupted in these countries during these years. Yet, while terrorist attacks served as shocks that activated the G8 members’ sense of shared vulnerability and thus propelled them to high compliance with commitments to combat terrorism, the domestic corporate governance scandals had no similar effect. Nor did they strongly assault and activate the G8’s common principles of open democracy and social advance. Despite facilitating some modest advances in the good corporate governance agenda in relation to Africa, the lack of constricted participation at Kananaskis diminished the G8’s compliance record in relation to corporate governance and overall. As participation expanded further at Evian in 2003 and Sea Island in 2004, the prospects were poor that the G8 would end

Governance amid Globalisation

15

in a strong performance in commitment and compliance with regard to the serious corporate and related public governance failures that arose at home. Finally, in Chapter 14, ‘Coming Together: The Evian Legacy’, John Kirton and Victoria Panova assess the performance of the 2003 Evian Summit, where the G8 ﬁrst moved to deal with corporate, public, and global governance in a prominent, comprehensive, and integrated way. Although this summit was strongly afﬂicted by the divisions caused by the spring 2003 U.S.-led invasion of Iraq, Kirton and Panova conclude that in the end the Evian Summit delivered a solid summit success. It brought Jacques Chirac and George W. Bush back together, produced 16 documents containing a record 207 concrete commitments — the highest number of documents and of commitments in summit history to that time — including many dealing with corporate governance for the ﬁrst time. Propelling Evian toward its solid performance were the common vulnerabilities among the G8 members engendered by a precarious, globalising international system and the institutional momentum from the highly successful Kananaskis Summit the previous year. These forces were reinforced, as suggested by the concert equality model of G8 performance, by the strong equalisation of capabilities among G8 members, the efﬁcient treatment of the unprecedented number and range of invited participants, and the highly experienced and politically secure G8 leaders in attendance. Evian thus proved that G8 summit success depends not only on the attributes of the institution and its members each year, but also on international institutional forces in the larger environment. At Evian, it was the G8’s power of coming together that prevailed over the UN’s propensity to drive major powers apart. It thus produced a ﬁrm foundation for creating a new generation of corporate, public, and global governance in the years ahead. The Conclusions Together, the authors in this volume offer some clear conclusions about the central issues of globalisation, new approaches to corporate, public, and global governance, and efforts by the G8 and the other international institutions to produce a regime appropriate for the new age. Amid the rich debate and many disagreements, there is a broad consensus on three basic points. The ﬁrst is that globalisation, in its fullblown form or more geographically restricted regional version, inﬂuences the way corporations, national governments, and intergovernmental institutions operate. The second is that, while all are changing in response, none is acting with the necessary speed and none has yet produced a model that is appropriate for all. The third is that although the G8 has contributed signiﬁcantly, having recently taken up the subject as one of its primary concerns, there remains much more that it can and should do. The Impact of Globalisation In devising such a new regime, the ﬁrst issue concerns the degree, forms, and impact of the globalisation currently experienced by the world, amid the more particular pressures of the 2001 terrorist attacks on America, the divisive 2003 U.S.-led invasion

16

Corporate, Public and Global Governance: The G8 Contribution

of Iraq, and the corporate scandals that have erupted during that time. How does contemporary globalisation actually affect the inherited approaches to corporate, public, and global governance in these early years of the 21st century? In the most general terms, there is a wide spectrum of opinion on whether these forces indicate that a great transformation is taking place. At the one end stand the maximalists, such as Valaskakis, who see an imminent end of the pillars of the Westphalian world order. At the other end are the minimalists such as Brean and Kobrak, who see no evidence of structural change in deeply entrenched national approaches to corporate governance, nor any need for such change. In between stand a much larger group of moderates, who observe that new conditions are fuelling a need to act in several speciﬁc ways. For Giscard, globalisation has eroded conﬁdence in corporate and public institutions. For Rugman it has propelled ﬁrms to act on a regional if not fully global domain. For Savona it has reinforced the transnational spread of populations as well as technology. For Ullrich the shocks of September 11 and the corporate scandals have slowed global growth and thus imperilled the Doha Development Agenda. Savona and Pattison see ﬁnancial globalisation assaulting the IMF and the conﬂicts of interest it contains. Above all, as Kondo, Jacquet, and Johnson emphasise, globalisation has driven demands for a more integrated, inclusive approach to global governance in which civil society actors and values beyond economic ones have an important place. As Bayne, Kokotsis, and Kirton and Panova show, these demands have affected the G8 itself. The Necessary New Approaches to Governance In the face of these forces brought by globalisation, the contributors conclude that several new approaches to governance should be pursued, at the corporate, national government, and global levels alike. While there is less consensus about just what to do, these authors offer a rich menu of the forms of corporate, public, and global governance most appropriate in this new age. For Giscard, both legal and ethical approaches are valuable contributions. Brean and Kobrak highlight a corporate culture of control backed by better business education and professional business norms. Rugman calls for the continental Europeans to learn the ﬁnesse displayed by Canada in dealing with a pre-eminent United States. Savona suggests better population policy and investment. In regard to speciﬁc international institutions, Ullrich recommends more accountability and leadership at the WTO. Fratianni and Pattison want to subject the IMF to the same conﬂict-of-interest guidelines now prevalent in the private sector. In a more expansive fashion, Jacquet offers the ﬁve guidelines of mandate clarity, political support, coordination based on balanced representation, subsidiarity, and solidarity as the new order is shaped. For Kondo nothing less than a new interactive quadripartite model of global governance is required. And for Valaskakis the needed multi-stakeholder process to construct a Westphalia II must begin now.

Governance amid Globalisation

17

The G8’s Contribution How well has the G8, working by itself or with other international institutions, helped governments, corporations, and civil society respond to these challenges and put the needed new approaches into effect? On this subject, there is a strong consensus that the G8 has made a desirable contribution, that it needs to do much more in the years ahead, and that it is broadly capable of meeting the challenge. As Bayne, Kokotsis, and Kirton and Panova demonstrate, generally the new format designed by the G8 to govern globalisation in 1998 has performed effectively, in regard to compliance with the commitments made by the Kananaskis Summit, preoccupied as it was by September 11, and at the divided Evian Summit, where the corporate governance agenda assumed centre stage. Yet all point to deﬁciencies in process and performance that should be addressed in the years ahead. The other authors share this same faith in the capacity of the G8 to serve as an important instrument for creating the needed new order. Most modestly, Rugman feels the G8 should be a classroom for educating the Europeans on how to get along with the United States. Savona wants it to take up the important issue of population. Giscard, too, wants the G8 to use the media to educate and highlight the need for a new approach. Kondo wants it to strengthen its solidarity and bring others issues to the table by broadening its normative core. Johnson and Jacquet share the desire to broaden the G8 to bring in the systemically signiﬁcant developing countries. Looking further outward to the established, Westphalian international institutions, Ullrich sees the G8 as pioneering the accountability that the WTO needs. For Fratianni and Pattison, G7 ﬁnance ministers control the IMF, and thus can resolve the legitimacy-effectiveness tradeoff the institution confronts. Most ambitiously, Jacquet asks the G8 to transform both national and global governance by bringing Europe together in a single seat, strengthening the ILO, and creating the WEO. Finally, Giscard asks the G8 to create a global, EU-like democracy with taxes on oil, arms, and transportation to ﬁnance global public goods. References Aaronson, Susan (2002). ‘Global Corporate Social Responsibility Pressures and the Failures to Develop Universal Rules to Govern Investors and States’. Journal of World Investment, vol. 3, no. 3, pp. 487–506. Baker, Andrew (2006). The Group of Seven: Finance Ministries, Central Banks and Global Financial Governance (London: Routledge). Brean, Donald (2001). ‘Corporate Governance: International Perspectives’. In J. J. Kirton, J. P. Daniels and A. Freytag (eds.), Guiding Global Order: G7 Governance in the Twenty-First Century, pp. 223–244 (Aldershot: Ashgate). Clapp, Jennifer (2005). ‘Global Environmental Governance for Corporate Responsibility and Accountability’. Global Environmental Politics, vol. 5, no. 3, pp. 23–34. Cragg, Wesley (2000). ‘Human Rights and Business Ethics: Fashioning a New Social Contract’. Journal of Business Ethics, vol. 27, no. 1–2, pp. 205–214.

18

Corporate, Public and Global Governance: The G8 Contribution

Engelen, Klaus C. (2004a). ‘Preventing European “Enronitis”’. International Economy, vol. 18 (Summer), pp. 40–47. Engelen, Klaus C. (2004b). ‘Lemons into Lemonade’. International Economy, vol. 18 (Fall), pp. 56–59, 84–86. Estrin, Saul (2002). ‘Competition and Corporate Governance in Transition’. Journal of Economic Perspectives, vol. 16, no. 1, pp. 101–124. Fratianni, Michele, Paolo Savona, and John J. Kirton (eds.) (2003). Sustaining Global Growth and Development: G7 and IMF Contributions and Challenges (Aldershot: Ashgate). G7 Finance Ministers (2002). ‘Statement of G7 Finance Ministers’. 15 June, Halifax. <www.g8.utoronto.ca/ﬁnance/fm061502.htm> (August 2006). G8 (2002). ‘G8 Africa Action Plan’. 27 June, Kananaskis. <www.g8.utoronto.ca/ summit/2002kananaskis/africaplan.html> (August 2006). Gersemann, Olaf (2004). Cowboy Capitalism: European Myths, American Reality (Washington DC: Cato Institute). Goldman, Marshall (2005). ‘The Russian Disease’. International Economy, vol. 19 (Summer), pp. 27–31. Gourevitch, Peter (2003). ‘The Politics of Corporate Governance Regulation’. Yale Law Journal, vol. 112, no. 7, pp. 1829–1880. Gourevitch, Peter and James Shinn (2005). Political Power and Corporate Control: The New Global Politics of Corporate Governance (Princeton, NJ: Princeton University Press). Hajnal, Peter I. (ed.) (2002). Civil Society in the Information Age (Aldershot: Ashgate). Imle, John F. Jr. (1999). ‘Multinationals and the New World of Energy Development: A Corporate Perspective’. Journal of International Affairs, vol. 53 (Fall), pp. 263–280. Kaiser, Karl, John J. Kirton, and Joseph P. Daniels (eds.) (2000). Shaping a New International Financial System: Challenges of Governance in a Globalizing World (Aldershot: Ashgate). Kirton, John J. and Michael J. Trebilcock (eds.) (2004). Hard Choices, Soft Law: Voluntary Standards in Global Trade, Environment, and Social Governance (Aldershot: Ashgate). Kirton, John J. and Peter I. Hajnal (eds.) (2006). Sustainability, Civil Society, and International Governance: Local, North American, and Global Contributions (Aldershot: Ashgate). Lawton, Thomas (2001). ‘The New Global Electronic Economy: The Contribution of the G8 Summit’. In J. J. Kirton and G. M. von Furstenberg (eds.), New Directions in Global Economic Governance: Managing Globalisation in the Twenty-First Century, pp. 39–60 (Aldershot: Ashgate). Legrain, Philippe (2004). ‘Europe’s No Basket Case’. International Economy, vol. 17 (Fall), pp. 82–83. Masciandaro, Donato (ed.) (2004). Global Financial Crime: Terrorism, Money Laundering, and Offshore Centres (Aldershot: Ashgate). Ostry, Sylvia (1997). The Post–Cold War Trading System: Who’s on First? (Chicago: University of Chicago Press).

Governance amid Globalisation

19

Pauly, Louis W. and Simon Reich (1997). ‘National Structures and Multinational Corporate Behavior: Enduring Differences in the Age of Globalization’. International Organisation, vol. 51, no. 1, pp. 1–30. Porshakov, Sergei (2006). ‘Improving Corporate Governance in Russia and the EU’. Russia in Global Affairs, vol. 4 (April–June), pp. 194–205. Prakash, Aseem and Jeffrey A. Hart (eds.) (1999). Globalization and Governance (New York: Routledge). Sethi, S. Prakash (2002). ‘Corporate Codes of Conduct and the Success of Globalization’. Ethics and International Affairs, vol. 16, no. 1, pp. 89–106. Whalen, Christopher (2003). ‘Revisiting Sarbanes-Oxley’. International Economy, vol. 17 (Fall), pp. 40–43. Whalen, Christopher (2004). ‘Managing Risk’. International Economy, vol. 18 (Fall), pp. 51–55. Whalen, Christopher (2005). ‘The Next Great Pyramid Game’. International Economy, vol. 19 (Fall), pp. 22–25, 56. Whalen, Christopher (2006). ‘The Cox Revolution’. International Economy, vol. 20 (Winter), pp. 40–43. Winston, Morton (2002). ‘NGO Strategies for Promoting Corporate Social Responsibility’. Ethics and International Affairs, vol. 16, pp. 71–87. Wrage, Stephen and Alexandra Wrage (2005). ‘Multinational Enterprises as “Moral Entrepreneurs” in a Global Prohibition Regime Against Corruption’. International Studies Perspectives, vol. 6, no. 3, pp. 316–324.

This page intentionally left blank

PART II Globalisation’s Challenges for Governance

This page intentionally left blank

Chapter 2

The Needs and Challenges of Global Governance Olivier Giscard d’Estaing

Today, the G8’s leaders are dealing directly with the central question of how to build better global governance in both the public and private spheres. Their agenda embraces the most important issues necessary to restore conﬁdence in G8 and global governments and corporations. The lack of such conﬁdence is the primary cause of the relatively poor economic performance in the G8 and global community of late. It is rather striking that, under the inﬂuence of Jacques Chirac, the heads of state and government of the eight economically dominant countries of the world chose for their 2003 summit meeting in Evian, France, the problem of global governance, in both its public and private dimensions. This subject is often the domain of academics, economists, business, and nongovernmental organisations (NGOs). In fact, at the societal level, everyone is involved. But it is striking to see the heads of state and government making it the main issue. One might well wonder why this has occurred. The reason is that the main problem facing the world today is lack of conﬁdence. Leaders must restore conﬁdence in their corporations, in politicians and governments, and in unions. The fact that the G8 and the world both lack conﬁdence is the key source of economic decline. People without conﬁdence do not invest. As consumers they do not consume. They go into the street and demonstrate against existing organisations and institutions. When some speak about globalisation, which for many is a wonderful challenge, they worry that it will destroy their jobs, their cultural speciﬁcity, and their traditions in their own countries, through the invasion of the world’s population, ideas, products, and money. These are fundamental issues. If G8 citizens are able to restore conﬁdence in the whole world and in G8 structures, and to inﬂuence G8 governments to make the necessary changes to restore conﬁdence, they will be preparing the way for a great future. The Legal Approach How is this conﬁdence to come? The solution lies in two approaches. One is the legal approach. Here G8 citizens and governments must deﬁne who is doing what, what kind of transparency exists, what type of control operates, who makes the decisions, what are the processes of decision making, and how is it being shared by the community. These deﬁnitions could be written in books and set by law. They

24

Corporate, Public and Global Governance: The G8 Contribution

would specify, for example, that a company starting up must be registered and must have bylaws, and must operate within a legal framework. What happened in the former Soviet Union and the Eastern European countries is very impressive. They started with a complete lack of legal structure for corporations. There was a certain type of government control, but there was no legal infrastructure for operating with the necessary control and responsibility. Legally, each country must decide how to ﬁnd the proper balance between what is legal and enforceable and what constitutes free action and initiatives for the individuals in its society to take. The boundary between these two realms varies for historical reasons. But there should be a minimum of legal organisations, because, when government comes in, it means control, sanctions, fears, and other things that many do not like. Business prefers creativity, so it can go around the world to produce and sell the products the world needs. The Ethical Approach The second approach is more important than the legal approach. It is grounded in human behaviour, which yields an ethical approach. The fact is that people are digne de conﬁance — dependable, reliable — and that one can trust them because they do the proper things. Few are so naive as to believe that one can do whatever one likes. There must be taxes, good salaries, fair prices, and systems for managing corporations in the interests of all the stakeholders, and of all the citizens, with decent protection of the environment. A list of all the responsibilities held by state leaders, ministers, or ofﬁcials is a long list indeed. The Caux Round Table has the great task of establishing ethical principles of behaviour. This round table, which was established by Olivier Giscard d’Estaing and Fritz Phillips in the late 1980s, is intended to bring together European, American, and Japanese businesspeople to avoid economic war among them and to ﬁnd common values. It started meeting twice a year, in locations around the world. Out of this process came a code of behaviour, which was presented to the United Nations and at the 1995 World Summit for Social Development in Copenhagen. These general principles for business inspired Stephen Young (2003) to write Moral Capitalism. The capitalist system does not work if people do not behave in a moral manner, if they cheat or are corrupt. Sooner or later the system collapses, not only at the level of the company but also at the level of individual jobs and lives. Enron was a company that did not behave well, and the results were disastrous. There is a moral to this tale. Such negative results of misbehaviour must be avoided. The G8’s Role in Strengthening Global Governance What then, can the G8 do to inspire such legal and ethical behaviour? Amidst its role in addressing the major problems of the World Trade Organization (WTO), sustainable development, and similar challenges, it should set for itself two leading objectives.

The Needs and Challenges of Global Governance

25

The ﬁrst is highlighting the importance of education and the media in creating a world of conﬁdence. Neither realm is one that a head of state or government can control. Yet the G8 leaders’ inﬂuence is such that they should say that the world cannot function effectively if people do not understand how it works. This is indeed why education and media play such a big role. People criticise both, saying that education does not adjust to modern society and that the media emphasise the wrong values. But this critique is too simple. The G8 leaders should ensure that their societies expand the functions of the media and education systems to reach the illiterate as well as the highly educated, to eliminate barriers to understanding. The second objective is to bring about structural changes in the global governance system. When the G7 started meeting in 1975, it dealt primarily with economic problems. Now, as the G8, it has moved to consider political problems as well. Each head of state and government comes to the table representing the views of his or her country and expects the others to do the right thing. The world needs a global structure to deal with global problems, and this global structure must contain a democratic process. The European Union needs to have high-level politicians, not to defend their constituents’ privileges, but to make sure the situation at the global level is compatible to the interest of their community at the regional level. It is also time to promote the concept of world taxes, because the world needs the ﬁnancial resources to deal with global problems (Giscard d’Estaing 2006). The United Nations receives contributions from each member government. Ofﬁcial development assistance (ODA) is organised by the Organisation for Economic Cooperation and Development (OECD), in addition to that provided by individual countries. Yet the world is far from the goals set at the Copenhagen Summit in 1995, to allocate 0.7 percent of gross domestic product (GDP) to ODA. To achieve this goal, taxes are required, with a parliament to control them. There should be three such taxes. The ﬁrst should be on oil production, and would include a tax on oil transportation, which pollutes the world’s oceans and coastlines. If the international community were to charge US$1 per barrel of oil produced, that would raise at least US$70 million a day and US$30 billion a year. This amounts to more than half of ODA currently disbursed for the world as a whole. There is little difference in adding a dollar to the price in a market that may vary from $25 to $78 because of market conditions. No one would feel this price increase. Yet it would provide the income needed for expenditures for global public goods. The second tax should be on the export of arms. This tax would acknowledge the legitimacy of possessing arms, and purchasing and exporting them, for the purpose of preventing war. However, they should be taxed to raise the funds necessary to help keep world peace. This tax would again bring in billions of dollars a year. The third tax should be on intercontinental transportation. Globalisation is the passage of international relations to intercontinental solidarity and interdependence. The tax regime should progress to keep apace.

26

Corporate, Public and Global Governance: The G8 Contribution

References Giscard d’Estaing, Olivier (2006). Après l’Amérique, un monde nouveau: les déﬁs et les institutions de la communauté mondiale (Paris: Éditions Charles Léopold Mayer). Young, Stephen (2003). Moral Capitalism: Reconciling Private Interest with the Public Good (San Francisco: Berrett-Koehler Publishers).

Chapter 3

Globalisation, Governance, and the G8 Summit Seiichi Kondo1

What role can and should the G8 play in establishing a global governance system to cope with the challenges of globalisation? Globalisation provides tremendous opportunities. The technological revolution and the proliferation of the market economy have accelerated the globalisation process. However, today’s reality is far from what one would expect as the beneﬁts of globalisation spread worldwide. Millions of people are left totally out of the potential beneﬁts, antiglobalisation movements persist, and the world economy suffers under dark clouds of uncertainty. This is the case because globalisation requires new intellectual and institutional approaches to world problems. Traditional approaches are obsolete. But the world has not yet found the new ones in the endeavour to establish global governance for this new era. The needed new approach requires the creation of a new system of global governance, based on a quadripartite governance structure. In tackling the challenges created by globalisation, and in creating this new system of global governance, the G8 has played the central role from its very start in 1975. The Quadripartite Governance Structure: A New System The ﬁrst need is for a new institution to cope with globalisation properly and effectively, as the centre of a new system that extends beyond sovereign states. When one asks ordinary citizens what their concerns are, and who is responsible for addressing those concerns, the answers are not war or the state in the traditional sense of the word. Rather they are al Qaeda, HIV/AIDS, severe acute respiratory syndrome (SARS), the changing climate, drugs, refugees and migration, and corporate misbehaviour such as that committed by Enron in the United States. These concerns constitute the dark side of globalisation that sovereign states are unable to resolve alone. Freedom and opportunity are being abused by ‘bad guys’ who operate beyond national borders. Sovereign states are entrusted by their citizens to possess and exercise military and police power and to collect taxes in order to protect them from foreign invasion, to ensure democracy, freedom, and the safety of society, and to build social safety 1 This chapter represents the author’s personal analysis and does not necessarily reﬂect the view of the Organisation for Economic Co-operation and Development (OECD) or the Government of Japan.

28

Corporate, Public and Global Governance: The G8 Contribution

nets. This has become increasingly difﬁcult. National states have given the role of achieving economic growth and creating jobs to business. Moreover, states have little effective means to control cross-border threats. Citizens are disappointed with the erosion of state power. They are either losing interest in politics or are driven to support radical parties, and increasingly inclined to rely on civil society movements that respond better to their daily concerns. States have responded to this challenge by creating intergovernmental organisations to tackle cross-border issues. Today, few national policies can be implemented without intergovernmental co-operation. International institutions too, however, have only limited power. Ironically it is national interests protected under the concept of ‘sovereignty’ that constrain the smooth work of such institutions. States that regulate their national economies to promote fair competition and fair distribution of wealth among citizens are unable to regulate the world economy for fair competition and fair distribution of wealth among world citizens. It is civil society that has cast light on this dilemma and appealed for its resolution. There are thus four major actors in the contemporary international arena: states, international organisations, business, and civil society. Each one has a certain power, and therefore global governance requires the participation of all. But none of them has dominant power. The distribution of power is such that no single one can be fully responsible for global governance. Each must be accountable to the people, but none alone can be fully accountable. Global governance requires interactive co-operation among these four actors. Many people may feel uncomfortable with this idea of collective global governance among four different actors. It is an inefﬁcient system with no clear decision-making mechanism, and collective responsibility often means no one is in charge. The only solution is to create a clear system of mutual accountability among the four actors. States and international organisations should establish good public governance, business should have good corporate governance, and civil society needs to establish good civil society governance. Each should scrutinise the other to ensure proper functioning of individual responsibility through peer review. This new concept of governance based on interactions among actors may be foreign to many ears, with the exception of the so-called ‘new medievalists’.2 This strangeness is only because so many are so used to hierarchical governance structures of the modern sovereign state system. Yet this new system will work, with states that still retain a great deal of power, and with an established system of accountability through elections playing a principal role in establishing the new governance system.

2 The school of ‘new medievalists’ contends that the new international system works similarly to the way European medieval society worked. In their view, European medieval society achieved order under collective leadership by kings, bishops, knights, and churches. This argument was ﬁrst presented by Hedley Bull (1995) and has more recently been elaborated by Akihiko Tanaka (2002).

Globalisation, Governance and the G8 Summit

29

The Interdisciplinary Approach: A New Intellectual Paradigm Another problem the world faces with today’s globalisation is complexity. All issues, including the economy, environment, social affairs, and human psychology, are so closely linked to one other that no speciﬁc policy can achieve its own goal without affecting other policies. No policy is free from being inﬂuenced by the impact of other policies. The traditional approach, based on science and rationalism, is not fully equipped with the tools to tackle this problem. This approach, often called reductionism, is good at analysing issues, ﬁnding simple rules that govern the ﬁeld, establishing causal links between input and output, and producing desirable outcomes using these rules. The development of physics contributed to the introduction of machines and information technology. Economics contributed to sophisticated policies that contribute to sustainable economic growth. Biology and chemistry equipped humankind with the tools to combat diseases. Humanity soon learned that issues do not operate independently from others, but ignored this lesson, assuming that the impact was relatively small. Globalisation has changed this picture. Inter-linkages among issues became a clear challenge. One can no longer ignore the impact of economic growth on social cohesion and the natural environment. This requires an interdisciplinary approach. Scientists, economists, and policy makers must get out beyond their own ﬁelds. This is, after all, natural: the distinctions among the natural, social, and human sciences are, while useful, artiﬁcial. So are the distinctions among physics, biology, mathematics, economics, sociology, philosophy, and history. So are the distinctions among economic policy, labour policy, and environment policy. So are the distinctions among government, business, and civil society. Humans have divided the whole into these segments for the purposes of analysis. But they have not been able to put all the results together. Assembling the various outcomes alone is not enough, because the whole is larger than the sum of its parts. Therefore, completely new approaches have been initiated, such as complexity theory and chaos theory (see, for example, Homer-Dixon 2001). Some interesting progress has been made. But the new theories are still in their formative stages and are not yet applicable to policies in the real world. It will take many more years to develop them. Human capacity and ingenuity may not be strong enough to bring the world to a totally satisfactory stage. Recent Developments in Global Governance The new paradigm is not conﬁned to theory. On the institutional side, interactions among states, international organisations, business, and civil society across a range of issues are already taking place. Policy experts have transcended national borders by creating international networks. These networks include members of national government as well as international bodies. They are increasingly engaged in interactions with business and civil society, and often evolve into what international political economists call ‘international regimes’ (Krasner 1983). Those regimes

30

Corporate, Public and Global Governance: The G8 Contribution

establish a normative body that controls states’ behaviour. This situation is perceived differently by various scholars. Realist Susan Strange (1996), for example, saw it as chaotic because there is no hegemony, and called this ‘the retreat of the state’. Liberalinstitutionalist Ann-Marie Slaughter (1997) described it as the ‘disaggregation of the state’. On the methodological side, given that the issues are too serious to wait until a completely new methodology is fully developed, efforts — ambitious yet realistic — have already begun in various ﬁelds. Economists have started to recognise ‘externalities’ and discuss how to internalise them. There are many crosscutting attempts among academics and policy makers, as seen in biochemistry, political economy, trade, and environment policy in the World Trade Organization (WTO) and in sustainable development policy in the Organisation for Economic Co-operation and Development (OECD). The United Nations International Conference on Financing for Development at Monterrey in 2002 appealed for a ‘holistic approach’ (United Nations 2002, 2). An OECD initiative promotes policy coherence for development, so that each government reviews its policies in such areas as trade, investment, and agriculture to make sure that tradeoffs between development policy and those policies, such as agricultural subsidies, are addressed. Synergies are thus created. Positive links between trade and development through building trade capacity is a good example. One characteristic of these new approaches is not to try to identify causal relations, as has been the case in modern science. Rather, it is to compare policy inputs and outputs, using measurable indicators. Causal links can be left in a black box. There is a long way to go, but at least there is a move in the right direction. In light of these developments, the crucial question now for global governance is who will oversee the operation of these different regimes effectively so that a multidisciplinary approach can take place. The Role of the G7/8 in Global Governance The G7, and now the G8, has tackled these challenges of globalisation from the very beginning. It plays the central role in establishing global governance for the new era. In the area of governance structure, the G8 has extended its co-operation with other actors. The Okinawa Summit in 2000 invited African and Asian leaders to attend. This practice has been followed by subsequent summits. In Evian in 2003, 13 non-G8 country leaders from all the continents were invited and attended. International organisations have become important summit partners. These range from international organisations such as the United Nations to economic ones such as the International Monetary Fund (IMF) and the OECD, social ones such as the International Labour Organization (ILO), and technical ones such as the International Standards Organization (ISO). The 1996 Lyon Summit invited four heads of international organisations to participate in the discussion on development, an approach repeated at the summits in 2001, 2002, 2003, 2005, and 2006.

Globalisation, Governance and the G8 Summit

31

The G8 often requests international organisations to conduct analyses to help formulate policies in new areas. It has undertaken initiatives to reform the UN and other organisations, and has created new institutions, such as the Financial Action Task Force (FATF) to ﬁght money laundering. The G8 has clearly supervised existing international regimes, initiated their reforms, and created new regimes. The G7/8 also engages in dialogue with nongovernmental players. Indeed, in 2000 the leaders in Okinawa said: In a world of ever-intensifying globalisation, whose challenges are becoming increasingly complex, the G8 must reach out. We must engage in a new partnership with non-G8 countries, particularly developing countries, international organisations and civil society, including the private sector and non-governmental organisations (NGOs). This partnership will bring the opportunities of the new century within reach of all. (G8 2000)

The interdisciplinary approach is evident in the G7/8. It started as primarily an economic summit, but has consistently expanded its scope to include political, military, social, and environmental issues. The leaders said in London in 1977 that ‘we were reinforced in our awareness of the interrelationship of all the issues before us, as well as our own interdependence. We are determined to respond collectively to the challenges of the future’ (G7 1977). The G7/8 uses various international organisations to address these issues. The G8 has therefore a great potential to become a central institution to oversee global governance. It has the political will to play a strong role in world leadership. The Declaration of Rambouillet says ‘we came together because of shared beliefs and shared responsibilities’ (G7 1975). It raised the important concept of ‘governance’ in 1991 in London and afterward. The 1996 Lyon Summit highlighted globalisation as its main theme. The G8 has traditional power to inﬂuence the world, militarily, politically, and economically. Its eight member states share roughly two-thirds of world gross domestic product (GDP), 50 percent of world trade, and 70 percent of world ofﬁcial development assistance (ODA). The G8, moreover, has new power, the so-called ‘soft power’ to persuade others to subscribe to the ideas it stands for (Nye 1990). These ideas are those of democracy, the market economy, and respect for human rights. The G8 covers these issues comprehensively, and has a broad partnership with other actors. The G7/8 has been quite effective in implementing its policies. In its early days, collective actions at the 1979 Tokyo Summit to reduce oil consumption in the wake of the second oil crisis brought about tangible results. In 1999, it succeeded in providing the basis for a fair and viable solution to end violence in Kosovo. The G7/8 is far from being a perfect institution of global governance. But it is closer to that ideal than any other forum. The ‘Shadow G8’, led by C. Fred Bergsten and Thierry de Montbrial (2003), talks about ‘the decline of the G8’. But all institutions are seen to be in decline in the face of the challenges of globalisation.

32

Corporate, Public and Global Governance: The G8 Contribution

Reforming the G8 for Global Governance This governance system can be improved through several steps. The ﬁrst is to expand the G8 to have it become a quadripartite institution — a meeting of leaders of states, international organisations, business, and civil society. Member states should take initiatives to transform the G8 into this format. It should become a summit of the leaders of these four actors who would scrutinise one another to ensure good governance on the part of all. It would supervise the interactions among the networks of the four to respond to the challenges of globalisation. In this way, states can restore the balance between their delivery capacity and citizens’ expectations. Two major challenges would remain. The ﬁrst is how to maintain the solidarity of G8 members. After the end of the Cold War, the absence of a common enemy has brought trans-Atlantic cleavages to the surface. The G8 divided into two camps over Iraq in 2003. The rupture over trade deepened. Overcoming this cleavage is essential for the G8 to take a leading role to establish global governance. The second challenge is how to make the system more inclusive. The ideas that have led the western world to construct prosperous societies and the international system to date — those ideas of democracy, market economy, and respect for human rights — are not necessarily fully shared. If the G8 wants to establish true global governance, it may have to step out of its traditional narrow forms of these values and embrace more inclusive ones — but none that contradict the traditional ones — to which all the peoples in the world will subscribe. This may require an expansion of G8 membership or closer consultation between it and non-G8 countries. Conclusion The G8 has a great potential to become a truly global governance system, addressing difﬁcult institutional as well as methodological challenges. It can serve as a principal network that bundles together all other networks loosely and fosters their interactions. This is akin to a ﬂock of geese, ﬂying with the G8 in the lead. How successful this can be depends on the political will of the eight leaders. The Evian Summit provided an important opportunity for them to demonstrate their determination and their co-operative spirit. If it had failed, the dark clouds of uncertainty and nationalistic protectionism could have covered the world economy. If it succeeded, the world could start again to walk toward co-operative multilateralism. In fact, the Evian Summit met the new challenges in a mixed manner. It made modest success by providing the G8 leaders with an opportunity for discussions with many non-G8 leaders from each region, including China. It was indeed a global meeting. However, it failed to reconcile the United States and France in a clear, convincing way. It could only gloss over the differences between the two powers through hand shakes between George W. Bush and Jacques Chirac. The U.S.-hosted Sea Island Summit in 2004 marked an improvement, as did the United Kingdom’s Gleneagles Summit in 2005. It remains to be seen how Russia, hosting the summit for the ﬁrst time in 2006 will use this historic occasion to advance its relevance to global governance during its year as G8 chair.

Globalisation, Governance and the G8 Summit

33

References Bergsten, C. Fred and Thierry de Montbrial (2003). ‘Restoring G8 Leadership of the World Economy: Recommendations for the Evian Summit from the Shadow G8’. Institute for International Economics and Institut Français des Relations Internationales, Washington DC and Paris. <www.iie.com/publications/papers/ g8-2003.pdf> (August 2006). Bull, Hedley (1995). The Anarchical Society: A Study of Order in World Politics (New York: Columbia University Press). G7 (1975). ‘Declaration of Rambouillet’. 17 November, Rambouillet. <www.g8.utoronto.ca/summit/1975rambouillet/communique.html> (August 2006). G7 (1977). ‘Declaration: Downing Street Summit Conference’. 8 May, London. <www.g8.utoronto.ca/summit/1977london/communique.html> (August 2006). G8 (2000). ‘G8 Communiqué Okinawa 2000’. 23 July, Okinawa. <www.g8.utoronto.ca/ summit/2000okinawa/ﬁnalcom.htm> (August 2006). Homer-Dixon, Thomas (2001). The Ingenuity Gap: Can We Solve the Problems of the Future? (Toronto: Vintage). Krasner, Stephen D. (1983). International Regimes (Ithaca, NY: Cornell University Press). Nye, Joseph S. (1990). ‘Soft Power’. Foreign Policy, vol. 80 (Fall), pp. 153–171. Slaughter, Anne-Marie (1997). ‘The Real New World Order’. Foreign Affairs, vol. 76 (September/October), pp. 183–198. Strange, Susan (1996). The Retreat of the State: The Diffusion of Power in the World Economy (Cambridge: Cambridge University Press). Tanaka, Akihiko (2002). The New Middle Ages: The World System in the 21st Century, trans. J.C. Hoff (Tokyo: International House of Japan). United Nations (2002). ‘Outcome of the International Conference on Financing for Development’. 8 August. Monterrey.

This page intentionally left blank

Chapter 4

Cracks in the Concrete: The Global Order under Threat of Collapse Kimon Valaskakis

The G8 Summit in Evian, France, in 2003 coincided with the beginning of a dangerous period for Planet Earth. The ‘political constitution of the world’ — namely, the Westphalian world order — entered what may be its terminal phase, with no meaningful replacement in sight. The Westphalian world order was born at the Treaty of Westphalia in 1648, which established national sovereignty as the ultimate legal power on Earth against which there is no possible appeal. An act of sovereignty is, by deﬁnition, ﬁnal. The world system that evolved from this basic principle purports to manage the planet merely by juxtaposing the authority of now close to 200 sovereign countries, of which 191 are members of the United Nations. These countries may sign treaties, delegate part of their sovereign power, and retrieve that delegated power by withdrawing from treaties. But, in the end, in a legal sense, they never relinquish it. During the second half of the twentieth century, the Westphalian world order was repeatedly battered by major historical forces. It may now be close to ﬁnal collapse. The gradual downfall has occurred by virtue of what can be called a tidal wave and three earthquakes. To advance this argument, this chapter examines in turn the principal characteristics of the present world order, the impact of globalisation and the three earthquakes on its long-term sustainability, and the major approaches that may be adopted to create a new, more effective, and legitimate way of managing Planet Earth. The Westphalian World Order as the Political Constitution of the World1 From European Treaty to World Order, 1648–1945 Pre-Westphalian Europe was a mixture of declining empires, retreating feudal lords, and an emerging class of traders and capitalist entrepreneurs with the church remaining very inﬂuential as an instrument of European governance. The Treaty of Westphalia of 1648 brought to an end the Thirty Years War, the ﬁrst pan-European 1

This section is adapted from Valaskakis (2001).

36

Corporate, Public and Global Governance: The G8 Contribution

war in history. Under the terms of the peace settlement, the sovereignty of a number of countries over territories was conﬁrmed. The treaty was a turning point in the mutual recognition of sovereignty rights. Although the signatories had only the peace of Europe as their ultimate objective, the unintended consequence of their efforts was the creation of a global order based on the ‘state system’. The ﬁrst phase of the Westphalian world order lasted from 1648 to about 1815. It was characterised by the emergence of mercantilism as a political-economic system. Accompanying the rise of the nation-states and the overseas expansion of Europe, mercantilism became a tool of advanced statism. The state would intervene in all areas of economic life. It would protect national industry with high tariffs, ensure a favourable balance of payments by subsidising exports, promote population growth, augment the money supply by accumulating gold and silver, and, above all, use state monopolies, such as the East India Company and Hudson Bay Company, to promote the national interest. Under mercantilism, the alliance of state and business was, ﬁrst and foremost, in the interest of the state. The second phase of the Westphalian world order spanned the period from 1815 to 1914. It was marked by the balance-of-power system put in place through the peace settlement at the Congress of Vienna. The Great Powers would meet periodically and settle their differences diplomatically. But what really stabilised the European order in the 19th century was the fact that it was guaranteed by the pre-eminent colonial power, Great Britain, which was willing to intervene on the weaker side whenever the balance of power was in peril. However, the system did not manage to avoid war. Indeed, there were a number of regional conﬂicts: the Crimean War, for example, and the Austro-Prussian, Franco-Austrian, and Franco-Prussian wars. After the latter and the cession by France of Alsace Lorraine to Germany, the balance of power was seriously endangered. To restore it, an elaborate system of coalitions developed, ultimately opposing in 1914 the triple alliance of Germany, Austria, and Italy to the triple entente of France, Russia, and Britain. From a Westphalian perspective, the period from 1815 to 1914 was a century of peace, in spite of the limited local duels. But this balance broke down in 1914. World War I ushered a third phase of the Westphalian world order, manifested by years of armed military confrontation that ended only in 1945 at the conclusion of World War II. In some senses this third period marks the apex of the Westphalian system where sovereignties reigned supreme and governments intervened extensively in the economy. After the collapse of the stock market in 1929, the laissez-faire assumptions of the nineteenth century were replaced by forceful state action. In Germany, Italy, Japan, Spain, and the Soviet Union the national government became the leading economic player. Businesses were allied to the government, but the latter called the shots and created jobs directly through infrastructure and rearmament programmes. Even in the western democracies, Keynesianism in Britain, dirigisme in France, and the New Deal in the United States justiﬁed strong state intervention to alleviate the economic disasters brought about by the Depression. Although the period from 1914 to 1945 was dominated by war, the unsuccessful attempt by U.S. president Woodrow Wilson at the end of World War I to introduce a peaceful and stable global order deserves special mention. He attempted to rally the people of the world in a peace settlement intended to remove the causes of future

Cracks in the Concrete: The Global Order under Threat of Collapse

37

wars and establish a machinery to maintain peace. Wilson called for freedom of the seas, an impartial settlement of colonial claims, general disarmament, the removal of artiﬁcial trade barriers, and, most important, an association of nations to promote peace and protect the territorial integrity and independence of its members. This was to be a new international order based upon peace and justice. The League of Nations did eventually emerge, but the United States, its initiator, was unable to participate because of a congressional veto. Deprived of the leading superpower, the League of Nations revealed itself as ineffectual and weak. It did not succeed in preventing the deterioration of international relations, which eventually led to World War II. After 1945, the global system was marked by two signiﬁcant events: the Cold War and the birth of the multilateral system. The Cold War involved two oppositional superpowers, the United States and the Soviet Union, and their respective allies. The bipolar world it created was relatively stable, its sustainability guaranteed by nuclear deterrence through the logic of mutually assured destruction. The two superpowers kept their dependent allies in check. Although there were some regional wars at the periphery of the two poles (such as in Korea, Vietnam, and the Middle East), the system, by and large, kept the peace. The multilateral system, focussed on the United Nations, the Bretton Woods institutions, and regional alliances of nations, produced a number of intergovernmental organisations whose mandate was to help manage the world in the full respect of the sovereignty of its member countries. Most were Westphalian in design and implementation. They featured the principle of sovereign equality. This meant one nation equalled one vote no matter what the demographic and economic size of the nation. Consensus-based decision making prevailed, so that no country could be subjected to a decision it did not agree with; this effectively gave each member a veto. Of all these Westphalian institutions, the two notable exceptions were the European Union, which was experimenting explicitly with forms of supranationality (with European law trumping national law in case of conﬂict), and the UN Security Council (UNSC), which had powers that, theoretically at least, challenged the supremacy of national sovereignty by allowing its resolutions to become binding even against recalcitrant states. The system of intergovernmental organisations has prospered and multiplied. However, in its present form it is reaching the limits of its viability. It is easier to create a new intergovernmental organisation than it is to eliminate an existing one. As a result, there are both redundancies and gaps in the alphabet soup of intergovernmental organisations, functioning on the Westphalian formula of consensus and slow diplomatic negotiation. Most have no real authority over member states beyond moral suasion. Some, such as the World Trade Organization (WTO) and the UNSC, can impose economic sanctions. However, the effectiveness of such sanctions is far from self-evident, since they often backﬁre and are rarely sufﬁcient to change the behaviour of delinquent states. The Five Pillars of the Westphalian System The viability of the Westphalian world order depended on certain underlying principles, so important that their absence could render the system dysfunctional.

38

Corporate, Public and Global Governance: The G8 Contribution

These pillars were not actually signed into the 1648 treaty by the plenipotentiary ambassadors, but developed slowly over three and a half centuries. Some were strengthened by additional treaties but never consolidated in one single document. They are therefore subject to interpretation and debate among scholars. But the Westphalian world order rests on ﬁve structural supports that, singly and collectively, have allowed the system to function efﬁciently. The First Pillar: National Government as the Sole Sovereign The ﬁrst pillar is national government as the sole holder of legal sovereignty. Originally derived from the Latin superanus through the French souveraineté, sovereignty came to mean supreme power. It was used by the 16th-century French jurist Jean Bodin to provide legitimacy and to strengthen the power of the French king in his battle with rebellious feudal lords. The doctrine of the divine right of kings, according to which kings answer only to God and cannot be challenged by human beings, is a close cousin. It led Louis XIV to utter his famous boast — ‘L’État c’est moi’. The king and the state were indeed indistinguishable in his time. Therefore, next to God, only the king could exercise absolute power in complete legitimacy. From its origins as the prerogative of the king, sovereignty slowly evolved, in some countries at least, as the reﬂection of the unchallengeable will of the people, sometimes referred to as the doctrine of popular sovereignty. The interpretations given by John Locke in the seventeenth century and Jean-Jacques Rousseau in the eighteenth century linked sovereignty to democracy via the doctrine of the social compact, according to which the ‘people’ are the ultimate owners of sovereignty. The people may delegate to government’s strong powers to be exercised in their name but they are the ultimate masters and may withdraw that delegation by voting governments out of ofﬁce. The French Constitution of 1791 declared that ‘sovereignty is one, indivisible, inalienable and imprescriptible’. But whether based on the divine right of kings or the unchallengeable will of the people, sovereignty became the absolute reference point in global relations, the ultimate principle upon which all notions of global order should be based. It was to international relations what the speed of light was to Einsteinian physics: an absolute. The only rightful owners of this sovereignty were the governments of recognised states. The Second Pillar: Sovereignty over Physical Territory In the Westphalian system, the sovereignty of nations expresses itself through the control of geographical territory. This was a legacy of the feudal principle ‘nulle terre sans seigneur’. Land was the primary factor of production in the feudal world and its control yielded both economic and political power. This ‘real estate’ bias was an essential ingredient of the Westphalian system. Although by the nineteenth and, certainly, the twentieth centuries, industry had become more important than land, the territorial focus in the exercise of authority remained strong. Land was the ultimate stake in the Westphalian paradigm and nations were quite willing to sacriﬁce millions of lives over it. The Third Pillar: National Governments as the Most Powerful Players The emergence of central governments possessing absolute power accelerated the demise of the pre-Westphalian players. The biggest losers were the feudal lords, who had

Cracks in the Concrete: The Global Order under Threat of Collapse

39

lost the invulnerability of their castles after the invention of gunpowder, and the Holy Roman emperors, who were speciﬁcally marginalised by the Westphalian settlement. Other losers were the Pope and the Catholic church, which lost much of their political inﬂuence. By ending the wars of religion the Treaty of Westphalia gradually introduced the concept of secular authority and the separation of church and state, a principle later embedded in democratic constitutions. The threat of excommunication by decision of the Pope was a terrifying weapon in feudal Europe. By the eighteenth century, excommunication had become a much weaker instrument of inﬂuence. As the pre-Westphalian players receded backstage, the new stars occupying centre stage became the nation-state governments themselves. As European economic development in the seventeenth, eighteenth, and nineteenth centuries eventually led to greater international trade and colonial expansion, major corporations became more prominent. However, economics remained subordinated to politics, at least in the non–Anglo-Saxon countries. During Louis XIV’s reign, Jean-Baptiste Colbert developed the techniques of the state’s co-ordination of economic activity into a ﬁne art. Corporations were likened to armies attacking foreign interests and conquering foreign markets in the name of the king. Economics was seen as an extension of policy by other means. Unpatriotic corporations were stripped of their state monopoly. This subordination of economic interests to national goals remained a dominant feature of international relations for most of the countries of Western Europe in the eighteenth, nineteenth, and twentieth centuries. Napoleon, Bismarck, Hitler, Stalin, and perhaps even de Gaulle and Mitterrand, as well as Adenauer and Kohl, all saw the national interest as taking precedence over individual economic interests. The Fourth Pillar: Enforceable International Law Based on Treaties As international relations intensiﬁed in the eighteenth and nineteenth centuries, a body of international law slowly began to emerge from two sources. The primary and only truly enforceable law was the body of agreements resulting from treaties between sovereign countries and applying only to the signatories. International law was a form of delegated authority that could be taken back by repealing the treaty that had transferred that authority. This type of international law merely reafﬁrmed the primacy of sovereignty since no sovereign country could be forced to accept what it had not consented to. It could be coerced into acceptance through defeat in war, but only after the capitulation or peace treaty would it be legally bound, not before. Capitulation was tantamount to a voluntary transfer of sovereignty from the vanquished to the victor. Scholars developed the second source of international law, more as an intellectual pursuit with no automatic implementation procedures. This was ‘natural law’, as Hugo Grotius and others put it. Based on assumed universal values, natural law was occasionally acknowledged in the ﬁrst three centuries of the Westphalian world order as a justiﬁcation for international action. But it never gained sufﬁcient momentum to override the principle of state sovereignty to form the legal basis for international intervention into the affairs of another state. The only real international law remained that derived from treaties.

40

Corporate, Public and Global Governance: The G8 Contribution

The Fifth Pillar: War as a Legitimate Instrument One of the surprising byproducts of the Westphalian world order was its implicit retention of war between sovereign states as a legitimate instrument of external policy. Clausewitz’s famous words that war is ‘an extension of policy by other means’ was very Westphalian in form and content. The use of force to settle conﬂicts has always existed. But the innovation brought by Westphalia was the introduction of the concept of war with rules. Although not explicitly present in the Treaty of Westphalia itself, the legitimate possibility of war between states was a logical extension of the primacy of sovereignty. If two sovereign states disagree and there is no power greater than sovereignty, conﬂict resolution must come through war. In the same way that duelling between gentlemen became the proper way of settling an aristocratic quarrel in the eighteenth century, war between states was also considered acceptable, as long as certain conventions were followed. There were implicit rules of engagement, limitations on types of weapons, criteria for victory and defeat, and a recommendation of appropriate behaviour throughout. For instance, in the 1745 Battle of Fontenoy, the French were reputed to have invited their British adversaries to tirer les premiers in an emulation of a courteous duel. One eighteenth-century strategist even argued that battles could be decided with practically no bloodshed but by pure manoeuvre. When one army was obviously outmanoeuvred by the other, its general, as a gentleman, should have the courtesy to surrender, in the same way that a chess grandmaster will resign long before the checkmate when it becomes obvious that the game is lost. In the nineteenth and twentieth centuries, elaborate rules of war were further systematised to include the proper ways of declaring war, diplomatic immunity, the treatment of prisoners, and methods of capitulation. The Geneva Convention is a good example of the Westphalian concept of war with precise rules. So is the United Nations Charter, which recognises the legitimacy of war in certain circumstances. In a Westphalian war, unconditional surrender or capitulation is the proper way to transfer sovereignty legally from the vanquished to the victor. Instead of outlawing war, the Westphalian world order tried to civilise war by imposing constraints on its exercise. However, war between sovereign states was considered an acceptable method of conﬂict resolution if all else failed. This principle is even embodied in the UN Charter, which accepts the use of force in some circumstances. Globalisation as a Tidal Wave The acceleration of globalisation since 1945 has severely tested the Westphalian system. Globalisation may be broadly deﬁned as the migration of human activities from the narrow conﬁnes of the nation-state to the much larger theatre of Planet Earth itself. ‘All the world’s a stage’, as Shakespeare put it. Although, in a technical sense, globalisation may be traced back to earlier historical periods, the sweeping nature of contemporary change is of such magnitude as to signal a real qualitative shift. The historical antecedents were merely small introductions of things to come. The voyages of discovery between the thirteenth and seventeenth centuries were precursors to modern globalisation. By 1900, the world was already a single market

Cracks in the Concrete: The Global Order under Threat of Collapse

41

for some products. The period from 1945 to 2000 witnessed the rise of multinational corporations (MNCs) bringing with them not only the globalisation of trade but also of production itself. The new global division of labour was marked by high transnational mobility of productive factors, including entrepreneurs, unskilled labour through mass migration, ﬁnancial capital, real capital, and, above all, technology. The old theories of ﬁxed comparative advantage based on immobile factors of production had to give way to new theories of dynamic competitive advantage, in ﬂexible, shifting, and policy-sensitive forms. An important feature of contemporary globalisation is its asymmetrical and uneven character. Had all sectors of human activity become globalised at the same pace, the process itself would have been trivial. But globalisation has proceeded at breakneck speeds in some sectors (ﬁnance, technology transfer, spread of epidemics, organised crime, and international terrorism) and very slowly in others (government policies, social attitudes, international regulation, and the ﬁght against crime, terrorism, or disease). These asymmetries have created winners and losers and have threatened the social fabric of many countries undergoing rapid and often unwanted social and economic change. They have also managed to challenge some of the ﬁve pillars of the Westphalian system, especially the ﬁrst three. The Spread of Sovereignty Legal sovereignty is now no longer the monopoly of national governments. Contemporary central governments have responded to globalisation by voluntarily shifting power upward to supranational institutions, downward to sub-national governments, and lateral to market forces. The emergence of the EU is the leading example of the upward shift. As authority shifts from national capitals to Brussels, Europe is experiencing a sort of ‘reverse Westphalia’, with the European Commission metaphorically assuming the role of a new Holy Roman emperor. European law takes precedence over national law. European supranationality is extra-Westphalian, especially given the fact that the Treaty of Rome, which is the juridical basis for European integration, has no provisions for its own repeal and is legally a one-way street. At the global level, the UN — a body involving most but not all sovereign countries in the world — although based on Westphalian principles, also includes signiﬁcant departures from them. First, its resolutions are binding on all members, even those members that have not accepted them. Second, some UNSC resolutions are supposed to be enforceable even with non-members, a clear breach of the sovereignty principle. Other intergovernmental organisations, such as the WTO, are also picking up powers that may involve a transfer of sovereignty. Overall, the upward power shift from governments to supranational bodies remains under a cloud of ambiguity. The downward shift has led to the emergence of powerful sub-national governments and regional and municipal power, particularly in federal states such as the United States, Canada, Switzerland, and Australia. The Canadian confederation, for instance, is a system of shared sovereignty: some areas are within the sole responsibility of the federal governments, others are under the sole control of the

42

Corporate, Public and Global Governance: The G8 Contribution

provincial governments, and still others are in common jurisdiction. The distinctions become blurred as new sectors (for example telecommunications, environmental protection) are born and the power sharing is blurred. The same is to some extent true in the United States and Australia. Even unitary states such as France and the UK are decentralising their power structure. The overall consequence of the downward shift is that sub-national governments now play an increasing role in international affairs, attracting investments by incentive policies and sometimes even restricting national governments’ ability to sign treaties. For instance, one Canadian province challenged the federal government’s signing of the Kyoto Protocol on Climate Change on the grounds that environmental regulation was a joint federal–provincial responsibility. The Australian government’s signing of the 1998 Anti-Corruption Convention of the Organisation for Economic Co-operation and Development (OECD) was delayed by constitutional challenges asserting that criminalisation of corrupt practices was a state responsibility and not a federal one. The lateral shift has involved a transfer of power from the public to the private sector. National governments have transferred authority to market forces by way of deregulation, privatisation, and budget cuts. Deregulation has delegated considerable economic decision making to the interplay of supply and demand. Privatisation has turned over large sectors of previously nationalised state activity to privately owned corporations. Budget cuts have reduced the procurement power of governments, previously an important policy tool. The Spread of Sovereignty The control of geographical territory is much less meaningful today, both as a source and domain of power. Perhaps the most important impact of globalisation on the exercise of power has been the downgrading of the importance of land. Improvements in transportation and telecommunication technologies have led to what some have called the ‘death of distance’. The world of the internet, of global ﬁnance, of acid rain, and of epidemics does not respect national borders and sovereign jurisdictions. In strictly legal terms, national authority cannot be extraterritorial. This creates a major problem since threats can be made and exercised from legal sanctuaries beyond the reach of the nation that is the object of these threats. An internet terrorist hacker in North Korea can wreak havoc in the United States beyond the reach of U.S. law. The power of Bill Gates, George Soros, the Catholic church, or an Islamic jihad is not based on physical territory but on the control and management of information. Yet the structure of government legislation and regulation is still territorially based. The gap between authority systems that are still national and societal challenges that are increasingly global severely undermines the efﬁcacy of the sovereignty system. The Rise of Non-State Actors The new stars of the world stage are no longer national governments but a host of non-state actors, some legitimate, others much less so, but all exercising considerable new power and inﬂuence. The Westphalian world order developed as an inter-national system, with the emphasis on national. National governments were the star players.

Cracks in the Concrete: The Global Order under Threat of Collapse

43

Key issues were decided between ministers of external affairs. Generals would wage war and ministers would sign peace treaties. Today, the non-state actors have moved to central stage and there is a global system that is much less inter-national. First and foremost among these new actors are the large MNCs wielding signiﬁcant economic (and therefore political) clout. Today’s OECD, for instance, is a grouping of the leading industrial countries. Only governments are members. However, if a new organisation for economic co-operation and development would assemble the ﬁrst 100 major economic players, governments, or corporations alike, 52 would be national governments and 48 corporations. Seventy of the 200 or so countries in the world today have a population of under 4 million. Those countries exercise sovereignty in name only, displaying the pomp and pageantry of power but with no real clout associated with it. On the other hand, through their economic size and their transnational mobility, MNCs can exert considerable inﬂuence in world affairs including on national governance itself — both via the ﬁnancing of elections in democratic countries and in inﬂuencing the agenda of international negotiations. Second, militant special interest groups that include organised religions, special lobbies, secret societies, and other pressure groups exercise inﬂuence in a more covert fashion. Within this category are outlaw elements, such as maﬁas, that have been much quicker to harness the potential of globalisation than legitimate groups. Since September 11, 2001, the world made the acquaintance of al Qaeda, a presumably secret terrorist organisation with worldwide tentacles and support systems. Third, the nongovernmental organisations (NGOs) claiming to represent civil society have, via street demonstrations and persuasive communication systems, shown considerable ability to block or delay the signing of agreements on globalisation. The increase in the inﬂuence of the NGOs is directly related to the decrease in the inﬂuence of national governments whose legitimacy is now in question. Rightly or wrongly, many reasonable citizens around the world do not feel adequately represented by their governments in international organisations. The First Earthquake: September 11 As the Westphalian world order was being destabilised by the process of asymmetrical globalisation, the new millennium has been struck by three seismic events, or societal earthquakes. The ﬁrst earthquake occurred on September 11, 2001, changing all the rules of security and introducing, in a most dramatic way, the new reality of asymmetrical warfare: a superpower vulnerable to the actions of 19 determined hijackers armed with box knives capable of wreaking enormous havoc in the heartland, and the temptation by that superpower to take pre-emptive action against potential terrorists without respecting the principle of national sovereignty. The combination of competing geographically based jurisdictions offering potential haven to highly mobile, extremely powerful non-state actors is creating a crisis in global security. No superpower, even the United States, can adequately deal with the situation on its own. Beyond revenge and retaliation new governance structures must be put in place to prevent terrorist excesses and the economic and social inequities that often lie behind them.

44

Corporate, Public and Global Governance: The G8 Contribution

September 11 constitutes an invitation to focus on at least two objectives in thinking about global security. The ﬁrst is to manage better what economists call the international mobility of factors of production. The unregulated free movement of these factors of production across international borders may create potential ﬁnancial crises, the export of pollution, and a general reduction in standards as nations scramble to become competitive through deregulation and privatisation. The second objective is to control the transnational movement of the factors of destruction. These include terrorist groups, organised crime, and individual malcontents. The factors of destruction have globalised much faster than have the factors of production. What is particularly unsettling is the fact that modern technology has endowed these nefarious groups with enormous destructive power. As many have observed, the September 11 attacks showed brilliant malevolent organisation but were relatively low tech, with cardboard cutters sufﬁcient to commandeer four airplanes. Projecting ﬁve or ten years hence, future hi-tech terrorists could use an array of user-friendly weapons of mass destruction (WMD) — chemical, nuclear, biological, or radiological. The super-empowerment of individual malcontents and small yet menacing special interest groups, leads to a third consideration, the need to minimize the factors of despair. The principal characteristics of the suicide bomber are indifference to punishment and willingness to die for the cause. In many cases this willingness has been fed by the factors of despair, namely extreme poverty, disease, shame, humiliation and general pessimism as to what this earthly life has to offer. The combination of desperate individuals and the empowerment that technology now gives them is lethal, not just for the few but for the many. The Second Earthquake: The Crisis in Corporate Governance The second earthquake was the crisis in corporate governance, dramatised by the scandals at Enron and WorldCom, among others. This crisis showed that, under conditions of globalisation, the national regulation of corporate behaviour is ineffective because corporations, with great transnational mobility, can use competing jurisdictions to evade rules, avoid taxes, and use creative and opportunistic accounting practices without necessarily breaking any laws. Although not yet fully recognised as an ‘earthquake’ of the calibre of September 11, the issue of corporate governance lies at the heart of the challenge of globalisation. Without global and enforceable rules of corporate governance, more excesses are likely. Before the acceleration of globalisation in the second half of the twentieth century, capitalism was highly regulated at the national level. Corporate law, with severe sanctions against offenders, protected the consumer, the shareholders, and the public at large. Among the most effectively regulated economies was that of the United States, with a body of federal and state laws establishing a strict legal framework to prevent and punish delinquent behaviour. As Edward Luttwak (1999) pointed out in Turbo-Capitalism, the U.S. system also features greedy lawyers who can claim 30 percent contingency fees in prosecuting offending corporations in class action suits. These legal threats and the huge settlements that they could impose on losing

Cracks in the Concrete: The Global Order under Threat of Collapse

45

defendants have, in the past, managed to keep the U.S. corporate system relatively stable and honest. With the advent of high transnational mobility of factors of production, national control of global corporations has become much less effective. The possibility of moving from jurisdiction to jurisdiction, of creating real or ﬁctitious subsidiaries all over the world and the great variety of legal and accounting systems have created major opportunities to circumvent laws and dodge regulation. What follows are some illustrative examples. Different taxation systems, including the existence of tax havens, have allowed corporations and individuals to establish head ofﬁces and subsidiaries in such a way as to minimise or totally eliminate any tax liability. Dissimilar accounting practices from country to country have created opportunities for so-called ‘creative accounting’ that allow proﬁts and losses, allowable costs, and non-taxable beneﬁts to be manipulated with great skill so as to present, using the same ﬁgures, different images of the corporations: a successful, proﬁt-making image to shareholders, a deﬁcit-ridden balance sheet for the tax auditors. Bonus and remuneration systems for chief executives including stock options and miscellaneous perks have also increased the ability of corporations and their management to avoid taxes in a completely legal fashion. The ephemeralisation of wealth and production in the knowledge economy has augmented the ability to manipulate balance sheets to present subjective images of what is really happening in a ﬁrm. Much of the new economy internet bubble of the late 1990s was fuelled by subjective evaluation of wealth and self-fulﬁlling promises by investors who would raise the value of stock by simply buying it. Great fortunes and great crashes have been associated with the rise and fall of the bubble economy, unregulated, subjective, and very asymmetrical in its impacts, creating huge winners and losers. The internal governance of corporations has also changed. The relationships between management and the board of directors, directors and shareholders, and the corporation and its internal stakeholders have been greatly inﬂuenced by globalisation, which has changed the rules. The corporation, less and less linked to a particular region or even country and now producing ‘stateless’ products and services with a truly multinational management team, is in danger of becoming much less socially responsible than in the past. When corporations were national and regional, they were intimately linked with the social life of the towns and districts in which they operated. They were therefore much more sensitive to local needs. Today’s global corporation is much less responsive to local needs since it can relocate, almost at the drop of a hat. Finally, the relationship between corporations and the political system has been profoundly affected by globalisation and information technology. Media attention has become an indispensable tool of the modern electoral process. Elections become extremely expensive and have to rely on major corporate donations. This gives corporations major leverage in dealing with politicians and government civil servants. It has been estimated that, in the U.S., to be elected to Congress requires one to ﬁve million dollars and to accede to the Senate between ﬁve and ten million dollars, with governorships in the same range. Serious candidacies for the U.S.

46

Corporate, Public and Global Governance: The G8 Contribution

presidency require funding in the hundreds of millions of dollars. The net effect is, in the opinion of some, to transform the democracy of one person equalling one vote into a plutocracy of one dollar equalling one vote. The ability to ‘buy’ an election gives private sector organisations with great spending power an enormous inﬂuence on the outcome. Unlike mercantilism, where corporations were tools of government policy, the critics of market globalisation maintain that the opposite is now true: governments must conform to a corporate agenda or risk being voted out of ofﬁce or severely penalised by footloose corporations that can stop their ﬁnancial support and relocate elsewhere around the world. The Third Earthquake: The Iraq War and Global Governance The third earthquake was triggered by the 2003 Iraq crisis and its long-term historical meaning. In that context, the principle of sovereignty with its corollary of non-intervention in the internal affairs of a sovereign state has been shattered. Since 2002, the world community seems to have accepted the idea that Iraq had to be disciplined by a peremptory external intervention in its affairs. However, the two questions that did not meet with a consensus were, ﬁrst, who is allowed to intervene and, second, on what basis is that intervention allowable. Proponents of the primacy of the United Nations claimed that only that body has the right to intervene and only according to the principles invoked in its charter. The advocates of the AngloAmerican intervention claimed a variety of reasons to intervene even without UN approval. In particular, the need for regime change and the imposition of democracy have been advanced as legitimate reasons for the use of force, in spite of the fact that nowhere in the international system of agreements signed by sovereign countries has either regime change or the forceful imposition of democracy been acknowledged as a valid cause for intervention. In the absence of clear and recognised rules, opportunistic interventions, not just by the United States but also by other regional powers, may end up further destabilising the world order. To return to some kind of coherent order, two questions must be answered: When is it right to intervene? Who can legitimately assume that role? When is it Right to Intervene? In 1991, a truly global coalition decided to attack Iraq in order to free Kuwait. This was a simple decision. One sovereign country attacked another without provocation, an unacceptable act that had to be countered. Yet, in the mid 1990s, the genocide in Rwanda was allowed to continue without intervention. This was a serious omission by the UN at that time, partially caused by U.S. reluctance to get involved. The massacre at Srebrenica in Yugoslavia also exposed the weakness of the UN, which stood powerless while killings were taking place. In 1999 the G7 and the North Atlantic Treaty Organization (NATO), without the UN, intervened in Kosovo to prevent genocide. This action was largely approved by the international community and obtained, ex post facto, the endorsement of the UN. In 2001, when the U.S. attacked Afghanistan after establishing a causal link between that country’s support

Cracks in the Concrete: The Global Order under Threat of Collapse

47

of al Qaeda and the September 11 bombings, it was applauded by the international community. However, the UNSC refused to endorse it. In the immediate aftermath of what turned out to be a quick war in 2003, the dazzling military prowess of the U.S. led to some after-the-fact justiﬁcation of the attack, at least in the perception of some. Yet the absence of any WMD, the immediate casus belli, reduced the moral justiﬁcation of the intervention. Does brute force confer new legitimacy on a war? As Scot Gardiner (2006) puts it, 90 percent of history is a story of conﬂict as described by the winners. Might makes right has been a recurring theme. However, in order to achieve the opposite notion — that right makes might — new criteria for legitimate intervention must be deﬁned. Four arguments were offered to justify the 2003 Iraq war. The ﬁrst was clear and imminent danger to the United States. Given the poor performance of the Iraqi army in defending its own soil, it strains the imagination to believe that such a weak country could really threaten the United States. The second casus belli, the possession of WMD, remains ineffective, as none have been found. More fundamentally, the real question to be posed is this: which country, in the new world order, is allowed to have such weapons? At least 20 countries are known to possess WMD. The list is headed by the U.S., the only country ever to have used nuclear weapons in war. In the Middle East, Israel is known to possess them. Are there any rules here? Should one just freeze the club at 20 members? Should all countries willing to make ﬁrst use of such weapons be expelled? Obviously this is not an option, because that would include the U.S. in the new strategic doctrine of pre-emptive attack even with nuclear weapons. Should only those countries that have foreign policies inimical to the West be disarmed? Is that legitimate? There is no easy good answer to this question, because the instinctive reaction of world opinion would be to ban all WMD with no exception. The third argument of regime change is an innovation. Nowhere does the concept exist in the UN Charter. Perhaps it should. A world rid of evil dictators would indeed be a better world. But should the criteria for the removal of such regimes be left to the arbitrary discretion of one or two great powers or reﬂect a democratic world consensus? Finally, the imposition of democracy by the point of the sword appears to be the ultimate contradiction: it is clearly undemocratic to impose by force any political system, including a democratic one. Many UN members are theocracies or monarchies or have other closed systems. The true democracies are, in fact, a minority. One cannot engage in a jihad for democracy without risking total incoherence. What makes the current interventionist criteria very suspect is that in the one case where intervention would be gladly approved by the international community — the civil war in Congo, where millions have been killed in recent years — nothing has been done for a long time. Who has the Right to Intervene? Two world wars were fought in the twentieth century to ‘end all wars’ and achieve collective security through some kind of multilateral system. The United States, under

48

Corporate, Public and Global Governance: The G8 Contribution

Roosevelt and Truman, was the instigator and leading architect of such a system. Once the criteria for intervention are agreed upon the question of who is entitled to intervene becomes crucial. The UN is the largest of the multilateral bodies. Its past failures and structural weaknesses argue for fundamental change and revisions of its charter, in the direction of more global governance. But until a better organisation is empowered to intervene, other ad hoc groups appear even less legitimate A coalition of the willing without a set of clear ethical principles underlying it (be it NATO or an impromptu grouping of Moldavia, Mongolia, and the Marshall Islands) cannot automatically claim legitimacy. The number of perpetrators cannot in itself justify anything. If it were not so, every lynch mob or gang rape would be justiﬁed, since it would include a ‘coalition of the willing’. Unless that coalition rests on solid grounds, rooted in the rule of law, it would be illegitimate, however large the numbers. All told, the 2003 Iraq war may have inadvertently advanced the cause of global governance by stressing the need to go beyond national sovereignty toward the supranational management of Planet Earth, at least in some areas. How this is to be done is very important. Zero intervention in the internal affairs of a given country in any conceivable circumstance is no longer acceptable. But, by the same token, arbitrary intervention with no pretence at legitimacy by whoever happens to be the current superpower is also not acceptable. Empires and dictatorships come and go (witness Saddam’s Iraq). The only long-term solution is to embed in world governance the same principles of decency, democracy, and ethical values that are the true universal values accepted by the global community. Repairing the Cracks The vulnerability of today’s world order is acknowledged by most observers. However, the issue of what to do about it does not meet with a consensus. Some believe that tinkering at the margin and making incremental improvements in the multilateral system will be sufﬁcient to re-establish equilibrium. This could involve, for instance, changing the distribution of responsibilities of existing intergovernmental organisations and creating new ones (Biermann and Bauer 2004). Others believe that only a fundamental re-engineering of world management will meet the complex challenges of the new millennium. The very foundations of the global system would require fundamental redesign. In order to compare the persuasiveness of these two views, it is useful to examine the structure of the contemporary world order. As was noted by its detractors, ‘Evian’ spells ‘naive’ backwards. What has emerged since the 2003 Evian Summit? The multilateral system is under severe strain, and the Westphalian world order itself appears to be losing both efﬁcacy and legitimacy. Although lip service is paid to national sovereignty, it is becoming increasingly apparent that the capacity of individual governments to meet the challenges of globalisation is more and more limited. It now becomes necessary to offer global solutions to global problems. The old mantra of thinking globally and acting locally now appears inadequate. In more and more instances, such as the ﬁght against terrorism, the management of the

Cracks in the Concrete: The Global Order under Threat of Collapse

49

global economy, the reduction of inequality, and the alleviation of global warming, the response requires concerted purposeful global action. One must now both think and act globally vis-à-vis a lengthening list of intractable problems. To quote the well-known phrase ﬁrst used by Daniel Bell (1977) in the 1970s, nation-states have become too large for the big problems and too small for the large ones. The Westphalian multilateral system, with its host of intergovernmental organisations, is under attack for its inadequate performance in both, preventing crises and dealing with them successfully when they occur. Today’s vacuum, created by an underperforming multilateral system, has allowed the sole reigning superpower to move in and attempt to impose a sort of de facto American imperium, without calling it that, preferring to use the euphemism of ‘global leadership’ supported by a coalition of the willing. In its most extreme version this American imperium would: •

• • •

Treat the G8 as a docile, ‘rubber stamp’ board of directors for the international economy, approving and executing the will of its chief executive ofﬁcer, the president of the United States. Allow NATO to act as a police force to pacify newly conquered states and territories and help in the inevitable nation building. Demote the UN to the status of a group humanitarian agency to pick up the pieces after pre-emptive wars by the United States and its allies. Render the EU either a convenient ally or an irrelevant bystander but not allow it a voice equal to that of the United States.

Above all, in a curious twist of the Westphalian system, U.S. sovereignty would trump that of other countries, whose autonomy and independence would be subordinated to the security interests of the United States as interpreted by its president. In this context, the only democratic counterweights to the U.S. presidency and its imperial powers would be the Congress and the Supreme Court of the United States. No multilateral body would be allowed to check U.S. power. In sum then, the world is now in a sort of a Westphalian system. Sovereignty is still, in principle, the ruler of the world. But, de facto, U.S. unilateralism carries the day, at least for now. This situation is not viable. To begin with, the ‘Planet America’ concept is unlikely to succeed in its present form for at least three reasons. First, in spite of appearances, U.S. power in relation to the rest of the world is insufﬁcient to impose a sustainable ‘hostile’ U.S. imperium. The apex of relative U.S. power was actually reached in 1945 when America’s gross domestic product (GDP) was about 50 percent of the world economic product and the U.S. held a nuclear monopoly. In 2005, the U.S. GDP was only 20 percent of the world’s, slightly smaller than that of the enlarged EU. The U.S. constitutes only 5 percent of the world population. At least 20 countries possess WMD in some form or other that can inﬂict severe harm to U.S. interests abroad and at home. In addition, the realities of asymmetrical warfare demonstrate that physically occupying a country is not the same as controlling it. The experiences of Afghanistan and Iraq illustrate this truth. Quick conventional military victory has been followed by insecurity, instability, and great fragility. To win the war does not guarantee the peace. True

50

Corporate, Public and Global Governance: The G8 Contribution

conquest, Roman style, is not just victory on the battleﬁeld but is also the acquisition of the consent of the governed — something the U.S. has been unable to achieve in a hostile environment and is unlikely to be able to do so easily in the future, because of the sheer complexity of nation building and the dangers associated with it. Second, there are serious ideological contradictions between the political fabric of U.S. society (built on democracy, the separation of powers, constitutional checks and balances, and the rule of law) and a unilateral U.S. imperium. There seem to be fewer and fewer international checks and balances on U.S. power as the U.S. exceptionally seeks to remove its government and its citizens from any form of international law. The non-ratiﬁcation or repeal by the United States of a number of international treaties (notably on antiballistic missiles, Kyoto, the International Criminal Court, and antipersonnel landmines) has weakened the multilateral system. Yet the contradiction between an essentially democratic country and its new international role, which is far from democratic, may soon create an insurmountable ideological crack in the foreign policy of the United States. A nation that went to war against its colonial motherland to uphold the principle that there can be no taxation without representation will, a fortiori, ultimately shrink from imposing a world system where there is governance without representation, where one country imposes its will on the others by sheer force of arms without democratic legitimation. Third, a non-coherent, ill-designed imperium by a superpower, based solely on its military and economic strength, is sure to provoke the creation of rival alliances in the medium to long run. One perfectly plausible counterweight to the U.S. is the EU. The EU is democratically more numerous, as least as strong on the economic front, and almost as technologically advanced. Europe’s current military weakness may not last forever. Europeans may decide to rearm, as can the Japanese, the Germans, and, ultimately, the Russians — who could, in the longer run, reclaim superpower status, given their immense resource and human capital assets. Short of all-out pre-emptive nuclear war, against all potential rivals, the U.S. cannot prevent these powers from returning to their past military prowess. If the present multilateral system is judged to be inadequate and its replacement by a hostile U.S. imperium not sustainable, the solution of a fundamental rethinking of the multilateral system with new foundations is inevitable. The old Westphalian world order must be replaced by what one could metaphorically call Westphalia II. In this scenario, the principle of sovereignty as the ultimate legal power on Earth, as the source of all laws, could probably be kept in much modiﬁed form. To give it up, completely, in favour of, for example, the privatisation of governance through market forces, is too dangerous to contemplate. A supreme authority — a ‘government’ — with law making and law enforcing capabilities must exist. But the realities of globalisation, of the three recent earthquakes and of the ones to come, make the distribution of power in a future Westphalia II quite different from that of Westphalia I. A supranational authority or system of global governance would have precedence, in some areas over that of national governments. Similarly, the principle of subsidiarity would transfer power downward to sub-national governments when that transfer would be both efﬁcient and legitimate. A rebalancing of power in the world, with a global rule of law, assisted by a democratic creation of such law, are necessary objectives.

Cracks in the Concrete: The Global Order under Threat of Collapse

51

What is the process which can lead to Westphalia II? There are probably many roads toward a new world order. In the concept of the New School of Athens, a semi-formal, multi-stakeholder approach is necessary, one that would bring together thinkers, key decision makers, and citizens to debate and resolve very focussed issues of governance. Westphalia I took required 30 years of religious wars before it came to fruition. Westphalia II, already made necessary by the tidal wave and the earthquakes, must take less time. If it is true that the cracks in concrete of the current world order threaten its imminent (and perhaps sudden collapse), then corrective action at the level of its foundations is needed. The opportunity is measurable not in decades but in years. Building the new world order must start now. References Bell, Daniel (1977). ‘New Politics, New Policies: The Future World Disorder’. Foreign Policy, Summer, p. 132. Biermann, Frank and Steffen Bauer (2004). ‘Assessing the Effectiveness of Intergovernmental Organizations in International Environmental Politics’. Global Environmental Change, vol. 14, no. 2, pp. 189–193. Gardiner, W. Lambert (2006). Media: Past, Present, and Future (Bethesda: Academica Press). Luttwak, Edward (1999). Turbo-Capitalism: Winners and Losers in the Global Economy (New York: HarperCollins). Valaskakis, Kimon (2001). ‘Long-Term Trends in Global Governance: From Westphalia to Seattle’. In, Governance in the 21st Century, pp. 45–66 (Paris: Organisation for Economic Co-operation and Development).

This page intentionally left blank

PART III Corporate Governance

This page intentionally left blank

Chapter 5

Corporate Governance in the Twenty-First Century Donald J.S. Brean and Christopher Kobrak

The institution here envisaged calls for analysis, not in terms of business enterprise but in terms of social organization. On the one hand, it involves a concentration of power in the economic ﬁeld comparable to the concentration of religious power in the mediaeval church or of political power in the national state. On the other hand, it involves the interrelation of a wide diversity of economic interests — those of the ‘owners’ who supply capital, those of the workers who ‘create’, those of the consumers who give value to the products of enterprise, and above all those of the control who wield power. A.A. Berle and G.C. Means, The Modern Corporation and Private Property (1933)

The idea that one system of corporate governance might serve as a model for the whole world is an idea that has not had a happy time of late. The past several years have witnessed remarkable shifts in enthusiasm for and against alternative systems of corporate governance. Early on, the vogue was to chastise the economic and social contradictions of the American system while extolling the advantages of the German or Japanese model. Attitudes changed with the subsequent collapse of the Japanese economy and the spectacle of a ﬂoundering Germany, which contrasted with the U.S. boom in its technology-based ‘new’ economy. Throughout the 1990s, speciﬁc upheavals such as the Asian ﬁnancial crises, Russia’s Volga virus, Mexico’s peso problem, and, in the U.S., the collapse of Long-Term Capital Management (LTCM), along with a seemingly endless series of corporate scandals, created for some a sense that all systems were out of control. Advocates of market-based solutions found further reason for gloom as the world’s stock market bubble burst in early 2001, vaporising value and shaking the world’s faith in so-called market rationality and established mechanisms of corporate control. Unfortunately for the purpose of constructive regulatory revision and structural change, the sensational cases such as Enron, Tyco, and WorldCom drew corporate governance into the headlines with neither the added value of clear understanding of the root causes of the difﬁculties nor the proper approach to reform. Overreaction and frantic policy response ensued. While the ensuing problems grip the world, nations have not yet found common ground for proper governance of ﬁrms with limited liabilities in which the roles of ownership and control are split. Everywhere shareholders and bondholders entrust day-to-day corporate decisions to managers whose interests are not necessarily aligned with those of shareholders, bondholders, and other interested parties. In answer to the question of who manages the managers, the practical answer is still

Corporate, Public and Global Governance: The G8 Contribution

56

no one. But turning to the deeper issue of what shapes and constrains management behaviour — and hence what determines the efﬁciency, performance, and integrity of the industrial system — the answer is the nebulous concept of corporate governance, which means different things to different nations. Like the blind Brahmins describing an elephant, deﬁnitions of corporate governance vary according to perspective. Oliver Hart (1995), taking a legal approach, sees corporate governance as dealing with matters that are not dealt with through contracts.1 The concern is to ensure responsible corporate behaviour in areas that are not articulated explicitly. Andrei Shleifer and Robert Vishny (1997), on the other hand, taking the narrower perspective of ﬁnance, suggest that corporate governance ‘deals with the ways in which suppliers of ﬁnance to corporations assure themselves of getting a return on their investment’. Most of the developed and developing world still struggles with determining the best way to foster the mix of explicit and implicit contracts that industry uses to manage the allocation of resources. Against this backdrop, this chapter contends that efforts to impose one set of legal controls over another inevitably miss key features of corporate governance. The principal points are as follows: • • • •

•

There are some universal principles of corporate governance. Institutional mechanisms to apply universal principles must be adapted to national conditions and expectations. No single set of institutional controls is optimal for all periods and economic circumstances. Much of what distinguishes different national systems of corporate control (American, German, Japanese, and French) involves deep-seated economic, political, and social factors that have developed over time and that are unlikely to be undone easily. The most crucial controls involve national and corporate business cultures of investors and managers who make decisions about companies.

In contrast to many analysts, this chapter is sceptical of the likelihood and the advisability of international convergence in corporate governance practices. Indeed, none of the approaches to corporate governance reform in individual nations calls for structural changes in the basic mechanisms of control that differentiate national systems. Although issues in corporate governance correspond to the potential for exploitative, self-serving behaviour that stems from the separation of ownership and control — what ﬁnancial theorists call the ‘agency problem’ — fundamentally different approaches have emerged to deal with them. German social designers, for example, reﬂecting a national penchant for social harmony, have long advocated a special sort of industrial organisation for Germany, the so-called Sonderweg (special way). Karl Helfferich (1914, 44), the German banker and economist, praised banks as the linchpins of Germany’s system of corporate governance, as custodians of 1 Other commentators who take a broad view of corporate governance include Franklin Allen and Douglas Gale (2000).

Corporate Governance in the Twenty-First Century

57

social values that ‘keep the proper balance between intensive capital employment and fundamental security’ necessary for avoiding ‘the chaotic competition’ and economic waste and tensions inherent to ‘unplanned’ commercial endeavours. Sonderweg contrasts sharply with America’s seemingly unmanaged economic system with its decentralised free-for-all economic relationships. Adolf Berle and Gardiner Means (1933), in their seminal work on American corporate governance, took as a starting point that the division of ownership and control has broad social implications.2 Indeed it is clear that the division of management and ownership underlies the need for corporate governance and, in a national context, corporate governance reﬂects the attitudes and institutions that sovereign nations adopt to deﬁne the mission of ﬁrms and to create institutions to realise those ends. Consequently, corporate governance encompasses many aspects of business, law, and ﬁnance, including but not limited to: • • • • •

the rights and claims of shareholders, bondholders, workers, and other stakeholders; the tradeoff between concentrated and dispersed share ownership for managing corporate performance; the composition and responsibilities of boards of directors; the intent and design of securities laws and accounting rules; constraints on the market for corporate control or variable-based compensation for bridging the gap between the interests of managers and shareholders.

Despite the elusive consensus concerning the advantages and disadvantages of competing systems of corporate governance, the subject is fundamentally important for several reasons. First, corporate governance is the primary means to ensure that private contracts lead to social goods such as conﬁdence in private enterprise. Second, sound corporate governance increases the willingness of investors to entrust managers with funds, allowing capital to be ‘patient’. Third, good corporate governance lowers the risk premium on capital, reducing its private cost and enhancing its market value. Fourth, good corporate governance addresses the ‘allocation’ problem of over- or under-investment by reﬂecting relatively undistorted investor preferences. Fifth, overlapping social and economic goods, such as research, innovation, industrial stability, and growth appear to depend heavily on good corporate governance. The remainder of this chapter is divided into four sections. The next section offers an overview of the different modes of corporate governance, their mechanisms of control and their advantages and disadvantages. The section after discusses recent recommendations and regulations introduced in four important jurisdictions — the United States, Germany, France, and the European Union. The next section outlines why institutional relationships are seldom the source of a sound system of corporate governance, noting that recent proposals for reform do not and probably cannot make the sorts of structural change that underlie signiﬁcant improvement in

2 Berle and Means went so as far as to compare the tendency of modern economic agents (managers) to act in their own interests with the corrupt religious institutions that helped stimulate the reformation.

58

Corporate, Public and Global Governance: The G8 Contribution

governance. The ﬁnal section establishes why a corporate culture of control is more important than institutional controls and includes suggestions for how systems ought to develop. Systems of Control: The Insider versus Outsider Model The terms ‘insider’ and ‘outsider’ models can be usefully used to categorise corporate governance systems (Brean 2001). While the more common distinction between bank-based and market-based systems has much in common, the insider-outsider distinction allows for broader grouping of countries and more analytical insight. The bank-dominated characterisation, for example, becomes awkward when discussing Germany and France, where the systems of corporate governance have much in common but within which banks play very different roles among ﬁrms of different sizes and industries. Moreover, the insider-outsider delineation goes right to the heart of the social and legal choices made by countries. In Germany, for example, banks are permitted — indeed encouraged — to maintain close contacts with and to control their clients as that country deplores impersonal capitalism. In France, on the other hand, banks have a tradition of being organs of the state with intentionally ambiguous industrial purposes. Most countries in the world ﬁt into the insider category. Indeed, concentrating ownership and control into tightly paired and closely linked, identiﬁable, and cohesive groups, even in Anglo-Saxon countries, was the mode until the middle of the nineteenth century. Insider groups tend to be relatively small. Members of the group are generally known to one another and each typically has a long-term relationship to the ﬁrm that goes beyond supplying capital. As investors, insiders are active participants in the company and its corporate affairs. Insider systems have many different kinds of relationship to the ﬁrm. In Germany, they tend to be bankers (house bankers) and workers. Banks are seen as a substitute for markets: the German system stresses a high degree of conﬁdentiality between banks and their clients, which entails secrecy about strategic and operational matters. Shareholder representatives, due to the powerful role of banks, tend to be de facto bank representatives. The dual structure of German boards has a relative strict delineation of the duties of the Aufsichtsrat (supervisory board) — with board membership in companies with more than 2000 employees divided equally among shareholders and workers — and Vorstand (management board), made up of key internal managers. In France and Japan, ﬁrms — especially larger ones — tend to have extensive interlocking ownership. Japan’s keiretsu, for example, are essentially enterprise groups that are organised vertically (manufacturers and their suppliers) or horizontally across different industries. Keiretsu are often based on one large company, but there is no holding company. Member companies pool risk and proﬁt by holding each other’s shares. In France, in mild contrast, the corporate ownership structure may be viewed as a ‘bipolarity’ between large ﬁnancial concerns such as AXA-UAP and Société Générale, which has stakes in 16 companies of the French stock market

Corporate Governance in the Twenty-First Century

59

index CAC 40, or a continuum of cross shareholdings among ﬁrms. Sixty percent of the shares of French ﬁrms are held by non-ﬁnancial companies (Bancel 1999). The outsider model is typically associated with the industrial ownership structure in the United States and England. Shareholding of public companies is dispersed with each of the many shareholders holding a relatively small percentage claim on the company. In the U.S., for example, 62 percent of companies have no single shareholder that holds more than 15 percent of the company’s shares. (In Germany, by contrast, 90 percent of listed companies had at least one shareholder with more than 15 percent of the companies shares (Steil 1996).) Shareholders’ interests in the outsider model are paramount and enshrined in company and securities laws. While shareholders collectively own companies, the wide dispersion of shares renders shareholder inﬂuence largely ineffective on the part of the individual shareholder. The representation and defence of shareholder’s collective interests are the responsibility of the board. In nations committed to the outsider model, laws, regulations, and, above all, market forces are the principal means to limit the moral hazard of managers using company assets for their own interests. Timely, objective, and accurate public information in the form of accounting disclosures backed up by audits and tough securities laws form the backbone of the system. In the outsider model, corporate governance is buttressed by three markets: the market for managers of ﬁrms, the market for corporate control, and the product market. These markets impose a sort of Darwinian selection process that ensures that shareholder capital is managed responsibly. If the market for managers functions well, unproductive managers are dismissed while productive managers are sought out in a market that appreciates and rewards their skill. Incentives for managerial initiative and corporate performance are aligned. If this system breaks down, then the market for corporate control steps in. Raiders will wrest the company away from the existing managers and board, buying out old shareholders and re-positioning company assets to make it more proﬁtable. Furthermore, if neither of these corrective mechanisms do the job, the product market will make a company’s products obsolete in terms of quality or price, forcing suppliers of credit or goods to go elsewhere with their resources. Some models seem to mix the two models. Sweden, for instance, has highly liquid ﬁnancial markets and many foreign investors, and intermediary investment companies still play an important role in corporate affairs. Their role is ampliﬁed by the professional skills of their managers and Sweden’s system of multiple voting rights, which reinforces and concentrates the participation of active shareholders. As is often the case, however, Swedish companies tend to move closer to the outsider model as they become more international. This phenomenon will be discussed in more detail later. Tables 5.1 and 5.2 summarise and compare the ‘conﬁguration of control’ as well as the advantages and disadvantages of the insider and outsider systems of corporate governance.

60

Corporate, Public and Global Governance: The G8 Contribution

System Evolution: Recent Reforms in the United States and Europe This section reviews the reform of corporate governance in the United States, in two European countries — Germany and France — and in the European Union qua EU. The choice of these three countries and the EU itself provides substantial diversity in industrial structure, political evolution, cultural traditions, and social priorities. These Table 5.1

Insider and outsider models: conﬁguration of control

Characteristics Outsider Board Make-up and • Little shareholder representation Responsibilities • Protect interest of shareholders • Business judgement rule • Small boards with mix of managers and outsiders, one of many important controls • Markets as main control instrument Role of Government • Securities law and regulations and Legal Action • Powerful securities law and enforcement • Damages for breach of ﬁduciary duties • Restrictions on insider trading Voice versus Exit — Market for Corporate Control Variable-Based Compensation

Accounting Auditing Disclosure

Debt Distress Bankruptcy Shareholding Rights of Shareholders

Stakeholder Participation and Rights

• Exit as investors’ ultimate control device • Easy entry for new investors • Representations not delegated by shareholders to board • Large percentage of management compensation • Managers viewed as having interests that conﬂict with those of shareholders. • Conjoined economic interests • Public accountants relied on for audits and accounting information: agents of shareholders • Transparency and value creation key

Insider • Shareholders and stakeholders on board • Responsible to society at large and company’s interests • Board as main control instrument • Active participation in ownership and priority setting • No civil liability for violating trading laws • Exchanges as main regulators • Relationship built on trust and loyalty • Key participants know each other • Rarely employed • Duty rather than self-interest: managers and shareholders accept social responsibility to the ﬁrm and society at large • Insiders play audit function; accounting disclosure generally weak • Few substantial disclosures • Safety ﬁrst • Long-term investors hold mix of debt and equity • Bankruptcy not considered an option • Shares concentrated among a few investors whose relationship goes beyond that of investor/supplier of capital

• Leveraged and managed buyouts used to focus management • Bankruptcy: part of portfolio of corporate strategies • Dispersed • Few large shareholders • Shareholders’ legal right to decide corporate policy cumbersome and rarely exercised • Protected classes and social interests • Institutionalised participation stakeholders infrequently serve on boards of key stakeholders • Limited protection of interest • Protection and stability considered chief aims of governance

Corporate Governance in the Twenty-First Century

61

countries and the EU also represent the areas in which the debate has been most intense. Despite the intensity of concern, recent reforms in the both the United States and Europe reveal no inclination to tamper with prevailing structures of corporate governance. Table 5.2

Insider and outsider models: advantages and disadvantages

Criteria Long-Term Investment

Conﬂict of Interests and Cost of Services

Liquidity

Restructuring

Outsider • Public debate • Exit as the ultimate control • Public disclosure impedes strategic closed-door cooperation among stakeholders • Control by board management • Board beholden to management • Competitive bidding for services

• • • • • •

Securities easy to sell Large, liquid capital markets Relatively more equity investment Lower transaction costs Frequent restructuring Few socials constraints on signiﬁcant change

Mission of Firm

• Clear goals • Shareholder wealth maximisation

Agency Costs

• Free rider problem • Not economically attractive to invest in control for each investor

Worker and Other • Few legal constraints on companies Stakeholder Protection, Stability • Unstable Protection • Easier to integrate new investors of Minority Shareholders, International Capital Flows Stock Market Capitalization and Returns

• Higher, U.S. and UK 2 × GDP

Note: GDP = gross domestic product

Insider • Shareholders and other stakeholders are part of decision making • Change debated privately inside the company • Board members represent the interests of their institutions • Higher cost of borrowing and other services • Large blocks • Less liquidity

• Blocked by large shareholders • Embedded stakeholders resist change • Stakeholder interests balanced • Unclear further interests of the ﬁrm in strict economic sense • Larger equity interest and other economic ties make investment in control more economically feasible • Many constraints on shifting relationships • Premium on stability • Requires high degree of trust in intermediaries • Harder to integrate new investors • Insiders obliged to take responsibility • Lower: Japan and France: 1 × GDP Germany: 0.7 GDP

62

Corporate, Public and Global Governance: The G8 Contribution

United States The American approach to corporate governance is the archetypal outsider system. Board membership comes from a relatively wide circle of corporate connections although law and tradition make stakeholder representation relatively rare. Dispersed equity ownership and minimal interlocking shareholding is characteristic. Seventy-six percent of American shares are owned by households directly or through mutual funds and pension funds compared to 24 percent in France and Germany (Clarke and Bostock 1997). Investors collectively rely on impersonal market forces — the market for managers, the market for corporate control, the product market — as well as conﬁdence in securities regulation to ensure the integrity of their investments and, in the process, to control managers. Although the American shift from an insider to an outsider system is less than a century old, the U.S. was ahead of most countries in developing an independent accounting profession that undertakes mandatory audits and is responsible for accurate, objective ﬁnancial reporting to inform investors. This foundation of corporate governance, of course, has been rocked recently by highly publicised failure. Until the 1930s, U.S. banks held large blocks of shares and sat on boards, representing their own interests and the interests of their key clients, not unlike German universal banks do today. Economic and political factors since the 1930s have pushed the U.S. away from the insider model. First, anti-trust legislation favoured the formation of large companies rather than the association of smaller ones, which tend to maintain a more concentrated (often family) shareholding and close relations with key stakeholders. Second, the conviction that the Depression was caused by unscrupulous economic agents whose control of companies and markets robbed small investors to line their own pockets seemed plausible to Americans who distrusted concentrations of power. This led to a whole series of banking and tax laws that precluded banks from owning shares in one another and limited the size of mutual and pension fund shareholdings in individual companies. Third, the post– World War II unprecedented wealth and willingness of many Americans to invest in the stock market directly or through mutual funds created ample equity funds that did not have to be channelled through big banks. Reforms in the United States since the 1930s, like those of the Depression era, have been directed at protecting citizens and institutions by adequate disclosure and by limits on how much any institution can invest in any one company. American regulations and American federalism help preserve the dispersed share ownership that is really the economic context for an outsider system. Insurance companies, regulated by state law, are discouraged by many states from owning equity. Mutual funds and pension funds are obliged to diversify their portfolios, which keeps their ownership in individual companies small. Moreover, in the U.S., only a small amount of equity, approximately 5 percent, is owned by ﬁnancial institutions, compared with an average of 29 percent in other countries. Individual ownership, usually small holdings, is much higher in the U.S. than in most other industrial countries. In addition, there are regulatory restrictions on non-ﬁnancial companies holding large blocks of other companies’ shares (Allen and Gale 1994). In most other industrial nations, banks can hold equity in amounts that are limited only in relation to the banks’ overall capital.

Corporate Governance in the Twenty-First Century

63

Unlike earlier developments in corporate governance in America, recent reforms propose no radical shift in accounting rules, regulatory institutions, or ownership structures (McCraw 1984; Roe 1994). Even the recent reaction to corporate scandals tends merely to add a dimension of personalisation to responsibility, an approach with some resemblance to the insider model. The Sarbanes-Oxley bill threatens severe retribution for wrongdoing while providing little guidance as to what constitutes right-doing. Regulatory reaction to the collapse of Enron, WorldCom, and Tyco attributes the breakdowns to human error in applying basically sound principles. Moreover, the views about the sorts of errors committed and harm done are consistent with America’s value system about corporate governance. Enron executives and investment analysts were less viliﬁed for ‘cooking’ the books than for proﬁting personally from their ‘insider’ information to the detriment of workers, not so much as workers but as investors through their pension plans. The correction has been to increase the personal responsibilities of executives by dint of punishment and to reduce potential conﬂicts of interests among auditors and managers. Recent reform proposals are also designed to address weaknesses in America’s accounting profession and board structure. The latter has long been criticised for the dominance of company managers over hand-picked, poorly informed outside managers. While details of enforcement have not been laid out by the U.S. Securities and Exchange Commission (SEC), the Sarbanes-Oxley Act calls for creation of a public accounting oversight body, restrictions on consulting services of accounting ﬁrms, the naming of independent ﬁnancial experts to company board audit committees, and the signing off on companies’ annual statements by company chief executives and ﬁnancial ofﬁcers — with loss of bonuses in case of misstatement. The New York Stock Exchange has added that companies must have a majority of directors without previous close links to ﬁrms, regular meetings of non-executive members, compensation and nominating committees composed entirely of outside directors, and the publication of corporate-governance guidelines. None of the proposals addresses the qualiﬁcations and training of outside directors, and the separation of the board chair and president functions. Most importantly, recent reforms in the United States emphasise the process of preparing accurate, audited ﬁnancial statements without questioning the decentralised system’s competence, commitment, and willingness to act on the information in the context of democratic capitalism. Reforms in the United States must be seen against the background of the growth of institutional investors and the corresponding decline in bank lending and bank deposits and the higher degree of equity ﬁnancing, a process in which the U.S. has led the way. Although, for some analysts, channelling investments from individual shareholders into companies via large institutional investors offers a hope of overcoming the principal agent problem by combining the interests of those shareholders into blocks large enough to justify more investor participation in management, this ignores some fundamental aspects of institutional investing. Not only are many institutional investors forbidden by law to invest large blocks in any single company, much of their investment strategy is based on deﬁning optimal portfolios that efﬁciently removes unique risk. That is not to say that they do not do fundamental analysis of the companies in which they invest, but they do so with a

64

Corporate, Public and Global Governance: The G8 Contribution

view toward picking stocks that are undervalued and that will, therefore, yield higher gains. Institutional investors’ reliance on large diversiﬁed portfolios is in essence outsider control. Direct control of unique risk is not something that ﬁts into their cost-beneﬁt calculations. Although it is possible for institutional investors to take an active role in decision making or to negotiate with management, and despite legal pressure to take shareholder responsibilities such as voting proxies more seriously, institutional investors still follow the ‘Wall Street Rule’: sell or threaten to sell stock. Such action that can only indirectly force change or chief executive turnover remains their primary form of applying pressure. Shareholder activism among institutional investments tends to be limited to encouraging companies to adopt norms of good corporate governance — whatever the U.S. considers such norms to be. Germany For many years, Germans prided themselves on the efﬁciency of their industrial system, which, with the strong role played by banks and the integration of workers onto supervisory boards, seemed to guarantee unparalleled prosperity through a balance of economic, social, and political goals. Corporate governance has emerged as a controversial issue in Germany over the last decade. In its internal or national dimension, German corporate governance is anchored in state preference for industrial stability combined with cohesive social policy. However, as Germany began to lag behind other countries in developing a culture of equity investment, many German companies have turned to equity capital via listings on foreign stock exchanges, exposing ﬁrms to new demands for corporate governance (Kobrak and Oesterle 1999).3 The increase in foreign shareholders — especially large institutional shareholders, whose holdings in German equities have doubled as a percentage of gross national product (GNP) in the past ten years — has helped stimulate reform (Drobetz and Schillhofer 2003). Scandals such as the Holtzmann collapse and IG Metal meltdown raised fears that Germany AG is kaputt. As one prominent author put it, ‘The concept “corporate governance” is on everyone’s lips’ (Lück 2002). Reaction included the creation of corporate governance codes of conduct, regular reports by several groups on how well companies adopt the codes, rating companies against corporate governance precepts such as the incorporation of control responsibilities in corporate bylaws, protection of shareholders, transparency, the strength of management and supervisory boards, and audit requirements (Drobetz and Schillhofer 2003). Nevertheless, the greater concern in Germany was not the underperformance of companies, but rather the risk of bankruptcy. The bankruptcies of Holtzmann and IG Metal tended to weigh more heavily on Germans than the suboptimal performance of DaimlerChrysler. Germany’s state-sponsored commission on corporate governance, Kodex, produced a series of recommendations in 2002 that have guided reforms in 3 The 1993 decision of DaimlerBenz to list on the New York Stock Exchange opened up a vigorous debate in Germany that culminated in the listing of nearly all Germany’s ﬂagship companies on that exchange by the end of the decade.

Corporate Governance in the Twenty-First Century

65

German corporate law, including standards designed to reform boards in line with ‘international norms’. They call for structural improvements in the knowledge of board members, age limits, and minimum supervisory board sizes (eight members). In addition to reinforcing the Aufsichtsrat’s earlier role in advising and electing the management board, the new legislation clariﬁes the role of the supervisory board with regard to the management board, with the delegation of such speciﬁc new direct responsibilities as creating management information systems, training management, establishing management control systems, setting the agenda, organising shareholder meetings, insuring the clarity and breadth of auditors’ reports to the supervisory board, and regularly evaluating the quality of its own supervisory activities. Moreover, the legislation makes personal demands on supervisory board members by stressing their independence — criticising speciﬁcally the practice of appointing former Vorstand members to the Aufsichtsrat — and limits on other activities, such as the total number of boards on which they serve (Lück 2002). None of the recent reform proposals calls into question the mainstays of Germany’s system: the two-tier board structure, the mission of the board, and the role of banks and workers on the supervisory board. The criticism addresses signiﬁcant but non-structural issues such as the common practice of appointing the former manager of a company to the supervisory board (the Aufsichtsrat), an arrangement with both positive and negative implications. The continuity between management and supervisory boards has the advantage of keeping knowledge in the company. However, the arrangement enables supervisory boards to protect current managers from criticism of decisions that the former managers helped put into place with the new management, which the former leaders helped select. A second emerging criticism of the German insider system of corporate governance is that the overwhelming power of banks is even greater than it appears — and with virtually no means of effective oversight. Since private investors deposit shares with banks along with their proxy votes, banks control much of the vote at annual meetings (Allen and Gale 1994). The only recent ‘threat’ to bankers’ control of the corporation and the large interlocking ownership structure of many large German companies has come with recent tax reform that slashed the capital gains tax on sales of shares held by ﬁnancial institutions. This releases capital and unties ownership that would otherwise stay within the ﬁnancial institutions — mostly banks — to avoid the capital gains tax. While this reform has already had some impact on shares held by German banks, it is not clear that it will lead to a major shift in the governance of German companies. Finally, the mid- and small-size companies in Germany (the so-called Mittelstand) that make up a substantial portion of German industry were not addressed by the Kodex Commission, compromising the extent to which the Kodex reforms will affect the broader landscape of German corporate governance (‘Auch der Mittelstand denkt über einen Kodex nach’ 2003). France France’s system of corporate governance reﬂects two longstanding elements of its social and political structure: a tightly knit elite and a large, direct role for the state. Recent reforms have done little to change these elements.

66

Corporate, Public and Global Governance: The G8 Contribution

Although all societies are governed by elites, France has institutionalised its elite formation processes more than other countries. In the process it has delegated dominant political and economic control to a relatively small group of graduates from a handful of institutions and organisations, the grandes écoles and grands corps. From within, it is an elite of merit, but that merit is determined early in one’s life and rarely questioned afterward (Suleiman 1978). The organised elite structures include government agencies or expert organisations that carry out functions for the state such as the Inspection des Finances, Corps des Mines, Counseil d’État, and the Cour des Comptes, whose members come from select teaching institutions with a few hundred graduates every year. Recent reforms have done little to change this aspect of French corporate governance. Although direct ownership of companies has declined and some interlocking ownership structures have been unwound over the past two decades, management and control are still dominated by the small and privileged French elite. In 1985, 80 percent of all managers of CAC 40 companies came either from the family of owners, the Grand Corps d’État, or directly from the government. In 1997, the ﬁgure was still a hefty 75 percent, but family members dropped from 43 percent to 20 percent while the Grand Corps d’État and state members increased their collective share by 50 percent. Among board members of the CAC 40 the ﬁgures are even more striking. The percentage of family and state membership in boards has remained above 80 percent in the past 20 years, with Grand Corp d’État and direct state representation accounting for a full 60 percent of all board seats in 1997 (Bauer and Bertin-Mourot 1997). Corporate governance in France has often been described as an uncomfortable mixture of the American and German models, although it clearly ﬁts the insider model better. Company presidents (présidents directeurs-générales or PDGs) have held near dictatorial control over their boards and companies, leading to justiﬁed criticism about the ineffectiveness of control mechanisms. France’s interlocking shareholdings (albeit with less bank supervision than in Germany), a strong government role in the running of companies, signiﬁcant worker involvement in company decisions, and board representation held by important stakeholders puts France into the category of an insider system. Although French companies have the choice between the single- and dual-board systems, most choose the single. With the increase of private companies, the opening of markets to international investors, and a shortage of equity ﬁnancing — but no shortage of control scandals such as Credit Lyonnais — France has engaged in a vigorous debate about corporate governance over the past decade. Michel Albert’s Capitalisme contre Capitalisme (1991) lays the foundation for the French debate by arguing that any system of corporate control is tied to social values. According to Albert, France must basically choose between the Rhine model (Germany) and America’s free-wheeling liberal system. He concludes, not unsurprisingly, that France’s social and economic system is better suited to the German model. Implementing the German system in France would require few structural or attitudinal changes. The basic ‘social commitment’ is there, along with the existence of large shareholdings and an active government. Adding a requirement for a two-board structure with the active participation

Corporate Governance in the Twenty-First Century

67

of bankers and other large shareholders or their representatives with expanded representation of workers are relatively minor structural adjustments. Since Albert’s book, France has taken concrete steps to strengthen corporate governance by exploring international and European norms of best practice. Two major undertakings — the Viénot report and the Marini report — took as their starting point that notion that good corporate governance requires a clear understanding of the mission of the ﬁrm and that French traditions were much closer to Germany’s view of a more socially responsible capitalism than the ‘Anglo-Saxon’ variety. The Viénot report, based on the work of the Conseil National du Patronat Français (CNPF) and the Association Française des Enterprises Privées (AFEP), focussed on the objectives, powers, and organisation of boards of listed companies with the aim of increasing investor conﬁdence (Bancel 1999). It contained many widely accepted aspects of good corporate governance among its recommendations, including the mandatory appointment of independent board members (non-management, nonshareholder representatives), special board committees for recruiting, auditing, and compensation, and company charters that give speciﬁc guidance to boards about corporate governance matters. The Viénot report called for government legislation to reinforce the alreadyexisting pressures on companies from investors to reform their corporate governance. Like German law, and in contrast to the Anglo-Saxon shareholder focus, the report required company boards to pursue the interests of companies, not just its shareholders, workers, creditors, suppliers, government, and other stakeholders. Unfortunately, few of the recommendations have been implemented among CAC 40 companies. The orientation toward ‘the company’s interest’ appears to be too vague, or perhaps even dangerous as a justiﬁcation for a ‘new type of company despotism’ (Philippe Marini, quoted in Bancel 1999). The Marini report emerged from a government committee formed to create a framework for new legislation with a broader agenda than that of the Viénot report. It set the stage for the law for new economic regulations (Loi nouvelles régulations économiques). It mandated, among other things, a distinction between supervisory and executive power in unitary board structures (chair and chief executive ofﬁcer) and a limit on the number of boards on which directors can serve (ﬁve public companies), and it increased power for employees and minority shareholders, especially with issues involving tender offers. The European Union For Europe, corporate governance is a particularly perplexing issue. Between 1992 and 1998, in ambitious privatisation programmes, European governments sold more than US$200 billion in previously state-owned assets such as France’s Renault and Rhone-Poulenc and Germany’s Deutsche Telekom. Despite this enormous publicprivate conversion, the EU continues to pressure member states toward even greater liberalisation of industry (Carriere et al. 2002). Many Europeans view capital market integration as a crucial source of ﬁnancial scale economies necessary to propel privatisation and private industrial development to a new plateau. The prospect of attracting large amounts of equity investment, especially from institutional investors

68

Corporate, Public and Global Governance: The G8 Contribution

tapping continental equity markets, was a compelling argument for the launch of the euro. Tempering this enthusiasm, the recent collapse of the NASDAQ-like Neuer Markt points to European problems in creating the ﬁnancial milieu for innovative, risky projects (Carriere et al. 2002).4 This suggests that Europe has been wobbly in its early steps of institutional transition from an insider, bank-based system to an outsider, markets-based one. With this in mind, European regulators recognise that companies relying on impersonal capital markets require more complete accounting information and greater public disclosure than is the case for ﬁrms involved in the more personal, contact-reliant bank-based system. In contrast to America, Europe seems willing to forego the advantages of national competition in corporate governance systems. In the U.S., power is shifting to individual states so as to shore up deﬁciencies in the American system by competition within the federal system (Romano 1998). Nevertheless, most acknowledge that key aspects of America’s uniform economic system were introduced at times of severe crisis such as in the 1930s. By extension to Europe today, it is unrealistic to suggest uprooting the role played by banks in corporate governance, as was done in the U.S. amidst the debilitating crisis of the Depression. It is, in fact, almost unthinkable. Moreover, as many economists have recognised since the 1950s, international competition for capital, as well as for labour, goods and services, is in itself a check on management excesses and a means of ensuring good corporate governance. With the degree of choices that investors, workers, and other stakeholders have, especially if the EU functions as intended, managers will have increasing difﬁculty hiding behind national borders to protect themselves against imprudent investment and poor cooperation with key stakeholders (Alchian 1950). As a consequence, most European efforts to harmonise corporate governance standards deal with accounting information. The evolution of modern Europe involves not only the establishment of the internal market — the free movement of goods, capital, and labour — but also the uniﬁcation of competition policy, ﬁscal rules, and corporate laws. The latter includes the harmonisation of accounting standards for which the EU has taken several steps toward a uniﬁed set of standards. The Fourth and Seventh Directives, which deal exclusively with accounting issues and standards, must be incorporated into the national law of member countries. The EU has established an accounting advisory forum, composed of preparers and users of ﬁnancial information, to consult the European Commission on how best to coordinate European accounting principles with those of other standard-setting bodies, especially the International Accounting Standards Committee, to which the EU belongs. Adopted in 1978 but implemented only in 1991, the EU Fourth Directive contains comprehensive disclosure rules covering the contents of ﬁnancial statements, methods of presentation, and valuation methods. The Fourth Directive deﬁnes minimum standards while allowing implementation to differ among member states. The Seventh Directive, adopted in 1983, addresses consolidated ﬁnancial statements but again offers member states 4 Even before the collapse of the Neuer Markt, during the boom times between 1997 and 2000, it brought only 316 new companies to market, compared with 1649 by NASDAQ during the same period.

Corporate Governance in the Twenty-First Century

69

choice in how to incorporate its provisions into company law. This European approach to institution building through directives — whereby Brussels spells out the rules while member states assume latitude to interpret the mode of application — is consistent with the EU’s guiding principle of subsidiarity. Even with unifying directives from above and some convergence, EU member states retain their particular capital market institutions and traditions along with accounting and regulatory conventions. In comparison with the Anglo-Saxon world, continental Europe reveres its resistance to rapid and radical change in corporate structure. At the corporate level, concentrated shareholdings allow a few shareholders to hold the balance of voting power and there are legal obstacles to removing boards as well as the vested power of boards to ward off takeover bids. In a domain in which Brussels does have authority, however, the failed efforts to gain acceptance of a common takeover policy is indicative of troublesome inertia at the level of the member states. In 2001, after twelve years of negotiation, the European Parliament rejected the proposed European Takeover Directive. Although aimed at setting minimum country standards, not harmonisation, and although vague about the timing and methods of implementation, the proposed directive ran into stiff opposition, especially from German legislators who feared that company boards would no longer be able to stymie unwanted takeover attempts. The legislation modestly called for equal treatment of shareholders, sufﬁcient time for boards to distribute information to shareholders about a bid, with shareholders being allowed to decide on the merits of bids. Sufﬁcient consensus seems unlikely to emerge to address the concerns of shareholders who see exit through acquisition as a viable control and payout mechanism. In comparison with the Anglo-Saxon world, continental Europe maintains institutional resistance to rapid and radical change in corporate ownership. The institutional barriers include concentrated shareholdings that give a few shareholders the balance of voting power, legal obstacles to removing boards, concentrated voting rights (60 percent of Europe’s largest companies have multiple equity voting rights), and the vested power of boards to ward off takeover bids. Moreover, even recent attempts to force European countries to adopt all of the International Accounting Standards (IAS) have produced little fruit. The adoption of the EU regulation in 2002, which in principle binds all members and calls for introduction of comparable IAS ﬁnancial reports by 2004, met heavy resistance over individual standards and over procedural matters. Member states haggled over whether the Accounting Regulatory Committee would vote by qualiﬁed majority on all the standards taken together or on individual standards. In any case, under the regulation, the committee was not allowed to reword any of the international standards. European domestic institutional investors have taken a leading role in shareholder activism and in corporate governance reform. Some institutional investors have voiced doubts about the adequacy of individual company’s corporate governance, including the likes of Royal Philips Electronics, Vivendi, and DaimlerChrysler. Claude Bébéar chair of AXA-UAP, a major European institutional investor, called for compulsory shareholder voting (‘Killing Capitalism? Radical French Ideas for Reforming Capitalism’ 2003). Most shareholder activism has been aimed at developing and enforcing codes of conduct for boards and chief executive ofﬁcers (CEOs) while deﬁning their liabilities.

70

Corporate, Public and Global Governance: The G8 Contribution

These efforts have led to increased independence and competence of boards and CEOs as well as several shareholder suits, notably those against the management of Deutsche Telekom and Telecom Italia (Carriere et al. 2002, 25). Ownership Structures and Social Values Corporate governance structures reﬂect a complex interaction between social and economic interests. This can be illustrated in many ways. Mark Roe (1994), using a theoretical argument that differs from his landmark history of American corporate governance development in Strong Managers, Weak Shareholders, contends that social democracies tend to have concentrated ownership with insider corporate control. Strong social democratic traditions allow industry insiders to exercise powerful counterpressure to shareholders’ push for greater returns. The insiders’ power often results in lost value to shareholders and other stakeholders including workers. Old shareholders, mostly founding families, ﬁnd that they have a diminished market for sale of their shares. The status quo becomes their only option, essentially captive capital. Roe’s points can be backed up by historical argument. The German twoboard system — Aufsichtsrat and Vorstand, which are the standard in Austria and Scandinavia as well as Germany — had its historical roots not in the protection of shareholders, but of society at large. The creation of the two-board system was a function of the 1870 compromise (Aufsichtsratfrage) in which the German states gave up their direct overseeing and chartering responsibility for the promise that independent ‘watchdogs’ would ensure that society’s interests were upheld (Hopt 1998). As the direct successor of state oversight, supervisory boards were created to protect society’s interest in the company, inclusive of, but also extending beyond, the narrower interests of shareholders. As Klaus Hopt put it, ‘the “modern” observation that the supervisory board does not live up to its control function and, indeed, that it does not act only or even primarily in the interest of dispersed shareholders is, historically speaking, a truism’ (Hopt 1998, 230). The eventual role played by banks in Aufsichsträter was a means to avoid the twin anathemas of capitalism in the German view: speculation and impersonal exchange (Kobrak 2002). As entrepreneurs who had forged wealth creation were replaced by speculators with no concern for anything but making money, banks stepped into a vacuum in the German capitalist system. Their inﬂuence increased as capital market and tax legislation gave them special advantages with small investors and with companies with large investments in ﬁxed assets. Nevertheless, as far back as the nineteenth century, concerns arose about the conﬂicts of interest posed by the house bank’s role on supervisory boards. Personal relationships, favoured by Germans for the supervision of companies, were subject to potential abuses of personal networks, namely Germany’s system of cartels, bank ownership, and interlocking directorships with all its advantages and disadvantages. Banks still play a much greater role on German boards than in the United States (Edwards and Fischer 1994).5

5 Jeremy Edwards and Klaus Fischer (1994) examined the widely held hypothesis that the bank-based German system lowers transaction costs and risks by reducing the problems of

Corporate Governance in the Twenty-First Century

71

Although co-determination (Mitbestimmung) did not take its current form until after World War II, its implementation has had a long history in Germany that reﬂects fundamental values about capitalism. In German political-economic literature the social concept of a ﬁrm’s responsibility for its workforce and labour co-determination in industrial activity dates back to 1835 (Hopt 1998, 236). As early as 1891, German law encouraged the establishment of workers councils. Formal boardroom representation arose in the aftermath of both world wars as labour cooperation and consensus became crucial to Germany’s recovery. During the Weimar Republic, companies were required to have two worker representatives on company Aufsichsträter, a measure initially suppressed by the Nazis and later reinstituted in a more threatening fashion as part of the government’s control of labour activities and pressure on management to enforce party policies. The Nazidrafted Stock Corporation Act of 1937 included a provision to make management responsible for workers’ welfare and societal advancement, whereas the 1965 version omitted such clauses following legislative debate that concluded that they were ‘self-evident’ in the mission of a ﬁrm (Hopt 1998, 237). By 1976, two thirds of the Aufsichtsrat of German companies with more than 2000 employees were elected by employees or employee representatives and one third by unions. The chair of the Aufsichtsrat is elected by the shareholders and has one vote in case of a tie in supervisory board decisions. Although all representatives are required to act in the interest of the company as a whole, this notion is vague. The deputy chair is elected by workers, providing labour with a substantial role in board decisions (Allen and Gale 1994). In 1996, 740 German companies had boards with 50 percent worker representation. Although labour representation may weaken the control function of the supervisory board by forcing a disproportionate amount of attention to the issues of interest to labour, the reforms discussed in Germany today do not contemplate any revision to Mitbestimmung. Even among shareholders, the view is that Germany’s consensus management has economic and social justiﬁcation. German values and experience with corporate governance contrast sharply with America’s. Accident and political compromise are responsible for many features of American corporate governance, but ideology and economics have played important roles. In the 1920s and 1930s, the U.S. turned away from the insider model as dependence on foreign capital declined and as smaller shareholders, afraid of the control exercised by big-moneyed interests, entered capital markets. John D. Rockefeller Sr. and J.P. Morgan, quintessential insiders, maintained a close relationship with their ﬁrms and were committed to the public good à la German capitalism. American history has not treated them kindly. They were among the most hated men of their day, maligned as overseers of a network that reduced the economic opportunity that gives every individual a chance. Proposals emanating out of recent scandals do not call for changing insurance, pension, and banking law in the United States so as to allow the greater concentration of ownership that is essential to the insider model. Indeed, the proposal to limit 400k contributions to one’s own company stock investment would reduce worker asymmetric information. Not only did their study cast doubt on the beneﬁts, but it also called into question the power of the banks.

72

Corporate, Public and Global Governance: The G8 Contribution

shareholding in their companies. The risk to workers of becoming too tied to their own companies’ ﬁnancial fortunes — for better or worse — has led to worker representation on boards as a means of improving corporate governance. U.S. rules still prevail against the use of insider information, thus reinforcing the board’s responsibility to shareholders. The rules impose ﬁduciary responsibility, assume sound business judgement, and demand accounting processes to disclose performance, risk, and consequences of managerial action. The famous Ford Motor case illustrates much about American views of corporate control and established the legal predominance of the interests of shareholders. Henry Ford, certainly no great liberal, wanted to hold back dividends from ‘his’ company to do more for his workers. Small shareholders took him to court and forced him to disgorge larger dividends (Allen and Gale 1994).6 U.S. corporate law takes as its starting point the presumption that investors, managers, and board members are rational, moral persons who need no institutional oversight on what they can do. Clear, objective information is the public good that demands public support. One sees this in the evolution of the business judgement rule. While the interest of the shareholder is the aim of the ﬁrm, directors of boards are not held accountable for their mistakes. Only bad faith or irrationality make directors or ﬁnancial analysts culpable and subject to legal damages. This is in contrast to the German system, in which shareholders, ﬁnanciers, and workers sit together on boards that watch what managers do. Corporate Control and the Future Recent unsettling events in corporate governance around the world — scandals, failures, and burst bubbles — prompt one to ask whether the systems of corporate governance are deeply ﬂawed and in need of serious structural reform or whether the systems are fundamentally strong and simply in need of minor adjustment. From a slightly different perspective, the question is whether a system of corporate governance — with its rules, regulations, attitudes, and traditions — is an adaptive arrangement that reﬂects collective acceptance of social priorities and the institutions to ensure them, or is such an endogenous process too precarious and uncertain for national comfort so that governing institutions must be deﬁned and enshrined in some sort of constitution of corporate behaviour. Events and circumstances of the past two decades illustrate that neither of the systems for corporate governance is without ﬂaws. The failures of the ‘systems’ point to an issue seldom addressed in the corporate governance debate, namely that the functioning of any system requires responsible, well-informed individuals who understand the strengths, limits and objectives of the system. There seem to be practical limits to legal approaches to effective corporate control (Roe 2002). Corporate law can never be so comprehensive as to eliminate the risk of costly management mistakes or misalignments with the interests of shareholders.

6 It was subsequently found that Ford was trying to manipulate the company’s share price, which only increased suspicions about insider control.

Corporate Governance in the Twenty-First Century

73

Guidance to the future of corporate governance begins with this proposition. There is no call for radical change in national corporate law, ownership structures, or social objectives. Without pursuing convergence by design, one can draw on the strengths of both systems — insider and outsider — while adding constructive new elements. With this in mind, the following interrelated points frame public policy and corporate strategy. First is the need to view corporate governance in broad terms, both conceptually and organisationally. Effective corporate governance does not simply constrain managers from stealing from shareholders or to prevent unagreed wealth transfers. The extremes of corporate governance systems — the market-based versus bank-based, or ‘contracts versus contacts’ — are unlikely to converge or collapse into one. Indeed, national or geographic characteristics that are fundamental to each nation’s industrial composition and unique economic landscape suggest that one suit does not ﬁt all. Bank-based systems tend to be appropriate in industrial structures characterised by relatively low risk where the beneﬁts of monitoring — to ensure production efﬁciency — outweigh the costs of portfolio diversiﬁcation to mitigate risk. However, a nation with an industrial agenda marked by technological innovation, rapid obsolescence, and product risk is better served by a decentralised system of ﬁnance with high liquidity, easy exit options, and creative risk-sharing arrangements — that is, the market-based system. To the extent that the appropriate system of corporate governance promotes industrial efﬁciency in light of the technological tilt of the nation, corporate governance is part of a dynamic process in which companies deﬁne and redeﬁne their missions to meet new competitive challenges. It encourages ﬁrms to be ﬂexible, strategic, and Schumpeterian and to counter corporate sclerosis, all of which harks back to Coase’s view of why ﬁrms exist. Contacts are most effective in some situations, contracts are better in others. Second, certain aspects of corporate governance must be raised from the national arena and placed in an international setting. While corporate governance has profound political implications within nations, in an international setting industrial conduct is a facet of trade, cross-border investment, and globalisation generally. Clashes in corporate governance can be as destructive as trade disputes. Failure to establish international standards of corporate behaviour will inhibit capital movements. The risk is greater for emerging markets whose fragile political circumstances make agreement and enforcement of corporate standards difﬁcult. International norms dealing with accounting, insider trading, board functions and responsibilities, and the legal responsibilities of auditors are reasonable targets for consensus. Basic standards of corporate conduct need not touch deep-seated national social values or economic structures. States could, in a sense, compete with one another for investors based on the international norms and how well their own individual institutions implemented the internationally accepted norms. Just as Germany might use its bank-dominated structure and worker-consensus model to woo investors, for an emerging nation that credibly signals to the world that its corporate conduct is beyond reproach, that nation has an advantage over others in this era of intense competition for capital.

74

Corporate, Public and Global Governance: The G8 Contribution

Last, society at large and corporations in particular must place greater emphasis on an ethos of corporate conduct and governance that promotes social and economic values. Politicians and theorists often live with the delusion that one can achieve good corporate governance with a particular set of institutions. One of the clear messages of the past decade is that no institutional framework can protect companies and societies from those who maliciously or ignorantly misapply the rules of the system. Recent failures emanated out of a collective failure of auditors to apply the standards of their profession, managers to fulﬁl their ﬁduciary responsibilities, investment analysts to serve their clients, board members to commit themselves in a non-desultory fashion, and investors to critically examine their own expectations. Settlements in New York between the attorney general and brokerage ﬁrms, for example, recognise the problem of investor education. But the problem goes deeper. Many graduates of even highly ranked business schools approach investing and managing without a historical perspective, which might help modify expectations. As both managers and investors, they lack the tools to help them distinguish what is reasonable in economic returns and what is not. Along these lines, few business organisations outline the objectives of the ﬁrm and how each individual can play a role in achieving them. To be sure, the effects of this lack of ethos may be more apparent in outsider systems, but no amount of control of what investors can do and substitution of small elites for defused market control can eliminate the problem. Indeed, it just shifts it to those who design the controls or to the education of the elite with another set of political and social issues. Business school teachers have a special responsibility in creating this culture, this ethical framework for approaching business, without which all systems of corporate governance are doomed to failure. While this comment is addressed at some of the excesses of the recent stock market bubble, it is no panacea for human craziness and a willingness to believe on faith. This suggestion is based on an insight similar to that auditors have long understood in a somewhat different domain, namely that a corporation with a culture of control presents fewer risks for auditors. If control is taken seriously by those running and those working in a company, the likelihood that rules will be enforced is greater than in companies where they are not. Our suggestion is that companies develop a culture or ethos of corporate governance. This would entail a clear mission for the ﬁrm (the aim of governance), clear principles of how that mission will be implemented and better knowledge at all levels of organisations of how people ﬁt into that corporate governance mission. The implementation steps would entail training for board members, senior and junior managers in their responsibility to shareholders, and other stakeholders, regular audits of the organisational awareness and commitment, and a system of rewards based on contributions to corporate governance. Those who study internal control have known for many years that there is no substitute for reliance on what might be called a culture of control. As it is impossible or at least economically undesirable to verify all transactions, especially in large companies, one of the ﬁrst steps in any audit is an evaluation of a company’s system of internal control. For decades, the authors of audit manuals strongly implored their colleagues to begin with an evaluation of how well internal control was embedded in company organisations, how seriously it was taken by senior managers. Public accountants were encouraged to evaluate circumstantial information, like the qualiﬁcations and training

Corporate Governance in the Twenty-First Century

75

of internal auditors, their independence and procedures, access to important transactions and to senior management, and their future career paths within the organisation as well as certain attitudinal, subjective criteria, such as the degree of evidence of complacency about, or conversely commitment to, good control throughout the company (see Stettler 1977). By analogy, this auditing approach might be extended to the broader concept of good corporate governance. Investors, national regulators, business school teachers, and corporate executives have neglected the importance of corporate culture and its evaluation as an aspect of good corporate governance. To try to put more ethics in business misses the point about ethics as well as business. Ethical behaviour is done not out of self-interest but rather as a commitment to higher level social objectives (Bowie 1999). A modest notion of ethics would suit the purpose — a code of conduct designed to reduce transaction costs by creating a climate of trust among the corporation’s key stakeholders for dealing with the problem of incomplete contracts (Williamson 1996). Unlike in most professions, businesses unfortunately have no professional body that deﬁnes the norms to which they should adhere. Professional norms are also no panacea — witness some of the problems of the medical, legal, and accounting professions. But they create a transparent guide for behaviour, which can be used to train managers and for investors to evaluate. References Albert, Michel (1991). Capitalisme Contre Capitalisme (Paris: Seuil). Alchian, Armen (1950). ‘Uncertainty, Evolution, and Economic Theory’. Journal of Political Economy, vol. 58, no. 3, pp. 211–221. Allen, Franklin and Douglas Gale (1994). Financial Innovation and Risk Sharing (Cambridge MA: MIT Press). Allen, Franklin and Douglas Gale (2000). ‘Corporate Governance and Competition’. In X. Vives (ed.), Corporate Governance: Theoretical and Empirical Perspectives, pp. viii, 238 (Cambridge: Cambridge University Press). ‘Auch der Mittelstand denkt über einen Kodex nach’. (2003). Frankfurter Allgemeine Zeitung, 9 April. Bancel, Franck (1999). ‘Directions in French Corporate Governance’. Entreprises et Histoire, vol. 21 (June), pp. 4–28. Bauer, Michel and Bénédicte Bertin-Mourot (1997). ‘Administrateurs et Dirigeants du CAC 40’. CNRS and Boyden, Paris. Berle, Adolf Augustus and Gardiner Coit Means (1933). The Modern Corporation and Private Property (New York: Macmillan). Bowie, Norman E. (1999). Business Ethics: A Kantian Perspective (Malden MA: Blackwell Publishers). Brean, Donald (2001). ‘Corporate Governance: International Perspectives’. In J. J. Kirton, J. P. Daniels and A. Freytag (eds.), Guiding Global Order: G7 Governance in the Twenty-First Century, pp. 223–244 (Aldershot: Ashgate). Carriere, Giovanni, Andrew Cowen, Jose Antonio Marco, et al. (2002). ‘European Corporate Governance: A Changing Landscape?’ <mitsloan.mit.edu/50th/pdf/ corpgoveuropepaper.pdf> (August 2006).

76

Corporate, Public and Global Governance: The G8 Contribution

Clarke, Thomas and Richard Bostock (1997). ‘Governance in Germany: Foundations of Corporate Structure?’ In K. Keasey, S. Thompson and M. Wright (eds.), Corporate Governance: Economic and Financial Issues (Oxford: Oxford University Press). Drobetz, Wolfgang and Andreas Schillhofer (2003). ‘Gute Corporate Governance Senkt De Kapitalkosten’. Frankfurter Allgemeine Zeitung, 13 January, p. 20. Edwards, Jeremy and Klaus Fischer (1994). Banks, Finance, and Investments in Germany (Cambridge: Cambridge University Press). Hart, Oliver D. (1995). Firms, Contracts, and Financial Structure (Oxford: Oxford University Press). Helfferich, Karl Theodor (1914). Deutschlands Volkswohlstand 1888–1913 (Berlin: G. Stilke). Hopt, Klaus J. (1998). ‘The German Two-Tier Board: Experience, Theories, Reforms’. In K. J. Hopt (ed.), Comparative Corporate Governance: The State of the Art and Emerging Research (Oxford: Oxford University Press). ‘Killing Capitalism? Radical French Ideas for Reforming Capitalism’ (2003). Economist, 3 May, p. 60. Kobrak, Christopher and Michael-Jörg Oesterle (1999). ‘Nationalism and Internationalism in Corporate Governance: The Case of Daimler Chrysler’. Entreprises et Histoire, vol. 21 (June). Kobrak, Christopher (2002). ‘Mark Roe and the Roots of German Corporate Governance’. Presented at the European Business History Conference, August, Helsinki. Lück, Wolfgang (2002). ‘Corporate Governance und Aufsichstrat’. Frankfurter Allgemeine Zeitung, 21 October, p. 24. McCraw, Thomas K. (1984). Prophets of Regulation: Charles Francis Adams, Louis D. Brandeis, James M. Landis, and Alfred E. Kahn (Cambridge MA: Belknap Press). Roe, Mark J. (1994). Strong Managers, Weak Owners: The Political Roots of American Corporate Finance (Princeton: Princeton University Press). Roe, Mark J. (2002). ‘Corporate Law’s Limits’. Journal of Legal Studies, vol. 31 (June). Romano, Roberta (1998). ‘Empowering Investors: A Market Approach to Securities Regulation’. In K. J. Hopt (ed.), Comparative Corporate Governance: The State of the Art and Emerging Research (Oxford: Oxford University Press). Shleifer, Andrei and Robert W. Vishny (1997). ‘A Survey of Corporate Governance’. Journal of Finance, vol. 52, no. 2, pp. 737–783. Steil, Benn (1996). The European Equity Markets: The State of the Union and an Agenda for the Millennium (London: Royal Institute of International Affairs). Stettler, Howard F. (1977). Auditing Principles, 4th edn (Englewood Cliffs: PrenticeHall). Suleiman, Ezra N. (1978). Elites in French Society: The Politics of Survival (Princeton: Princeton University Press). Williamson, Oliver E. (1996). The Mechanisms of Governance (New York: Oxford University Press).

Chapter 6

Regional Multinationals and Regional Trade Policy: The End of Multilateralism Alan M. Rugman

This chapter investigates the current interaction between states and ﬁrms within the institutional context of international trade and investment agreements. It argues that, today, multinational corporations (MNCs) largely operate within their home-triad markets, or, at best, are bi-regional (competing across only two of the triad of the European Union, the North American Free Trade Agreement [NAFTA], and Asia). Few MNCs are ‘global’. Thus, few MNCs are really interested in multinational trade and investment agreements. Instead, most of the largest 500 MNCs are interested in the deepening of regional agreements in Europe, the Americas, and Asia. The data to support the regional nature of MNC activity are clear. At an aggregate level, the data show that the majority of trade of the triad is intra-regional: 62 percent in the EU, 56.7 percent in NAFTA, and 56 percent in Asia (Rugman 2000). The trend toward intra-regional trade has been increasing over the last two decades. In addition, foreign direct investment (FDI) is mainly undertaken between the EU and NAFTA, or is intra-regional within each region of the triad. There is relatively little FDI on a multilateral basis. The economic picture is one of increasing regionalisation and decreasing ‘globalization’ (Rugman 2000; Rugman and Verbeke 2002). This indicates that there is increasing economic interdependence both within each region of the triad and among the regions of the triad. At the micro-ﬁrm level the evidence of regionalism is even stronger. Of the largest 500 corporations in the world, 320 of the 380 for which geographic sales data are available have, on average, 80 percent of sales in their home region of the triad. In 2003, the world’s largest company, Wal-Mart, had 94 percent of its sales in NAFTA. Of the other top 30 companies, General Motors had 81 percent in NAFTA; Mitsubishi had 87 percent in Asia; Mitsui had 79 percent in Asia; TotalFinaElf had 56 percent in Europe; Allianz had 78 percent in Europe; Volkswagen had 68 percent in Europe; Deutsche Bank had 63 percent in Europe; Credit Suisse had 61 percent in Europe. Of the 380, only eight were global in the sense of having at least 20 percent of their sales in each region of the triad. These are mainly MNCs in electronics such as IBM, Sony, Philips, Nokia, Intel, Canon, and Flextronics. The others are Coca-Cola and LVMH. There are also a score of bi-regional MNCs with at least 20 percent of sales in two of these regions of the triad. These include Toyota, Nissan, DaimlerChrysler, Honda, AstraZeneca, GlaxoSmithKline, Ericsson, Diageo, and Michelin. Overall, there are incredibly few truly global ﬁrms. Most MNCs operate mainly in the home region of the triad (Rugman and Verbeke 2004).

Corporate, Public and Global Governance: The G8 Contribution

78

From the viewpoint of the state, there is a greater emphasis by trade experts and trade negotiators to facilitate regional agreements than to complete the Doha Development Agenda of the World Trade Organization (WTO). In the autumn of 2002, within a few weeks, the following events occurred: •

•

•

The EU agreed to a list of ten accession countries in Central and Eastern Europe, to negotiate to join the EU in 2004. In Brussels, a vast bureaucracy of many thousands labours to deepen the economic, social, cultural, political, and ﬁnancial integration of the EU. In Quito, Ecuador, trade ministers for 34 countries agreed to continue to negotiate the terms and conditions for the Free Trade Agreement of the Americas (FTAA), ﬁrst accepted by them, in principle, at the Quebec City Summit of the Americas of April 2001. The FTAA was scheduled to start in January 2005, with the implementing committee co-chaired by the United States and Brazil. The FTAA builds on the twin principles of tariff reduction and national treatment from FDI, established in NAFTA (Rugman 1994). In November 2003, the ten members of the Association for Southeast Asian Nations (ASEAN) agreed to a new trade and investment agreement with China. Some felt this would be expanded to include Japan and South Korea.

In spring 2003, the war in Iraq illustrated the military power of the U.S. hegemon, operating in a world where most European countries (except for the United Kingdom) did not initially support the war and Asian countries (with the primary exceptions of Japan and Australia) were also critical of U.S. military power. The result of the war would likely reinforce regional economic policies, at the expense of multilateral institutions, such as the WTO. The United States was already exporting 37 percent of its goods and services to its NAFTA partners. Its trade with Canada alone exceeded U.S. exports to all 15 member states of the EU. In terms of energy, the United States already obtained the majority of its oil and gas from the Americas. This regional selfsufﬁciency is likely to increase as security concerns remain. In view of this profound regionalisation of the global economy and the process of building international institutions, this chapter explores three key issues. First, given the evidence on the economic interdependence within each region of the triad, is this process facilitated by regional or multilateral trade agreements? The EU is much more of an integrated common market than the looser free trade agreements of NAFTA, the FTAA, and the Asian agreement of 2002. Do international agreements really matter when 56 percent of all Asian trade was already intra-regional in 2001, before a formal trade agreement was announced? Second, with the trend toward increasing regionalism, is the WTO doomed? The United States is negotiating many bilateral trade agreements, and the U.S. Trade Representative (USTR) does not really focus on the WTO. The EU and United States still disagree over agricultural subsidies; China still has difﬁculty in respecting intellectual property rules; the dispute settlement system at the WTO is being challenged not just by governments, but also by nongovernmental organisations (NGOs), especially environmentalists. The agenda of the civil society movement has targeted the WTO but largely neglected regional trade agreements, except for

Regional Multinationals and Regional Trade Policy

79

Mexico’s role in NAFTA. Can the small staff of 300 people at the WTO deliver on multilateralism when they are vastly outnumbered by the EU bureaucracy and a growing NAFTA-based set of environmental and labour/human rights institutions (Rugman et al. 1999)? Third, how do MNCs and states actually interact on a regional and multilateral basis? Are MNCs beginning to develop regional strategies instead of global ones? Do states understand this new emphasis? U.S. Energy Supply is Regional The importance of NAFTA, and a potential FTAA, is also relevant to the United States in terms of energy security. Despite the widespread popular feeling that the U.S.-led military action in Iraq in March 2003 was due to Iraq’s oil, there is no economic logic to support this belief. At that time, the United States had 57.2 percent of all its oil produced within NAFTA. It produced 41 percent of its own consumption internally and imported another 16.3 percent from its two NAFTA partners. Another 9.2 percent came from Venezuela and Colombia. Thus, over two thirds of all U.S. oil consumption was from the Americas. The United States did not need oil from Iraq. Indeed, it only consumed 13.9 percent of all of its oil from all the states in the Persian Gulf, namely Bahrain, Iraq, Kuwait, Qatar, Saudi Arabia, and the United Arab Emirates. Even though this area has large oil reserves, there are similarly large oil reserves in Canada (in the Athabaska tar sands). Thus, this position of oil security is not likely to be threatened for many years. In strictly economic terms, Iraq and the rest of the Middle East are minimally important to the United States. Although the United States has free trade agreements with Israel and Jordan, total trade to these areas was under 1 percent of its trade at the time the war began. In contrast, the United States had 37 percent of its trade with its NAFTA partners. In short, Iraq did not matter to North America. It may have mattered to Europe and Asia, but that is a different issue. In terms of consumption of oil, in 2003 the United States produced 41 percent of its total needs. Another 9.1 percent came from Canada and 7.2 percent from Mexico, as can be seen in Table 6.1. Thus, the NAFTA region supplied 57.2 percent of all the oil required by the United States. A further 7.8 percent came from Venezuela and 1.4 percent from Colombia, so as much as 66.4 percent of all the oil consumed in the United States was from the Americas. In terms of 2003 U.S. imports of oil (remembering that the United States produced 41 percent of its consumption itself), the Persian Gulf supplied 23.5 percent of the total. This amount was lower than the NAFTA partners of the United States, as Canada supplied 15.4 percent and Mexico 12.2 percent of all U.S. oil imports (a total of 27.6 percent from these two neighbours). In addition, Venezuela supplied 13.2 percent and Colombia 2.4 percent, so a total of 43.2 percent of all U.S. oil imports were from the Americas. These data are reported in Table 6.2.

80

Corporate, Public and Global Governance: The G8 Contribution

The Regional Economic Determinism of the Triad The importance of economic-based regionalisation and the triad, and the lack of globalisation, has been reﬂected in political alignments. Following the deﬁnitive change to U.S. political attitudes toward national security after the September 11, Table 6.1

U.S. consumption of petroleum, by country of origin, 2001

(thousand barrels per day) United States Canada Mexico North America Venezuela Colombia Persian Gulf Others Total

2001 8,031 1,786 1,423 11,240 1,538 280 2,731 3,861 19,650

percent of total 40.9 9.1 7.2 57.2 7.8 1.4 13.9 19.6 100.0

Sources: (Adapted from United States Department of Energy 2002; Energy Information Administration annual, 2002) Notes: The country of origin for reﬁned petroleum products may not be the country of origin for the crude oil from which the reﬁned products were produced; for example, reﬁned products imported from reﬁneries in the Caribbean may have been produced from Middle East crude oil. Data include any imports for the Strategic Petroleum Reserve, which began in 1977. Totals may not equal sum of components due to independent rounding. Persian Gulf comprises Bahrain, Iran, Iraq, Kuwait, Qatar, Saudi Arabia, and the United Arab Emirates.

Table 6.2

U.S. petroleum imports, 2001

(thousand barrels per day) Canada Mexico North America Venezuela Colombia Persian Gulf Others Total

2001 1,786 1,423 3,209 1,538 280 2,731 3,861 11,619

percent of total 15.4 12.2 27.06 13.2 2.4 23.5 33.2 100.0

Source: (Energy Information Administration annual, 2002). Notes: The country of origin for reﬁned petroleum products may not be the country of origin for the crude oil from which the reﬁned products were produced; for example, reﬁned products imported from reﬁneries in the Caribbean may have been produced from Middle East crude oil. Data include any imports for the Strategic Petroleum Reserve, which began in 1977. Totals may not equal sum of components due to independent rounding. Persian Gulf comprises Bahrain, Iran, Iraq, Kuwait, Qatar, Saudi Arabia, and the United Arab Emirates.

Regional Multinationals and Regional Trade Policy

81

2001, terrorist attacks, a new world political system is emerging. This is based on the triad reality of regionalisation. The United States already has economic security on a regional basis. This was afﬁrmed by the NAFTA agreement of 1994 (Rugman 1994). Canada and Mexico supply energy and other natural resources to the United States in exchange for enhanced business access to the world’s single largest and richest market. The NAFTA does not provide the depth of economic integration of the EU, and it has none of its political and currency integration. Yet it ties together these three economies in a gigantic and highly successful free trade area to the mutual economic beneﬁt of all three partners. So successful is NAFTA that it is in the process of being expanded to the FTAA. This would lock in all 34 countries of the Americas into an extension of NAFTA. The U.S. economy will serve as the regional regime for growth and renewed prosperity for Latin America and the Caribbean, just as NAFTA has done for Mexico. The economic data on NAFTA show ever increasing interdependence in trade and FDI. Table 6.3 shows that intra-regional trade increased from 49 percent to 57 percent between 1997 and 2000. In 2003, the United States had 22.6 percent of its exports going to Canada and 14.1 percent to Mexico, for a total of 36.7 percent. It only had 21.3 percent to all 15 member states of the EU. The U.S. is a regional player in terms of trade. Similar data exist for FDI. In addition, at ﬁrm level, the 169 U.S. ﬁrms in the list of the world’s largest 500 ﬁrms had an average of 77.3 percent of all their sales within NAFTA. Of course, Canada and Mexico more than pull their weight on intra-regional trade. In 2003, Canada had 87 percent of its exports to the United States; Mexico had 88.7 percent. Table 6.3 also demonstrates that Europe and Asia are becoming increasingly regionalised. Intra-regional trade in the EU increased from 60.6 percent to 62 percent between 1997 and 2001. In Asia, even without a formal trade agreement across the region, intra-regional trade increased from 53.1 percent to 55.7 percent. Intra-regional FDI increased from 36 percent in 1986 to 46 percent in 1999 in the EU. In Asia, intraregional FDI increased from 20.5 percent in 1986 to 26.2 percent in 1999. Regionalism is the dominant economic force. As a direct corollary to this trend, there is even less trade between the triad blocks. The blocks are closing and becoming more inward looking and less global (Rugman 2000). This economic reality is now reﬂected in politics. Table 6.3

Intra-regional trade in the triad, 1980–2000

Intra-regional exports (percent) Year European Union 2000 1997 1980

62.1 60.6 52.1

NAFTA

Asia

55.7 49.1 33.6

55.7 53.1 35.3

Sources: (International Monetary Fund annual, 1983–2001; Organisation for Economic Cooperation and Development 2001) Note: NAFTA = North American Free Trade Agreement.

82

Corporate, Public and Global Governance: The G8 Contribution

The failure of the United Nations Security Council (UNSC) in February 2003 to endorse a second resolution to authorise U.S.-led military action in Iraq shows that trans-Atlantic political relationships reﬂect the broken economic one. Only the UK showed any signiﬁcant economic interest in North America, indicated through FDI (not trade, where the UK had a majority of its trade with its EU partners). The UK had about 40 percent of its outward stock of FDI in North America (Rugman and Kudina 2002). This was matched by a similar inward stock. In contrast, Germany and France had most of their FDI within the EU, not across the Atlantic. Today the economic lenses of France and Germany are inward looking. Only the UK still needs a political alliance with the United States to match its economic interest. The political support of Spain and Italy for the United States reﬂects more internal EU politics than any long-term economic afﬁliation with the United States. The EU now represents, as a block, an economic alternative to North America. The European-based MNCs have 80 percent of their sales within Europe. European business does not really need the United States, just as the United States does not need Europe. There is no global business, only regional business. All of this economic analysis also works for Asia. This region is becoming more interdependent, and does almost identical intra-regional growth in trade and FDI to match its triad partners. Again, most of the sales of Asian-based MNCs are within the region, as Table 6.3 shows. This trend is increasing. The world picture is one of expanding regionalism. The EU admitted ten new members in 2004. NAFTA will be extended from three nations to 34 by the FTAA. In Asia, China, Japan, and South Korea will develop stronger ties with the ASEAN countries. Any business within the triad must become afﬁliated to a triad region to grow and succeed. The political events of 2003 simply reﬂected the economic reality of the triad. The United States, as a hegemon, did not need support from the leading countries in Europe or Asia. It did not even need it from its two NAFTA partners, both of which made the mistake of not supporting the United States in its political hour of need. This was not smart policy when both depend on the United States for economic success. This political mistake is unlikely to be repeated by the Canadian prime minister, or be tolerated again by business interests in Mexico. What is the role of France, Germany, Italy, the UK, Russia, and Japan after the Iraq war? Except for the UK, all have demonstrated their military irrelevance in world politics. Only the United States matters. Perhaps Canada will seek to realign itself to U.S. policy leadership as soon as possible. The UK–U.S. relationship is strong and provides the UK with independent leverage across the EU and all of Europe. France has largely destroyed its ability to inﬂuence U.S. policy. It now ranks below Russia as a U.S. political ally. Germany ranks below Italy. The United States is unlikely to look to the G8 for any military or political alliance in the near future. It does not need the G8 as much as the G8 needs the United States.

Regional Multinationals and Regional Trade Policy

83

The Regional Multinationals The regional nature of multinational business is demonstrated in Table 6.4. It reports the intra-regional sales of the 25 largest home-region–based MNCs. In 2003, the world’s largest company was Wal-Mart. It had 94.1 percent of its sales in North America; it is not a global company. General Motors had 81 percent of its sales in North America; it is not global either. Ford had 66.7 percent in North America and 21.9 percent in Europe. It would be classiﬁed as bi-regional if it did not still have the majority of its sales in its home region. The rest of the table shows the world’s largest companies are not global, but based in their home region. Table 6.4 only reported the largest 25 of a set of 320 ﬁrms with a majority of the sales in their home region. These 320 ﬁrms have an average of 80 percent of sales in their home region, whether these are North American, European, or Asian. Of the world’s largest 500 ﬁrms, there are no geographic sales data for 134, leaving 366 with data. Of these, 320 form this group of home-region ﬁrms. A set of 26 are bi-regional, with 20 percent of sales in two regions of the triad, and less than 50 percent in their home region. Only ten ﬁrms out of the top 500 are remotely global, with at least 20 percent of their sales in each region of the triad. These data are reported in Table 6.5. Due to this business integration, the United States will be better placed to achieve its goals of economic and national security by a regional focus on NAFTA and the FTAA. It is apparent that most European nations still fail to understand the long run political implications of September 11. The United States places national security ﬁrst. The Iraq war was not for oil, or even for energy security, but to reduce future threats such as another September 11 involving weapons of mass destruction (WMD). The United States is at war with terrorism, and it will continue to attack governments that help terrorism when this threatens U.S. security interests. The United States has no interest in multilateralism, given this overarching domestic security objective. The G8 members need to understand the new U.S. concern over its own security and work with it to enhance U.S. security. Ultimately, the United States does not need to use multilateral agencies such as the United Nations or even the WTO. The huge U.S. economy, now complemented by NAFTA and with the prospect of an FTAA, provides the United States with economic security, including energy security. But it still wants national security. Future policies will lead to tighter border inspections, more difﬁcult landing and visiting requirements for immigrants and a growing fortress North America. The internal market of NAFTA may then deepen, driven by MNCs and business interests, partly along the lines of the old European Community, with a common immigration policy and border inspections across NAFTA. Canada has already signalled its support for such measures. It will become further integrated with the United States. The rest of the G8 will become outsiders; regional interests will dominate multilateral ones.

The top 25 home-region-based companies 2001

Company

Region

Wal-Mart Stores General Motors Ford Motor General Electric Mitsubishi Mitsui Total Fina Elf Itochu Allianz Volkswagen Siemens Sumitomo Philip Morris Marubeni Verizon Communications Deutsche Bank EON U.S. Postal Service AXA (q) Credit Suisse Hitachi American International Group Carrefour American Electric Power Duke Energy

North America North America North America North America Asia Paciﬁc Asia Paciﬁc Europe Asia Paciﬁc Europe Europe Europe Asia Paciﬁc North America Asia Paciﬁc North America Europe Europe North America Europe Europe Asia Paciﬁc North America Europe North America North America

Revenues in bn U.S$ 219.8 177.3 162.4 125.9 105.8 101.2 94.3 91.2 85.9 79.3 77.4 77.1 72.9 71.8 67.2 66.8 66.5 65.8 65.6 64.2 63.9 62.4 62.2 61.3 59.5

F/T

% intra-regional

16.3 25.5 33.3 40.9 13.2 34.0 n/a 19.1 69.4 72.3 78.0 12.7 42.1 28.2 3.8 69.0 43.4 3.0 77.3 73.3 31.0 n/a 50.8 12.3 13.1

94.1 81.1 66.7 59.1 86.8 78.9 55.6 91.2 78.0 68.2 52.0 87.3 57.9 74.5 96.2 63.1 80.1 97.0 51.2 60.9 80.0 59.0 81.3 87.7 96.5

North America % of regional sales 94.1 81.1 66.7 59.1 5.4 7.4 8.4 5.5 17.6d 20.1 30.0d 4.8a 57.9a 11.6a 96.2a 29.3 9.4a 97.0a 24.1a 34.9d 11.0 59.0f n/a 87.7a 96.5

Europe % of regional sales 4.8 14.6 21.9 19.0 1.7b 11.1 55.6 1.7 78.0 68.2 52.0 n/a 25.8 n/a n/a 63.1 80.1 n/a 51.2 60.9 7.0 n/a 81.3 11.8b n/a

AsiaPaciﬁc % of regional sales 0.4 n/a n/a 9.1 86.8c 78.9 n/a 91.2 4.4 f 5.3 13.0 87.3 n/a 74.5 n/a 6.5 n/a n/a 19.9 4.1 80.0 n/a 6.6 n/a n/a

Sources: Data are from ‘Fortune 500’ (2002); Braintrust Research Group (2003) Notes: a Refers only to the United States; b Refers only to the United Kingdom; c Refers only to Japan; d Refers to Americas; e Includes Africa; f Includes only the United States and Canada; g Refers to Europe, Middle East and Africa. N/A = not applicable.

Corporate, Public and Global Governance: The G8 Contribution

500 Rank 1 1 2 3 3 5 4 9 5 12 6 13 7 15 8 17 9 18 10 21 11 22 12 23 13 24 14 25 15 26 16 27 17 28 18 29 19 30 20 31 21 32 22 34 23 35 24 36 25 39

84

Table 6.4

Regional Multinationals and Regional Trade Policy

85

Conclusions The evidence shows that the world economy is now a triad one; the economic regions of North America, the EU, and Asia dominate international business. Both aggregate data and disaggregated data on the sales of the world’s largest multinational enterprise show the regional pattern of economic activity. What does this mean for politics? The lack of globalisation means a lack of multilateralism. As economic power is regional, so is political power. The United States can achieve all of its post–September 11 national security desires within NAFTA. The United States does not need Europe or Asia. If France, Germany, and Russia do not support the United States it is the end of multilateralism. The United States calls the military tune. Other nations need to dance to it. Canada and Mexico, in general, experience the economic beneﬁt of NAFTA and have learned to ﬁnesse U.S. political power. The Europeans, the UK exempted, need to learn some of this ﬁnesse. Table 6.5

Classiﬁcation of the top 500 multinational corporations, 2001

Type of MNCs

Global Bi-regional Host-region oriented Home-region oriented Insufﬁcient data No data Total

Number of Percent of 500 Percent of 380 MNCs Weighted average (percent of intra-regional sales) 10 2.0 2.6 38.2 25 5.0 6.6 42.0 11 2.2 2.9 30.9 320 64.0 84.2 80.3 14 2.8 3.7 40.9 120 24.0 NA 500 100.0 100.0

Note: Weighted averages were calculated by assuming the lowest point in intra-regional sales (i.e. >90 = 90). MNC = multinational corporation.

86

Corporate, Public and Global Governance: The G8 Contribution

References Braintrust Research Group (2003). ‘The Regional Nature of Global Multinational Activity’. <www.braintrustresearch.com> (May 2003). Energy Information Administration (2002). ‘Petroleum Supply Monthly’. February. United States Department of Energy. Energy Information Administration (annual). ‘Petroleum Supply Annual’. United States Department of Energy. ‘Fortune 500’ (2002). Fortune. <money.cnn.com/magazines/fortune/fortune500_ archive/full/2002/> (August 2006). International Monetary Fund (annual). Direction of Trade Statistics Yearbook (Washington DC: International Monetary Fund). Organisation for Economic Co-operation and Development (2001). International Direct Investment Statistics Yearbook, 1980/2000 (Paris: Organisation for Economic Co-operation and Development). Rugman, Alan M. (1994). Foreign Investment and NAFTA (Columbia, SC: University of South Carolina Press). Rugman, Alan M. (2000). The End of Globalization (London: Random House). Rugman, Alan M. and Alina Kudina (2002). ‘Britain, Europe, and North America’. In M. Fratianni, P. Savona and J. J. Kirton (eds.), Governing Global Finance: New Challenges, G7 and IMF Contributions, pp. 185–196 (Aldershot: Ashgate). Rugman, Alan M. and Alain Verbeke (2002). ‘Regional Multinationals and Triad Strategy’. Mimeo. Rugman, Alan M. and Alain Verbeke (2004). ‘A Perspective on Regional and Global Strategies of Multinational Enterprises’. Journal of International Business Studies, vol. 35, no. 1, pp. 3–18. Rugman, Alan M., John J. Kirton, and Julie A. Soloway (1999). Environmental Regulations and Corporate Strategy: A NAFTA Perspective (Oxford: Oxford University Press). United States Department of Energy (2002). Transportation Energy Data Book (Oak Ridge TN: Oak Ridge National Laboratory).

Chapter 7

The Growth of Population and Technological Innovation in the New Order Paolo Savona

The development of the ‘new economy’ has given the impression that technological innovation is more important than any other single variable at work in economic processes. This notion has led operators and economic policy authorities to privilege expenditure on research and development (R&D) and on investments, which are rightly seen as the main channels through which innovations are achieved and translated into higher productivity for ﬁrms and for the economic system as a whole. This overestimation of technology in the ongoing development of the world economic system was moderated by an awareness that the new economy was determined by human capital, correctly seen as underpinning the entire innovation process. This human capital is made up of three main components — scientists, entrepreneurs, and skilled workers — which must be organised in a productive manner. Technology becomes the driving force in products and production processes when it is embedded into a ﬁrm’s organisation, that is, when the entrepreneur exploits the discoveries of the scientist in the ﬁrm by combining capital and labour. In other words, it is the human, not the machine, who provides the impulse for development. By introducing the topic of population into the study of economic development in this way, the focus moves away from the more traditional debate stemming from Malthus’s theses on the need to control population growth in order to enable economic development to continue. These theses were buttressed two centuries later by environmentalists’ preoccupations with the sustainable growth of the planet. The new economy was affected by what Alan Greenspan called the ‘irrational exuberance’ of the stock exchanges through the 1990s (Shiller 2005) and by the events of September 11, 2001, and their aftermath. The spread of HIV/AIDS in Africa and ongoing development in overpopulated areas such as China also had a negative effect. A modest slowdown followed the outbreak of severe acute respiratory syndrome (SARS) in 2003. This overall performance forces a reﬂection on the signiﬁcance of population as against technology in the development process. This chapter asks who is right. Is it those who argue in favour of staking everything on R&D in order to raise the real rate of growth? Or is it those who hold that economies are driven by quantitative growth (birth rate and immigration) and qualitative growth (education and health) in the population? The conclusion of this

88

Corporate, Public and Global Governance: The G8 Contribution

brief analysis does not rule out the second hypothesis. It brings the question back to the problem of the right mix among the various variables at work. Although the arguments adopted rely mainly on logical analysis supported by a small amount of empirical evidence, their aim is to induce authorities and opinion leaders to moderate their enthusiasm for technological innovation and take a closer look at the problems of population. Method In the past, demographers predicted that the total world population might reach 25 billion by the halfway point of the twenty-ﬁrst century (Abercrombie and McCormack 1976). If that event took place, futurologists had calculated that the Planet Earth could not contain more than 20 billion, so the remainder would have to move to other planets. This was one of the inspirations for research into space during the last quarter of the twentieth century. More recent estimates reckon that the earth’s population stands at around 6 billion and will not exceed 13 million (Clarke 1999). It is a fact that birth rates fall as wellbeing increases, while the death rate is contingent upon epidemics and technical progress in health care. HIV/AIDS is an epidemic that cuts swathes in the population, especially in Sub-Saharan Africa. SARS or other infectious diseases may turn out to be equally lethal without appropriate intervention. But while the hypothesis of an excess of population appears to have faded, the problems of how to govern population growth and how to make use of it in production processes still exist. That the frontiers of human possibilities have been pushed back by technological innovation is not in question. Such innovation includes the implications of information and communication technology (ICT) and nanotechnology to human genome mapping and exploitation of stem cells and human cloning. These discoveries open up immense possibilities for economic development and for the preservation of the existing population: the average human lifespan is prolonged and weighty consequences loom for the functioning of the ecosystem and the economic system. The repercussions on pension systems alone could be resounding. It might once more provide justiﬁcation for predicting an excess population due to ageing, a population unsustainable by the planet. Indeed, education might ultimately involve a deliberate control of the population increase, without needing to resort to the harsh measures of prohibiting too many births, as in China, or of abortion, legal and illegal, with its tricky ethical problems. But the world is still a long way from this outcome, especially in areas where the problem of poverty continues to be of dramatic import and to have serious moral signiﬁcance for humankind. Therefore, to study the qualitative as well as the quantitative development of the population with respect to that of technological innovation becomes centrally signiﬁcant to economic growth — to the point where a reversal of Malthus’s preoccupations must be posited and applied to technology. Would it not be appropriate to curb this rapid development and devote fewer resources to technology than are almost daily urged by analysts and governments? Obviously, this is not to suggest a return to Luddism. But it may be time to reconsider how public and private

The Growth of Population and Technological Innovation in the New Order

89

resources should be allocated, whether predominately toward research into technical innovation or, instead, toward raising the level of cultural and material wellbeing of the world’s population. Perhaps the moment has come to set this problem at the centre of national and international concern. As for population, so for technologies. To worry about limiting their growth is out of the question, unless at a purely theoretical level, even though it may yield some useful suggestions. Research and innovation cannot be halted, since in every part of the world they are impelled by the human desire to achieve ever new discoveries. Nor would it be legal to put a brake on research and innovation, even if it were possible to do so. The world is witnessing, at one and the same time, Prometheus’s theft of ﬁre and Ulysses’ voyage of discovery. There will always be more than one Prometheus and more than one Ulysses who will never balk at vetoes on research or anathemas placed on experiments by somebody convinced of knowing the truth and thus the limits of ethics. The dilemma, then, is whether technological innovation can be driven by making it the main target of economic policy and the beneﬁciary of society’s resources, or by positing it as the sole mission, indispensable to corporate success. Or should it not yield to other much more important problems of population that have yet to be solved? The Dynamics of Population and Income The map of population and resources destined for R&D shows a rather uneven geo-economic picture (see tables 7.1 and 7.2). The United States and Canada have grown because they decided to swell their native-born populations with a signiﬁcant amount of immigration involving full integration. The latest data show 36.8 million people who are foreign born in the U.S. population, equal to 12.4 percent of the total (United States Census Bureau 2005). As a result of this ongoing inﬂux it has been possible to maintain a volume of activity equal to one half of the world’s gross domestic product (GDP) growth with much less than one tenth of the world’s inhabitants. China, by contrast, features an intrinsic vital force in its population level and birth rate, and is now organising productive systems open to the outside market — this even while its political freedom cannot be compared with that of the United States and its immigration is almost nil. The European Union has more or less the same population as North America, but its GDP growth is only half the latter’s, with signiﬁcant internal discrepancies regarding levels of income, population, R&D, and the migrant component. Brieﬂy, the EU lacks the strength of technological innovation and of population; although it is in search of a way to develop on its own, its economy tends inevitably to stagnate.1 South America has the same vitality in its population as China, but is unable to organise itself politically; like China, it makes 1 In actual fact, the situation in Europe looks somewhat confused. While western Germany has encouraged immigration, it has always refused integration, in one way or another. France, too, has had plenty of immigration, but has accepted integration of the migrants. Italy has substantially rejected immigration, but immigration has been steadily proceeding by illegal methods. The same problem now faces the EU as a whole, owing partly to the vulnerability of its borders and partly to its unwillingness to tackle the problem politically.

90

Corporate, Public and Global Governance: The G8 Contribution

extensive use of non-democratic methods, but these are not aimed at economic growth or improved social wellbeing. The Middle East and North Africa have yet to experience the Enlightenment, although they did undergo a signiﬁcant Renaissance a long time ago. Sub-Saharan Africa, with few exceptions (such as South Africa), is a lost continent in every sense of the term. Following the diffusion of real accounting methods used in ofﬁcial economic documents, the rate of gross national product (GNP) has been considered an indicator of the power of a country or of a larger geographical area. At its current growth rate (around 8 percent to 10 percent per annum) China can be expected to overtake North Table 7.1

Population and gross domestic product in some geographical areas, 2001

Population (mn) GNP GNP (mn US$) (mean 80–00) (% of total) North America 315 10 848 50 European Union 307 6100 28 South America 524 2000 9 China 1272 1150 5 East Asiaa 554 550 3 Sub-Saharan Africa 674 316 1 Middle East and 301 698 3 North Africa Total 3947 21 662 100

% real GNP 3.5 2.1 2.5 10.2 7.5 2.0 2.5 3.4

Source: World Bank 2003 Note: aExcludes China. GNP = gross national product.

Table 7.2

Expenditure in research and development Expenditure in R&D (as % GNP)

North America European Union South America China East Asiab Sub-Saharan Africa Middle East and North Africa

Projected R&Da (million US$)

2001 2.4 1.6 0.6 0.1 3.0 no data

2040 995.9 329.2 125.7 1219.0 221.6 16.4

2050 1404.9 405.3 160.9 3219.6 456.6 20.0

no data

43.9

56.2

Source: (World Bank 2003) Notes: a Assumes all countries invest in percentage equal to North America. b Excludes China. GNP = gross national product; R&D = research and development.

The Growth of Population and Technological Innovation in the New Order

91

America (growing at 2 percent to 3 percent) by 2037. If GNP continues to be an indicator of power, the thesis that population counts for more than technologies in growth is initially conﬁrmed. If such a scenario were to materialise, no special clairvoyance would be needed to predict that the United States would deny the validity of such an indicator. In effect, the symptoms of such a denial can already be detected, since the trend is increasingly toward comparisons based on productivity, an indicator that pays more attention to technological innovation than to population. In the present state of knowledge, however, this conclusion retains the character of an unproven assumption at the macroeconomic level, being merely a logical extension of what is known at the microeconomic level — namely, that successful ﬁrms innovate more than unsuccessful ones. It cannot be denied that the size of GNP is an important variable. As Adam Smith (1776) put it in The Wealth of Nations, it represents the pool from which to draw on for the scientiﬁc activities that underpin technological innovation and for the religious and recreational activities that are indispensable components of social wellbeing — the fountainheads of economic growth. If one holds expenditures on R&D and the military to be important in power politics because they drive technological innovation and also act as a deterrent to economic competition, the volume of the expenditure at parity of percentage resources aimed at (3 percent is the usual ﬁgure) would be greater. There would be more likelihood of success for the country or geographical area with a higher GDP owing to its larger population. Here, too, a simple exercise will not lead to a rejection of this hypothesis but will reduce its scope in quantitative terms. To make the necessary correction, if China failed to dedicate a greater percentage of resources of its GNP to research, the availability of resources in absolute terms as compared to the United States would no longer represent the importance of population. For that matter, the arguments hitherto adduced would become signiﬁcant when China’s GDP began to overtake North America’s in absolute terms, thus reducing the importance of per capita income and productivity as growth factors linked to R&D. As is frequently the case in economics, the driving variables combine to produce the same outcome, and the problem is to establish to what extent they contribute to the results, rather than to determine which one totally dominates the others. From Table 7.2 it can be deduced that China must still make a huge effort to reach the same level of R&D expenditure in proportion to GDP as the United States. But, as from 2037, it will overtake the U.S. overall expenditures in absolute value, while running a markedly lower per capita investment. As for the EU, its expenditure on R&D will be overtaken in absolute value by that of Asia. One further consideration concerns the possibility of disposing with technological innovation. It is well known that the pursuit of innovations requires investment in such amounts as to induce the innovator to make the results of the research available to the market. In certain sectors, such as electronics, this may happen before the innovation is actually achieved, in order to enable the innovating ﬁrms to seek funds needed to continue their research and experimentation, and also to sound out the market’s interest in the innovation proposed. This implies that technological innovation is proﬁtable not only for the ﬁrms that pursue it, but also for those that most rapidly incorporate it into their production processes. The monopolistic advantages of the

92

Corporate, Public and Global Governance: The G8 Contribution

inventor are relatively short-lived, whereas the impact on the productivity of other sectors is permanent and widespread, increasingly so with the greater involvement of the workforce. Obviously, ﬁrms that implement the most favourable combination of factors by drawing on new technologies beneﬁt more greatly, that is, by higher productivity; such ﬁrms are more competitive than the others. However, the effect of technological innovation, due to the R&D abilities of scientists and those who apply their ﬁndings, must be distinguished from the effect of a better combination of production factors, which is a function of entrepreneurial capacity. This further analysis provides the second conclusion: population is the necessary condition to ensure development, but it is not sufﬁcient. It remains necessary, however, for without population — in its capacity as both worker and consumer, and as a pool for supplying entrepreneurial skills — technology would be condemned to remain idle. The problem of technological innovation could not be brought fully into focus without acknowledging Piero Sraffa’s capital theory of ‘reswitching techniques’. It cannot be logically demonstrated that the best productive combination — that with the highest productivity — is obtainable with the most advanced technology, since it depends on other conditions, among which the environmental conditions and the relation between the rate of proﬁt and the rate of interest are of foremost importance. If the surrounding conditions (mainly material and non-material infrastructures) are unfavourable, the use of innovative technologies will not necessarily lead to better productivity and increased competitiveness of ﬁrms and systems. Valid conﬁrmation of this point is provided by less advanced cases. If, moreover, interest exceeds proﬁt, the most favourable productive combination may be obtainable with less advanced technology involving lower costs rather than the latest outcome of technological research. This is why both the role of ﬁscal policy in creating public goods and the role of monetary and ﬁnancial policy in advancing the means at competitive costs are more important in enhancing or slackening the role of technological innovations (Nardozzi 2002). Implications for Global Governance Thus, there exist well-founded reasons for not rejecting the hypothesis that economic development is impelled more strongly by population — understood in a more modern sense than that of Malthus — than by technological innovation; and that, therefore, there needs to be more regard given to the workforce than to capital. This chapter points to initiatives for providing the G8 summits with ideas on what to do. Just what are the implications stemming from this hypothesis for the rules of global governance, if the hypothesis should turn out to be validated by the necessary in-depth study? Recent geopolitical and geoeconomic events lead one to give priority and greater concreteness to the problem of how to govern the world economy in competitive market conditions, taking for granted that technological progress is autopoietic; in other words, it proceeds under its own steam, propelled by the spirit of Prometheus and Ulysses.

The Growth of Population and Technological Innovation in the New Order

93

The earth’s population desires guaranteed wellbeing and freedom of choice. What can the community of advanced countries request in exchange for assistance to the developing countries in achieving these goals? It is legitimate to demand that their behaviour be underpinned with a greater responsibility. Freedom of choice must be regulated by diffusing the methods of democracy. These assume, ﬁrst, that people are governed by the will expressed in laws and not as laid down by other people; second, that these laws be approved by the majority under the constraint to protect minorities; and, third, that the social contract implies respect for the laws and the right to reconsider them with a view to their improvement (or replacement by other laws). This is the acceptance of the rules of democratic governance. Yet there are at least seven different deﬁnitions of democracy (Savona 1993). The best deﬁnition has been given by Giovanni Sartori (1994): the right of a people to approve even inadequate laws, provided that people be ready to pay the cost of their own errors, namely that they must bear the responsibility for their own decisions. Of course, the limit of this freedom is avoidance of harm to one’s neighbour (even a distant neighbour). Infringement of the law of a country, like the violence of international terrorism, does not belong among the democratic liberties of a people and it legitimates defensive action in proportion to the risk incurred or the harm undergone by those who fear or suffer such violence. Assurance of wellbeing can be given in two extreme forms or in an appropriate combination of the two: by setting equal conditions for all at the start (according to the liberal paradigm) or at the ﬁnishing post (according to the communist paradigm). A middle way is to create more equal conditions in general, compatibly with the available resources (according to the social democratic paradigm). Since all the starting points on the planet cannot be expected to be the same and history has refuted the conjectured equality of the ﬁnish lines, the rules of global governance must inevitably incorporate some form of redistribution of global income. This is suggested by the United Nations’ deﬁnition of poverty: the poor are those who, in a given area, have less than one half of the mean per capita income. It would perhaps be otiose to add that, if the deﬁnition were applied to the entire planet without distinguishing the geographical area, more than half the world’s population would turn out to be living in poverty. Although it is politically plausible to request, as is indeed being done, that each country put its own house in order in the best way to ensure a good system of guarantees, there are certain targets that can be achieved only through close international cooperation. Among these, safeguarding health, environmental protection, and defence against ordinary and political crime stand out. Nor can the most backward countries be expected to bridge the gap in infrastructure by relying on their own resources and abilities alone.2 Moreover, in the global market, economic development requires a minimum of synchrony between national ﬁscal and monetary policies. Some progress has been made in this ﬁeld, but it is insufﬁcient to control 2 For more than half a century, this need has been met by the World Bank and the International Development Association and subsequently by the institutions of similar supranational organisations in various parts of the world.

94

Corporate, Public and Global Governance: The G8 Contribution

economic cycles and sustain growth: these still depend on the dominant idea of the driving force of the American ‘locomotive’ and protecting national interests in a nineteenth-century fashion, quite unsuited to the conditions of mutual dependence of all economies. In the EU this political short-sightedness is patently the reason why this area is unable to posit itself as a driving force beside America. If systems of freedoms and guarantees are to be improved, this development must start with an expansion of levels of education in general and of democracy in particular. To demand freedom of choice and to shape legislative freedoms according to pre-set patterns, like religious ones, reeks of inconsistency. Equally inconsistent is to call for democratic freedoms and then to react verbally or with force when they produce errors of choice or outcomes repugnant to civil conscience. Without increased awareness of civil rights the world will continue in the same precarious state as now. To construct a system of responsibilities through such education is equally important with regard to the systems of freedoms and guarantees. But the circle closes if this responsibility is borne by the ruling groups ﬁrst and foremost. An opposite message in the global education process comes from the ﬁnancial upheavals in the United States, the manner in which Argentina’s insolvency and the bankruptcies with falsiﬁcation of accounts in other countries were handled. The American ones have received most publicity, but Italy too witnessed a major case. Formerly, the strength of education was held to stem from ‘good example’. Times may have changed, but the same good example of ruling groups still appears a necessary prerequisite to complete the three conditions underpinning modern social organisations: freedom, guarantees, and responsibility. Between the late eighteenth and early nineteenth centuries the struggle centred on economic freedom. But this also led to excesses, thus engendering the socialist and communist movements. But legal bodies such as antitrust authorities were also set up and trade unions came to be accepted. The twentieth century witnessed the ﬁght to obtain guarantees. But here, too, there was a lack of restraint in laying the burden for them on society in general and creating an all-too-embracing welfare system. For some decades now, the world has been in search of a system better balanced between individual and social responsibilities. This quest has continued into the twenty-ﬁrst century. This chapter makes no claim to offer more than material for reﬂection and certainly suggests no exhaustive solutions. Still, it sufﬁces to have shown that the hypothesis that population counts for more than technology in development is not belied either by evidence or logic. As for the majority of the several variables at work in economic processes, so it is for population and technologies. It is not easy to pinpoint which carries more weight in determining development. The problem returns to the classic search for the right mix of various inﬂuences. Places with scant population exhibit a growth of output and productivity by virtue of technological innovation. But if the fall in the rate of population increase is caused by a reduced propensity to run risks and to incur costs in bringing up children, by short-sighted protectionism toward lawful immigration, or by conciliation of the prosperity already achieved — as is to a great extent the case with Italy — then no amount of innovation will check the fall in the real growth rate. This is especially

The Growth of Population and Technological Innovation in the New Order

95

true if the economy is wide open to the outside world. The end result is a loss of competitiveness, whereupon the country’s production yields ground to the rest of the world. Where there is a large population and a strong drive toward greater prosperity, real growth may be high even with low investment in R&D and modest technological innovation from within the country, as is the case with China. Here, the real rate of growth approaches 10 percent, despite negligible expenditure on R&D. This chapter has intended merely to raise doubt about the myriad certainties so conﬁdently presented by the new economy on the role of technological innovation. In this connection, it is well to focus on the political treatment of population in the wake of the fall of the Berlin Wall in 1989 and the tragic geopolitical events of September 11, the ongoing wars, and the increasing acts of terrorism in several parts of the world. Over and above the question of how, in the modern age, to approach the classic pair of capital and labour — a dilemma that has engaged thought and politics for some three centuries — much remains to be done to achieve a satisfactory system of global society and its related economy in order to determine speciﬁcally why international terrorism exists. More particularly, why does a country like the United States, undoubtedly the leader in almost every ﬁeld, with a very sophisticated democracy and prodigious innovative abilities, incite so much criticism and opposition? The ancient Romans wisely recommended the pursuit of a mens sana in corpore sano; by the same token, while global governance has shown the existence of a corpus sanum, or its muscle power — clearly indispensable in the current geopolitical-economic equilibrium — it must go on to show that it also possesses a mens sana, the ability to employ the brain in making rationality prevail over mere gut reaction. References Abercrombie, Keith and Arthur McCormack (1976). ‘Population Growth and Food Supplies in Different Time Perspectives’. In P. Ghosh (ed.), Health, Food, and Nutrition in Third World Development, pp. 18–39 (Westport CT: Greenwood Press). Clarke, John I. (1999). Il futuro della popolazione mondiale (The Future of World Population) (Milan: Garzanti). Nardozzi, Giangiacomo (2002). I rapporti tra ﬁnanza e distribuzione del reddito: un’interpretazione dell’economia di ﬁne secolo (The Relations between the Finance and the Distribution of Income: An Interpretation of the Economy at the End of the Twentieth Century) (Rome: Liss editizioni). Sartori, Giovanni (1994). Democrazia: cos’è (What is Democracy?) (Milan: Garzanti). Savona, Paolo (1993). Il terzo capitalismo e la società (The Third Capitalism and the Open Society) (Milan: Longanesi). Shiller, Robert J. (2005). Irrational Exuberance, 2nd edn (New Haven: Princeton University Press). Smith, Adam (1776). An Enquiry into the Nature and Causes of the Wealth of Nations (Edinburgh: Strahan and Cadell).

96

Corporate, Public and Global Governance: The G8 Contribution

United States Census Bureau (2005). ‘Percent of People Who Are Foreign Born: 2005’. R0501. 2005 American Community Survey. (August 2006). World Bank (2003). ‘World Development Indicators 2003’. Washington DC.

PART IV Public Governance

This page intentionally left blank

Chapter 8

Toward Accountability? The G8, the World Trade Organization, and Global Governance Heidi K. Ullrich

Our message of conﬁdence in the economy will ultimately come from what we have to say about the outlook for world trade. Jacques Chirac, President of France and Chair of the G8 in 2003, 21 May 2003 Failure to reach agreement on the Doha negotiations by the 2005 deadline would raise fears that governments are incapable of taking the decisions needed to address the global economic slowdown and to help alleviate poverty in the developing world. All of this would send a very bad signal to a very nervous world. Supachai Panitchpakdi, Director General, World Trade Organization, 2 April 2003

As members of civil society increasingly demand to be involved in shaping the world in which they live, the leaders they have elected must be ever more accountable to those they ultimately serve. Given the importance of trade in the daily life of all citizens, accountability in global governance is particularly necessary within the forums that inﬂuence the world economy. These include the G8, consisting of the heads of state and government from the largest democratic market economies, and the World Trade Organization (WTO).1 According to the 2003 Global Accountability Report, accountability in its most simple sense is ‘a process by which individuals or organisations are answerable for their actions and the consequences that follow from them’ (Kovach et al. 2003, 3). Accountability in the context of leadership must also ensure adequate transparency and participation in order for that leadership to be effective. Since the ﬁrst Western Economic Summit took place in Rambouillet, France, in 1975, the leaders of the G7/8 have voiced their support for an open trading system.2 In words that still hold true 30 years after they were ﬁrst written in the 1975 Rambouillet Declaration, the G7 stated:

1 In addition to the eight member states of the G8, the European Union is also a participant. The European Commission represents the EU, especially the non-G8 members of the EU, as well as in the WTO (see Ullrich and Donnelly 1998). 2 Despite the G7’s expansion to the G8 in 1998 with the addition of Russia, between 1998 and 2002 it was the G7, joined by the EU, that discussed trade at the annual summits

100

Corporate, Public and Global Governance: The G8 Contribution Growth and price stability will be fostered by maintenance of an open trading system. In a period where pressures are developing for a return to protectionism, it is essential … to avoid resorting to measures by which they could try to solve their problems at the expense of others, with damaging consequences in the economic, social and political ﬁelds. (G7 1975)

A noted analyst of the G7/8 points out that ‘all histories of the G7 concur that trade has been one of its issue-areas of greatest impact, perhaps the greatest of all the topics it has addressed over the years’ (Bergsten 2001, 18). The impact of the G7/8 on multilateral trade negotiations has been so signiﬁcant as to merit the term ‘Rambouillet effect’ for describing its ability to bring about incremental progress during negotiations by having the leaders make the critical political decisions (Bayne 2000, 21). However, this effect has not been visible at every summit. Additionally, since the establishment of the G7 in 1975, globalisation has changed not only the process of global decision making, but also global leadership. The G8 is increasingly criticised for its inability to show consistently effective, representative, and accountable leadership. This is particularly evident in the area of multilateral trade. For nearly 50 years, the multilateral trading system within the framework of the General Agreement on Tariffs and Trade (GATT) operated in relative obscurity. Trade negotiations over the reduction of tariffs on manufactured goods were discussed among a small group of government and industry representatives. There was little direct interaction between the GATT and civil society. However, the multilateral trading system and manner in which trade policy was developed changed dramatically with the establishment of the WTO on 1 January 1995. Incorporating the elements of the 1947 GATT, the WTO also covers several newer areas, including trade in services, intellectual property rights, and an enforceable dispute settlement procedure that directly affects the lives of citizens. The issues under discussion in the Doha Development Agenda, including further liberalisation of industrial goods, agriculture, and services as well as the issues of competition, investment, transparency in government procurement, and trade facilitation increasingly inﬂuence local economies. However, despite the ever closer interrelationships among multilateral, regional, and national trade, the WTO’s system of governance has been criticised by civil society for its limited transparency, restricted participation of nongovernmental stakeholders, and lack of accountability. This chapter argues that in order to ensure good governance — corporate, public, and global — and increase the effectiveness of these forums in providing leadership for the multilateral trading system, the G8 and WTO must increase the accountability of their leadership. Given the faltering global political and economic environment, the G8 summit that took place in Evian, France, on 1–3 June 2003 provided an important opportunity for the assembled heads of state to enhance their accountability and express their commitment to the success of the Doha Development Agenda prior to the WTO’s ﬁfth ministerial meeting from 10 to 14 September 2003 in Cancun, Mexico, which served as the round’s mid-term review.

since Russia was not a member of the WTO. However, with Russia’s impending accession to the WTO, the 2003 Evian Summit was the ﬁrst to discuss all topics as the G8.

Toward Accountability?

101

Jacques Chirac, president of France and chair of the G8 during 2003, outlined four themes for the Evian Summit: responsibility, democracy, solidarity, and security. This chapter applies each of these themes to the G8 and the WTO to examine the challenges and opportunities they present, focussing on the Evian Summit’s contribution to the Doha negotiations. The ﬁrst section provides an overview of each of the four themes and their role in good governance. This is followed by a discussion of the varying types of governance and the necessity of responsibility. The third section explores the degree of democracy exhibited by the G8 and the WTO, speciﬁcally in terms of transparency, participation, and representation. The need for solidarity, speciﬁcally regarding the Doha negotiations, and its interrelationship with security is examined in the fourth section. The chapter concludes by offering a series of recommendations for how the G8 and WTO can achieve greater accountability in their leadership on trade issues and the challenges facing both forums. Themes of the Evian Summit Similar to his overarching theme of development at the summit Chirac chaired in Lyon in 1996, Chirac chose to look beyond the immediate issues for the G7/8 at the 2003 Evian Summit. The four stated themes of responsibility, democracy, solidarity, and security were placed within the broader context of globalisation. Chirac thus set out his vision for what the G8 should strive to attain in terms of leadership at the Evian Summit in order to ensure good global governance. Also evident in the many speeches and statements that Chirac made as chair of the G8 was a strong acknowledgement that civil society, including nongovernmental organisations (NGOs), trade unions, and industry, has a legitimate right to contribute actively to the global economic and political debate. Implicit in Chirac’s themes was the acknowledgement that the G8 and civil society abide by the same rules. Through positive and transparent engagement with civil society, the leaders of the governments of the G8 could increase the effectiveness of both their public governance and global governance as well as ensure responsible corporate governance. If their actions can incorporate responsibility, democracy, solidarity, and security, the G8 may make much needed progress toward increasing the accountability of their leadership. Responsibility Market conﬁdence had been shattered by the series of corporate scandals that came to light in 2002. These scandals, adding to the investor wariness brought about from the dot.com bust and the post–September 11 environment, contributed to a signiﬁcant slowing of the global economy. In the months leading up to the WTO’s ministerial in Cancun, the obstacles in the Doha round of trade talks aimed at further liberalisation posed a threat to the economic boost that successful negotiations would facilitate. Political leaders needed to keep their pledges made in 2002 at the World Summit on Sustainable Development (WSSD) in Johannesburg, South Africa, and at the 2002 United Nations International Conference on Financing for Development

102

Corporate, Public and Global Governance: The G8 Contribution

at Monterrey, Mexico, to ensure that economic growth is both sustainable and responsible. However, the theme of responsibility applies to both political and corporate leaders. Although Chirac (2003a) argued that ‘every State has a responsibility to set the stage for stable economic growth and orderly ﬁnancial liberalization’, he was clear that both business and ﬁnancial representatives also have a duty to act responsibly. Corporate responsibility is critical to restoring conﬁdence in the global economy. According to the Shadow G8, a group of senior G8 experts drawn from government, business, policy institutes, and academia, the role of the G8 with respect to corporate governance is primarily to ‘underscore the importance of sound governance rules and practices for the effective functioning of market economies, emphasising ‘effective oversight of the CEO [chief executive ofﬁcer], reliable ﬁnancial reporting and sound compensation practices’ (Bergsten and de Montbrial 2003). Democracy One of the most often cited criticisms of the G8 process is its lack of democracy. This criticism has been fuelled by a lack of transparency, participation, and representation. At the 2000 Okinawa Summit the Japanese introduced measures to bring the G8 closer to civil society. However, rather than continuing to develop a dialogue with civil society, the 2001 Genoa Summit was scarred by the death of a protestor. Kananaskis in 2002 saw the leaders retreating even further from their citizens. Chirac’s chosen theme of democracy was aimed at restoring the interaction between the leaders of the G8 and civil society. He called for ‘vigorous, orderly dialogue with civil society, consistent with the demands of democracy’ in order to ensure that globalisation, in addition to economic and political dimensions, also has a social dimension (Chirac 2003a). In the months prior to the Evian Summit, the French hosts met with trade unionists and business representatives, but did not arrange for debate with other more critical civil society groups. If the G8 is to provide accountable and effective leadership in the area of trade while respecting the values of democracy, increased transparency, participation, and representation of all representatives of civil society is necessary. Solidarity The emphasis on solidarity exempliﬁed Chirac’s vision of a global polity. In a globalised world, the actions of the heads of state and government of the G8 not only have a direct impact on their citizens but also affect the lives of the majority of the world’s population living in developing and transition economies. This is particularly the case regarding trade. Regarding solidarity among the G8, the Evian Summit was the ﬁrst time the leaders met as a group since the tensions of the 2003 war in Iraq had caused a rift among them. Given the number of common dangers facing their countries, the leaders of the G8 realised that their ﬁrst priority would be to overcome their differences and work together. The images of Jacques Chirac and George W. Bush on the terrace of the Hôtel Royal in Evian as well as the

Toward Accountability?

103

statements made by all the leaders at the summit seemed to indicate that solidarity, at least for the moment, had been achieved.3 As globalisation has brought about a heightened degree of interdependence, the G8 will also need to work with other states and stakeholders to achieve sustainable development and equitable economic growth and to ﬁght infectious diseases — all of which are addressed in the Doha Development Agenda. Security Two years after the September 2001 terrorist attacks on the United States, in 2003 the world continued to be held hostage by the fear of further violence. As the attacks in Saudi Arabia and Morocco in the months prior to the Evian Summit showed, it was no longer only members of the G8 that were targets. In choosing security as a major theme of the summit, Chirac recognised that continued terrorism would undermine the beneﬁts of further globalisation, including the potential for economic growth offered by the successful conclusion of the Doha round. These four themes provided the framework for the Evian Summit as well as the various G7/8 ministerial meetings in 2003, including ministerials for ﬁnance (21–22 February, 11–12 April, and 16–17 May), foreign affairs (22–23 May), environment (25–27 April), and development (24 May). The following sections apply each of the themes in turn to the G8 and the prospects for the Doha negotiations. However, as has often been the case, pressing world issues also demanded the attention of the G8 heads. At Evian, such issues were the rebuilding of Iraq, preventing future development of weapons of mass destruction (WMD), speciﬁcally in North Korea and Iran, and stemming the spread of severe acute respiratory syndrome (SARS). Multilevel Governance and Responsibility: Toward Good Governance As has the concept of the state, governance in an age of globalisation has been transformed. Once limited to politicians deciding the rules of state and bureaucrats implementing them, governance has expanded in scope to include both a multitude of levels and networks of actors. Where trade is concerned, vast networks of public and private actors operate at the local, regional, national, and international levels, thus making its governance particularly complex. However, in recent years the institutions and structures required for good corporate, public, and global governance have experienced a series of scandals resulting from a lack of responsibility on the part of political and corporate leaders. This lack of responsibility includes both actions such as deliberately misleading investors as well as inaction on delivering on pledges of development assistance or access to medicines. As witnessed by the mass demonstrations, both at the G8 summits and at WTO ministerials beginning in the late 1990s, these scandals have led to an increase in criticism directed at governance institutions and a decrease in trust by stakeholders. 3 This solidarity seemed to weaken, however, with the early departure of U.S. president Bush for a Middle East summit. Chirac’s closing comments to the press hinted at less than complete solidarity on some of the issues discussed at the summit.

104

Corporate, Public and Global Governance: The G8 Contribution

Rebuilding Trust in Governance Cognizant of the damage brought about by a lack of responsibility, the organisers of the World Economic Forum held in Davos, Switzerland, in January 2003, gave their annual meeting the theme of ‘Building Trust’. The assembled political, corporate, and public leaders were given the opportunity to seek new solutions to the problems facing their organisations. The focus of the hundreds of presentations and debate was on achieving good governance — corporate, public, and global. Addressing the various leaders, U.S. secretary of state Colin Powell (2003) stated: In a globalized world, states confront problems of such complexity and such scale that they cannot hope to address them without help from non-governmental actors, such as are assembled here, so many of them, today. We in government bear the responsibility foremost for providing a secure environment in which conﬁdence, well-being and freedom can grow and spread. We need your help to set high standards of accountability and habits of integrity throughout society … A good number of opinion leaders here today from the corporate world and the NGO community already are making greater contributions to international well-being than many governments are … Welcome to the club.

Similarly, in order to rebuild trust among their constituencies, the leaders of the G8 need to progressively open their exclusive club to other stakeholders including leaders of developing and transitional countries and members of civil society. Nicholas Bayne, who has analysed the summits since they began in 1975, notes the evolution in the manner of governance exhibited by the summit participants. Initially, summits were intended to be ad hoc events held when contentious issues could only be solved by their ‘leadership as heads of government, with supreme responsibility’ (Bayne 1999, 22). However, almost immediately the summits became annual events aimed at providing direction and impetus to global economic and political governance. The agenda of the summits expanded greatly throughout the 1980s and 1990s as globalisation increased the interaction between domestic and global issues. In response, the leaders delegated certain topics to their ministers including the G7 ﬁnance ministers and the Quadrilateral Trade Ministers (Quad) (Cohn 2002). However, Bayne (1999, 40) argues that delegation to government ministers is not sufﬁcient: The heads can use their democratic legitimacy to look wider than government. They need to do so, both to reap the greatest beneﬁts from globalisation and to overcome resistance to it. To maximise the beneﬁts, the leaders need better links to the private business community. To overcome the resistance to globalisation, they need to confront the network of pressure groups…

With the number of stakeholders involved in corporate, public, and global governance ever increasing, placing them within a framework of multilevel governance may provide a more comprehensive and unifying approach. Through recognising the different roles each level can contribute during the policy process, all stakeholders will share responsibility for governance. Given the increasingly intense interaction of actors from the political, private, and public sectors involved

Toward Accountability?

105

in issues of direct relevance to global governance, acknowledging the relevance of multilevel governance would allow the G8 to apply their leadership qualities in a more accountable and responsible manner, thus rebuilding trust. Good Governance Equally important to rebuilding trust among stakeholders is the practice of good governance. According to Bill Witherell (2002, 7), head of the Directorate for Financial, Fiscal, and Enterprise Affairs of the Organisation for Economic Co-operation and Development (OECD), good governance ‘goes beyond common sense. It is a key part of the contract that underpins economic growth in a market economy and public faith in that system’. Key elements of good governance include transparency, participation, and accountability. Transparency Transparency may refer to internal and external levels of openness. Internal transparency focusses on decision-making processes within an organisation, such as whether all members are given equal weight. External transparency includes the openness of relations with non-members and can include the speed at which documents are made public and the interaction of members with others. Although the G8 has called for increased transparency in international organisations and developing countries, it has failed to follow its own advice. There have been frequent charges by civil society of the lack of transparency in the G8 process. The evolution of transparency of the G8 with civil society has been slow and uneven. This has led to a lack of accountability and a perceived lack of legitimacy. In recent years, information and communication technology has allowed for somewhat more documentation to be available via websites of the host country, as well as specialist research centres such as the G8 Research Group’s G8 Information Centre. Nonetheless, the G8 must be more transparent in terms of both relations with civil society and its actions surrounding the summit as well as the implementation of policy. Participation Critical to good governance is the participation of those stakeholders who are being governed. Without participation, transparency has little impact on governance. As increased transparency provides stakeholders with greater access to the documentation and activities of the G8 or international organisations such as the WTO, stakeholders are able to provide input and guidance. Such participation could take the shape of conferences, advisory groups, or expert civil society groups providing recommendations. In the case of the G8, the University of Toronto G8 Research Group and the Shadow G8 have been providing independent analysis and recommendations to the G7/8 since the mid 1990s. However, the G8 must encourage greater regular participation from stakeholders.

106

Corporate, Public and Global Governance: The G8 Contribution

Accountability The concept of accountability has evolved along with that of globalisation. This may be due to two correlated developments. As the decisions that politicians and international organisations make increasingly have a direct effect on civil society, the various stakeholders within civil society demand the right to hold these organisations accountable for their actions. According to the Global Accountability Report, this conceptual evolution has resulted in three approaches to accountability: 1. traditional approach — ‘a very narrow notion of accountability giving only those with formal authority over an individual or organisation the right to hold them to account’; 2. stakeholder approach — an expansion of the traditional approach that adopts ‘a far more open and participative conception of accountability’ and grants the right to hold an organisation or individual to account to any group or individuals who can affect or is affected by that organisation; and 3. Global Accountability Project (GAP) Model of Accountability — the stakeholder approach with eight added dimensions that ‘refer to the structures or processes which can facilitate accountability’, namely member control, appointment of senior staff, compliance mechanisms, and the process of evaluation as dimensions of internal stakeholder accountability and external stakeholder consultation, mechanisms for handling complaints, corporate social responsibility, and access to information as dimensions of external stakeholder accountability (Kovach et al. 2003, 3). Through an investigation of the two dimensions of member control and access to information, the Global Accountability Report provides a limited analysis of 18 international organisations, multinational corporations (MNCs), and NGOs. Among the ﬁve international organisations studied, the WTO earned the second highest score both on the individual dimensions as well as overall. Applying the GAP model to the G8 provides a strong basis for a systematic analysis of the degree of accountability shown in the leadership of G8. This chapter is a ﬁrst attempt at a partial analysis. At Evian, the G8 produced two related declarations addressing the relationship between transparency and an accountable and responsible market economy and the role they play in encouraging economic growth. The declaration on Fostering Growth and Promoting a Responsible Market Economy as the more general (and weak) of the two. It outlined the G8’s support for the ‘common values and principles’ of corporate governance, corporate social responsibility, and transparency as well as the ﬁght against corruption (G8 2003c). The G8 noted that: Trust and conﬁdence are key ingredients of a well-functioning market economy. Restoring investor conﬁdence through sound corporate governance, as well as corporate structures and market intermediaries that are more accountable, is essential to promoting growth in our economies. We encourage the many initiatives underway, in national capitals, international ﬁnancial institutions and by international standard-setting bodies, to strengthen governance standards and disclosure regimes.

Toward Accountability?

107

The second, much more detailed, declaration on Fighting Corruption and Improving Transparency outlined six areas where greater progress was necessary in order to increase good governance goals (G8 2003b). The G8 emphasised improving public ﬁnancial management and accountability, strengthening the enforcement of G8 member anti-bribery laws, and means to guard against ﬁnancial abuses. However, no timetable for the implementation of these activities was provided. Governance and Democracy in the G8 and the World Trade Organization: Toward Accountability? In response to globalisation, the G8 has acknowledged the need for greater democracy in terms of transparency, participation, and representation within its process. The leaders stated this best in Okinawa in 2000: In a world of ever-intensifying globalisation, whose challenges are becoming increasingly complex, the G8 must reach out. We must engage in a new partnership with non-G8 countries, particularly developing countries, international organisations and civil society, including the private sector and non-governmental organisations (NGOs). This partnership will bring the opportunities of the new century within reach of all. (G8 2000)

John Kirton has argued that the ‘most visible sign of the G8’s emergence as the centre of global governance for the new millennium is its recent institutional development’ including its expansion of membership and civil society engagement (Kirton 1999, 47). However, although it is evident that progress has been made through expanding its dialogue with leaders of non-G8 countries and civil society, the G8 must continue to evolve and adapt to the changing political and economic environment. Transparency in the G8 The evolution of transparency within the G7/8 regarding the dialogue between the heads and civil society organisations has been marked by a slow start, a period of steady advance between 1995 and 2000, followed by an abrupt interruption at the 2001 Genoa and 2002 Kananaskis summits. However, Chirac signalled a desire for the leaders to once again enter into a ‘wider dialogue’ with other stakeholders. According to Peter Hajnal (2002, 216–217), there have been three phases in the relationship: 1. Civil society and the G7 ignore each other (1975–83). 2. Civil society recognises the G7 (1984–94). 3. The G7/8 recognises civil society (1995–present). It was only in the early 1980s as the agenda of the G7 summits began to include issues that directly related to the concerns of civil society organisations, such as debt relief and the environment, that the economic summits became key events in their campaign calendars. Since the G7/8 had yet to make efforts to engage with civil society, in 1984 diverse coalitions of civil society held the ﬁrst of many alternative

108

Corporate, Public and Global Governance: The G8 Contribution

summits known as The Other Economic Summit (TOES). Hajnal (2002, 217) notes that throughout the 1980s and 1990s, organisers of TOES ran ‘workshops and demonstrations, and produce[d] press releases and often a counter communiqué critical of the ofﬁcial G7/8 communiqué’. The G7/8 ﬁnally began to recognise the necessity of dialogue with civil society and NGOs at the 1995 Halifax Summit. In their communiqué, the leaders stated: ‘To increase overall coherence, cooperation and cost effectiveness we will work with others to encourage … improved coordination among international organizations, bilateral donors and NGOs’ (G7 1995). The next year in Lyon, the French continued the call for ‘a strengthened civil society’ (G7 1996). The G7/8 continued to recognise the need for dialogue with civil society for the next several summits with little in the way of concrete action being taken. However, beginning in 1998, several NGOs began to hold demonstrations during the summits. At Birmingham in 1998 and Cologne in 1999, these demonstrations were peaceful and were aimed at speciﬁc issues. However, as was witnessed in Genoa in 2001, certain NGOs among the assembled protestors were less orderly in both their approach to the demonstrations as well as to the issues. A key turning point occurred when, as host of the 2000 G8 Okinawa Summit, Japan implemented an important initiative involving outreach to civil society organisations. In a summit ﬁrst, the Japanese government sponsored an NGO centre located near the international media centre where various NGOs could work and hold press conferences during the summit. This centre was welcomed by many NGOs in that it allowed a freer interchange between media and NGO representatives than at past summits. Additionally, in their communiqué, the heads of state declared that ‘we also underline the importance of our engagement with our publics to establish a constructive dialogue on the beneﬁts and challenges of trade liberalization’ (G8 2000). However, the positive steps toward increased transparency and communication made in Okinawa did not continue in 2001. Although the G8 environment ministers meeting in March issued a statement acknowledging the critical role of civil society in governing environmental policy, the violence that occurred between policy and civil society demonstrators at the 2001 Genoa Summit overshadowed any continuation of progress. The degree of isolation and security that surrounded the 2002 summit in the Rocky Mountain resort of Kananaskis, Canada, was a response to both the September 11, 2001, terrorist attacks on the United States as well as the fear of a repeat of the violent civil society demonstrations in Genoa. Civil society organisations as well as the media were allowed only as far as Calgary, more than 100 kilometres away from where the leaders were meeting. As in the Lyon Summit in 1996, in 2003 the French once again made dialogue with civil society a priority. In one of his ﬁrst speeches as G8 chair early in 2003, Chirac (2003c) announced: I have attentively observed the growing focus on globalization in the public debate and the pressing questions our citizens are asking about the future. I ﬁnd the demand for a democratic debate legitimate and think it should include ample dialogue with trade

Toward Accountability?

109

unions, NGOs, local authorities and companies. They will all be closely involved in preparing the Evian Summit.

A challenge for the Evian Summit was for both leaders and civil society to make progress in engaging in an open and accountable two-way dialogue that would result in concrete proposals for the deepening of such dialogue. However, despite meeting with trade unions and business representatives in the months prior to the Evian Summit, the French hosts did not meet with NGOs. Nonetheless, as the Japanese government did in Okinawa in 2000, the French set up a centre for civil society organisations to hold an ‘alternative summit’. Unlike Okinawa, where the NGO centre was walking distance from the media centre, civil society representatives were stationed in Annemasse more than 30 kilometres away from the media centre in Publier and the Hôtel Royal in Evian. A large group of NGOs, including ActionAid, Attac, and Oxfam International, took part in the Sommet Pour un Autre Monde. They produced a report criticising the G8 and outlining demands on such topics as trade and development, agriculture and food, ﬁnance and development, and cancellation of debt for the heavily indebted poor countries (HIPCs). Chirac welcomed the report, but did not elaborate on any of its demands. The demonstrations that took place across Lac Leman in Geneva and Lausanne in Switzerland were largely peaceful. However, small groups of anarchists caused not only material damage, but also distracted the media from the messages of the more constructive demonstrators. The U.S., as host of the G8 summit in Sea Island, Georgia, on 8–10 June, 2004, should have invited a group of civil society representatives including NGOs, trade unions, and business representatives to meet with the leaders to discuss speciﬁc issues relating to the global economy. But they did not. Additionally, similar to the trend of the G8 to support the establishment of separate specialist groups operating within the larger framework of the G8, such a group of civil society representatives ought to meet throughout the year in order to present the leaders with a set of proposals prior to the annual summits. Structured dialogue on the issues of the multilateral trading system between the leaders of the G8 and civil society representatives, NGOs as well as for proﬁt and non-proﬁt groups would encourage an exchange of views on trade and its impact on globalisation and promote greater transparency and accountability of the G8. Transparency in the World Trade Organization The WTO is an intergovernmental institution in which the 149 member governments agree on the policies to be implemented; such decisions are not taken by ofﬁcials within the WTO secretariat. Member governments are guided by the rules set out in the agreement that established the WTO in Marrakesh in 1994 (WTO 1994c). Decisions are generally taken by consensus within the General Council, which consists of the members’ trade ambassadors, or by trade ministers at the ministerial meetings held at least every two years. The WTO secretariat is limited to the role

Corporate, Public and Global Governance: The G8 Contribution

110

of ‘a facilitator — but a proactive one. It operates with a modest mandate, trying to draw the attention of the members’ delegates.’4 Transparency within the WTO may be discussed in terms of internal and external elements, similar to the internal and external stakeholder accountability identiﬁed in the Global Accountability Report. Internal Transparency During the preparation of the draft ministerial text in the run-up to the failed 1999 ministerial in Seattle, many members of the WTO voiced their frustration with the seemingly non-transparent internal decision making of the WTO. The director general’s use of the infamous ‘green room’, in which selected members were invited to try to formulate compromises, was cited as a prime example of the secretive and elitist nature of the organisation. The smaller, informal green room discussions are held as needed to develop compromises, particularly when a deadline is looming. Moreover, trade delegates are well aware that the WTO is an intergovernmental institution in which all members technically, although arguably not politically, have the same weight and decisions are taken by consensus on all but a few occasions. Since Seattle, WTO members have acknowledged that increased transparency in decision making is necessary. They have pledged to minimise the use of green room techniques and, whenever possible, to develop texts and hold discussion in the General Council in the presence of all members. External Transparency A key criticism of NGOs and members of civil society against the WTO is the lack of external transparency. This element relates to WTO relations with external stakeholders. Factors such as observer status, readily available WTO documents, and consultations are included under this category. Unlike the GATT, the 1994 agreement establishing the WTO addresses the issue of interaction with other international organizations as well as NGOs and transparency in decision making. Article V states in part: 1. The General Council shall make appropriate arrangements for effective cooperation with other intergovernmental organizations that have responsibilities related to those of the WTO. 2. The General Council may make appropriate arrangements for consultation and cooperation with non-governmental organizations concerned with matters related to those of the WTO (WTO 1994b). Notably, transparency in decision making on trade issues is clearly supported by member governments within the annex setting out the Trade Policy Review Mechanism: 4

Interview with Bernard Kuiten on 26 June 2001 in Geneva.

Toward Accountability?

111

Members recognize the inherent value of domestic transparency of government decisionmaking on trade policy matters for both Members’ economies and the multilateral trading system, and agree to encourage and promote greater transparency within their own systems, acknowledging that the implementation of domestic transparency must be on a voluntary basis and take account of each Member’s legal and political systems (WTO 1994a).

However, although encouraged at the national level, transparency at the level of the WTO has only developed slowly. Between 1995 and mid 1996, WTO interaction with trade-related NGOs was limited. On the initiative of some WTO members and supported by the staff of the External Relations Division, further progress in transparency of WTO activities was approved after almost a year of deliberation with WTO members on 18 July 1996, with the General Council adopting Guidelines for Arrangements on Relations with Nongovernmental Organizations (WTO 1996c). According to these guidelines, members of the WTO pledged to increase transparency and improve communication with NGOs by faster derestriction of ofﬁcial documents (see WTO 1996b). With regard to external transparency, members acknowledged the ‘role NGOs can play to increase the awareness of the public in respect of WTO activities’ (WTO 1996b). The WTO secretariat received a mandate to ‘play a more active role in its direct contacts with NGOs’. Accordingly, trade-related NGOs would henceforth be able to attend symposia organised by the secretariat, interact with WTO staff, and attend ministerial meetings (WTO 1996c). Further progress toward external transparency was made on 14 May 2002 when WTO members agreed to derestrict ofﬁcial WTO documents within a period of six to twelve weeks rather than the previous eight to nine months. This action was intended to allow NGOs and other lobby groups to be able to react more rapidly to WTO activities. The WTO’s post-Seattle reforms resulted in signiﬁcant changes in the daily interaction among NGOs, the WTO, and member governments. According to an NGO representative, ‘the change is apparent, ﬁrstly, in the relation with the Secretariat and NGOs and secondly, in the attitude of the member governments’.5 The changes in the secretariat are largely due to the realisation that WTO interaction with civil society must be transparent and consistent and must take the form of a two-way dialogue. The WTO’s small external relations division has made signiﬁcant efforts to increase interaction between the organisation and NGOs. In April 2001 the WTO secretariat initiated a series of regularly scheduled NGO brieﬁngs given by WTO staff. These informal brieﬁngs, scheduled immediately following important meetings of WTO members, allow for a candid exchange of information. The external relations division also regularly organises NGO presentations and symposia covering topics of interest to NGOs. The NGO public symposium that took place 16–18 June 2003, for example, included panels on the most contentious issues on the Doha Development Agenda such as agriculture and competition. WTO delegates, civil society representatives, and media engaged in open dialogue that resulted in a useful exchange of perspectives. The change in member governments’ attitudes toward interaction with civil society has been less visible due to differences in approach among various members.

5

Telephone interview with a Geneva-based NGO representative on 26 June 2001.

112

Corporate, Public and Global Governance: The G8 Contribution

However, all members have supported greater WTO outreach to both civil society and government ofﬁcials, particularly in developing countries through technical assistance and capacity building. G8 Calls for Transparency In terms of G8 calls for increased dialogue between the WTO and civil society, 1999 was a decisive moment, speciﬁcally relating to trade and the environment. In the months preceding the 1999 Cologne Summit, various ministerial level meetings of the G8 countries acknowledged the role of civil society in issues relating to trade. The G8 environment ministers concluded that ‘transparency of the WTO and its openness to and effective engagement’ of civil society are necessary for the continued public support for an open multilateral trading system (G8 Environment Ministers 1999). A few months later, the Quad (1999), consisting of Canada, the EU, Japan, and the United States, stated that ‘in considering the issue of trade and environment, we agreed that it was vital for us to pay due consideration to the concerns of civil society’. In Cologne, the leaders declared that ‘given the WTO’s vital role, we agree on the importance of improving its transparency to make it more responsive to civil society’, but added ‘while preserving its government-to-government nature’ (G8 1999). At Evian, G8 calls for increased transparency in the WTO were disappointing. Within the statement on trade, transparency was mentioned only in passing, with no acknowledgement of the role that civil society could play in ensuring a more democratic multilateral trading system. The leaders only agreed to work towards strengthening the existing WTO rules and disciplines, as well as developing further multilateral rules, so as to provide fairer, less distorted, more transparent and more predictable conditions for world trade, and as a contribution to improved international governance. (G8 2003a)

In 2004 at Sea Island, the G8 should have urgently encouraged the WTO to incorporate the views and expertise of international trade-related civil society — including NGOs, trade unions, and industry groups — more regularly in its work rather than only in an ad hoc or annual fashion. But it did not. Doing so would have signiﬁcantly increased the transparency, accountability, and legitimacy of the WTO. Participation and Representation in the G8 Since the very beginning of the western economic summits in 1975, there have been calls for the exclusive group to increase its membership in order to be more representative of the world’s major powers. At Rambouillet in 1975, only six countries — France, Germany, Italy, Japan, the United Kingdom, and the United States — sat around the table. As it became clear that the new group would become an annual event, Canada received membership in 1976 in Puerto Rico. In 1977, the European Community, represented by the president of the commission as well as the council presidency, became a participant, but not a full member, primarily in order to represent the non-G7/8 members. Beginning in 1991, the USSR (later Russia)

Toward Accountability?

113

attended the G7 summits in an ever-increasing capacity. In 1998, Russia was granted membership, thus transforming the G7 into the G8. In 1989, the G7 began a trend of inviting leaders from key developing countries. This process has evolved from merely meeting over a parallel dinner on the eve of the summit to a more formal meeting the day before. At Evian the G8 met held an ‘enlarged dialogue’ with leaders from eleven developing countries, including summit newcomers Chinese president Hu Jintao (to discuss SARS), Brazilian president Luiz Inácio Lula da Silva (to propose a campaign to combat hunger), and Malaysian prime minister Mahathir Mohamad (to represent 116 countries of the Non-Aligned Movement [NAM]), as well as South African president Thabo Mbeki, Olusegun Obasanjo of Nigeria, Abdoulaye Wade of Senegal, Bouteﬂika Abdelazzi of Algeria, and Hosni Mubarak of Egypt, who discussed further progress in the New Partnership for Africa’s Development (NEPAD). Chirac (2003b) explained that his reasoning behind inviting the leaders was based on a number of criteria which, overall, have enabled us to bring together, with the eight and the twelve countries that will be attending, something like 80% of the world’s wealth and 80% of its population. This is not an end in itself, but rather a step in what I consider the direction that we need to take if we are to gradually establish a planetary democracy.

In addition to the ad hoc invitations to leaders from developing countries, on occasion the G7/8 have also invited the heads of the international organisations such as the WTO, the International Monetary Fund (IMF), the World Bank, and the United Nations to join them informally on the sidelines of the summit. This occurred ﬁrst at Lyon during the previous French presidency in 1996. At Evian, the enlarged dialogue took place on the ﬁrst day of the summit. The meeting was informal and did not result in a formal statement. However, it raised the question of whether this trend of informal association between the G8 and nonmembers should be formalised into membership. Although there are some who would support such a move to make the G8 more representative, analysts tend to argue that a much larger membership would lead to a reduction in the group’s ability to reach agreement on issues. Sylvia Ostry (2002), raises further questions as well as offers a possible solution: But would a G-N summit be able to foster consensus on key global issues or cope with unanticipated crises? Would it not turn the forum into a small replica of the inﬂexible international institutions, at least when profoundly complex and contentious issues — poverty, development, the environment, for example — are high on the agenda? Could an implicit agreement on basic norms and principles really govern dialogue between the G7 and China — or China and India for that matter? These and other questions should be carefully thought through before the G8 is turned into the G-N. Perhaps it would also be useful to consider the possibility of a core group with a core agenda and variable geography for other issues.

Michel Camdessus (2003), former director of the IMF and later honorary chair of the Bank of France, offered another solution that would involve

114

Corporate, Public and Global Governance: The G8 Contribution prefacing or prolonging the G7/G8 Summit by a meeting of the heads of state and government of the countries — approximately 30 at any one time — who have executive directors of the boards of either the IMF or the World Bank. Provided such meetings were prepared with the active participation of all countries of the respective constituencies, this would be thoroughly representative of the entire membership of 184 countries. As it would be attended by the Secretary General of the United Nations and by the heads of the relevant multilateral organizations, it would offer a way of establishing a clear and stronger link between the multinational institutions and a representative grouping of world leaders with unquestionable legitimacy.

There are valid arguments to expand the number of members in the G7/8 for reasons of increasing its democratic representation. However, there are also sound reasons to balance democracy with the requirements of effective leadership. As EU trade commissioner, Pascal Lamy announced a possible re-styled forum of leaders during a trip to China in July 2003. Lamy stated that ‘we would rather favour a sort of Economic Security Council, where countries like China, India, Brazil or South Africa plus the present G8 members would sit around the table’ (‘Larger Forum Should Replace G8: Lamy’ 2003). Thus, perhaps the best course of action may be to continue the slow expansion of the G8 taking into account the evolving world system. However, an enlarged dialogue between the core group of major market economies and leaders from key developing states and international organisations should also continue. To ensure the effectiveness and accountability of such meetings, the agenda should be developed with the contribution of all participants and the leaders should consult with their constituents in developing their positions. Participation and Representation in the World Trade Organization As discussed in the section on transparency above, more equal participation among members of the WTO has occurred since the late 1990s. Regarding participation of civil society, although progress is evident, more must be done, particularly during WTO ministerial conferences. These conferences represent the most senior grouping of the WTO and are held at least every two years. WTO ministerials bring together trade representatives, including the trade ministers, from all WTO members, to discuss and take decisions on critical issues relating to the activities of the WTO. Owing to the high level of discussion that takes place during these meetings as well as the surrounding publicity, these conferences serve as prime forums for NGO representatives inﬂuencing government ofﬁcials as well as increasing public awareness on the WTO’s activities. However, participation at the ﬁrst two WTO ministerial conferences was both minimal and unbalanced. Only 235 individuals representing 108 NGOs attended the 1996 Singapore ministerial. The 1998 Geneva ministerial managed to draw 362 individuals from 128 NGOs. Additionally, at both of these meetings, business groups outnumbered environment, development, trade unions, and consumer groups

Toward Accountability?

115

by a wide margin.6 The WTO’s efforts seemed to be resulting in limited interaction with NGOs. At the June 1998 Geneva ministerial, U.S. president Bill Clinton proposed that the WTO should ‘provide a forum where business, labor, environmental and consumer groups can speak out and help guide the further evolution of the WTO. When this body convenes again, I believe that the world’s trade ministers should sit down with representatives of the broad public to begin this discussion’ (WTO 1998b). One month later WTO director general Renato Ruggiero announced further actions intended to represent the WTO’s ‘on-going collaboration with partner NGOs’ (WTO 1998b). These plans included the establishment of NGO brieﬁngs by WTO staff and increased use of information- and communication-based tools. Despite the efforts of the WTO to accommodate NGOs in the negotiations at Seattle in 1999, including organising a symposium for 1500 accredited NGO representatives, the ministerial was nevertheless overwhelmed by the 50,000 members of civil society who descended upon the streets of Seattle. Immediately following the ministerial, the chair of the General Council, Tanzanian ambassador Ali Mchumo, reﬂected on the lessons learned: ‘Seattle has provided a wake up call for all of us to reﬂect and re-examine how we need to evolve a more inclusive and participatory system of decision making even when consensus remains the basic principle of decision making’ (Mchumo 2000). In spite of the stated needs for increased participation, the WTO announced that the fourth ministerial conference would be held in Doha, Qatar, in November 2001. NGOs were highly critical of the decision, given the restricted number of NGO representatives who would be allowed to ofﬁcially attend as well as the inability of NGOs to hold demonstrations in Qatar. Space limitations forced the WTO to restrict the number of delegates of eligible NGOs to one per accredited organisation. Owing perhaps to the heightened security in the wake of the September 11, 2001, terrorist attacks on the U.S., only approximately 360 representatives from the 647 accredited NGOs attended the 9–14 November conference. Rather than indicating a decrease in NGO activity related to WTO issues, the Doha ministerial signalled a shift in the manner in which civil society approached its large-scale interaction with the WTO. Instead of converging on the conference site, hundreds of events took place in WTO member countries during the ministerial to highlight the opinions of various NGOs. In the run-up to the 2003 Cancun ministerial, trade-related civil society networks were extremely active in preparing positions and meeting with government ofﬁcials. Many announced plans to hold workshops and conferences in Cancun during the conference. Additionally, the ﬁrst annual parliamentary conference was held in Cancun during the WTO ministerial in September 2003. According to Renzo Imbenzi, the European Parliament’s deputy chair, the objective of the annual parliamentary conferences was to work toward successfully concluding the negotiations as well as ‘to enable the peoples’ representatives to come up with proposals and criticism 6 According to WTO statistics, the types of NGOs attending the 1996 Singapore ministerial consisted of 48 business NGOs, 26 development, 11 other, 10 trade unions, 8 environment, 3 development/environment, and 2 consumer groups. The 1998 Geneva ministerial consisted of 46 business, 26 development, 22 environment, 21 trade unions, 6 consumer, 4 other, and 3 farmer NGOs (WTO 1996a; 1998a).

116

Corporate, Public and Global Governance: The G8 Contribution

before agreements are signed’ (‘Annual WTO Parliamentary Conferences on World Trade Will Take Place Beginning at Cancun’ 2003). The members of the WTO must support greater efforts to allow the participation of civil society, not only at the WTO ministerial conferences, but also at the more recent development of holding mini-ministerials in the lead-up to the full conference. At the series of mini-ministerial meetings held in Sydney in 2002, and in Tokyo, in Sharm El Sheikh, Egypt, and in Montreal in 2003, civil society organisations criticised the WTO for not allowing the participation of their representatives. Evian offered the G8 a prime opportunity prior to the Cancun ministerial to show accountable leadership in calling for the WTO member governments not only to encourage the full participation of all its members but also to engage more openly with civil society. However, rather than showing accountable leadership on the issue of participation within the Doha negotiations, the G8 glaringly acted in its own interests. In its declaration on Fighting Corruption and Improving Transparency, the G8 stated its intention to ‘commence negotiations aimed at achieving an inclusive multilateral agreement on transparency in government procurement’ at Cancun (G8 2003b). This statement was worrying due to WTO members agreeing at the previous WTO ministerial in Doha in 2001 that ‘negotiations will take place after the Fifth Session of the Ministerial Conference on the basis of a decision to be taken, by explicit consensus’ (WTO 2001, emphasis added). Many developing country members of the WTO felt that any negotiations on this issue are premature. Therefore, the apparent agreement among the G8 to commence negotiations at Cancun indicated a lack of commitment to full participation in the WTO and to the concerns of many developing country members. The Cancun ministerial was a critical test of the WTO’s ability as a forum of global governance. It faced the challenge of increasing its accountability through allowing a greater degree of transparency, participation, and representation with all members and civil society. In the post-Cancun period, the WTO still needed to establish forums involving both trade ministers and civil society and provide more frequent brieﬁngs to civil society representatives. Solidarity and Security in the G8 and World Trade Organization: Toward Stability in the World Economy Solidarity and security are closely interrelated. Without solidarity in an unstable world, common threats spread unchecked. Solidarity in trade issues, by working together to create a robust global economy, will contribute to a safer world for all. Robert Zoellick, the United States Trade Representative (USTR) in 2002, noted that ‘America’s trade policies are connected to [its] broader economic, political and security aims’ (Zoellick 2002, 25). Ensuring that the current Doha negotiations were completed successfully on time by 2004 would have signiﬁcantly contributed to restoring not only a troubled world economy but also the conﬁdence of its citizens in the forums of global governance such as the G7/8 and WTO. However, the negotiations suffered serious setbacks due to the failure to meet key deadlines on such issues as special and differential

Toward Accountability?

117

treatment, the provision of essential medicines to developing countries within the Doha declaration on the Agreement on Trade-Related Aspects of Intellectual Property (TRIPS) and the Agreement on Public Health, agriculture, and services. These missed deadlines were in part due to the historical lack of consistent solidarity shown by the G7/8 regarding multilateral trade negotiations. During the Uruguay Round, despite much criticism for a lack of consistent leadership, the G7 did provide much needed political leadership. This was particularly evident at the 1986 Tokyo Summit, which provided the necessary political impetus for a new round as well as the critical market access package announced at the 1993 Tokyo Summit. However, the summits leading up to the launch of the Doha Development Agenda and since have shown a surprising lack of political leadership. Critically, at the 1999 Cologne Summit before the Seattle ministerial, the leaders did not pledge their personal commitment for a new round and thus the communiqué was not as strong as it could have been on the issue of trade. This lack of involvement by the leaders of the G8 was apparent among their respective trade delegates throughout the preparatory process leading up to and at Seattle. Even in the aftermath of Seattle, at the Okinawa Summit in 2000, the leaders only managed to agree ‘to try together’ to launch a new set of trade talks. In Genoa at the 2001 Summit, the communiqué was stronger than in previous years on the issue of trade. But there were still critical omissions that served to weaken its overall impact on the multilateral trading system. Regarding a new round, the G7 leaders issued a statement on the ﬁrst day of the summit in which they agreed to ‘engage personally and jointly’ in launching an ambitious new round at Doha later in the year (G7 2001). In addition to calling for a balanced agenda, the leaders also stated the need for increased WTO transparency and interaction with civil society as well as more effective dispute settlement procedures. The G7 addressed the need for the new trade talks to better incorporate developing countries including increased market access to developed countries, capacity building, and technical assistance. Nonetheless, many of the more contentious issue areas such as agriculture or the new issues were not addressed. However, the personal and political engagement of the G7/8 leaders was evident in Doha in November 2001. The Doha Development Agenda was successfully launched, albeit with last-minute compromises in language that left many somewhat unsure of what exactly had been agreed. The 2002 Kananaskis Summit produced a brief chair’s summary and an even more brief statement on trade, rather than producing the regular communiqué of years past. The leaders were extraordinarily concise in announcing that they had ‘agreed to resist protectionist pressures and stressed our commitment to work with developing countries to ensure the successful conclusion of the Doha Development Agenda by January 1, 2005’ (G8 2002). Given that the Evian Summit took place only four months prior to the Cancun ministerial, it was of utmost importance that the G8 show solidarity and accountable political leadership in acting to ensure that the Doha negotiations were put back on track. In the lead-up to the summit, there were indications that Evian had the potential to be strong on trade. Two out of the four characteristics that generally lead to effective summits for the promotion of trade liberalisation, speciﬁcally the

118

Corporate, Public and Global Governance: The G8 Contribution

support of multilateral trade negotiations, seem to have been met.7 However, two key elements were not evident. An Agreed Agenda before the Summit The ﬁrst element is discussions on the issue at a previous ministerial meeting or at the ministerial meeting of the Organisation for Economic Co-operation and Development (OECD), which traditionally takes place immediately prior to the G8 summit. In the lead-up to Evian, Chirac placed trade and the strengthening of the global economy high on the summit agenda. At their April 2003 meeting, the G7 ﬁnance ministers and central bank governors (2003) stated that they ‘underscore the importance to global growth and poverty reduction of successful trade liberalization through the timely implementation of the Doha Development Agenda, notably in ﬁnancial services’. Additionally, the chair of the OECD Trade Committee highlighted the need for responsibility and cooperation among OECD members at the OECD ministerial in late April: This year’s Trade Message to the OECD Ministerial Council Meeting is being delivered at a time of general uncertainty about prospects for the world economy and, more broadly, about the international environment for peace and security. In such a context, it is the special responsibility of OECD Members to show leadership and to act decisively to ensure the successful conclusion of the Doha Development Agenda (DDA) and thereby help underpin international co-operation, stability and economic integration. (Wasescha 2003, 2)

Public Political Pressure The heads of the WTO, the IMF, and World Bank, who met with the leaders at Evian, issued a joint statement in May 2003 directed at the G8 urging political leadership: We appeal to heads of Government at the forthcoming G8 Summit to provide the political guidance that is needed to allow the trade negotiations to move forward again before the WTO Ministerial Conference in Cancun in September. Political opinion in the G8 needs to appreciate fully the value of liberalising world trade, particularly in agriculture — a sector of critical importance to development. Trade is vital not only for the direct beneﬁts it brings, but also for increasing the ﬂows of ﬁnancial and real investment resources to developing countries which generate the income growth and job opportunities that help raise people out of poverty and make economies more resilient to shocks. Bold action now to reinforce long-term growth fundamentals through freer trade will boost conﬁdence and help to strengthen the emerging economic recovery. By pulling together in a multilateral context the G8 will help to maintain the momentum of structural economic reform over the longer term in developed and developing countries alike. (WTO 2003)

7 For more on the characteristics that lead to effective summits on trade, see Ullrich (2001).

Toward Accountability?

119

Additionally, civil society groups emphasised the need for a successful conclusion of the Doha Development Agenda and the necessity of G8 leadership. Representatives of the International Chamber of Commerce, an active proponent of trade liberalisation representing thousands of corporations and business associations from more than 130 countries, presented Chirac with a statement to the G8. It stated in part that ‘our key message, now that the war in Iraq is over, is to urge governments to put their divisions behind them and commit themselves to renewed multilateral cooperation for the vital purposes of rebuilding business and consumer conﬁdence and reinvigorating a weak global economy’ (International Chamber of Commerce 2003). This statement was shortly followed by a letter signed by the directors of the Canadian Council of Chief Executives, Japan’s Nippon Keidanren Business Association, the European Round Table of Industrialists, the European Employers Confederation, the U.S. Business Round Table, and the International Chamber of Commerce calling on the G7/8 to make a ‘strong commitment’ to the Doha negotiations (Betts 2003). The Existence of a Viable Negotiating Framework The Doha declaration provided the framework for the Doha Development Agenda negotiations and established a series of deadlines for several of the issues being negotiated. However, many key deadlines were missed. This resulted in the WTO Cancun agenda being dangerously overloaded, making the established negotiating framework less viable. The key issues to be agreed at Cancun included agriculture, services, TRIPS and public health, and special and differential treatment, which are discussed below. Agriculture At Doha the members declared that ‘without prejudging the outcome of the negotiations we commit ourselves to comprehensive negotiations aimed at: substantial improvements in market access; reductions of, with a view to phasing out, all forms of export subsidies; and substantial reductions in trade-distorting domestic support’ (WTO 2001). However, given the extremely contentious nature of agriculture liberalisation, they were unable to meet deadlines. In late December 2002, Stuart Harbinson, the chair of the Agriculture Negotiations Committee, circulated a draft ‘overview paper’ on the status of the agricultural negotiations including formulas for reducing support and modalities. The members were again unable to agree on the modalities by the mandated deadline of 31 March 2003. This slowed the negotiations, since these modalities were left to be agreed in Cancun when the members were also to submit their draft schedules of tariff concessions. In the meantime, cows living in the countries of the OECD were subsidised an average of US$2 a day —more than most people in the developing world live on per day. Services Negotiations on services are within the General Agreement on Trade in Services (GATS) and include such areas as ﬁnancial services, business services, and construction. Members were to have submitted initial market access requests on a bilateral basis by 30 June 2002. However, they continued to submit their requests throughout 2002. A deadline of 31 March 2003 was set for members to respond to the

120

Corporate, Public and Global Governance: The G8 Contribution

requests. This deadline was missed. The Doha declaration stated that ministers take stock of the services negotiations during the ﬁfth. ministerial meeting in Cancun. TRIPS and the Declaration on Public Health The 31 December 2002 deadline to reach agreement on compulsory licensing speciﬁed in the Doha declaration on TRIPS and public health was not met due to the opposition of the United States. Two further deadlines were also missed. The U.S., the EU, Canada, and Switzerland issued a moratorium on bringing members that break current rules to the WTO Dispute Settlement Board. Special and Differential Treatment Due to a lack of recommendations being submitted, the original deadline of 31 July 2002 was extended to 31 December 2002. This deadline was also missed and another deadline of 10 February 2003 established. However, members still did not agree on appropriate provisions and no further deadlines were set. New Issues The so-called ‘new issues’, also referred to as the Singapore issues due to having ﬁrst been addressed in Singapore in 1996, include competition policy, investment, transparency in government procurement, and trade facilitation. They are extremely contentious due to developing countries wishing to fully implement the liberalisation requirements agreed to in the Uruguay Round. The Doha declaration established that these issues would be placed on the negotiation agenda only following agreement at Cancun on the basis of explicit consensus. Much work was done in reviewing the trade implications of these issues, but opposition remained. The Doha declaration did not indicate the next steps if explicit consensus were, in fact, not reached. Personal Commitment of the Leaders Despite several of the countries of the G8 supporting further liberalisation within the framework of the Doha Development Agenda, recent summits have failed to show signiﬁcant personal commitment and engagement by the leaders. Such political support is a critical element as it directly affects the work of their respective trade ministers. Given that the G8 met with several leaders of key developing states immediately prior to the Evian Summit, a joint statement of personal commitment from both developed and developing leaders could have provided a show of solidarity as well as a much-needed political boost to the Doha negotiations. At Evian, the G8 managed only to produce a general statement on trade that failed to offer the leadership, political will, or personal commitment necessary to place the Doha negotiations back on track before the Cancun ministerial. Rather than offering progress on such critical issues as agricultural support and market access, the G8 merely agreed: We will promote the multilateral system by providing leadership in the ongoing negotiations so that improved access to markets for all WTO members is realised, particularly for the poorest, to ensure their integration into the multilateral system, and their development more broadly. We are therefore committed to delivering on schedule, by the end of 2004,

Toward Accountability?

121

the goals set out in the Doha Development Agenda, and to ensuring that the Cancun Ministerial Conference in September takes all decisions necessary to help reach that goal. (G8 2003a)

Conclusion and Recommendations: Achieving Accountability in Global Governance In the extremely short schedule set by the Doha Development Agenda, the lack of accountable leadership from the leaders of the G8 economies — which account for approximately 50 percent of global trade — has had a very negative impact on the progress of the negotiations. Without solidarity among the G8 on the issues confronting the Doha Development Agenda, the negotiations experienced a serious loss of momentum and direction. The G8 must thus now take several steps. On Accountable Political Leadership As the G7 did in Tokyo in 1986, Houston in 1990, and again in Tokyo in 1993, the leaders may serve as a powerful catalyst for further trade liberalisation within the Doha Round if they can show both accountable and political leadership. This leadership must show responsibility, take into account the concerns of their constituents, and be maintained after the summit has occurred. Strong political leadership requires the leaders to provide clear direction to their respective trade ministers. The G8 must urge WTO member governments to aim to work hard to keep the momentum within the Doha Development Agenda, ensure that the focus on development is maintained, and approach the negotiations with solidarity. On Pledges of Personal Commitment Past G7/8 experience shows that with respect to multilateral trade negotiations, political leadership continues to have signiﬁcant impact long after the summits end only if the leaders pledge to keep personally committed and involved in the progress of the negotiations. This was evident following the 1990 Houston and 1991 London summits, illustrated by the leaders using their G7 ties to ensure momentum continued at critical points and urge concessions from one another in order to break impasses. Throughout the Doha negotiations, the G8 must continue to show personal commitment to the goal of progressive trade liberalisation and remain engaged in the Doha Development Agenda. On Transparent, Participatory, and Accountable Global Governance Civil society needs to be incorporated in the trade debate within the G7/8 and the WTO. Failing this, there will be two levels of debates on trade speaking at crosspurposes. Through increasing communication with their citizens and trade-related NGOs, the G8 and WTO members will come to understand their citizens’ concerns regarding the current global economic system and beneﬁt from their expertise, while

122

Corporate, Public and Global Governance: The G8 Contribution

at the same time having the opportunity to promote their vision of the multilateral trading system. However, for the debate to be satisfactory to trade-related NGOs, the participation must be duly considered and not merely a public relations tool. Additionally, NGO participation should be balanced to include a representative number of NGOs from the North and South and from developed and developing countries, as well as from various issues and perspectives. To be effective, trade-related NGOs need to present well-informed and realistic proposals based on solid argument. Reliable information is thus critical. Trade-related NGO representatives require increased access to both documents and WTO meetings regardless of whether this is direct or through the use of information and communications technology. In order for civil society to be incorporated systematically into the G8 and WTO, civil society policy committees should be established. Within the G8, a representative civil society advisory group should meet with the leaders at the summit to discuss speciﬁc issues relating to the global economy. To ensure that participation continues, this group of civil society representatives would meet periodically throughout the year in order to present the leaders with a set of proposals prior to the annual summits. Within the WTO, such a group should consist of member government representatives, secretariat staff, and a representative group of trade-related NGOs. Regular meetings would encourage dialogue, ensure implementation of organisational procedures concerning civil society, and increase legitimacy. The Evian Summit and Cancun ministerial were lost opportunities for making progress toward accountable leadership. The 2004 Sea Island Summit was another opportunity for the G8 to demonstrate that the forum could increase its transparency and participation with civil society, show accountable leadership in global governance, and meet the Doha Development Agenda deadline. As it too failed, as did the 2005 Gleneagles Summit and the 2006 St. Petersburg Summit, it remains for future G8 summits to get these vital tasks done. References ‘Annual WTO Parliamentary Conferences on World Trade Will Take Place Beginning at Cancun’ (2003). Angola Press Agency, 20 February. Bayne, Nicholas (1999). ‘Continuity and Leadership in an Age of Globalisation’. In M. R. Hodges, J. J. Kirton and J. P. Daniels (eds.), The G8’s Role in the New Millennium, pp. 21–44 (Aldershot: Ashgate). Bayne, Nicholas (2000). Hanging In There: The G7 and G8 Summit in Maturity and Renewal (Aldershot: Ashgate). Bergsten, C. Fred (2001). ‘Launching a New Trade Round at the WTO: The Role of the Genoa Summit’. In C. F. Bergsten (ed.), Toward Shared Responsibility and Global Leadership: Recommendations for the G8 Genoa Summit from the G8 Preparatory Conference, pp. 17–22 (Washington DC: Institute for International Economics). Bergsten, C. Fred and Thierry de Montbrial (2003). ‘Restoring G8 Leadership of the World Economy: Recommendations for the Evian Summit from the Shadow

Toward Accountability?

123

G8’. Institute for International Economics and Institut Français des Relations Internationales, Washington DC and Paris. <www.iie.com/publications/papers/ g8-2003.pdf> (August 2006). Betts, Paul (2003). ‘Executives Urge G8 to Unite for Growth’. Financial Times, 21 May. Camdessus, Michel (2003). ‘Toward a Monetary and Financial Architecture for the 21st Century’. Third Governor Jose B. Fernandez Jr. Memorial Lecture, Asian Institute of Management, 4 April. (Reported in The Philippine Star, 21 April). Chirac, Jacques (2003a). ‘The Group of Eight Bringing Fairness to Globalization’. International Herald Tribune, 25 January. Chirac, Jacques (2003b). ‘Introductory Remarks by the President of the French Republic at the Working Meeting with the Trade Union Organizations Held as Part of the G8 Summit Preparations’. 25 April, Paris. <www.g8.fr/evian/english/ navigation/news/news_update/introductory_remarks_by_the_president_of_the_ french_republic_at_the_working_meeting_with_the_trade_union_organizations_ held_as_part_of_the_g8_summit_preparations.html> (August 2006). Chirac, Jacques (2003c). ‘Excerpt from New Year Speech to the Diplomatic Corps by the French President’. 7 January. <www.g8.fr/evian/english/navigation/news/ priorities_of_the_g8_french_presidency.html> (August 2006). Cohn, Theodore H. (2002). Governing Global Trade: International Institutions in Conﬂict and Convergence (Aldershot: Ashgate). G7 (1975). ‘Declaration of Rambouillet’. 17 November, Rambouillet. <www.g8.utoronto.ca/summit/1975rambouillet/communique.html> (August 2006). G7 (1995). ‘Halifax Summit Communiqué’. 16 June, Halifax. <www.g8.utoronto.ca/ summit/1995halifax/communique> (August 2006). G7 (1996). ‘Economic Communiqué: Making a Success of Globalization for the Beneﬁt of All’. 28 June, Lyon. <www.g8.utoronto.ca/summit/1996lyon/ communique.html> (August 2006). G7 (2001). ‘G7 Statement’. 20 July, Genoa. <www.g8.utoronto.ca/g7/summit/ 2001genoa/g7statement.html> (August 2006). G7 Finance Ministers (2003). ‘Statement of G7 Finance Ministers and Central Bank Governors’. 12 April, Washington DC. <www.g8.utoronto.ca/ﬁnance/ fm041203.htm> (August 2006). G8 (1999). ‘Communiqué’. 20 June, Cologne. <www.g8.utoronto.ca/summit/ 1999koln/ﬁnalcom.htm> (August 2006). G8 (2000). ‘G8 Communiqué Okinawa 2000’. 23 July, Okinawa. <www.g8.utoronto.ca/ summit/2000okinawa/ﬁnalcom.htm> (August 2006). G8 (2002). ‘The Kananaskis Summit Chair’s Summary’. 27 June, Kananaskis. <www.g8.utoronto.ca/summit/2002kananaskis/summary.html> (August 2006). G8 (2003a). ‘Co-operative G8 Action on Trade’. 2 June, Evian. <www.g8.utoronto.ca/ summit/2003evian/trade_en.html> (August 2006). G8 (2003b). ‘Fighting Corruption and Improving Transparency: A G8 Declaration’. 2 June, Evian. <www.g8.utoronto.ca/summit/2003evian/corruption_en.html> (August 2006).

124

Corporate, Public and Global Governance: The G8 Contribution

G8 (2003c). ‘Fostering Growth and Promoting a Respondible Market Economy: A G8 Declaration’. 2 June, Evian. <www.g8.utoronto.ca/summit/2003evian/ growth_en.html> (August 2006). G8 Environment Ministers (1999). ‘G8 Environment Ministers Communiqué’. 26–28 March, Schwerin, Germany. <www.g8.utoronto.ca/environment/1999schwerin/ communique.html> (August 2006). Hajnal, Peter I. (2002). ‘Civil Society Encounters the G7/G8’. In P. I. Hajnal (ed.), Civil Society in the Information Age, pp. 215–242 (Aldershot: Ashgate). International Chamber of Commerce (2003). ‘Business and the Global Economy’. ICC Statement on Behalf of World Business to the Heads of State and Government attending the Evian Summit, 1–3 June, 20 May, Paris. <www.uscib.org/docs/icc_ g8_statement_2003.pdf> (August 2006). Kirton, John J. (1999). ‘Explaining G8 Effectiveness’. In J. J. Kirton and J. P. Daniels (eds.), The G8’s Role in the New Millennium, pp. 45–68 (Aldershot: Ashgate). Kovach, Hetty, Caroline Neligan, and Simon Burall (2003). ‘Power without Accountability?’ Global Accountability Report. <www.oneworldtrust.org/pages/ download.cfm?did=168> (August 2006). ‘Larger Forum Should Replace G8: Lamy’. (2003). Agence France-Presse, 24 July. Mchumo, Ali (2000). ‘On the D-G Selection and the Seattle Ministerial’. 8 February. <www.wto.org/English/news_e/pres00_e/chair1_e.htm> (August 2006). Ostry, Sylvia (2002). ‘Globalization and the G8: Could Kananaskis Set a New Direction?’ O.D. Skelton Memorial Lecture, Department of Foreign Affairs and InternationalTrade Canada, Queen’s University, Kingston. <www.dfait-maeci.gc.ca/ department/skelton/ostry-en.asp> (August 2006). Powell, Colin (2003). ‘Remarks at the World Economic Forum’. 26 January, Davos. <www.state.gov/secretary/former/powell/remarks/2003/16869.htm> (August 2006). Quadrilateral Trade Ministers (1999). ‘Chair’s Statement’. 11–12 May, Tokyo. <www.g8.utoronto.ca/trade/quad33.html> (August 2006). Ullrich, Heidi K. (2001). ‘Stimulating Trade Liberalisation after Seattle: G7/8 Leadership in Global Governance’. In J. J. Kirton and G. M. von Furstenberg (eds.), New Directions in Global Economic Governance: Creating International Order for the Twenty-First Century, pp. 219–240 (Aldershot: Ashgate). Ullrich, Heidi K. and Alan Donnelly (1998). ‘The Group of Eight and the European Union: The Evolving Partnership’. G8 Governance November. <www.g8.utoronto. ca/governance/gov5>. Wasescha, Luzius (2003). ‘Trade Policy Message to Ministers from the Chairman of the Trade Committee’. Council Meeting at the Ministerial Level, Organisation for Economic Co-operation and Development, 29–30 April, Paris. <www.oecd.org/ dataoecd/22/51/2508920.pdf> (August 2006). Witherell, Bill (2002). ‘Corporate Governance and Responsibility: Foundations of Market Integrity’. OECD Observer no. 234 (October), pp. 7–9. <www.oecd.org/ dataoecd/39/43/1840502.pdf> (August 2006). World Trade Organization (1994a). ‘Trade Policy Review Mechanism’. <www.wto. org/english/docs_e/legal_e/29-tprm_e.htm> (August 2006).

Toward Accountability?

125

World Trade Organization (1994b). The Results of the Uruguay Round of Multilateral Trade Negotiations: The Legal Texts (Geneva: General Agreement on Tariffs and Trade). World Trade Organization (1994c). ‘Marrakesh Agreement Establishing the World Trade Organization’. 15 April. <www.wto.org/english/docs_e/legal_e/04-wto_ e.htm> (August 2006). World Trade Organization (1996a). ‘Final Statistics of the 1st WTO Ministerial Conference in Singapore’. <www.wto.org/english/forums_e/ngo_e/statsi_e.htm> (August 2006). World Trade Organization (1996b). ‘Procedures for the Circulation and Derestriction of WTO Documents’. WT/L/160/Rev.1. Decision adopted by the General Council, 18 July. Revision. World Trade Organization (1996c). ‘Guidelines for Arrangements on Relations with Non-Governmental Organizations’. WT/L/162, 18 July. <www.wto.org/English/ forums_e/ngo_e/guide_e.htm> (August 2006). World Trade Organization (1998a). ‘Final Statistics of the 2nd WTO Ministerial Conference in Geneva’. <www.wto.org/english/forums_e/ngo_e/statgen_e.htm> (August 2006). World Trade Organization (1998b). ‘Focus Newsletter’. July. Geneva. World Trade Organization (2001). ‘Ministerial Declaration’. 14 November, Doha. <www.wto.org/english/thewto_e/minist_e/min01_e/mindecl_e.htm> (August 2006). World Trade Organization (2003). ‘Joint Statement’. Supachai Panitchpakdi, Director-General of the World Trade Organization, Horst Köhler, Managing Director of the International Monetary Fund, and James Wolfensohn, President of the World Bank Group, WTO General Council meeting on coherence, 13 May, Geneva. <www.wto.org/english/news_e/pres03_e/pr341_e.htm> (August 2006). Zoellick, Robert B. (2002). ‘Unleashing the Trade Winds’. Economist, 7 December, pp. 25–29.

This page intentionally left blank

Chapter 9

Governance and Conﬂicts of Interest in International Financial Institutions Michele Fratianni and John C. Pattison

In recent years, concern with the governance structure of public corporations has grown dramatically following outbursts of corporate malfeasance, market volatility, inadequate disclosure, and conﬂicts of interest that are injurious to the public and undermine conﬁdence in the marketplace. As a result, governments have examined corporate, banking, and securities laws, the roles and duties of directors and audit committees, conﬂicts of interest, and the supervisory practices of regulatory bodies in overseeing markets and corporations. International analogues to these issues have generally received little attention. Yet governance structures are as relevant to the efﬁciency and legitimacy of international ﬁnancial institutions (IFIs) — such as the International Monetary Fund (IMF), the World Bank, and the Bank for International Settlements (BIS) — as they are to private sector corporations and national government agencies. To be sure, there are differences between IFIs and corporations. For example, in the absence of shareholders, who can exit through the sale of shares, who are the stakeholders of the IFIs and how can their rights be deﬁned? Do corporate governance principles apply also to IFIs? This chapter argues that there is no compelling justiﬁcation for governance principles to be less than universal. The interest in governance structure here has less to do with distributional issues than with the overall efﬁciency of the international ﬁnancial system. Reform proposals of the so-called international ﬁnancial architecture cannot ignore governance issues. If they do, changes are bound to occur through the actions of IFI bureaucracies (as compared to the roles of management), the inﬂuence of major governments (as compared to the roles of major shareholders), and mission creep and drift (as compared to corporate strategy). This chapter begins with a review of the essential tenets of governance as they apply to both the private sector and government agencies. It then develops a positive interpretation of the governance structures of IFIs. Next it compares and contrasts this interpretation against the literature. Then it identiﬁes the basic weaknesses in the current governance structures of IFIs, using the IMF as a primary example. Finally, it offers some conclusions.

Corporate, Public and Global Governance: The G8 Contribution

128

Governance Issues Private Sector With complete contracts the principal would have no need to create a governance structure to control its agents.1 A complete contract would specify all possible contingencies, all actions that the agent would take under each contingency, and the procedures to resolve all possible disputes. The contract would protect the principal against malfeasance and shirking on the part of the agent, as well as against disputes and conﬂicts of interest between the agent and third parties. A governance structure would be redundant under these conditions. But the reality is that contracts between a principal and an agent are bound to be incomplete in listing all possible contingencies, planning all possible actions, and solving all possible disputes. This imperfection gives rise, in the language of Sanford J. Grossman and Oliver D. Hart (1986), to ‘residual rights of control’ over the ﬁrm’s assets. Governance deals with the allocation of these residual rights of control. Shareholders cannot efﬁciently monitor the activity of management because of free riding; this is true much less so for large shareholders than for small shareholders. Thus, shareholders elect a board of directors to monitor management activity. But also the board will inevitably monitor imperfectly, either because the interests of some of its members are aligned with those of management or because of conﬂicts of interest between the interests of the board and those of the company or because monitoring by members who are outside the ﬁrm is inherently difﬁcult, costly, and inefﬁcient relative to beneﬁts. Monitoring can be improved and the agency problem can be lessened with better governance. Improving governance structure was the theme of the landmark Committee on the Financial Aspects of Corporate Governance (1992, 14) in the United Kingdom, chaired by Sir Adrian Cadbury and set up to deal with ‘the perceived low level of conﬁdence in both ﬁnancial reporting and in the ability of auditors to provide the safeguards which the users of company reports sought and expected’. The Cadbury Committee was also a reaction to corporate failures and the perceived problem that boards of directors of UK companies were loaded with inside directors, excessive executive pay, and inadequate accountability of directors. The signiﬁcant conclusions of the committee’s report were that the chair of the board should be independent of management in order to reﬂect the interests of shareholders, independent (of management) directors should constitute audit and remuneration committees and report on the company’s systems of internal control, and directors’ reappointment should not be automatic while their compensation should be disclosed. The Cadbury Committee focussed on the functioning and behaviour of boards of directors to strengthen governance procedures. Essential in this process is how directors adhere to their duties of properly representing the interests of shareholders. Since the director represents the interests of the shareholder in the ﬁrm, a governance structure needs to pay a great deal of attention to the identiﬁcation and resolution of potential conﬂicts between the interests of the shareholder and the interests of 1

The following discussion draws on Oliver D. Hart (1995).

Governance and Conﬂcts of Interest in International Financial Institutions

129

the director. Disclosure is an essential, although partial, remedy to these conﬂicts. Should a conﬂict actually arise, a good governance structure must trigger procedures that ensure that the interests of the shareholder prevail over those of the director. In addition to the ﬁduciary duties, a director is expected to represent the interests of the shareholder with professional competence and prudent behaviour. The Sarbanes-Oxley Act of 2002, a U.S. federal law, is a legal elaboration of these principles, although it may be judged by posterity as an overreaction to the revelations of corporate malfeasance that came to light after the stock market boom of the 1990s. Just to exemplify some of its most prominent features, the act prescribes that the board of directors must have ﬁve ﬁnancially literate members, two of whom qualify as certiﬁed public accountants (CPAs). The chair may be held by one of the CPA members, provided that this individual has not been engaged as a practising CPA for ﬁve years. The other three ﬁnancially literate members must not be and cannot have been CPAs. Board members cannot receive any remuneration other than retirement payments from public accounting ﬁrms. In fact, the board is responsible to ensure that the corporation complies with the provisions of the act. One headline article of the act bearing on management is that the chief executive ofﬁcer (CEO) and the chief ﬁnancial ofﬁcer (CFO) must attest to the fairness of the corporation’s ﬁnancial statements. The board and top management are legally responsible, collectively and individually, for accounting abuses, deﬁned primarily as departures from generally accepted accounting principles (GAAP). Since there is a latitude in the interpretation of GAAP, the act creates uncertainty on the nature of these abuses; to avoid incurring penalties boards, management, and public accounting companies will opt for the most conservative interpretations. Public Sector Casual observation suggests that agency problems and effective monitoring of the agent (the bureaucrat) by the principal (the electorate or parliament) are more serious in the public sector than in the private sector. To begin with, corporations seek proﬁt or shareholders’ wealth maximisation. Government agencies, instead, have multiple objectives and have to resolve the difﬁcult task of assigning weights to each of those objectives. Furthermore, objectives or their associated weights change because of the political process and the power of interest groups. While privately held corporations remain focussed on maximising proﬁts or shareholders’ wealth, the political process changes the rules of the game as political parties or groups, with different ideological agendas, alternate in power. In democracies, political control is contested at ﬁxed dates or within ﬁxed intervals. Elections are the equivalent of takeover bids in the private sector. Political takeovers can be interpreted in either of two ways. The ﬁrst is that they give an opportunity to replace inefﬁcient bureaucrats with more efﬁcient ones (Breton and Wintrobe 1982, 97). The second is that elections serve the purpose of altering the ideological make-up of the civil service, either by replacing top management, as in the U.S. tradition, or by demanding that the civil service fully adhere to the policies of the new government, as in the UK tradition. According to the second interpretation, political takeovers are different from private takeovers. Private takeovers are motivated by proﬁt, political takeovers by ideological agendas.

130

Corporate, Public and Global Governance: The G8 Contribution

This is the reason why government agencies suffer from time inconsistency and their commitment to a given policy is weak (Tirole 1994, 5). Pecuniary incentives play a smaller role in government agencies than in the private sector. The multiplicity of objectives, the fuzziness of weights associated to them, and the lack of observable output and product prices make it difﬁcult to remunerate the civil servant up to its marginal value product. This, in turn, gives rise to lowpowered incentives and the potential for capture by interest groups (Laffont and Tirole 1993). The principal, on the other hand, is the electorate or its representatives, one best characterised as being small, relatively uninformed, and consequently at a big disadvantage in monitoring the agent. To offset these tendencies, government agencies tend to leave less discretion to their management and employees than their counterparts in the private sector. Transactions between private sector parties and government agencies are regulated by detailed contracts aimed at minimising discretion on the part of agencies’ management. In sum, governance in the public sector is complicated by multiplicity of objectives, fuzzy weights, and time inconsistency. These complications affect the distribution between what is prescribed and what is left as part of residual rights. An Interpretation of the Governance Structure of International Financial Institutions International organisations exist, to a large extent, to provide international cooperation. Public goods and externalities often extend beyond national boundaries. In the absence of a world government, the provision of public goods and the capture of externalities fall on methods of international cooperation and international organisations. In this chapter, the focus is on those international organisations that deal with money and ﬁnancial products, the so-called IFIs. The most important IFIs are the IMF, the World Bank, and the BIS. The IMF and the World Bank are Bretton Woods institutions designed to provide, respectively, the public goods of an international monetary system and economic development. Since its inception, the IMF has transformed itself into a multi-product institution. The IMF of today provides a Good Housekeeping seal of approval to member countries through socalled surveillance and conditionality lending; it is a coordinator of lenders in a debt crisis; it disseminates member countries’ policies and essential macroeconomic and ﬁnancial data and the establishment of various types of international ﬁnancial standards; it is a crisis manager through emergency lending to countries in distress; it is a concessional lender to countries that either are poor or have no access to private credit markets; and it gives advice and technical assistance (Bordo and James 2000, 18). The BIS, created after World War I to handle German war reparations, functions as the banker of a small group of central banks, and is a forum for policy coordination and a setter of international ﬁnancial standards (Fratianni and Pattison 2001b). With the exception of the BIS, the ‘shareholders’ of IFIs are typically national governments. The BIS is in the process of eliminating nongovernmental shareholders. As with privately held corporations, IFI shareholders face a monitoring problem and

Governance and Conﬂcts of Interest in International Financial Institutions

131

delegate this activity to boards of directors and management. On the other hand, the characterisation of small, uninformed, and disenfranchised shareholders does not readily apply to IFIs. For example, in the IMF, decision making is based on weighted voting and not on the principle of ‘one member country one vote’. At present, the United States has 17.08 percent of the total votes, Japan 6.13 percent, Germany 5.99 percent, France and the United Kingdom 4.95 percent, Italy 3.25 percent, and Canada 2.94 percent (IMF 2006). The G7 countries, as a group, hold 40.34 percent of the votes in the IMF. Power is very asymmetrically distributed. Nothing of substance in the IMF can take place without the approval of the G7 countries or, for that matter, the United States. The United States has enough votes to block a quota increase (a decision to raise a quota requires an 85 percent majority). The World Bank, as described by the International Financial Institution Advisory Commission, chaired by Allan Meltzer (2000, 54), ‘was to be the institutional meeting ground, where rich industrialized members would supply resources and AAA credit support to enable the Bank to gather money in the ﬁnancial markets and redistribute the funds as loans to emerging members’. It was heavily criticised by the commission, which noted that ‘even the World Bank’s self-audited evaluations reveal an astonishing 55–60% failure rate to achieve sustainable results’ (Meltzer 2000, 53). Such an outcome in a private sector ﬁnancial institution would have led to ﬁnancial collapse, severe regulatory sanctions, and penalties for and replacement of directors and management. Yet, by implication, this is acceptable for IFIs. The BIS has few shareholders and, in fact, its core constituency is formed by the central bank governors of the G10): the G7 plus Belgium, the Netherlands, Sweden, and Switzerland (the eleventh member). The BIS has shown an ability to adjust its corporate strategy to changing international ﬁnancial circumstances. It began to concentrate on international supervisory cooperation after the failure of Herstatt Bank, and pioneered common international capital standards. While the BIS has also been subject to criticism, its smaller constituency and narrower focus, plus the fact that it is a ﬁnancial institution that must make a proﬁt in its own right, have made it arguably more efﬁcient that other IFIs. Whatever literature exists on IFI governance, it tends to focus on decisionmaking processes.2 This chapter expands the horizon and provides a framework that attempts to respond to a wider range of questions, such as who sets the mission of the IFIs, who controls their agenda, who implements decisions, what is the likely size of agency costs, how independent are management and staff from shareholders, and how are potential conﬂicts of interests between directors and the IFIs’ ‘clients’ resolved. The point of departure is that directors of IFIs play a different role from directors of a privately held company. IFIs’ directors are typically high-level civil servants who faithfully represent the interests of their governments. IFIs’ directors rarely set strategy as corporate directors do. In fact, IFIs’ directors are often excluded from the decision-making process, yet they retain an implementation role. This distinction is not new. It goes back to differences between the UK and the U.S., and between John Maynard Keynes and Harry Dexter White, in the creation of the Bretton Woods 2

For a review of the literature on IFI governance, see Bruno S. Frey (1997, 110–115).

132

Corporate, Public and Global Governance: The G8 Contribution

institutions. Raymond Mikesell (1994, 52), a U.S. Treasury economist who was heavily involved with the Bretton Woods meetings, recalls that: White had wanted control of the Fund to be in the hands of a board of directors whose members represented their governments and who would be continuously involved in decisions on exchange rates, drawings and other matters.

Keynes, on the other hand, wanted an international secretariat to manage and direct day-to-day operations. Mikesell goes on to say that: White’s position, and that of the U.S. administration generally, reﬂected a desire to have the Fund heavily inﬂuenced by the United States in order to promote the U.S. economic objectives of stable exchange rates, nondiscrimination in trade, and international ﬁnancial equilibrium.

As a result, the IMF’s Articles of Agreement were never clear on the matter, a convenient resolution of the differences. Residual control rights are vested with the critical shareholders of the IFIs. This is a small group of industrial nations, a group that certainly includes the United States, Germany, and Japan but can stretch to include the G7 ﬁnance ministers and, possibly, but less likely, all the G10 ﬁnance ministers. This group controls vast economic and ﬁnancial resources and enjoys the highest regulatory and governance standards. It is difﬁcult to identify ex ante the exact number of IFIs’ critical shareholders; it changes from one circumstance to another. For example, the U.S. government is a critical shareholder in an IMF quota increase because it has sufﬁcient votes to block it. In many other cases, the G7 is the core of critical shareholders. Note that beyond the G5 countries of France, Germany, Italy, the United Kingdom, and the United States, the marginal economic and ﬁnancial contribution as each new member is added diminishes rapidly, whereas the marginal costs of reaching agreement increase exponentially. Another feature of the system is that critical shareholders own ‘equity’ shares across all of the many IFIs. This means that these shareholders can effectively coordinate their strategy by relying on a portfolio of international institutional and ﬁnancial assets in addition to their national assets. The IFI portfolio hypothesis has several implications. In so far as governance is concerned, cross-ownership means that the vote of a director representing a given country in a given IFI is not independent of the vote of another director representing the same country in a different IFI. Thus, governance is exercised, not over a homogeneous ‘corporation’ with deﬁned objectives, but over a ﬁnancial conglomerate of IFIs. The ﬁnance ministers of the critical shareholders set agendas for the IFIs more like a portfolio of investments than as a holding company; the IMF, for example, is just one ﬁrm of the conglomerate. This also means that ‘institution shopping’ occurs: it is common for governments to orchestrate which institution or institutions are asked to lead on a particular issue. Indeed, European ﬁnancial regulators have at least 20 different forums from which to choose to discuss any particular international issue. This includes, among others, all of the various European Union committees, the International Organization of

Governance and Conﬂcts of Interest in International Financial Institutions

133

Securities Commissions (IOSCO), and the Basel Committee on Banking Supervision and its related committees. IFIs’ critical shareholders meet regularly during the year and delegate the execution of policy to the national directors, who often report to other parts of government such as central banks, bank regulatory agencies, or ministries of foreign affairs. The critical shareholders exert leverage on the wide range of professional expertise of the directors of various IFIs to raise the ‘efﬁciency’ of the policy execution in terms of their own interests. The presence of critical shareholders in IFIs raises issues similar to those of controlling shareholders in privately held companies, namely the potential that beneﬁts are not distributed symmetrically across shareholders. In privately held companies, the controlling shareholder may capture a disproportionate share of the proﬁts by inducing management to deal preferentially with companies owned or controlled by the shareholder (Hart 1995, 683). The capture of excess proﬁts is the return of monitoring by the controlling shareholder. Corporate and securities laws are designed in part to reduce the scope for abuse and to protect minority shareholders. In IFIs, a critical shareholder may obtain a disproportionate share of the beneﬁts by persuading directors and management of IFIs to divert a disproportionate share of the institution’s resources to governments that are friendly to the critical shareholder. In other words, the critical shareholder uses IFIs as an integral part of its foreign policy. There are two fundamental differences between governance in the private sector and governance in IFIs. The ﬁrst is that private sector governance, as already indicated, pays a great deal of attention to conﬂicts of interests. Incompatible duties are segregated, so that different organisations, or divisions within an organisation, perform separate tasks or report to different parts of management or the board. The nomination of a board director automatically triggers a potential conﬂict of interest between the company where the director may be employed and the company in question. In contrast, nothing of the sort applies to IFIs. The second difference is that, in the private sector, corporate strategy and direction are decided at board level, disclosed to shareholders, and shared with management. Determining accountabilities for strategy are an integral part of board duties and management responsibilities. In contrast, nothing of the sort exists in IFIs; strategy for IFIs is often determined by the interests of one or more major shareholders. In sum, critical decisions about the mission and policies of IFIs are in the hands of few, large shareholders. Each IFI is akin to a ﬁrm within a conglomerate. Critical shareholders can activate simultaneously several IFIs, as part of a large portfolio of international and national assets. But there are competing models of behaviour. One sharp alternative to the critical shareholder model is that management and staff of IFIs may make important decisions without much of a say on the part of shareholders. In other words, they may be captured by various interests. Management and staff, under this alternative, would seek self-preservation and aggrandisement, and would cater to the interest of client governments — the borrowing countries.

134

Corporate, Public and Global Governance: The G8 Contribution

Evidence from the Literature This section reviews the literature that bears directly on governance issues. It starts with studies that favour an interpretation along the lines of the critical shareholders’ model, then continues with those that favour a capture theory, and concludes with a synthesis of the two. Critical Shareholders Robert Solomon (1977, 5), in his analysis of the international monetary system from 1945 to 1976, remarked that ‘to call it a system is to impute more formality to it than it deserves’. Yet he identiﬁes in the G10 ministers and their deputies an important group: ‘the IMF Executive Board was expected to do the preparatory work and to receive the views — in practice, the decisions — of the Interim Committee’ (Solomon 1977, 303). The Interim Committee, constituted by 24 IMF governors, was formed in 1974 to replace the Committee of Twenty and was replaced by the International Monetary and Financial Committee (IMFC) in 1999. The members of the Interim Committee played the role expected of corporate directors, which is to advise and recommend strategies to management for them to implement. John Williamson (1977, 60) goes a step further on the role of the G10: ‘The G10 had ﬁlled the role of discussing such issues for the previous decade and it had been active … as the natural body in which to negotiate the exchange rate realignment.’ For A.F.W. Plumtre (1977, 281): [the Interim Committee] is to stand between the Board of Governors — massive and cumbersome, with more than 125 members who deliver set speeches to audiences of thousands at annual meetings — and the twenty Executive Directors … In short, the intention was to introduce a more effective political inﬂuence into the Fund’s decisionmaking.

In contrast, the executive board of the IMF is described as ‘reﬂecting the diverse views of 20 Executive Directors from Europe, Asia, Africa, and North and South America, [and] was inevitably bland in its recommendations, overt or implied’ (Solomon 1977, 225). The irrelevance of the Executive Board is emphasized by Ngaire Woods (2001, 87): real debates over policy and issues are conducted outside of the Board. Controversial cases and stand-off debates are rare. For example, a loan that did not meet with US approval would seldom be presented to a Board for discussion.

For Woods (2001, 87–88), this failure stems from the directors’ acting as cheerleaders for the countries they serve. James Boughton (2001) has an extensive discussion of the relationship between the IMF and its critical shareholders. In Chapter 5, he examines the review process under Article IV of the Articles of Agreement between the IMF and each of the G5 countries. The opening sentence of the chapter sets the tone for what follows:

Governance and Conﬂcts of Interest in International Financial Institutions

135

‘Nowhere is the difﬁculty of conducting surveillance more apparent than in the relationship between the IMF and the major industrial countries’ (Boughton 2001, 135). The story can be simply summarized that the G5 countries are too powerful to mind the advice of the IMF, and this is especially true of the United States. In Chapter 7, Boughton tells the history of policy cooperation, starting with the creation of G10 and the General Arrangements to Borrow in the early 1960s, then G5 and its enlargement to G7 in the mid 1970s, then the Plaza Accord of 1985, and ﬁnally the Louvre Accord of 1987. In retrospect, the critical shareholders of IFIs were acting quite cooperatively in 1980s, although there were signs that even the G7 was too large a group and had its own ‘super-cooperative’ core of G3 countries (the United States, Germany, and Japan).3 In all this activity, the IMF played a subsidiary and technical role. Boughton (2001, 186) candidly acknowledges that ‘the Fund participated only at the pleasure of the countries’ ofﬁcials and had no real standing to guide the process’. In sum, the G7 countries stand out from the rest of the shareholders of the IMF, and behave as if they are in charge. The Meltzer Commission laments the undue inﬂuence of the critical shareholders: ‘[the] IMF should not be used as a “slush fund” to satisfy decisions of the G7 ﬁnance ministers or other groups of powerful members’ (Meltzer 2000, 48). The commission’s main recommendation of setting a rule whereby the IMF would lend only short term, at penalty rates and conditional on ex ante standards of ﬁnancial soundness may be interpreted as a mechanism to rein in the disproportionate inﬂuence exercised on the IMF by its critical shareholders (Tarullo 2001, 625–626). Robert J. Barro and Jong-Wha Lee (2002) present econometric evidence that being close to critical shareholders enhances the probability and size of an IMF loan. Using panel data encompassing 130 countries over ﬁve-year intervals between 1975 and 1999, these authors estimate Tobit and Probit models to explain the size of IMF programme approval, and the frequency with which a member country beneﬁted from an IMF programme. The explanatory variables include country-speciﬁc economic factors (e.g., per capita gross domestic product [GDP]), time dummies to account for shifts in global shocks, the borrowing country’s clout with the IMF, and the borrowing country’s political-economic closeness to critical shareholders. The borrowing country’s clout with the IMF is measured by the relative size of its quota and by the relative size of nationals among IMF professional staff; closeness to critical shareholders by fraction of votes at the United Nations General Assembly that agrees with the positions taken by critical shareholders and by the ratio of the bilateral trade between borrowing country and critical shareholder to borrowing country’s GDP. There are four critical shareholders in the sample: the United States, France, Germany, and the United Kingdom. While the empirical ﬁndings differ from equation to equation, the overall pattern is that both clout and closeness to critical shareholders matter for participation in IMF programmes. Barro and Lee’s results echo earlier ones found by Bruno S. Frey and Friedrich Schneider (1986) with respect to World Bank loans. Frey and Schneider, using data from 1972 to 1981, ﬁnd that a political-economic model of lending that links 3 The concept of the core within the core comes out loud and clear in Yoichi Funabashi (1987).

136

Corporate, Public and Global Governance: The G8 Contribution

critical shareholders to ‘connected’ borrowers (e.g., former colonies) is superior to alternative models of lending based on development need or ofﬁcially declared World Bank criteria. One of the sharpest criticisms levelled against the IMF, and consequently against its critical shareholders, is the high failure rate of conditional lending programmes. An important reason for this can be blamed on the unwillingness or inability of borrowing countries to control government budget deﬁcits, as well as to the misforecasts of the needed adjustments by the IMF staff (Boughton 2001, 617). Furthermore, these patterns repeat over time. For example, in 1990, the number of countries that had borrowed ﬁve or more times in the preceding ten years and with outstanding credit of at least 100 percent of their quota had quadrupled with respect to 1980 (Boughton 2001, 619, Fig. 13.6). Graham Bird (2003) provides further evidence of recidivism: between 1980 and 1996 Argentina, the Central African Republic, the Democratic Republic of Congo, Costa Rica, Ivory Coast, Ecuador, El Salvador, Hungary, Jamaica, Kenya, Madagascar, Malawi, Mali, Mauritania, Morocco, Niger, the Philippines, Senegal, Togo, Uganda, and Uruguay tapped IMF resources at least seven times, an average of almost a programme every two years (Bird 2003, Table 4.2). For the bulk of these countries IMF programmes serve the undeclared purpose of economic aid. But what can be said about Argentina and Uruguay? Michael Mussa (2002, 3) gives a straightforward assessment of the failure of the IMF with regard to Argentina, a country that ‘throughout the 1990s … operated under the auspices of a Fund-supported program’. The IMF made two egregious mistakes, the ﬁrst to overlook Argentina’s proﬂigate ﬁscal policy in the ﬁrst half of the 1990s and the second to provide the country with a huge ﬁnancial package of US$40 billion in 2001, despite the evidence that the crisis could not be averted (Mussa 2002, 4). Mussa blames both the critical shareholders and IMF staff for this state of affairs. In the eyes of the critical shareholders, ‘Argentina was generally seen as a country deserving sympathy and support; and the Argentine authorities were certainly willing to draw on this sympathy and support’ (Mussa 2002, 47). This support has continued. In 2003 the IMF approved an eight-month standby credit to Argentina for US$2.98 billion, a decision pushed by the G7 against strong opposition on the part of IMF’s management (‘The G7 Blinks over Argentina’ 2003). But Mussa (2002, 69) also blames IMF management for acting ‘too much as a sympathetic social worker’ and the staff for being soft in the analysis. Bessma Momani (2002) develops an informative case study of the inﬂuence of the United States on IMF decisions to grant loans to Egypt. By relying on internal IMF documents covering approximately ten years of IMF staff reports on IMFEgyptian agreements, as well as on archival material from the U.S. Department of State, the case study concludes that the U.S. government was instrumental in pushing for lenient terms in the 1987 and 1991 agreements despite contrary opinions by IMF staff. Further evidence on the critical shareholders’ hypothesis is offered by Paul Blustein (2001), for whom the industrial countries, but in particular the United States and in particular the U.S. Treasury, believe strongly in unfettered capital movements. The IMF, according to Blustein (2001, 9), sings to the U.S. Treasury’s tune and promotes the same philosophy. He identiﬁes a high command of the

Governance and Conﬂcts of Interest in International Financial Institutions

137

global ﬁnancial system, consisting of ofﬁcials at the U.S. Treasury, the U.S. Federal Reserve, and the G7 countries and their delegates at the IMF. With a touch of irony, Blustein (2001, 14) calls them ‘the guardians of global ﬁnancial stability [who] were often scrambling, ﬂoundering, improvising, and striking messy compromises’. The messy compromises are driven often by incentives to rescue the creditors of industrial countries. Like the Meltzer Commission, Blustein is concerned that the high command encourages moral hazard behaviour with large country bailouts. A more balanced view of the role of critical shareholders is provided by Bird (2003, ch. 3). He acknowledges that powerful shareholders exert inﬂuence on IMF lending but cautions ‘not to get overexcited about their consequences for prediction. Since IMF agreements are present in only about 20 per cent of the observations, in most large sample econometric studies a prediction of ‘no agreement’ would be correct about 80 per cent of the time’ (Bird 2003, 60). For the purpose of this chapter, however, the relevant issue is not whether the prediction of ‘no agreement’ is 0.8 but rather what effect political considerations have on the 20 percent of the cases where agreements have been reached. Capture Hypothesis Roland Vaubel (1991) was an early proponent of the argument that the rapid expansion of the IMF’s loan programmes was fuelled by bureaucratic self-preservation, power, and prestige, an outcome consistent with the implications of the capture hypothesis. Meltzer (1999) is even more explicit on this theme: IMF ofﬁcials are judged partly on their contacts with high ofﬁcials of borrowing governments. Critical reports by an IMF task force reduce the welcome the IMF team can expect on its next visit … Borrowing governments recognize this power, so they are able to restrain criticism and prevent or delay information from reaching the IMF’s top management.

Michael J. Bordo and Harold James (2000, 7) echo similar concerns and speak of ‘clientism’ among IMF staff. These authors also emphasise how the IMF branched into development work that went beyond the original function (Bordo and James 2000, 20) and for which it was not well prepared. In the private sector, moving into a new business without shareholders or directors’ approval and without adequate disclosure to shareholders generally would be considered a serious governance failure. Mussa (2002, 70) ﬁnds a pro-borrower bias among the staff of area departments: By the nature of their responsibilities and because of their need and desire to maintain close cooperative relations with the authorities of member countries, this bias toward the member tends to be particularly strong in the Fund’s area departments.

This bias, in turn, is neither compensated for, nor controlled by other departments that work with the area departments, nor by management that ‘normally sides with the area departments in their efforts to be as cooperative with members as possible’ (Mussa 2002, 70). The friction between the IMF’s area departments and the

138

Corporate, Public and Global Governance: The G8 Contribution

Research Department is underscored in a report of a group of independent experts commissioned by the IMF to assess IMF surveillance (IMF 1999). For the experts, disagreements between the two departments ‘were at least in part responsible for the fact that that concerns about the health of Korea’s ﬁnancial system were not properly reﬂected in surveillance nor communicated to the Executive Board’ (IMF 1999, 32). In the private sector, both regulation and supervisory oversight seek the identiﬁcation and management of conﬂicts of interest and mandate the separation of areas that may be conﬂicted. Coexistence of the Capture Theory and the Power of Critical Shareholders The literature reviewed seems to agree that non-economic considerations enter into IMF loan decisions. But it is more ambiguous whether the main source of the problem lies with the critical shareholders or with the IMF management and staff. Michele Fratianni (2003) argues that both elements are present. In the case of IMF conditional lending, for example, the single most important goal, from the viewpoint of the IMF, is to restore external balance while preserving long-term internal balance. Governments of borrowing countries instead consider external balance a constraint on their domestic economic policies, which have a plethora of political, social, and economic objectives. In addition, governments want to remain in power or win the next election. Thus, it may pay off politically for a government to ignore the balance-of-payments constraint temporarily and embark on fast-growth policy, which implies above-average output growth rates, balance-of-payments deﬁcits, and a rising inﬂation rate. An unsustainable external deﬁcit will put an end to the expansionary policy and will start an adjustment programme ﬁnanced by the IMF.4 The logic of conditional lending is to set restrictions that translate into costs in terms of output and employment. The costs of the programme occur typically before beneﬁts. Most borrowing governments are aware of the intertemporal cost-beneﬁt trade-off implied in conditional lending. They may accept the conditions set by the IMF but ﬁnd them unpalatable politically and are ill disposed to implement them. This outcome is consistent with the view of those critics — typically from the political left — who claim IMF conditional lending is too costly for the borrowing countries. There is, however, a second possibility. Governments of borrowing countries are aware of the intertemporal cost-beneﬁt trade-off but feel they can improve it by claiming extenuating circumstances. This outcome is consistent with the view of those critics — typically from the political right — who claim that IMF conditional lending ends up encouraging repeated lending and moral hazard behaviour. It is plausible that both paradigms coexist because the IMF discriminates between rich and poor, large and small, geopolitically important and geographically irrelevant. This discrimination is to a large extent driven by the preferences of the critical shareholders who use the IMF as a multilateral agency of foreign policy and foreign aid. Critical shareholders bear heavily on IMF management when their 4 For a discussion of Peru from 1986 to 1987, an interesting case study, see Boughton (2001, 612).

Governance and Conﬂcts of Interest in International Financial Institutions

139

interests are at stake; otherwise, for small and unimportant countries, their monitoring activity is low and opinions of IMF staff have a much larger inﬂuence on outcomes. An illustration of the selective activity exercised by critical shareholders at the IMF is provided by Blustein’s (2001, 101–102) account of the IMF’s mission to Indonesia during the 1997 currency crisis: The reason for the turnaround was pressure from members of the IMF board representing Western industrial countries. Karin Lissaker, the U.S. representative, was particularly assertive ... ‘The mission went out [to Jakarta] with the usual recipe — tweak a little on monetary policy here and ﬁscal policy there,’ Lissaker recalled. ‘We stepped up the heat, the more we found out about the issues, hearing about these massive subsidies to cronies and family members … This was clearly pushing the outside of the envelope.’

Conﬂicts of Interest and Standards’ Non-Compliance So far, this discussion has been a positive analysis of governance. Governance structure deals with the control of residual rights. These rights are exercised by IFIs’ critical shareholders and management, the distribution between the two being a function of how important borrowing countries are to the interests of critical shareholders. The obvious extension is to ask whether this state of affairs is desirable, or whether improving governance can yield better outcomes. The answer starts with the premise that the status quo is not desirable. According to Daniel K. Tarullo (2001, 618–619), participants in the international ﬁnancial reform debate agree on two fundamental propositions. The ﬁrst is that the frequency and size of currency and banking crises in the last two decades suggest that the international ﬁnancial architecture needs at least a face lift. The second is that the current practice of handling crises on an ad hoc basis must be revisited. Reforms of the international ﬁnancial system cannot ignore governance structures: performance and governance are intricately linked through incentive systems that inﬂuence decisions made by IFIs and their member governments and the reaction of economic agents to the signals emitted by these bodies.5 Moral hazard behaviour is a good case in point. For many critics the signal quality and frequency of IMF loans fuel moral hazard risk (Fratianni 2003). Would the IMF approve such loans to countries afﬁliated with its own directors if it had a board of independent directors? Not likely; if they did it in the private sector, beyond certain safe harbours deﬁned in law, they would be subject to disciplinary actions and punitive damages by bank regulators and the courts.

5 Jose De Gregorio and his colleagues (1999) focus on many fundamental governance issues, such as oversight processes, roles of directors (including the information available to them), voting procedures, transparency, and conﬂicts of interest. They examined weaknesses in decision making in the IMF and made recommendations for improvements. These included transparency, accountability, and depoliticisation.

140

Corporate, Public and Global Governance: The G8 Contribution

Conﬂicts of Interests Private sector governance strives to eliminate, minimise, or manage conﬂicts of interest between directors and management, directors and large shareholders, directors and ﬁrm’s customers, and directors and ﬁrm’s suppliers. Why should the same principles not apply to IFIs? The absence of a proﬁt motive in IFIs is not a valid reason for ignoring conﬂicts of interest. Shareholders and directors of IFIs represent national taxpayers. As corporate directors have a ﬁduciary responsibility with regard to the stockholders, so do directors of IFIs have a ﬁduciary responsibility with regard to the national taxpayers. Private shareholders and taxpayers both expect a rate of return for their investment and both delegate a specialised group of individuals to devise business strategies and monitor management effort to that end. While the objectives of IFIs differ from those of privately owned corporations, the essence of the delegation mechanism does not change fundamentally.6 Three types of conﬂicts of interest in IFIs require scrutiny. The IMF is used as the IFI prototype. The ﬁrst conﬂict of interest involves IMF staff and management giving advice and lending, which is analogous to the conﬂict between security analysis and investment banking housed within the same ﬁnancial intermediary, or in a related comparison between marketing a bank loan and making a credit decision. As Fratianni (2003, 173) remarks, the potential bias of security analysts is to be optimistic about the equity valuation of a business that is either a current or prospective client of the investment side of the ﬁrm. The potential bias of IMF staff is to advise countries in line with the conditions set in a current IMF programme. Executive directors do not, and possibly cannot, properly monitor management and staff, and biases, rather than being compensated, are reinforced. The already mentioned report on external surveillance is quite explicit in noting that executive directors ‘tended to be defensive about the countries they represent and that other [executive directors] deferred to this, partly because they expected the same deference in return in due course … peer pressure can become peer protection’ (IMF 1999, 34). Mussa (2002, 80–81) accuses IMF staff of indulging in advocacy instead of hardnosed analysis with respect to Argentina and spurs the executive board to exercise its rights of supervision. But the executive board is not independent since it is chaired by management, an arrangement that some [Executive Directors] regarded … as anomalous, potentially putting management in a difﬁcult position if a staff paper is strongly criticized … Internal disagreements are generally not divulged to the Board. Some Directors thought it could be healthy for this to happen more frequently. (IMF 1999, 34)

The second conﬂict of interest arises between directors and IMF customers. No private bank would be allowed by its regulators to have directors that represented the interests of those to whom funds are lent. Yet all IMF member countries are represented by IMF directors. In 2001, the Independent Evaluation Ofﬁce was created to reduce agency costs to the IMF’s shareholders. The ofﬁce is independent 6 The relationship between IFIs and taxpayers has more intervening layers and no legal or regulatory basis, as is the case with private sector governance.

Governance and Conﬂcts of Interest in International Financial Institutions

141

of IMF’s management and reports directly to the executive board on the various activities of the IMF. But it is chaired by a member of the executive board, and its budget and its director are approved by the board as well. Such a structure may lead to self-serving decisions about the review of internal practices at the level of the board or board committees. In contrast, an important focus of private sector governance is to improve the independence, objectivity, and functioning of the audit committee. The third conﬂict of interest arises between the promulgation and the assessment of international standards (Fratianni and Pattison 2002b). The IMF has issued standards on the quality and timeliness of macroeconomic data through its General Data Dissemination System (GDDS) and the Special Data Dissemination Standard (SDDS). Furthermore, it has codes of good practices in the areas of monetary and ﬁscal policies. The reasons for this conﬂict are the same as those outlined above: the IMF is economic advisor, standard setter, credit analyst, lender, auditor, and crisis manager. This is too much for one institution, even with the best intentions, and without safeguards that are monitored and tested to protect shareholders. Standards In addition to setting its own standards, the IMF endorses standards issued by bodies such as the Basel Committee on Banking Supervision, the International Accounting Standards Committee, and IOSCO. Is the IMF compliant with these standards? One example is the standard that all international banks should be supervised by a home country authority that capably performs consolidated supervision. While the IMF eminently qualiﬁes as an international ﬁnancial institution, it is not subjected to an independent oversight or review of its risk management, internal controls, or direction. In fact, as a result of not having independent directors, the IMF does not beneﬁt from the work of independent audit committees chaired by independent directors, a fundamental practice in the private sector. The consequence is that possible weaknesses and outright failures of IMF lending policy are not subject to the type of scrutiny that is typical in a private sector bank. Supervisory independence is no small issue. As noted by John D. Hawke (2002, 9), former U.S. comptroller of the currency, ‘the absence of supervisory independence has been implicated in almost every national ﬁnancial crisis that the world has recently seen … In each case, supervisors became instruments of government or central bank policies that subordinated the safety and soundness of ﬁnancial institutions to other goals.’ Another consideration is a second set of principles codiﬁed in the Core Principles for Effective Banking Supervision: an essential part of any supervisory system is the independent evaluation of a bank’s policies, practices and procedures related to the granting of loans and making of investments and the ongoing management of the loan and investment portfolios banking supervisors must be satisﬁed that banks establish and adhere to adequate policies, practices and procedures for evaluating the quality of assets and the adequacy of loan loss provisions and reserves…

142

Corporate, Public and Global Governance: The G8 Contribution in order to prevent abuses arising from connected lending, banking supervisors must have in place requirements that banks lend to related companies and individuals on an arm’s-length basis, that such extensions of credit are effectively monitored, and that other appropriate steps are taken to control or mitigate the risks (Basel Committee on Banking Supervision 1997, 5).

Such a framework is not set in place at the IMF. The Meltzer Commission gave examples of the long-term use of IMF credit for which its facilities were never intended (Meltzer 2000, 28). Boughton (2001, 44) notes: ‘When quotas were not raised in line with demand for Fund credits, the Fund used this borrowed money (from surplus countries) to stretch its resources by agreeing to approve credit arrangements that were larger in relation to quotas than had previously seemed prudent … [this] pushed the Fund’s balance sheet and income ﬂows into a precarious position.’ All of this occurred without any of the supervisory oversight and regulation that applies to private sector ﬁnancial intermediaries. A further case is repeated borrowings by the same client. Bank supervisors become justiﬁably concerned about client status and quality of the loan when a bank advances new funds to enable the borrower to pay interest on an existing debt. The standard on Sound Practices for Loan Accounting and Disclosure states that ‘interest on impaired loans should not contribute to income if doubt exists concerning the collectibility of loan principal or interest’ (Basel Committee on Banking Supervision 1999, 29). IFIs do not comply with this standard, with loans to Argentina being the most blatant example (Graham and Masson 2002). In December 2001, the IMF refused to disburse to Argentina a loan tranche of US$21.6 billion because of the country’s failure to comply with loan conditions. Then Argentina defaulted on a World Bank loan in November 2002; two months later, Argentina was approved for a new transitional funding arrangement by the IMF. Does such an obvious disregard for credit quality, recognition of impaired loans, and disclosure of loan provisions on the balance sheets, and untransparent accounting practices serve the reputation of the IMF and its shareholders? Does it serve to contain moral hazard? The earlier answer of the Meltzer Commission was a resounding no (Meltzer 2000). It wanted to refocus the IMF as a short-term lending IFI and force critical shareholders and management to pre-qualify potential borrowers with the intent to reduce moral hazard, if not eliminate it altogether. Elsewhere, Michele Fratianni and John C. Pattison (2002a) have analysed the differences between the Meltzer Commission’s regime of ex ante pre-qualiﬁcation and the current regime of ex post conditionality lending. Neither one is a panacea. Under pre-qualiﬁcation, there is the risk that the lending-of-last-resort agency may either lend too much or too little to the non-qualiﬁers, instigating either moral hazard or welfare losses. Under ex-post conditionality lending, the IMF has a conﬂict of interest between setting conditions and monitoring them. In either case, good governance would dictate that the qualiﬁcation standards be set by a different IFI.

Governance and Conﬂcts of Interest in International Financial Institutions

143

Conclusions Groups that control corporations can often proﬁt from lapses in governance. Indeed, ﬂaws in governance procedures, such as multiple voting shares, are often created to increase disproportionately the inﬂuence of groups of shareholders. Similarly, large countries may appropriate a disproportionate share of the beneﬁts generated by IFIs. The consequences for economic efﬁciency are likely to be negative. It is precisely this point that guides this chapter’s concern for improving governance structures in IFIs. The governments of the most important industrialised countries have the clout and the incentive to use IFIs for their own purposes, a tendency that is enhanced by weak governance structures. Conﬂicts of interest between directors and management, directors and large shareholders, directors and ﬁrm’s customers, and directors and ﬁrm’s suppliers are carefully monitored in the private sector. Abuses are disciplined by competition and legal safeguards. There is no counterpart in the IFIs. Furthermore, IFIs have not yet adhered to the codes of good ﬁnancial behaviour that apply to internationally active ﬁnancial intermediaries, such as operational independence, large exposure limits, and segregation of duties. It is ironic that IFIs have been at centre stage in the promulgation of international ﬁnancial standards and that there is an ongoing debate as to what IFI should enforce these standards (Fratianni and Pattison 2002b); yet, the same IFIs have themselves turned away from adopting the rules. Therefore, the path forward must seek other organisational avenues. There are a number of choices. One is through governance techniques to resolve the conﬂicts of interest and the disparate levels of inﬂuence of small shareholders and large shareholders in the IFIs. This is a promising avenue since it builds upon existing structures. Nonetheless, the earlier discussion also indicated that the current structure is missing direction at a high level. Another alternative is to recognise the growth of regional associations and to use them in the international policy making framework (Fratianni and Pattison 2001a). The dissatisfaction with the current state of the international ﬁnancial architecture can be attributed, in no small part, to outdated governance structures. One step, among several, to modernise these structures would require that directors of IFIs take their ﬁduciary responsibilities seriously rather than acting as cheerleaders of the governments they represent. One caveat to these recommendations for change is in order. According to club theory, international cooperation does not occur spontaneously; a few large countries take the leadership and incur a disproportionate share of the cost and beneﬁts of cooperation (Fratianni and Pattison 2001a). The implications of this theory are at odds with the requirements of legitimacy and full participation of all member countries on an equal and democratic basis. For example, Michel Aglietta (2000, 7) has noted that ‘all prior world conferences failed … Paris in 1865, Genoa in 1922, and London in 1933. So did the grand design to overhaul the [international monetary system] launched after the Smithsonian Institute Agreement in December 1971.’ Nonetheless, proposals continue to be advanced to legitimise the international ﬁnancial architecture through a more democratic process. But the wider is participation, the more difﬁcult

144

Corporate, Public and Global Governance: The G8 Contribution

is the achievement of meaningful cooperation. The postulates of club theory may set the ultimate limits of governance reform in IFIs. References Aglietta, Michel (2000). ‘The International Monetary Fund and the International Financial Architecture’. Working Paper No. 2000-08. <www.cepii.fr/anglaisgraph/ workpap/summaries/2000/wp00-08.htm> (August 2006). Barro, Robert J. and Jong-Wha Lee (2002). ‘IMF Programs: Who Is Chosen and What Are The Effects?’ NBER Working Paper No. 9851, Cambridge MA. <www.nber.org/papers/w8951.pdf> (August 2006). Basel Committee on Banking Supervision (1997). ‘Core Principles for Effective Banking Supervision’. September 1997, Basel. <www.bis.org/publ/bcbs30a.pdf> (August 2006). Basel Committee on Banking Supervision (1999). ‘Sound Practices for Loan Accounting and Disclosure’. Basel. <www.bis.org/publ/bcbs55.pdf> (August 2006). Bird, Graham (2003). The IMF and the Future Issues and Options Facing the Fund (London: Routledge). Blustein, Paul (2001). The Chastening: Inside the Crisis That Rocked the Global Financial System and Humbled the IMF (New York: Public Affairs). Bordo, Michael D. and Harold James (2000). ‘The International Monetary Fund: Its Present Role in Historical Perspective’. In A. H. Meltzer (ed.), Expert Papers (Washington DC: International Financial Institution Advisory Commission). Boughton, James (2001). Silent Revolution: The International Monetary Fund, 1979–1989 (Washington DC: International Monetary Fund). Breton, Albert and Ronald Wintrobe (1982). The Logic of Bureaucratic Conduct: An Economic Analysis of Competition, Exchange, and Efﬁciency in Private and Public Organizations (Cambridge: Cambridge University Press). Committee on the Financial Aspects of Corporate Governance (1992). Report of the Committee on the Financial Aspects of Corporate Governance (Cadbury Committee Report) (London: Gee). De Gregorio, José, Barry J. Eichengreen, Takatoshi Ito, et al. (1999). ‘An Independent and Accountable IMF’. Centre for Economic Policy Research, Geneva. <www. cepr.org/pubs/books/P130.asp> (August 2006). Fratianni, Michele (2003). ‘The International Monetary Fund and Its Critics’. In M. Fratianni, P. Savona and J. J. Kirton (eds.), Sustaining Global Growth and Development: G7 and IMF Contributions and Challenges, pp. 155–176 (Aldershot: Ashgate). Fratianni, Michele and John C. Pattison (2001a). ‘International Organisations in a World of Regional Trade Agreements: Lessons from Club Theory’. World Economy, vol. 24, no. 3 (March), pp. 333–358. Fratianni, Michele and John C. Pattison (2001b). ‘The Bank for International Settlements: An Assessment of Its Role in International Monetary and Financial Policy Coordination’. Open Economies Review, vol. 12, no. 2, pp. 197–222.

Governance and Conﬂcts of Interest in International Financial Institutions

145

Fratianni, Michele and John C. Pattison (2002a). ‘International Standards, Crisis Management, and Lenders of Last Resort in the International Financial Architecture’. In M. Fratianni, P. Savona and J. J. Kirton (eds.), Governing Global Finance: New Challenges, G7 and IMF Contributions, pp. 143–163 (Aldershot: Ashgate). Fratianni, Michele and John C. Pattison (2002b). ‘International Financial Architecture and International Financial Standards’. Annals of the American Academy of Political and Social Science, vol. 579 (January), pp. 193–199. Frey, Bruno S. (1997). ‘The Public Choice of International Organizations’. In D. C. Mueller (ed.), Perspectives on Public Choice: A Handbook (Cambridge: Cambridge University Press). Frey, Bruno S. and Friedrich Schneider (1986). ‘Competing Models of International Lending Activity’. Journal of Development Economics, vol. 20, no. 2, pp. 225–245. Funabashi, Yoichi (1987). Managing the Dollar: From the Plaza to the Louvre (Washington DC: Institute for International Economics). Graham, Carol and Paul Masson (2002). ‘The IMF’s Dilemma in Argentina: Time for a New Approach to Lending?’ Policy Brief No. 111, November, Washington DC. <www.brookings.edu/comm/policybriefs/pb111.pdf> (August 2006). Grossman, Sanford J. and Oliver D. Hart (1986). ‘The Costs and Beneﬁts of Ownership: A Theory of Vertical and Lateral Integration’. Journal of Political Economy, vol. 94, no. 4, pp. 691–719. Hart, Oliver D. (1995). ‘Corporate Governance: Some Theory and Implications’. Economic Journal, vol. 105, no. 430, pp. 678–689. Hawke, John D. (2002), ‘Preserving the Independence of Bank Supervision’. Proceedings for the 38th Annual Conference on Bank Structure and Competition, ‘Financial Market Behavior and Appropriate Regulation over the Business Cycle’, Chicago. Federal Reserve Bank of Chicago. International Monetary Fund (1999). ‘External Evaluation of IMF Surveillance’. <www.imf.org/external/pubs/ft/extev/surv/index.HTM> (August 2006). International Monetary Fund (2006). ‘IMF Members’ Quotas and Voting Power, and IMF Board of Governors’. 16 August. <www.imf.org/external/np/sec/memdir/ members.htm> (August 2006). Laffont, Jean-Jacques and Jean Tirole (1993). A Theory of Incentives in Procurement and Regulation (Cambridge MA: MIT Press). Meltzer, Allan H. (1999). ‘What’s Wrong with the IMF? What Would Be Better?’ In W. C. Hunter, G. G. Kaufman and T. H. Krueger (eds.), The Asian Financial Crisis: Origins, Implications, and Solutions (Norwell, MA: Kluwer Academic Publishers). Meltzer, Allan H. (2000). ‘Report of the International Financial Institutions Advisory Commission’. United States Congress, Washington DC. <www.house.gov/jec/ imf/meltzer.pdf> (August 2006). Mikesell, Raymond F. (1994). The Bretton Woods Debates: A Memoir (Princeton: International Finance Section, Department of Economics, Princeton University). Momani, Bessma (2002). ‘The Role of the International Monetary Fund in American Foreign Economic Policy Towards Egypt, 1985–1998’. PhD thesis. University of Western Ontario.

146

Corporate, Public and Global Governance: The G8 Contribution

Mussa, Michael (2002). Argentina and the Fund: From Triumph to Tragedy (Washington DC: Institute for International Economics). Plumtre, A. F. W. (1977). Three Decades of Decision: Canada and the World Monetary System, 1944–75 (Toronto: McClelland and Stewart). Solomon, Robert (1977). The International Monetary System, 1945–1976 (New York: Harper & Row). Tarullo, Daniel K. (2001). ‘Rules, Discretion, and Authority in International Financial Reform’. Journal of International Economic Law, vol. 4, no. 4, pp. 613–682. ‘The G7 Blinks over Argentina’. (2003). Financial Times, North American, 20 January, p. 10. Tirole, Jean (1994). ‘The Internal Organization of Government’. Oxford Economic Papers, vol. 46, no. 1, pp. 1–29. Vaubel, Roland (1991). ‘The Political Economy of the IMF: A Public Choice Analysis’. In R. Vaubel and T. D. Willett (eds.), The Political Economy of International Organizations (Boulder: Westview Press). Williamson, John (1977). The Failure of World Monetary Reform, 1971–1974 (New York: New York University Press). Woods, Ngaire (2001). ‘Making the IMF and World Bank More Accountable’. International Affairs, vol. 77, no. 1, pp. 83–100.

PART V The Governance of Globalisation

This page intentionally left blank

Chapter 10

Where Do We Stand with Global Governance? Pierre Jacquet

The issue of global governance has been the subject of international debate for many years. Global governance refers to all organisational aspects of the international system, whether institutional, regulatory, or political. The emergence of this issue can be seen in the convergence of three complementary factors. First, politically, the end of the Cold War has led to a dismantling of the framework for the management of international economic relations. The logical cohesion of the Atlantic Alliance against the communist bloc constituted the political foundation on which multilateralism had been built. Today, this foundation has become much softer, calling for a redeﬁnition of multilateral cooperation and the principles of collective action in a context characterised by the inequitable distribution of power and the American propensity for setting the rules of the game. Second, from an economic perspective, globalisation appears to be a mixed success. The beneﬁts are evident. But so are the failures and risks, with the succession of large-scale ﬁnancial crises and exclusion of a great number of poorer countries from the very dynamic supposedly created by the phenomenon. Third, the organisation of the collective decision-making process within intergovernmental forums and multilateral institutions has been the subject of broad criticism from civil society. It questions the democratic foundation and legitimacy of international action. The end of the Cold War and the rise of globalisation have led many to question the organisation of sound government for the global economy, in the absence of a planetary government. It is to all these concerns that the concept of global governance refers. This chapter ﬁrst assesses the current state of affairs.1 It then reviews the principal sources of dissent that deﬁne the debate. It ends with selected recommendations applicable both to governance in general and to the European approach to this debate. The Current State of Affairs A thorough analysis of the current system of global governance requires an exploration of the three independent criteria of effectiveness, equity, and legitimacy.

1 This text draws signiﬁcantly from ‘Gouvernance Mondiale’, the report edited by Pierre Jacquet, Jean Pisani-Ferry, and Laurence Tubiana (2002).

150

Corporate, Public and Global Governance: The G8 Contribution

Effectiveness The theme of effectiveness refers to the principles of openness and liberalisation that have guided the organisation of the global economy for decades. Economic theory has evolved signiﬁcantly in terms of understanding markets and public policies. But it continues to be associated with simple conclusions on the optimal nature of free trade. These have been succeeded by more detailed analyses that both highlight very clearly the advantages and disadvantages of a free and open market economy and delineate the roles of institutions and policies. To paraphrase Churchill, the market economy is the worst type of economy, except for all the others. The alternatives of a managed economy or a closed economy have, for the most part, proven their ineffectiveness. However, liberalisation has also revealed the defects of markets, notably externality, suboptimal information, existence of public goods, and impure competition. These defects are often associated with signiﬁcant costs, as illustrated abundantly by the multiple ﬁnancial crises that have occurred since the 1980s. These defects are not the sole considerations in judging the success of the market economy, however. The erroneous and ineffective actions of public policies themselves, along with the associated costs, have also been amply documented. The general debate with regard to effectiveness concerns the nature of public policies to be implemented in terms of limiting not market operation but rather the impact of the defects in the market. The neoclassical economic paradigm has been embraced most widely. Rather than questioning the liberalisation and beneﬁts of the market economy, criticism is now largely internal, focussing on the roles of institutions and public policies. Given the nature of globalisation, this debate over the regulation of markets is an international one. However, regulation affects institutions and practices anchored in culture and history. The regulatory modes adopted from one country to another are therefore largely idiosyncratic. One major issue concerning the regulation consequently involves ensuring the consistency of various, occasionally incompatible, regulatory practices in a context in which a focus on effectiveness requires ﬁnding common solutions and limiting the rights of governments to any type of independent orientation in numerous areas, such as ﬁnance. The very dynamic of regulation presupposes a certain level of reﬂection concerning the relationship between private self-regulation, which creates its own jurisprudence but does not resolve all issues and can result in signiﬁcant departures from norms, and public legislative options meant to convey the preferences of the group within a legal and regulatory framework. This issue also raises questions concerning international cooperation. It is no longer a matter of ensuring consistency among various public policies — the traditional domain in policy coordination — but instead of structuring and engendering common collective action resulting in the joint ‘production’ of global public goods, such as environmental protection. Although the difﬁculty of coordinating economic policies has not yet been resolved, globalisation consequently requires still more highly developed joint structures. Furthermore, the complexity of this debate lies neither in the often simplistic messages on the beneﬁts of openness and liberalisation nor in those of opposition to socalled neo-liberal globalisation. The experiences of numerous countries demonstrate

Where Do We Stand with Global Governance?

151

that there is no alternative. But the beneﬁts of globalisation are generated by and due to the quality of local institutions and policies, reform processes, and national governance. In particular, the process of globalisation process leads societies to confront the requirement for change associated by deﬁnition with economic and human adjustment costs and thus with social and political complications regardless of any potential economic beneﬁts. It is time that the message concerning the beneﬁts of globalisation became more sophisticated and better structured to make it more credible and convincing. Equity Issues related to equity fall into two categories. First, all countries are not equal with regard to globalisation. The phenomenon takes the form of a complex network of intertwined and interdependent sub-networks supporting the exchange of goods and services as well as the movement of capital, information, and the breakdown of production processes into potentially delocalisable sub-processes. The global economy is becoming increasingly oriented exclusively toward the countries that participate in such sub-networks. Globalisation is consequently associated with a real risk of exclusion of countries that remain on the sidelines, whether by choice or by fate. The barriers to entry into these sub-networks, which often take the form of peer-to-peer networks, are also signiﬁcant. Any lag in terms of development or innovation and its negative effects become quickly evident and risk becoming selfsustaining, transforming eventually into long-term exclusion. Underdevelopment and poverty subsequently appear in vicious circles that are also self-sustaining. One of the key missions of ofﬁcial development assistance (ODA) is to aid participants in developing means of escaping these poverty traps. Second, equity also concerns balance in the representation of institutional interests and multilateral negotiations. Through both deliberate effort and a focus on effectiveness related to the necessity of limiting the number of players and to the convergence of interests, the governance of institutions and the conduct of negotiations seem to favour wealthier, more powerful nations. Governance is based on the club model: a handful of countries, always the same and always the most highly industrialised, leads the group, sets all agendas, and exercises inordinate inﬂuence on the decision-making process. This model has successfully evolved and has contributed to the emergence of a truly multilateral economy, in part because the political context of the Cold War ensured tight cohesion and in part because international economic interdependence has long been limited to the few most highly developed nations. With globalisation and the development of multilateral institutions, all nations now seek to join this club. The traditional model is thus becoming viewed as increasingly less valid. However, the increase in the number of countries involved effectively renders this leadership model inevitable. It is difﬁcult to imagine direct negotiation among 140 or more nations; some of these nations must come to agreement beforehand and provide the initial momentum. One of the driving factors of globalisation lies in ﬁnding the means to structure international collective action while allowing greater representation of developing countries.

152

Corporate, Public and Global Governance: The G8 Contribution

Legitimacy These considerations lead to the issue of legitimacy. It is central to all of the above, for both effectiveness and equity are conditions of legitimacy. The latter may be founded on the outcomes of international collective action. However, it also relies on the quality of related procedures, which receives even greater attention insofar as consideration of the outcomes gives rise to debate. More equitable representation of the various interests is required ﬁrst. An essential demand is related to democratic control over multilateral institutions, where non-elected authorities are given mandates through public delegation but operate within a framework highly distanced from that of national democracies within which this control is ensured through interaction among public opinion, voters, elected ofﬁcials, the media, lobbies, political parties, and the drafting of legislation. These phenomena are essential to any democratic process. Yet these procedures are necessarily less evident on an international level. The rise of challenges to globalisation is an expression of this demand for democratisation without democracy. Points of Dissent Three primary points of dissent deﬁne the current debate. They are political, ideological, and technical in nature. Political dissent applies to both North-North and North-South relations. Positions are different between the United States — the sole post–Cold War superpower — and other nations. The U.S. has always maintained an ambivalent position with regard to multilateral economic commitments on grounds that are not primarily economic, although the role of internal business lobbyists may appear evident. Its central position with regard to international security turns the economy into a political instrument (see Allard 2002). Insofar as multilateral commitments proceed with a sort of depoliticisation of the economy due to the establishment of stable, systematic rules applicable to all, the U.S. cannot be anything other than selective and reticent. It plays on a range of international actions based upon multilateralism as well as unilateral decisions and bilateral and regional approaches. From this perspective, the topic of global governance, which presupposes a systematic, systemic approach to international problems, receives only a limited response in the United States. Decades of hegemony during which U.S. leadership was the pillar supporting the constitution of an open multilateral economic system have left the country’s political culture with the strong notion that the United States is at the centre of the system, fulﬁlling its responsibilities in exchange for room to manoeuvre owed to it as leader and for its capacity to defend its own economic interests. It is possible that the events of September 11, 2001, have changed this state of affairs. The terrorist attacks demonstrated the vulnerability of the leader and the necessity for it to come up with a cooperative approach to its own security. Over the short term, however, the incumbent Republican administration has embraced multiple opportunities to act alone, including the non-ratiﬁcation of the Kyoto Protocol on Climate Change, unilateral protectionist measures on steel production,

Where Do We Stand with Global Governance?

153

the implementation of aggressive reforms of agricultural policy, and a refusal to recognise the International Criminal Court. Meanwhile, the European Union ﬁnds itself in a very different situation. An association of nations whose political unity remains under development, it manages its transatlantic relationship in a broadly dispersed manner. Multilateralism protects it against the arbitrary nature of unequal political relationships. That said, the EU struggles to act as a leader in multilateral organisations. Its uniﬁed trade policy has become much more streamlined and stronger since the end of the Uruguay Round. But its ongoing protectionist attitude with regard to agriculture affects the credibility of its message and limits it to taking a defensive position in negotiations, since it is rarely keen on committing without reservation to an ambitious approach to liberalisation. This difference in political positioning also suggests that the EU and U.S. will generally pursue different objectives in multilateral negotiations. The EU needs stable, credible rules and is consequently interested in consolidating the multilateral framework and negotiation process, whereas the U.S. orients its strategy toward seeking clear and immediate advantages for its commercial entities, preferring short-term negotiations and speciﬁc objectives. Beyond these transatlantic challenges, the problem of global governance stumbles up against North-South relations. The debate does not merely pit one side against another. Both ‘North’ and ‘South’ are semantic shortcuts that are too restrictive in relation to the diversity of positions, policies, and interests that characterise either of these camps. What contributes nevertheless to fostering a certain level of NorthSouth opposition is the dynamic of inequality based on the abovementioned club model. During the second half of the twentieth century, the global economy took shape around the industrialised countries and a few emerging economies, which collectively gave it its structure. Trade-related matters, for example, are led today by the U.S., while negotiations take place among the U.S., the EU, Japan, and Canada, referred to collectively as the Quadrilateral Trade Ministers (Quad). This model lacks legitimacy when expanded to include more than 140 nations in negotiations while the agenda is set by the richest among them. One of the central problems of global governance consequently concerns representativeness among the various countries, particularly the less advanced. Another aspect of the North-South dilemma is related to the introduction of the poorest nations to international economic activity. This introduction is highly asymmetrical. These nations depend heavily on their exports of raw materials, and yet their terms of trade are unstable and tend to weaken under pressure. Private investment has increased considerably since the 1980s but is only very occasionally directed toward the poorest countries. The least developed countries (LDCs) receive 0.3 percent of the global ﬂow of foreign direct investment (FDI), which is most concentrated at the global level in the oil and mining industries. The poorest are thus excluded. Their problem is not globalisation but rather the fact that they continue to be left out. As such, the sole aspects in terms of governing globalisation likely to be of interest to them concern their introduction to the global ﬂow of trade and investment. In particular, the developing countries as a group, which simply seek free access to the western markets, adopt a highly critical stance with regard to the agricultural or textile-related protectionism of the wealthy nations. This imbalance creates additional

154

Corporate, Public and Global Governance: The G8 Contribution

problems in terms of political economics rather than economics strictly deﬁned. The World Bank estimates that protectionism among the industrialised countries costs the poor countries approximately US$100 billion annually, or more than twice the total amount they receive in ODA. Their deﬁciencies in terms of internal governance (quality of institutions, economic policy, problems with corruption) are even more costly. However, the message on the virtues of globalisation is hardly audible as long as the wealthy nations hesitate to make a more deliberate commitment to supporting a dynamic of openness in their markets, and, more particularly, as long as the issue of agricultural product subsidies remains unresolved. Finally, civil society also contributes to the complexity of North-South dialectics. Many nongovernmental organisations (NGOs) vaunt their solidarity with the developing countries and campaign for increased development for the poorer nations. However, their claims also involve compliance with standards, both social and environmental, that become further barriers for countries whose priority is the development of their production and export sectors. The poor countries thus interpret these measures as reﬂecting the protectionist measures of the wealthy. In fact, many of the poorer nations interpret the protest movement against globalisation as a protectionist alibi among the industrialised countries. The place of civil society in governing globalisation thus becomes another issue in the North-South dynamic. Civil society also reﬂects the ideological dimension of existing dissent, representing a very broad range of civil society organisations and movements. The actual antiglobalisation movement is, in fact, quite limited. Most demonstrators are not opposed to globalisation as such, but rather to the manner in which it is occurring. Many state that they are against ‘neo-liberal globalisation’, that too much attention is being given to markets and corporations, and that governments should be playing a greater role in moving social objectives forward. Jan Aart Scholte (1999) distinguishes among ‘conformists’, ‘reformists’, and ‘radicals’ in this movement. Conformists seek not to oppose but rather to uphold governments and multilateral institutions. Reformists want to transform domestic systems with a view to gaining better control over globalisation. For example, more than 2000 groups are registered with the United Nations Economic and Social Council (ECOSOC). Radicals, meanwhile, oppose the liberal foundation of the international economy and the capitalist system in its entirety. This diversity in approaches is further complicated by diversity in the origins of the various groups and their objectives, which range from defending speciﬁc interests to supporting global causes. Between the failure of negotiations for the Multilateral Agreement on Investment (MAI) and that of the World Trade Organization (WTO) ministerial meeting in Seattle, global social movements have taken a signiﬁcantly radical turn. However, governments and multilateral organisations have offered consideration to certain demands, such as transparency, the involvement of civil society in many debates, and debt-reduction programmes. This evolution, in conjunction with the dramas unfolding at the EU summit in Göteburg, Sweden, and then in the G8 Genoa Summit in 2001, as well as the implications of the events of September 11, has weakened the radical dynamic somewhat. Overall, the globalised market economy continues to be the subject of much criticism, but the radical opposition movement and its widely disparate elements have lacked unity in their approaches and orientations. A dynamic focussing

Where Do We Stand with Global Governance?

155

on the reform of existing structures is now taking form, and civil society plays an active role in this. On a different level, ideological dissent also highlights differences among countries in terms of preferences. For example, most countries in Europe hold the view that market failures must be addressed through public intervention. By contrast, many Americans ﬁnd that failures in terms of public action are at least as harmful and less likely to invoke solutions requiring the intervention of the state. Europe also places greater importance on the social model. The recognition of both social and environmental standards in global governance is thus likely to create opposition and obstruction, as seen in the position adopted by U.S. president George W. Bush and the refusal of the U.S. Congress to ratify the Kyoto Protocol. Another case involves the international monetary system. Debate has been ongoing in the United States on this issue, whereas France and others tend to lean strongly toward active management of exchange rates with a view to maintaining their stability. Dissent also exists in terms of technical orientation. Technical issues relate to challenges in ﬁnding cooperative solutions to problems of global governance in a context in which multiple technical solutions exist, each with its particular advantages and disadvantages. These types of negotiations typically result in deadlock or the implementation of hybrid solutions featuring at least some elements approved by each party or even abandonment to let the system evolve on its own. This is typically the case for the international monetary system, which evolves but is seldom subject to reform. This is also the case with the Kyoto Protocol, which is leading to the implementation of some fairly complex tools, a partial reﬂection of the debate between proponents of a regulatory approach and those of a more market-based approach. Finally, the great debate launched ofﬁcially by Anne Krueger (2001a; 2001b), as ﬁrst deputy managing director of the International Monetary Fund (IMF), on handling the insolvency of countries calls up a number of options, among which it has been difﬁcult to come to agreement. The options included the establishment of an international bankruptcy court, as proposed by Krueger; the inclusion of collective action clauses in contracts, the option preferred by the U.S. Treasury; and the enhancement of the status quo, which would involve managing restructuring debt on a case-by-case basis, the simplest solution to implement since it does not require any type of institutional or legal reform (see Roubini 2002). Guidelines and Options Why is global governance an issue of concern? After all, the international system has already demonstrated great resilience to crises and unexpected developments of every kind. Even the catastrophic events of September 11 highlighted its soundness by default, for despite the extent and human cost of the disasters, the markets did not collapse. In fact, they recovered to their pre-attack levels within a few weeks. The system has also adapted, undergoing discreet reforms. As such, the ﬁnancial crises of the 1990s led to the launch of a programme to reform the international ﬁnancial architecture, which allowed a certain number of advances with regard to monitoring, access to resources during times of crisis for countries that comply with

156

Corporate, Public and Global Governance: The G8 Contribution

good practices, and cooperation in supervision, all without introducing the issue of global governance. Moreover, under pressure from the antiglobalisation movement, multilateral organisations such as the IMF and the World Bank have made signiﬁcant efforts toward transparency and the dissemination of information. One might then ask if it is necessary to devote energy to activist and interventionist goals. Therein lies one of the points of ideological dissent mentioned above. In fact, a laissez-faire approach to this issue is inadequate. The international community must instead be ready at all times, including times of crisis, to offer concrete answers to certain speciﬁc questions: is it the role of the IMF to address poverty? Should the World Bank lend to middle income countries or focus its efforts on the poorest countries? Should the International Development Association (IDA) authorise donations or limit itself to concessionary loans? Should the WTO’s dispute settlement body take environmental and social standards into account in adjudicating on trade conﬂicts? Should these standards be incorporated into the corpus of trade agreements or subject to parallel measures? Multilateral organisations are characterised by the high level of discretion granted to them with regard to coping with unexpected developments and, via their own jurisprudence, advancing the scope of their missions. Only prior reﬂection concerning certain principles permits the generation of coherent responses regardless of the level of urgency while preventing the system from evolving on its own without control over its direction. Moreover, although the current system of governance may be able to survive large-scale crises, it is not constructed to take into account requirements for sustainable development and the provision of global public goods. Inaction, which tends to validate the status quo and encourage its development based on its uncontrolled response to any type of disturbance, is consequently not a solution suited to the issues related to globalisation. Reﬂection on pertinent guidelines is all the more necessary in light of the fact that no known governance model responds to all problems. Thus, although it may be permissible to speak of ‘global government’, this is clearly not yet a reality. On the other hand, viewing the world as merely a loose grouping of nation-states coordinating their own policies as they deem necessary does not take into account issues in terms of global public goods or the necessity of collective action with regard to crisis prevention and response. In practice, the governance structure retained will position itself somewhere between these two models. Additionally, no single governance method holds the solutions to all issues. One method is based on a network of independent authorities to which governments would delegate a technocratic position based upon recognised expertise. This method allows the development of standards and control of their implementation and protects the missions of these authorities from the risk of political interference. However, it does not adequately address concerns regarding democratic legitimacy or the need to control the development of these missions on a political level. The ‘law without state’ method bases the handling of problems on the natural dynamic of jurisprudence. It innovates by turning to existing texts to ﬁnd concrete responses to unforeseen issues, thereby producing a legal system of governance without adoption of any grand design. A legal system for economic globalisation is consequently established that deﬁes intergovernmental negotiation while offering pragmatic, effective responses. However, this method also disregards key issues with

Where Do We Stand with Global Governance?

157

regard to democratic legitimacy. It is not in a position to generate major political orientations. And unlike the domestic legal system of the United States, it lacks the means of coercion required to ensure the credibility of the structure. Finally, the private self-regulation method, which involves the empirical establishment of standards by agreement among all parties (such as the assignment of internet domain names), offers, by deﬁnition, an incomplete solution in terms of public standards while potentially condoning their dependence on voluntary actions by private players. This method offers advantages in terms of ﬂexibility and experimentation but a disadvantage in its incapacity to respond to the requirements of democratic legitimacy. Moreover, compliance with standards established in this manner depends on good faith among all participants, lacks any type of systematic control, and favours the interests of private players over concern for collective interests. In the end, global governance will continue to borrow from these models and methods. It is consequently appropriate to speak of ‘hybrid governance’. This reﬂects the incompleteness of international integration and depends on the participation of all stakeholders — countries, multilateral organisations, private entities, and civil society — that have a role to play while also complying with ﬁve pre-established guidelines. Five Guidelines for Global Governance These ﬁve guidelines are mandate clarity, political support, coordination based on balanced representation, subsidiarity, and solidarity. They address considerations on multiple levels. First, international institutions become legitimate only to the extent of the mandate granted to them. This mandate must therefore be precise, transparent, easily controlled, and specialised with a view to minimising the potential dilution of missions and the exercise of power that is uncontrolled and, in the end, not legitimate. Second, this guideline concerning the specialisation of institutions is meaningful only insofar as effective political control offers adequate support to these missions in facing unforeseen events and evolving with the global economy. The current level of political responsibility is inadequate both on an institution-by-institution basis and in terms of major global adjudication. Civil society must also ﬁnd its place with regard to collective political control. Organisations and movements that respect minimal requirements for transparency must be granted the right to observe and intervene in the practices of multilateral institutions, such as with regard to the procedures of the dispute settlement body of the WTO. Third, the specialisation of institutions is related closely to the coordination of their actions, since the orientations assigned to them will necessarily be interdependent. These orientations must have adequate representation in the global institutional architecture, and horizontal procedures for joint action must be put in place. The ﬁrst task consists of completing this architecture, strengthening certain existing organisations, such as the International Labour Organization (ILO) or the World Health Organization (WHO), and establishing a global environmental organisation — a World Environment Organization (WEO) — to give weight to

158

Corporate, Public and Global Governance: The G8 Contribution

the body of multilateral agreements on the environment and to the actions of the United Nations Environment Programme (UNEP), whose institutional, legal, and ﬁnancial foundations are particularly weak. The second task involves establishing the coordination procedures necessary to manage possible conﬂicts in terms of objectives. The guiding concept in this regard would be balance among the various standards (social, commercial, and environmental). For example, in a situation of trade conﬂict calling environmental concerns into question, the WTO would be bound to consult the WEO, although it might subsequently disregard the counsel of that organisation as long as it could justify its position. This type of organisation would not have the capacity to resolve all conﬂicts and would require recourse to political arbitration, but it would also promote recognition of the existence of different systems of standards while not favouring any one such system over the others. The fourth guideline concerns subsidiarity as developed, notably, by the European Union. Global governance must remain dependent on the quality of governance offered by each participating nation, for one, with the understanding that the region is occasionally the pertinent geographic entity. Some public goods are regional rather than global, but regional cooperation also enables identiﬁcation of problems and methods associated with the management of complex international interdependence and, consequently, guidance of collective action. As such, any regional initiative must not be viewed as an alternative to multilateralism but rather in terms of its support of a multilateral approach. This calls, therefore, for a better deﬁnition of the notion of the regional agreement, the establishment of conditions for acceptance within the framework of multilateral commitments, and the speciﬁcation of the conditions governing regional representation in multilateral organisations. It should also be noted that the implementation of regional approaches and representation would assist in resolving the problem of the above-mentioned ‘club crisis’. The ﬁfth guideline concerns solidarity. The events of September 11 highlight the overwhelming need for this while also making evident the disenchantment and revolt of a sizeable segment of humanity. The need for solidarity involves political and egoistic elements in addition to ethical and altruistic considerations. Every effort must be made to better integrate the countries currently on the sidelines of globalisation and assist them in beneﬁting from the phenomenon. The United Nations International Conference on Financing for Development held in Monterrey, Mexico, in 2002, rightfully drew attention to the importance of sound governance in the poor countries. However, it also highlighted the responsibilities of the developed nations in terms of both ODA and the openness of markets. Europe’s Place in Global Governance? It is in the interest of the EU to move forward with debates and initiatives on the reform of global governance involving a superpower such as the U.S., which resorts with ease to a full range of unilateral action, bilateral pressure, regional agreements, and multilateral negotiations. However, the EU often struggles to make its power felt. The issue of its representation in multilateral entities has been acknowledged. But it is not enough for Europe to have a single voice and recognised power. The

Where Do We Stand with Global Governance?

159

EU also needs to organise its efforts to outline the common message that it seeks to convey on an international level. The role of the EU in global governance depends ﬁrst and foremost on sound European governance. The EU has become a major player with regard to trade issues. But it struggles to express itself in a coherent fashion on international monetary or ﬁnancial issues, the role of the Bretton Woods institutions, ODA, and other issues related to international collective action. In light of the increasing importance of domains other than trade, the European Union needs to broaden its areas of common policy. This is a crucial and controversial topic that brings into play the organisation of European governance on both political and economic levels. It also raises complex political and institutional issues. The determination of the EU to defend a common position in a coherent and strong manner is often expressed in recommendations to unify its foreign representation in multilateral organisations, notably the IMF. This is indeed an inevitable requirement if the EU is to increase its inﬂuence. However, beyond the issues related to weighted voting in achieving this uniﬁcation, the sine qua non condition for moving forward is that the EU successfully deﬁne the message to be conveyed. Perhaps the delegation of a single representative will facilitate the development of the common position that this party will then be responsible for defending. However, thought must be given ﬁrst and without delay to the terms of this development. As a ﬁrst, albeit modest, step, the EU could begin applying its common foreign and security policy (CFSP) to international economic (non–trade-related) issues. According to this policy, the Council of the European Union makes unanimous advance decisions concerning issues subject to common action and, in adopting common action throughout all operational phases, speciﬁes any elements to be decided by a qualiﬁed majority vote. The CFSP is simply a framework of procedures that has never come to take the place of political will. However, it demonstrates its worth nonetheless, supports the notion that foreign policy issues are topics of common interest, and is effective insofar as the member nations wish. It conveys the principle of a temporary, ad hoc sovereign delegation. Issues related to the international economy may be more conducive to cooperation via this political entity than major sensitive issues of foreign policy, with regard to which a country’s ﬁrst response is often to draw back and focus on its national interests. Three principal domains could beneﬁt from the EU deﬁning a common position and making its wishes known. The ﬁrst involves the role and representativeness of the G7/8 in terms of summit dialogue and international leadership. A supreme political authority needs to be established to rule on major global issues, to manage the priorities of international collective action, and to propose new initiatives. That said, beyond the macroeconomic and monetary issues for which it does appear to be the pertinent authority, and should continue as such, the G7/8, as a body representing the most highly industrialised countries, does not have the legitimacy it requires. It should be expanded to take into account the interests of developing countries, whether the most populated, such as China, India, or Brazil, or the poorest, which are all too quickly excluded from international debate. The establishment of a more effectively organised group raises considerable issues with regard to representativeness. Three possible formulas exist. One is a simple ad

160

Corporate, Public and Global Governance: The G8 Contribution

hoc expansion to bring more countries into the group, although representativeness would remain partial and arbitrary. The second is the establishment of constituencies, perhaps regional, that could nominate representatives, in a fashion similar to the IMF’s board of directors. The third is the establishment of a global economic and social security council, as proposed by Jacques Delors, which could include permanent members and non-permanent members serving in rotation, as on the United Nations Security Council (UNSC). The advantage of the last formula is that it avoids the necessity of setting rules for representativeness and weighted voting. The formation of such a council has been proposed: it would be based on the G8 and could be expanded to include the major countries from each continent as well as temporary members from among the poorest countries to give the latter an opportunity to make their opinions heard (Bianco and Sévérino 2001). The second domain involves the global institutional architecture. In this regard, it is the role of the EU to seek balance and to reinforce this architecture and ensure its effectiveness in supporting multilateral entities. This requires a number of tasks. One is ﬁnalising the structures of institutions, such as putting in place an organisation such as the WEO to act as a repository of the main guidelines for organising international collective action on environmental issues. Another is strengthening certain existing institutions, such as the ILO. Yet another is putting procedures in place favouring horizontal joint action to facilitate management of conﬂicts concerning multiple standards simultaneously while ensuring that resolution methods are not subject to any type of systematic bias toward one standard, notably the commercial standard. The third domain involves the introduction of developing countries. The risks associated with the exclusion of the poorest nations, the challenges related to multilateral trade negotiations, and the necessity of concrete interpretation of the Doha commitments, as well as recognition of the events of September 11, call for a particularly vigorous approach toward the developing countries by the EU. The EU’s interests are even greater insofar as the support of these countries will be a determining factor in the establishment of a more effectively regulated global economy. This approach should focus on three primary efforts. First, in keeping with the Monterrey commitments of 2002, member countries should intensify their efforts with regard to ODA and increase the amount of this aid. Second, in association with the United Nations’ World Summit on Sustainable Development (WSSD) held in Johannesburg in 2002, Europe needs to contribute to developing concrete content for the still-obscure concept of sustainable development and specify, in conjunction with the developing countries, the requirements for economic growth in relation to the essential values of social justice and ecological equilibrium. There is room for original initiatives founded on public/private partnerships with the objective of promoting direct investment in developing countries by wealthier nations committed to respecting these values or on the mobilisation of resources allocated to environmental protection with a view to increasing the amount of funding available for projects that comply with criteria for sustainable development. Finally, the EU needs to assist developing countries increase their exports. This ﬁrst requires more timely efforts to achieve openness in its own markets. It is ﬁtting here to commend the ‘everything but arms’ initiative, which commits to this action

Where Do We Stand with Global Governance?

161

for the LDCs. However, the developed countries should accelerate this opening of markets, particularly with regard to agricultural products, and extend the beneﬁts of this to all developing countries. The EU needs to redeﬁne its agricultural policy in terms of its legitimate objectives with regard to income distribution, environmental protection, and land development, while ensuring that the cost of this is not pushed back upon exporters in developing countries and while facing head-on the issue of agricultural subsidies role in lowering international prices. The EU will have a difﬁcult time exercising its inﬂuence if it continues to undermine its message of solidarity by persisting with measures that penalise exports from the poorest countries. The EU must also contribute to strengthening capacity for local production and creating conditions conducive to domestic and direct foreign investment. It should also set an objective in terms of assisting developing countries with bringing their exports up to the often demanding requirements necessary to gain access to developed countries. Priority must be given to these various objectives at this time. References Allard, Patrick (2002). ‘Les États-Unis et la gouvernance mondiale’ (The United States and Global Governance). In Report No. 37, ‘Gouvernance Mondiale’. Conseil d’Analyse Économique, Paris. <www.cae.gouv.fr/rapports/dl/037.zip> (August 2006). Bianco, Jean-Louis and Jean-Michel Sévérino (2001). ‘Un autre monde est possible (Tome II): A déﬁs globaux, politique économique globale’ (Another World is Possible (Book II): Global Challenges, Global Economic Policy). Note Classique No. 23. Fondation Jean Jaures, Paris. Jacquet, Pierre, Jean Pisani-Ferry, and Laurence Tubiana (2002). ‘Les institutions économiques de la mondialisation’ (The Economic Institutions of Globalisation). In Report No. 37, ‘Gouvernance Mondiale’. Conseil d’Analyse Économique, Paris. <www.cae.gouv.fr/rapports/dl/037.zip> (August 2006). Krueger, Anne O. (2001a). ‘A New Approach to Sovereign Debt Restructuring’. Address given at the Indian Council for Research on International Economic Relations, 20 December, Delhi. <www.imf.org/external/np/speeches/2001/122001. htm> (August 2006). Krueger, Anne O. (2001b). ‘International Financial Architecture for 2002: A New Approach to Sovereign Debt Restructuring’. American Enterprise Institute, 26 November, Washington DC. <www.imf.org/external/np/speeches/2001/ 112601.htm> (August 2006). Roubini, Nouriel (2002). ‘Do We Need a New International Bankruptcy Regime? Comments on Bulow, Sachs, and White’. 4 April. <www.rgemonitor.com/ bankreg.doc> (January 2003). Scholte, Jan Aart (1999). ‘Global Civil Society: Changing the World’. CSGR Working Paper No. 31/99. <www2.warwick.ac.uk/fac/soc/csgr/research/ workingpapers/1999/wp3199.pdf> (August 2006).

This page intentionally left blank

Chapter 11

Governing Globalisation: The Social and Sustainability Institutions Pierre Marc Johnson

Globalisation consists of the movement of goods, capital, people, and ideas across international borders at a scale never before experienced in previous waves of such movement during the Renaissance or the days of colonisation. While this process arises autonomously, globalisation is supported by a series of international agreements at the sub-regional, regional, and multilateral levels. Trade agreements are the most potent of these instruments because they are accompanied by accepted and recognised sanctions for potential non-compliance. To create such agreements, nation-states gather, primarily through their specialised bureaucracies, and agree to international trade texts that afﬁrm three things. First, they afﬁrm the intention of the signatories to favour the unimpeded circulation of goods, capital, or people, or some combination of the three. Second, they commit the parties to discipline their domestic legislation in a way consistent with the ﬁrst principle. Third, they specify thousands of exceptions to the ﬁrst and second principles. The process of negotiating such texts, and globalisation more generally, has been accelerating since 1980. Today’s globalisation has arisen in a context where the tendency toward more porous borders is fuelled ideologically by the market economy and scientiﬁcally by the widespread use of technologies allowing for broader reach, efﬁciencies, and a transformation of the economy itself. Beyond the Trade Agenda Beyond the phenomenon of increased trade and a dedication to it by international institutions, corporations, associations, and individuals, other non-trade concerns and perceptions have emerged and have generated activities that reinforce the globalisation process. These non-trade — but trade-related — issues are informed by an accumulation of scientiﬁc data relating to the environment and efﬁcient communication among proponents and advocates of social policies addressing human rights, the role of women in development, children’s rights, and equity issues relative to access to basic resources such as water, shelter, education, and health. The agenda related to environmental concerns is now fairly well developed. It has been the object of considerable international activities since the G7 began meeting in 1975 at Rambouillet, France. It essentially addresses environmental

164

Corporate, Public and Global Governance: The G8 Contribution

degradation, particularly those components that are potentially irreversible. These include climate change, decreased biodiversity (particularly in maritime species), stratospheric ozone depletion, and desertiﬁcation or land degradation in arid, semiarid and sub-humid areas (Johnson et al. 2006; Le Prestre 2002). The second set of non-trade issues relates directly or indirectly to concerns about social equity. Equity is viewed in a context of porous borders and takes into account the dominant role in trade of the richest or most powerful countries. Some of these issues are also presented in a security context. Indeed, concerns about the concentration of poverty and underdevelopment have led some to refer to these issues as almost present potential threats to regional or world stability. The knowledge gap is often presented as a long-term challenge to stability, certainty, and predictability, qualities that are all essential to economic growth in the context of the market economy for the international system. Abrupt ﬁnancial ﬂows that can bring about destabilising situations for countries and sub-regions, such as the Mexican peso crisis and the Asian ﬁnancial crisis in the 1990s, have also brought about reﬂections on the accountability and anonymity of important private actors and a return to regulatory concerns in the ﬁnancial sector. The G8’s Role There is a serious deﬁcit of efﬁcient and predictable governance in this diverse and broad ﬁeld of non-trade issues. Some of this deﬁciency has been addressed by the G7 and subsequently the G8. The G8 purports to address essentially the pillars that sustain globalisation mostly in economic and trade terms. It is, and has always been, concerned and preoccupied with economic growth and the means to ensure it. The agenda of the G7 and eventually the G8 has centred on widespread liberalisation of the economic system and the support of domestic policies meant to bring about a more efﬁcient functioning of the market economy, including a strong bias in favour of privatisation and deregulation in all its manifestations. The period since 1995 has also been marked by important references to technological progress and by an effort to achieve a common understanding of what technological progress means. The G8 has also had to accommodate the post-Soviet era. Adding Russia as a member was a recognition by the G7 of the consequences of the dismantling of the Soviet Union. As Russia had embarked on the uncomfortable, uncertain, and increasingly unpredictable path of struggling with itself to assert itself as a great power heir to the USSR superpower, the G7 made a meaningful place for a Russia with real power among its peers. Yet, in general terms, the non-trade agenda of globalisation is not being dealt with in a systematic fashion by the G8 as an institution nor is it being dealt with by western countries. Most see it as being addressed by the G8 in a way that is neither systematic, consistent, nor containing solid follow-up. A constellation of issues, beyond mere material aspirations, make the world tick. This broader agenda stems from a search for recognition of cultural differences, the striving toward equity manifested by concerns over the sharing of the beneﬁts of growth, and a desire to protect human rights and ensure the long-term security and availability of natural

Governing Globalisation: The Social and Sustainability Institutions

165

resources for the many. Much has given way to international agreements under the United Nations system in particular (Johnson 2001). Even though they form a rich substance of globalisation concerns not related to trade, they are not addressed in a comprehensive systemic and systematic fashion by the G8. To be sure, the ﬁnal communiqués of the G8 do refer to some of these concerns. But these passages often appear to be haphazardly put together. They often convey a sense of last-minute opportunism rather than a thorough deliberation of how to link the various issues that have given way to a series of landmark international conferences and commitments. The Current Challenge There is now a need to link these issues and processes in an integrated and inclusive approach. One core component in this effort is energy policy, as it reﬂects the inclusion or not of the Kyoto Protocol into domestic legislation, commitments, orientations, and policies. A second core component is environmental cooperation. Here the goal should be the complementarity or harmonisation of domestic or regional efforts such as those made under the North American Free Trade Agreement (NAFTA). The value of such regional efforts cannot be overemphasised. In the case of NAFTA, there are two G8 countries establishing environmental cooperation in the context of free trade between each other and with a developing country (Johnson 2002). A third component is development. To reap the beneﬁts of liberalisation, some developing countries might ﬁrst have to receive major investments in such essential ﬁelds as access to water, basic sanitation, and basic health services. All of this might not be attained by simply instilling a market system approach. Successful public policy might demand strategic and ample state intervention. A fourth component is knowledge. More than the distribution of computers must be done if knowledge is to be shared, and if the capacity to learn and be creative is to be accessed by all. Here, public policies and investments must again accompany the laudable efforts made by private corporations and individuals. Civil Society Participation The other major need related to the process of globalisation is broader civil society participation (Kirton and Hajnal 2006). One would not conceive of a major reform in the health sector in any western country without extensive public consultations. Yet the international community often adopts, at the international level, policy without the several constraints that are imposed on public-policy making at the local and national levels. At the international level, the world proceeds without very much transparency and with little effort at systematic consultations with a broad range of societal interests. Some still argue that the only place where the lobby of civil society should be exercised is at the domestic level. But there now needs to be a place for civil society participation at the international level, where more and more of the important decisions are made. Domestic involvement has become insufﬁcient.

166

Corporate, Public and Global Governance: The G8 Contribution

For decades negotiations have taken place that have affected the capacity of nationstates to legislate in a way incompatible with international trade commitments. Since the ill-fated Seattle ministerial meeting of the World Trade Organization (WTO) in 1999, political decision makers have realised that what has been happening in these closed international rooms, which were essentially the realm of technicians, was often disconnected from the debate and search for consensus within and among the governments of western democracies. The train of economic international trade was put on track without very much public debate. Many now understand the importance of reforming the process to allow for more public participation, openness, transparency, and legitimacy. The legitimacy issue is not easy to address, particularly for parliamentary democracies. The fact that a nongovernmental organisation (NGO) calls itself the real representative of civil society does not in itself give it a legitimised public standing. Parliamentarians must thus play a major role if public opinion is to be represented in the process of governing globalisation. The Way Forward The central challenge is to deﬁne a way to bring all these agendas together, and thus have the high-powered trade negotiations link with the broader set of issues. The 2003 Evian Summit, with its participation of the leaders of several signiﬁcant countries from around the world, showed a willingness on the part of G8 members to move toward a more inclusiveness approach. At Evian the assembled leaders looked very much like the G20 ﬁnance ministers and central bank governors from systemically signiﬁcant countries that have met annually since 1999, and very much like what a G20 meeting at the leaders level (L20) would be. Compounding the challenge, however, are the radical changes in U.S. foreign policy since September 11, 2001. U.S. foreign policy is central to meeting the challenge. The U.S. remains the world’s growth engine. It is the centre of ownership of the world’s patents and innovations. It is the world’s single most important military power and intends to stay in that position. And the U.S. as a society bears the basic western values of individual rights, the pursuit of democracy, and the market economy. Long before the Republican administration of George W. Bush was elected, the U.S. had not ratiﬁed the Kyoto Protocol on Climate Change, had not adopted the Convention on Biological Diversity, had not accepted the International Criminal Court, and had expressed reservations about other major treaties considered by the majority of western countries and the rest of the world to be important. For many years the U.S. did not pay its dues at the UN. Before the earth-shaking events of September 11, the collapse of Enron, and the invasion of Iraq in 2003, the U.S. had not exercised leadership in the broader globalisation in multilateral forums. The reasons for this American reluctance are complex. They lie deeply embedded within American domestic politics and institutions. But since September 11 major foreign policy changes have occurred that will have enormous consequences for the way globalisation will proceed. The U.S. has asserted that its military might will not be challenged. It has elaborated a doctrine of pre-emption and followed it in

Governing Globalisation: The Social and Sustainability Institutions

167

Iraq. The U.S. has decided to act without many of its traditional major allies. It has challenged, at the highest levels, the relevance of UN institutions. This is the context within which an inclusiveness agenda must be inserted. Finding the proper route for such an insertion is a difﬁcult task. But it is essential for democracies across the world, including those of the G8, to try. They must consistently approach the international agenda of globalisation with an approach of inclusiveness. References Johnson, Pierre Marc (2001). ‘Creating Sustainable Global Governance’. In J. J. Kirton, J. P. Daniels and A. Freytag (eds.), Guiding Global Order: G8 Governance in the Twenty-First Century, pp. 245–282 (Aldershot: Ashgate). Johnson, Pierre Marc (2002). ‘From Trade Liberalisation to Sustainable Development: The Challenges of Integrated Global Governance’. In J. J. Kirton and V. Maclaren (eds.), Linking Trade, Environment, and Social Cohesion: NAFTA Experiences, Global Challenges, pp. 27–36 (Aldershot: Ashgate). Johnson, Pierre Marc, Karel Mayrand, and Marc Paquin (eds.) (2006). Governing Global Desertiﬁcation: Linking Environmental Degradation, Poverty, and Participation (Aldershot: Ashgate). Kirton, John J. and Peter I. Hajnal (eds.) (2006). Sustainability, Civil Society, and International Governance: Local, North American, and Global Contributions (Aldershot: Ashgate). Le Prestre, Philippe G. (ed.) (2002). Governing Global Biodiversity: The Evolution and Implementation of the Convention on Biological Diversity (Aldershot: Ashgate).

This page intentionally left blank

PART VI The G8 Contribution

This page intentionally left blank

Chapter 12

G8 Process and Performance: Past, Present, and Future Nicholas Bayne

The G8 Birmingham Summit of 1998 introduced some fundamental reforms into the format for this annual event. Russia, which had been involved with the summit process since 1991, was admitted as a member, turning the G7 into the G8. The heads of state and government, who had been ﬂanked by their foreign and ﬁnance ministers since the summits began in 1975, decided to meet on their own. Foreign and ﬁnance ministers would henceforth meet separately, a few days in advance. The economic agenda was kept to just three items — employability, international crime, and the world ﬁnancial system — while the political discussions were likewise cut back. In consequence, the documents issued by the heads at Birmingham were less than half the length of what had emerged from Denver the year before. These reforms had been provoked by the mounting frustration of the heads. After political items had been added to economic subjects in the 1980s, the expansion of both agendas during the 1990s had been stiﬂing the summits. The preparations had become too bureaucratic, the documents far too long, and the heads left with too little opportunity to make any input of their own. The reforms of 1998 were intended to cut the heads loose from this bureaucratisation. The aim was to recreate the original vision of the summits as an opportunity for direct, informal exchanges and as the personal instrument of the heads of government. This chapter looks at how the summits have developed between Birmingham 1998 and Evian 2003, and how it is unfolding in the sixth cycle that began with Kananaskis 2002. It ﬁrst considers some broad consequences for the summit process, and then analyses whether these changes have had a clear impact, for good or ill, on the substantive results from the summit. It concludes with a look at the current sixth cycle, sparked by the shocks of September 11, 2001, and Enron, and starting in 2002. It concludes that recent summits have enhanced the strengths of the G8 process, but have not corrected some prevailing weaknesses. The latest summits have revived the G8’s capacity for political leadership. But they have often failed to overcome domestic resistance to international cooperation. Despite the deep differences over Iraq, Evian showed that collective management between North America, Europe, and Japan remains a shared objective of the G8 members. More broadly, the record of the G7/8 summits shows that they usually change direction every four to six years (Bayne 2000, 4; Bayne 2005). The summits have completed the series started at Birmingham and changed to a new one at Kananaskis

Corporate, Public and Global Governance: The G8 Contribution

172

in 2002. The current series focusses on the ﬁght against terrorism (broadly deﬁned) after September 11 and on issues that combine economic and political elements. Russia has been fully integrated, while non-G8 leaders have begun to participate in the process, a progression that continued at Sea Island in 2004, Gleneagles in 2005, and St. Petersburg with Russia as 2006. The Summit Format The simpliﬁed, ‘heads-only’ format for the summit introduced at Birmingham is now ﬁrmly established. There have been a number of later modiﬁcations built on this foundation. The key features are as follows: •

•

•

Limiting the agenda to three speciﬁc items has usually been respected, but not always. The 2000 Okinawa Summit had three themes — prosperity, peace of mind, and stability — that were so broad as to encompass almost anything. Italy reverted to a more rigorous selection — poverty reduction, conﬂict prevention, and the environment — for Genoa in 2001. For Kananaskis 2002, Canada kept the list to Africa, terrorism, and economic growth. France, however, returned in 2003 to the Japanese practice of choosing all-embracing themes — solidarity, responsibility, security, and democracy. The Americans, British, and Russians reverted back to the more limited agenda in 2004, 2005, and 2006 respectively. A shorter agenda has generally made for shorter documents. But summit communiqués were still full of passages in which the heads endorsed, without discussion, policies on which their governments were already agreed. At Kananaskis, Canadian prime minister and host Jean Chrétien abandoned a communiqué altogether and instead produced a ‘chair’s summary’, just over two pages long, limited explicitly to the issues that the heads had discussed among themselves. This was supported by speciﬁc G8 agreements, notably those on Africa and transport security. At Evian in 2003, French president Jacques Chirac likewise issued a chair’s summary, but the supporting G8 statements were so voluminous that Evian generated more documentation than any previous summit. Sea Island did the same.1 For security reasons, after the violent antiglobalisation riots at the 2001 Genoa Summit and the terrorist attacks on the United States that same year, the Canadian hosts tucked the summit away in a secluded mountain resort in the Rockies. They used this as a means to cut back on the huge delegations still being brought to the summit by the U.S. and Japan, because accommodation at Kananaskis was so limited. They housed all the participants close together, which allowed for spontaneous personal encounters — British prime minister Tony Blair and U.S. president George W. Bush met in the gym at 6:30 one morning. The French broadly continued this model in 2003 (although Evian

1 These and all other G7/8 are accessible at the G8 Information Centre at <www.g8.utoronto.ca>.

G8 Process and Performance: Past, Present and Future

173

was not so remote), as did the Americans at Sea Island in 2004, the British at Gleneagles in 2005, and, to a lesser extent, the Russians at St. Petersburg (where the leaders met at a secluded palace about 45 minutes from the city). When the heads in Birmingham cut loose from their supporting ministers, this clearly changed their relations with their own governmental apparatus. But it has also affected the heads’ dealings with others involved in summitry, both non-G8 governments and non-state actors, such as private ﬁrms and nongovernmental organisations (NGOs). The G7/8 Apparatus While the summit itself has tended to grow simpler, the supporting apparatus has grown more complex. The immediate run-up to Evian, Sea Island, Gleneagles, and St. Petersburg involved, as usual, meetings of foreign and ﬁnance ministers. Summits are also preceded by a growing variety of other G8 ministerial meetings, covering a choice of environment, employment, energy, education, justice and home affairs (focussed on terrorism), and development (an innovation in 2002–2003). All these ministerial groups have their own network of specialist ofﬁcial groups. Originally, these ministerial groups were created to prepare issues for discussion at summit level. But now they enable the heads to delegate issues that would otherwise clutter up their own agenda. Foreign ministers, for example, have taken over almost all conﬂict prevention issues, except for those falling under the Africa Action Plan. The environment and other ministers likewise pursue most issues on their own initiative; the G8 format often enables them to agree common positions that they can pursue in wider international institutions. Only occasionally is the ministers’ work raised to summit level. For example, the heads gave essential authority to the G7 ﬁnance ministers’ work on ﬁnancial architecture in 1998 and 1999. Non-G8 Governments Detaching themselves from their governmental apparatus has given the heads new opportunities to link up with different actors. Since 1998, and especially since the Okinawa Summit of 2000, the heads have been ready to meet the leaders of non-G8 countries and of international institutions far more freely than before. A French proposal in 1989 for the G7 to meet 15 leaders of developing countries was rejected by the others (Attali 1995, 213–217, 277–285). But by 2000 attitudes had changed. Before Okinawa, the Japanese arranged a dinner at which most of the G8 met heads of government representing the G77, the Non-Aligned Movement (NAM), the Organisation for African Unity, and the Association of Southeast Asian Nations (ASEAN), as leading groups of developing countries.2 At Genoa, where the main item was poverty reduction, the Italians organised a working dinner for the G8 2 Japan also wanted to give a special summit brieﬁng to China, India, and South Korea. But this came to nothing, as China declined the invitation. For a full discussion, see John Kirton (2001).

174

Corporate, Public and Global Governance: The G8 Contribution

and representatives of poor countries — Bangladesh, El Salvador, Mali, and four other African states — plus the heads of development institutions. At Kananaskis, the G8 had a joint meeting with the four African leaders most involved in the New Partnership for Africa’s Development (NEPAD) to explain their Africa Action Plan, which was organically linked to it.3 Chirac, as host in 2003, invited to Evian both the Africans most involved in NEPAD and a wider group of inﬂuential developing countries, including for the ﬁrst-time major powers China, India, Brazil, and Mexico. Sea Island included the African leaders once again but added leaders from the Broader Middle East and North Africa, in keeping with its focus on security and terrorism. In 2005, Tony Blair invited the leaders of China, India, Brazil, Mexico, and South Africa — which became known as the ‘Plus Five’ — as well as other African leaders to Gleneagles. Vladimir Putin invited the Plus Five leaders to St. Petersburg in 2006, with the addition of the chair of the Commonwealth of Independent States (CIS). This practice of outreach to leaders of developing countries is thus well established. But the G8 have varied the composition and the criteria for selection every year. This is to prevent them being trapped into a standard pattern, from which it would be hard to escape. While African leaders have been strongly represented ever since Okinawa, it remains open for the G8 to focus on a different continent at future summits. Chirac would have liked to institutionalise the format used in 2003, but the Americans, as the hosts in 2004, insisted on keeping their hands free, as did the British and Russians thereafter. Non-State Actors Through most of the 1990s, the G8 had only formal contacts with private business and with labour, through the Organisation for Economic Co-operation and Development (OECD). They had no links at all with NGOs, although an ‘alternative summit’ was often held at the same time as the G8. The ﬁrst shift came in 1998, when Tony Blair received a delegation from the Jubilee 2000 Campaign, which had staged a very large peaceful demonstration in Birmingham calling for generous debt relief. German chancellor Gerhard Schroeder did the same in Cologne in 1999.4 In 2000, the Japanese sought to integrate both private ﬁrms and NGOs in the preparation and follow-up of several summit items. They held a major conference just before Okinawa on how information technology could be made more accessible to poor countries. Its ﬁndings were incorporated in the summit’s decisions and the task force created by Okinawa — the Digital Opportunity Task Force or Dot Force — included both private ﬁrms and NGOs. The G8 Renewable Energy Task Force created at Okinawa had a similar composition, with a business representative — Mark Moody-Stuart of Shell — as co-chair. A year later, the Global Fund to Fight AIDS, Tuberculosis, and Malaria set up at Genoa also explicitly involved private ﬁrms, medical foundations and charities, and other NGOs in its management. The progressive involvement of non-state actors has been distracted by the 3 A useful account of NEPAD is in Alex De Waal (2002). 4 The G8’s contacts with civil society NGOs are well documented in Hajnal (2001; 2002).

G8 Process and Performance: Past, Present and Future

175

growing violence of antiglobalisation riots, which reached their peak at Genoa, where one protestor was killed. But already the more responsible NGOs, such as ‘Drop the Debt’ and Médecins Sans Frontières, were disassociating themselves from violent and obstructive protest. The terrorist attacks of September 11, 2001, reduced public tolerance of street violence and protests have fallen away since then, although there is still an active anarchistic fringe out to make trouble.5 Meanwhile, the G8 heads continue to look for opportunities to involve business and NGOs in summit preparations and follow-up, even though this may not ﬁt easily with the practice of entrusting follow-up to existing international institutions. Summit Results The changes in the summit format, introduced at Birmingham 1998, have affected the results achieved in the summits in both positive and negative ways. Striking Deals The heads had been concerned that the bureaucratisation of the summit in the 1990s had reduced their capacity to strike deals among themselves. Where agreements were reached at these summits, they depended wholly on the preparatory work. The heads gave their authority to these deals, but added little of their own and seldom achieved agreements that went beyond what was available at lower levels. In 2002, Kananaskis showed strong evidence of the heads’ deal-making capacity. Three of the main agreements reached there were not available at lower levels and needed the intervention of the heads. These were as follows: •

•

The G7 ﬁnance ministers had already discussed the replenishment of the World Bank’s Trust Fund to ﬁnance the heavily indebted poor countries (HIPC) programme of debt relief. But they had failed to ﬁx a ﬁgure. The summit agreed to a joint commitment of up to US$1 billion. The summit agreed a G8 Africa Action Plan to underpin NEPAD. Most of this had been agreed in advance by the G8 Africa group. But there was no agreement on the total aid funds that would support the plan — this was only settled by the heads. They agreed to allocate half of the extra aid funds they had pledged at the UN International Conference on Financing for Development at Monterrey to deserving African countries. This produced, in a rather awkward formula, a headline ﬁgure of US$6 billion.6

5 The French provided facilities for an alternative summit in 2003, at a safe distance, but prevented public demonstrations anywhere near Evian. The pressure therefore fell on the Swiss, who were unprepared for the destructive elements. 6 At the Monterrey conference in March 2002, the U.S. promised to increase its ofﬁcial aid by US$5 billion per year over ﬁve years. The EU undertook to raise the percentage of gross national product (GNP) given as aid by a percentage equal to US$7 billion per year over ﬁve years. This would produce, in total, an extra US$12 billion per year — whereas Japan’s aid is falling.

Corporate, Public and Global Governance: The G8 Contribution

176

•

The agreement to allocate up to US$20 billion to clean up nuclear installations and chemical weapons in the former Soviet Union could only have been reached at the G8 summit. The Europeans, Canadians, and Japanese were insisting on guarantees of support on the ground, which the Russians had refused to give at lower levels. It was only at the summit, when the other heads, especially Bush, leant on Putin, that the deal was struck.

There are other examples of such deals struck at recent summits. For example, the Kosovo agreement endorsed at Cologne 1999 was in doubt until the moment when Russian president Boris Yeltsin gave his personal backing. The work done on Africa stemmed from a joint decision by the heads at Genoa in 2001 — see below. But Kananaskis was unusually rich and suggests that the practice of simpler, less cluttered summits is having a cumulative effect on decision making. Evian, however, was less productive, because the French hosts had allowed the agenda to become overloaded. Innovation The bureaucratisation of the summits of the 1990s had not prevented the emergence of new ideas in this period. The Halifax Summit of 1995 launched reforms to the International Monetary Fund (IMF). Lyon in 1996 introduced the HIPC programme of debt relief. Even so, the summits from Birmingham 1998 onward show a stronger capacity to innovate, with new initiatives not only coming up through the summit preparations but also emerging at the summit itself. Birmingham introduced new ideas on debt relief that were ﬁnally agreed as the Enhanced HIPC Initiative at Cologne in 1999. Although the main document was produced by the ﬁnance ministers, the heads added some new commitments of their own.7 The Okinawa Summit launched the Dot Force, to make information technology more accessible to poor countries — a new and controversial idea initiated by private ﬁrms. Another Okinawa innovation was the Renewable Energy Task Force, based on an idea that had emerged from the NGO community. Okinawa also began a discussion of infectious diseases. The main innovation, however, came at the Genoa Summit, which launched the Global Fund to Fight AIDS, Tuberculosis, and Malaria, with initial ﬁnancing of about US$2 billion. All these innovations, however, came up to the summit through their preparatory work. The heads are now also innovating at the summit itself. For example, although Birmingham transformed G7 into G8, the G7 leaders still held meetings without Russia and there was no provision for Russia itself to host a summit. But the ﬁrst document to issue from the G8 at Kananaskis was a short statement on the ‘historic decision’ to let Russia host the summit of 2006.8 This historic decision was, in fact, 7 Birmingham and Cologne also produced innovative agreements on international ﬁnancial architecture. But all the innovation came from the G7 ﬁnance ministers; the heads only contributed their political authority. 8 The statement gave the precise summit sequence for the rest of the decade, showing that Germany had agreed to wait a year so as to provide space for Russia. German support for full Russian participation and an end to the G7 goes back to Schroeder’s ﬁrst meeting with Putin at Okinawa.

G8 Process and Performance: Past, Present and Future

177

reached among the heads without any advance preparation. The sherpas were as surprised as anyone when it emerged. At Evian, for the ﬁrst time, there was no G7 meeting and there has not been at summits since then. A more far-reaching innovation took place at Genoa. As noted earlier, the G8 met a group of leaders from developing countries over a working dinner during the summit. These included the presidents of South Africa, Nigeria, Senegal, and Algeria, the prime movers of the ‘New African Initiative’ that became NEPAD. The G8 heads were so impressed by their presentation that on the following morning, without any advance preparation, they drew up and issued the Genoa Plan for Africa. This promised to underwrite the African leaders’ programme, if they met their own commitments, and set up the G8 Africa group to prepare detailed proposals. These bore fruit in the Africa Action Plan issued at Kananaskis and the review of implementation endorsed at Evian. Yet innovation at the summit itself, without advance preparation, has deﬁnite limits. The Genoa Plan for Africa contained a general undertaking of support and some procedural decisions, but it was not backed up by precise commitments in aid, trade, or conﬂict prevention. These had to wait for the full action plan a year later. Similarly, the unscripted decision on Russia at Kananaskis covered process only, not substance. The conclusion is that while the heads may make unscripted procedural advances, policy innovation requires being underpinned by detailed preparation. Reconciling Economics and Politics One of the advantages enjoyed by heads of government, as compared to their ministers, is the ability to integrate different aspects of policy. In the earliest days of the summit this capacity was limited to economic issues. But as soon as the summit developed its political agenda in the 1980s, the G7 had the potential to reconcile issues from both economic and foreign policy domains. However, this potential was rarely used. In the early 1990s the economic assistance initiated by the G7 for central and eastern European countries, especially Russia, had a strong political motivation: to entrench democracy and prevent a revival of communism. But usually the summit kept economics and politics apart. This distinction is now being steadily eroded. By Kananaskis 2002, two of the three main summit topics — terrorism and Africa — combined the political and economic strands. This was taken further at Evian 2003. Under terrorism (which includes weapons of mass destruction [WMD]), the key outcome of Kananaskis was the programme to clean up nuclear material and chemical weapons in Russia and the rest of the former Soviet Union. This was clearly meant to reduce the security threat from these items falling into the wrong hands or leading to dangerous pollution. But the obstacles to be overcome were largely economic. The programmes required not only substantial ﬁnancing, but also local measures of legal protection, insurance, and other practical support analogous to other programmes of economic and technical assistance. The G8 summit was able to bring these two strands together. At Evian, the principal innovation was a programme to coordinate assistance to countries in order to build up their capacity to resist or deter terrorist activity. This was another example of economic measures used for political ends.

178

Corporate, Public and Global Governance: The G8 Contribution

In the Africa programme, politics and economics were even more closely enmeshed. There were economic and ethical motives for helping Africa to overcome poverty, misery, and disease and enjoy some of the beneﬁts of globalisation. But there was also a political motive, reinforced by the terrorist attacks of September 11. The misery and disorder prevailing in much of Africa, where there were many failed or failing states, were seen as fertile ground for terrorist movements. In this sense the G8’s Africa Action Plan, linked to NEPAD, aimed to use economic revival to counter adverse political trends and mobilised a combination of economic and political measures for this purpose.9 Alongside much sectoral economic material, the G8 Africa Action Plan had one section dealing with conﬂict resolution in Africa, while a second aimed to help the Africans meet their own objectives for improving their standards of government, democracy, legality, and human rights. Evian recorded further progress on both fronts, as did Gleneagles where Africa was one of the two items chosen as the focus for the agenda. Economically, there were welcome increases in aid from all G8 members. Politically, there was agreement on a joint G8/NEPAD peace support plan, while a growing number of African countries submitted to the NEPAD peer review process. Links between Issues The recent summits thus use the G8’s potential to combine economics and politics in a way seldom realised before. The G8 summit also has the capacity to establish links between topics and to strike cross-issue deals, whereby a concession by one country in one topic is rewarded by a move by a different country in another. Cross-issue deals of this kind are regarded as the highest form of cooperation at the summit. The deal integrating macroeconomic stimulus, energy policy, and trade liberalisation agreed upon at the ﬁrst Bonn Summit of 1978 is the classic case (Putnam and Henning 1989). But there have been very few cases since then. Linkage is often used within a broad subject such as trade or ﬁnancial reform. But cross-issue linkage has become almost unknown at the summit. The Kananaskis Summit provided, however, an excellent example of crossissue linkage, though on a more modest scale than the classic 1978 example. The agreement on cleaning up nuclear material and chemical weapons in Russia was a very high priority for Bush. The U.S. Congress had already earmarked funds up to US$10 billion for this purpose; Bush was looking for a matching commitment from the rest of the G7. On the other hand, the Americans were reluctant to set a ﬁgure for the replenishment of the HIPC Initiative and had prevented agreement on this among G7 ﬁnance ministers. They feared that this commitment would run into difﬁculties in Congress. The Europeans and others strongly backed the HIPC replenishment, as essential to ﬁnance the programme. They were also convinced of the need to clean up installations in Russia and had already committed substantial sums for this purpose. Many of these funds remained unspent, however, because of Russian obstruction 9 For a comparison of NEPAD and the Africa Action Plan with the Marshall Plan, see Nicholas Bayne (2003).

G8 Process and Performance: Past, Present and Future

179

on the ground. This problem was removed by insisting on ﬁrm guarantees from Putin, so that the rest of the G7 were ready for the sort of agreement the Americans wanted. They hesitated, however, to make a ﬁrm commitment of US$10 billion. They were won over when Bush agreed to the US$1 billion ﬁgure for the HIPC replenishment. He felt able to do this because he believed congressional satisfaction at the US$20 billion clean-up agreement would offset their reservations about the US$1 billion for the HIPC. Such cross-issue deals are not likely to occur at every summit. There did not appear to be any at Evian. But the record of Kananaskis shows that the G8, in its new format, is able to identify and strike them. Implementation of Commitments So far, the record of the summits since Birmingham 1998 shows an improvement in the G8’s performance. But there are also areas where the summits do not seem to be doing better and may be doing worse. One of the longstanding complaints against the summits has been that they make commitments that they do not fulﬁl. The summit relies on others for follow-up, especially international institutions such as the IMF or the World Trade Organization (WTO). But in the past G7 members have been guilty of preventing such institutions from carrying out promises that the heads had made at the summit. The most blatant example was when the heads, at their summits of 1990, 1991, and 1992, undertook to complete the Uruguay Round of trade negotiations by the end of the year, only for this aim to be frustrated by their own disputes over agriculture. (A similar pledge made in 1993, however, was successfully honoured; see Croome 1995.) The new summit format could affect this problem in both positive and negative ways. Because the heads would be more personally involved in their decisions, this should improve the pattern of implementation. But because they were more detached from the G8 apparatus, that could make follow-up even more unreliable. The initial ﬁndings suggest that implementation, on balance, has gotten worse, just as the capacity for innovation has expanded. The G8 produces more ideas, but does not follow them through. There are a number of examples from recent summits: •

•

Okinawa, as noted, launched the Renewable Energy Task Force, which produced an agreed report for Genoa, based on input from G8 and non-G8 countries, international institutions, private ﬁrms, and NGOs. But at the summit the U.S. and Canada refused to accept its ﬁndings and the report was shelved.10 Genoa set up a task force, of ofﬁcials only, to recommend how to support primary education in developing countries. It worked closely with the World Bank, which identiﬁed a group of countries best able to absorb outside

10 Agreement on a target for renewable energy also eluded the World Summit on Sustainable Development (WSSD) at Johannesburg in September 2002. The opposition was led by the U.S. and the countries of the Organization of the Petroleum Exporting Countries (OPEC).

180

•

•

Corporate, Public and Global Governance: The G8 Contribution

assistance. But while the Kananaskis Summit backed the recommendations on what poor countries should do to deserve assistance, it made only a weak commitment to provide such assistance, and did not endorse the World Bank’s list of deserving countries. The Global Fund, launched at Genoa, got under way very fast, as intended. By March 2002 it was ready to allocate funds to projects, with demand far exceeding the supply. But it rapidly committed its initial funds over three to ﬁve years ahead and soon needed replenishment. The G8 members did nothing at Kananaskis, neither putting in more themselves nor getting other governments or private donors to contribute. The Africa Action Plan promised new action on polio, rather than AIDS. Early in 2003 the U.S. committed new money to ﬁght AIDS, including an extra US$1 billion for the Global Fund. But this depended on other subscribers putting up a matching $2 billion. Although Evian raised the idea of another US$1 billion from the EU collectively, there was no ﬁrm agreement. During the 1990s the summit had shown considerable tenacity in its pursuit of debt relief for poor countries, being ready to improve the terms on offer when they were not producing the desired results. The 1999 Cologne Summit produced a further substantial improvement — the Enhanced HIPC Initiative — which encouraged the Jubilee 2000 campaigners. But since then the terms of the programme have remained largely unchanged, even though Kananaskis acted to ensure it could be ﬁnanced. The G8 did not respond to the new debt relief ideas in NEPAD. But development NGOs argue that the enhanced HIPC programme was not working as generously as intended and the conditions facing poor debtor countries had deteriorated.

These perceived failures to live up to G8 promises have damaged the summit’s reputation. All these cases relate to development issues that are closely followed by civil society organisations. These NGOs are discouraged by what they see as the summit’s failure to live up to its pledges. They have become increasingly critical of the G8, even though the violent riots have declined since September 11 (see Zupi 2001). This criticism extends to the G8’s work on Africa. The NGO community was already sceptical, if not hostile, toward NEPAD, which they saw as imposed from the top by African leaders without proper consultation.11 NGOs have criticised the G8’s Africa Action Plan as being inadequate to the problems, short on precise commitments, and unlikely to be implemented, on the G8’s previous record. Reconciling Domestic and International Pressures Another advantage identiﬁed for the heads of government is their ability to reconcile divergent domestic and international pressures on policy making. G8 summits serve to remind the heads of their international responsibilities, so they do not become too inward looking. They also provide opportunities for them to use international 11 NEPAD is thus seen as continuing ‘neo-patrimonial’ politics in Africa, as analysed by Patrick Chabal (2002).

G8 Process and Performance: Past, Present and Future

181

arguments to resolve domestic problems. This ability resides in the heads themselves, by virtue of their political authority and legitimacy, rather than in their bureaucracies. Thus, cutting the heads loose from their supporting apparatus should improve their ability to act in this way. But while there are some signs of this at recent summits, the negative cases seem to outweigh them. The linked agreements reached at Kananaskis on replenishing the HIPC Initiative and cleaning up WMD, as already discussed, provide a positive example. They enabled Bush to overcome a potential problem in Congress by showing welcome progress elsewhere. G7 and G8 discussion of trade access for least developed countries (LDCs), from the Lyon Summit of 1996 onward, helped to overcome domestic resistance to such measures in the U.S., the EU, and Canada, although the process was very slow.12 But there are too many occasions where domestic resistance has frustrated or undermined agreement among the G8 and the heads have not overcome this. For example: •

•

•

At Birmingham and Cologne, the G7 members failed to resolve their differences over the agenda for a new trade round. The Americans listened too much to lobbying from labour and environmental groups, the Europeans and Japanese to their farmers. The result was the ﬁasco at the WTO ministerial meeting in Seattle in 1999. The Renewable Energy Task Force created at Okinawa failed because of pressure from the energy industries in the U.S. and Canada. This is only one example of a generally poor record on environmental issues at recent summits prior to Gleneagles in 2005.13 North American attitudes on climate change, biodiversity, and food safety, as on renewable energy, are driven by producer interests. In Europe, on the other hand, policy is shaped by pressure from consumers and environmental lobbies. Genoa produced a strong G8 consensus on international trade liberalisation, which facilitated the successful launch of the WTO’s Doha Development Agenda in 2001, two years after the failure of Seattle. But this was undermined by the later actions of G8 members. The U.S. administration secured negotiating authority from Congress, but only after imposing new tariffs on steel imports and enacting a farm bill that would greatly expand the subsidies paid to farmers. The EU disagreed on the reform of its Common Agricultural Policy (CAP), preventing the WTO from deciding on how to negotiate on agriculture in the Doha negotiations. At Kananaskis, the G8 leaders were unable to offer any improvement in access for agricultural imports, although the Africans pressed for it. They did no better at Evian in satisfying the

12 The U.S. measures are in the Africa Growth and Opportunity Act, ﬁnally adopted early in 2000. The EU provided duty and quota-free access to products from LDCs from March 2000, with transitions for rice, sugar, and bananas. Canada’s measures were announced in June 2002, just after Kananaskis. They matched the EU package, but did not cover eggs, poultry, and dairy products. 13 Evian did manage to agree documents on science for sustainable development and on the marine environment, but neither was very substantial.

182

Corporate, Public and Global Governance: The G8 Contribution

Africans or resolving contentious issues in the Uruguay Round, nor was much progress made on trade at summits since. In these cases, rather than the G8 heads personally leading the search for ways around the domestic resistance, they often turned out to be themselves the source of the obstacles. U.S. president Bill Clinton contributed to the collapse of the Seattle meeting by incautious remarks to a journalist during his visit there. Bush took the initiative to denounce the Kyoto Protocol and backed the farm subsidies demanded by Congress against the advice of his secretary for agriculture. In Europe, Chirac struck a deal with Schroeder that might have delayed CAP reform and forced it through at the European Council in October 2002, out-ﬂanking Blair in the process. Although EU agriculture ministers ﬁnally reached an agreement in late June 2003, it was clear that Chirac himself was holding this up until the last minute (see Buck and Williams 2003; ‘France’s Indefensible Support for the CAP’ 2003). G8 leaders show a disturbing readiness, on both sides of the Atlantic, to give in to special domestic interests instead of building coalitions to overcome them. Public Presentation Initially the summits were treated with respect by the media. But as their communiqués got longer and they became occasions for public display, the media became cynical. The G8 heads still attracted journalists in huge numbers, especially from their national media. But the media showed little interest in the issues under discussion at the summit and were easily distracted. It was hoped that the reforms brought in at Birmingham, by making the summits more focussed and less ceremonial, with shorter documents, would improve the summits’ public image. This has not happened. If anything, the media take the summits less seriously than before. Recent summits have not been successful in getting the media to focus on the issues. In 2000, the Japanese had used the summit as the excuse for massive public works in western Japan and Okinawa itself. The press portrayed this as huge sums being squandered on a summit intended to address the problems of poor countries. A year later the riots in the streets of Genoa monopolised media attention. The press largely ignored the content of the summit in their speculation about whether the summit could go on meeting in such conditions. In 2002, the Canadian hosts were obliged to take exceptional measures to protect the security of the G8 heads. While the heads themselves seemed pleased to have this greater privacy, the media were naturally unhappy at being stuck in Calgary 100 kilometres away from the summit. At Evian 2003, the media were at least closer to the action. But they were much more interested in the personal chemistry between Bush and Chirac than in the content of the summit. At Sea Island 2004, the media were in Savannah, as far away from the leaders as they had been in 2002. At Gleneagles in 2005 and at St. Petersburg in 2006, however, the international media centre was on the same grounds as the site where the leaders met but the media were often distracted by other world events: the London bombings, which took place on the second day of the Gleneagles Summit, and the outbreak of war in Lebanon, which took place just before the St. Petersburg Summit.

G8 Process and Performance: Past, Present and Future

183

The underlying problem is that the G8 has not given enough attention to the way it presents its work to the public. There is still too little joint brieﬁng. Most heads give separate brieﬁngs that are angled to their national press and play up their own achievements rather than the common agreements. Journalists seeking an overall assessment turn to the NGOs present, who have often prepared brieﬁng material that is more accessible than the summit documents. Since these NGOs are increasingly critical of the summits, this is reﬂected in the media treatment. The G8 members, both at the summit and elsewhere, have still not developed a set of persuasive arguments that spell out the beneﬁts of globalisation in the face of popular uncertainty and opposition. Conclusions The reform of the summit format, begun at Birmingham in 1998, has continued to evolve. Private ﬁrms and NGOs are now involved in the summit process. There is outreach to non-G8 countries, although this has not yet found a settled pattern. Summit performance has improved in some respects: the heads are reaching agreements not available at lower levels; they show greater innovative powers; they are using the summit’s potential to integrate economics and politics; and they are exploiting linkage between issues. But other developments are less positive: the heads are less good at implementation than at innovation; too often they allow domestic obstacles to prevent or undermine agreement; the summit’s public image has not improved. In short, these summits are likely to reinforce the views of those who regard the G8 as useful, which include the heads themselves. But they will deepen the scepticism of the G8’s critics, which include most NGOs and the media. The summit originally had three objectives, which remain valid: • • •

To use the political leadership of the heads to overcome bureaucratic deadlock; To reconcile the divergent domestic and international pressures generated by growing interdependence — now renamed globalisation; To develop collective management among North America, Europe, and Japan, to replace original U.S. hegemony.14

It is possible to offer an assessment of the performance of the summits from Birmingham onward against these original objectives. The ﬁrst objective was losing ground to the bureaucratisation of the summit process. The recent reforms have sharpened the capacity of the G8 to exert leadership and have clearly improved the G8’s performance under this heading. The summit is now better at innovating and at striking deals. It is reviving techniques where the summit’s potential has not been used for many years. It has developed new capacities for combining economic and political factors.

14 For the original deﬁnition of these objectives, see Robert Putnam and Nicholas Bayne (1987, 14–20).

184

Corporate, Public and Global Governance: The G8 Contribution

In the second objective of reconciling domestic and international pressures there have been some successes. But overall the performance has been much less satisfactory. The G8 heads are able to make progress with new issues, such as infectious diseases or materials of mass destruction. But their initial ideas are not always followed through. They have greater problems with mainstream economic issues such as trade, agriculture, and the environment. The G8 members, both individually and collectively, need to revive their ability to reconcile domestic and international pressures. The third objective, of collective management, made advances between Birmingham and Kananaskis, if slowly. The summit process is now not dependent on U.S. initiative, as it was in the past. The Europeans collectively have become just as active, while both Japan and Canada made good use of their time as hosts. The focus on Africa, like the pressure for debt relief, has been led by the Europeans and Canada. The U.S. is an active participant, but is not the initiator.15 The change from Clinton to Bush did not lead to a setback to cooperative G8 action at Genoa and Kananaskis. Bush clearly did better than Clinton on international trade, where the U.S. has taken back the lead from the EU, although the gap widened on the environment. But between Kananaskis and Evian, U.S. policy on Iraq raised serious questions over how far the United States was prepared to take part in a system of collective management. While its initial approach to the international ﬁght against terrorism, after September 11, was strongly multilateral, on Iraq the United States seemed determined to play matters its own way. This produced a sharp division between the G8 members. America’s initiative to use force against Iraq was supported by the UK (which supplied troops) and by Italy and Japan, also members of the coalition against Iraq. But the war was strongly opposed by France, Germany, and Russia, with Canada also in this group. Evian proved a timely opportunity for personal contact between the leaders, so as to rebuild cooperation after the divisions on Iraq and to provide evidence of how the G8 can work together again. The summit had been successfully used for this purpose in the past. The 1986 Tokyo Summit rebuilt common positions among the G7 on terrorism, after the Europeans (except Britain) had opposed the American bombing of Libya. The 1999 Cologne Summit mended the breach between Russia and the G7 over Kosovo. By using the Evian Summit to restore cooperation among themselves, the G8 members showed that collective management is still a shared objective. If Evian had broken up without a reconciliation, the role of the summit would have been in question. The outcome of Evian meant that the Iraq war could be regarded as one episode in the long-term ﬁght against terrorism inaugurated after September 11, 2001. As a result, there are grounds for thinking that the summit series started at Birmingham has already come to an end and that a new series started with Kananaskis. The new series is still concerned with managing globalisation. But it has a more precise priority in mobilising the ﬁght against terrorism, in its widest deﬁnition. This 15 Europe is also the leader on the global environment, but here the U.S. resistance is much stronger.

G8 Process and Performance: Past, Present and Future

185

embraces action against poverty, as in Africa, to prevent the emergence of failed states, as well as measures against WMD. The new series also concentrates on issues where economic and political factors are closely combined. Its format is marked by a further advance by Russia, which hosted its ﬁrst summit in 2006, while G7 meetings at summit level have lapsed. Non-G8 leaders are invited to the summit not just as guests, but as participants. All these factors suggest that the summit is now pointing in a different direction. References Attali, Jacques (1995). Verbatim III (Paris: Fayard). Bayne, Nicholas (2000). Hanging in There: The G7 and G8 Summit in Maturity and Renewal (Aldershot: Ashgate). Bayne, Nicholas (2003). ‘The New Partnership for Africa’s Development and the G8’s Africa Action Plan: A Marshall Plan for Africa?’ In M. Fratianni, P. Savona and J. J. Kirton (eds.), Sustaining Global Growth and Development: G7 and IMF Governance, pp. 227–130 (Aldershot: Ashgate). Bayne, Nicholas (2005). Staying Together: The G8 Summit Confronts the 21st Century (Aldershot: Ashgate). Buck, Tobias and Frances Williams (2003). ‘EU Farm Reform Lifts Trade Hopes’. Financial Times, 27 June, p. 1. Chabal, Patrick (2002). ‘The Quest for Good Government and Development in Africa: Is NEPAD the Answer’. International Affairs, vol. 78, no. 3, pp. 447–462. Croome, John (1995). Reshaping the World Trading System: A History of the Uruguay Round (Geneva: World Trade Organization). De Waal, Alex (2002). ‘What’s New in the “New Partnership for Africa’s Development”?’ International Affairs, vol. 78, no. 3, pp. 463–476. ‘France’s Indefensible Support for the CAP’ (2003). Economist, 21 June, p. 45. Hajnal, Peter I. (2001). ‘Civil Society at the 2001 Genoa G8 Summit’. Behind the Headlines, Toronto. Hajnal, Peter I. (2002). ‘Partners or Adversaries? The G7/8 Encounters Civil Society’. In J. J. Kirton and J. Takase (eds.), New Directions in Global Political Governance: The G8 and International Order in the Twenty-First Century, pp. 191–208 (Aldershot: Ashgate). Kirton, John J. (2001). ‘The G7/8 and China: Toward a Closer Association’. In J. J. Kirton, J. P. Daniels and A. Freytag (eds.), Guiding Global Order: G8 Governance in the Twenty-First Century (Aldershot: Ashgate). Putnam, Robert and Nicholas Bayne (1987). Hanging Together: Co-operation and Conﬂict in the Seven-Power Summit, 2nd edn (London: Sage Publications). Putnam, Robert and C. Randall Henning (1989). ‘The Bonn Summit of 1978: A Case Study in Coordination. In R. N. Cooper (ed.), Can Nations Agree (Washington DC: Brookings Institution). Zupi, Marco (2001). ‘The Genoa G8 Summit: Great Expectations, Disappointing Results’. International Spectator, vol. 36, no. 3, p. 59.

This page intentionally left blank

Chapter 13

Commitments Kept or Promises Broken? Assessing G8 Compliance at Kananaskis 2002 Ella Kokotsis

Since its inception more than 30 years ago, the G7 and now G8 summit has become a focal point of contemporary scholarly and policy criticism as sceptics have increasingly questioned the necessity, efﬁcacy, and utility of this annual event. Much of this pessimism has centred on the apparent failure of the G8 to address and deliver on its core task of managing the global ﬁnancial system along with its new priorities brought on by the forces of globalisation. These include corporate governance, employment, terrorism, conﬂict prevention, crime, and health. Performance at the annual summits has been judged according to the G8’s ability to foster policy coordination and cooperation and manage crises. Nicholas Bayne (1999, 21) has argued that although the summits have not necessarily been good at forecasting trends, their greatest contribution has been their ‘sustained and iterative treatment of recurrent problems, which reappear time and time again’. An even stronger claim comes from John Kirton (1999, 46), who argues that the summit has enjoyed an ‘enduring and enlarging success in forwarding, against formidable resistance, the new core values of inclusive democracy, ecologically sustainable market economies, and international openness and engagement’ and thus is emerging as an effective centre of global governance. At a minimum, the summit performs a crucial role at the highest political level when the world’s leading democratic heads of state and government converge once a year, meet face to face, set policy directions, identify priority issues, and establish the principles that guide their treatment. Making collective decisions on issues of global priority through the pronouncement of speciﬁc, identiﬁable, measurable, and future-oriented commitments is a cornerstone of their decision-making performance. They thereby make solid concessions and adjustments that extend beyond mere ‘mutual enlightenment’. Yet are these commitments kept? Assessing the degree of compliance with the priority commitments allows the world to understand whether the institutional constraints imposed on the G8 leaders force them to keep their collective promises by implementing their commitments by the time of the subsequent summit, when expectations shift and new commitments can be made.1 Only by examining the extent 1 This process employs a methodology for identifying commitments and assessing compliance developed by Ella Kokotsis (1999), with data produced by the University of

188

Corporate, Public and Global Governance: The G8 Contribution

to which leaders agree to keep their commitments can analysts and policy makers understand why and how the G8 works to make and keep promises that count. The compliance record of the G8 members with their priority commitments at the 2002 Kananaskis Summit provides a critical test case of the G8’s compliance record overall. Kananaskis was the start of the current summit series. It was the ﬁrst to take place in the immediate aftermath of the terrorist attacks in North America on September 11, 2001, and the corporate governance crises that came with the collapse of Enron and WorldCom. And while both shocks propelled a strong surge of unity when the leaders met on the mountaintop, the divisions that arose over the invasion of Iraq in the ﬁrst half of 2003 soon produced the strongest assault on the G8’s capacity for effective collective action that the summit had confronted in the two decades before. As the following analysis shows, the G8 was able to transcend this severe challenge and produce a positive compliance record, even though the warbred intra-G8 divisions clearly took their toll. The 2002 Kananaskis Commitment Record Despite being the shortest summit in recent G8 history, the 2002 summit proved to be the most productive ever when judged by the number of commitments achieved.2 Taken together, the ﬁve documents issued at Kananaskis produced a total of 189 commitments: 132 on the G8 Africa Action Plan, 23 on the Global Partnership against Weapons and Materials of Mass Destruction, 19 on transport security, 12 in the Chair’s Statement, and three on the Enhanced HIPC Initiative for heavily indebted poor countries. Among the earlier summits, only the 2000 Okinawa Summit came close to this number, where the leaders issued 169 commitments across ﬁve ﬁnal communiqués.3 Kananaskis devoted 70 percent of its commitments to Africa-related issues. The leaders focussed their attention almost exclusively on Africa on their second day. Here, African leaders were themselves brought into the discussions for the ﬁrst time as full partners. As a direct follow-up to their 2001 Genoa Plan for Africa and as a collective response to the African leaders’ New Plan for Africa’s Development (NEPAD), the leaders at Kananaskis launched the G8 Africa Action Plan. This plan intended to build on NEPAD’s principles of peace, order, and good governance as a fundamental basis for strong economic and social development. African leaders themselves noted their optimism about the G8 plan. They stated that it marked a

Toronto G8 Research Group. The commitment and compliance methodology is available at the G8 Information Centre at <www.g8.utoronto.ca/compliance>. 2 Commitments are deﬁned as discrete, speciﬁc, publicly expressed, collectively agreed statements of intent. In other words, they are promises by summit members that they will take future action to move toward, meet, or adjust an identiﬁed target. 3 The 169 commitments for the 2000 Okinawa Summit were distributed throughout ﬁve leaders-issued documents; 97 in the G8 communiqué; 54 in the Okinawa Charter on Global Information Society; 12 in the G7 communiqué; and 6 in the G8 Statement on Regional Issues. The ﬁfth document issued on the Korean Peninsula contained no actual commitments.

Commitments Kept or Promises Broken?

189

historic turning point as it focussed primarily on the importance of building strong and enduring democratic principles as a basis for stable, long-term development. It is possible to assess the 2002 Kananaskis Summit as more productive than earlier G7/8 summits by comparing those issue areas where commitment data exist. Although the leaders at Okinawa in 2000 had made 169 commitments, these were broadly distributed across 19 different issue areas including development, health, biotechnology, food safety, ageing, debt relief, crime, terrorism, arms control, and the environment. Although the greatest number of commitments came in the area of digital technology, a signiﬁcant number of commitments were also reached in the areas of development, health (particularly infectious diseases), crime, and drugs. The large number of broadly diffused commitments suggests a highly ambitious, yet diffuse summit agenda. By contrast, the 2001 Genoa Summit had produced only 58 commitments in its ﬁve documents.4 These commitments were somewhat more concentrated than those at Okinawa, spanning 14 separate issue areas. Moreover, of the 58 commitments, 34 (or 59 percent of the total) were contained in the Strategic Approach to Poverty Reduction. The further nine commitments devoted to global environmental issues gave Genoa an overwhelming focus on sustainable development. Neither Okinawa nor Genoa deal seriously with corporate or related issues of public governance in this decisional domain. Compared to Okinawa and Genoa however, Kananaskis produced a greater volume of commitments, across a much more narrowly concentrated array. Its 189 commitments spanned only seven issue areas, and 136 (or 72 percent of the total) dealt with African development. Adding to these were six commitments on development and debt relief in general, bringing the Africa-related total to 142 commitments or 75 percent overall. Promises Kept? The 2002 Kananaskis Compliance Record An assessment of the delivery of these commitments in the post-Kananaskis period begins with an examination of ﬁrst-order compliance — are the actions by member governments intended to encourage the domestic implementation of a collectively agreed-upon summit commitment? The analytical framework developed by Ella Kokotsis (1999) provides a methodology for systematically assessing ﬁrst-order compliance. Compliance here is assessed by examining whether the domestic political processes in the G8 conform to the direction of the commitments reached in the leaders’ statements and communiqués. Domestic political processes in this case centre on the introduction of new executive and legislative actions designed to modify existing instruments within the executive and legislative branch, in order to accommodate these commitments. Compliance is assessed not in regard to all 189 commitments, but on the eleven speciﬁc promises deemed to be the most

4 The commitments break down as follows: 43 in the G8 communiqué, ten in the G7 statement, 2 in the G8 Statement on Regional Issues, 2 in the Genoa Plan for Africa, and 1 in the Statement by the G8 (Death in Genoa).

Corporate, Public and Global Governance: The G8 Contribution

190

important priority commitments in each of the major issue areas addressed in the Kananaskis documents (see Appendix 13.1). By these standards, the 2002 Kananaskis Summit produced the second lowest overall compliance scores since at least 1996 in Lyon (see Table 13.1). In the year after Kananaskis, the G8 member countries complied with their priority commitments only 35 percent of the time. This average comes from a scale on which 100 percent equals perfect compliance and –100 percent reﬂects a failure to comply with their priority commitments or when the members did the opposite to what they had committed. As Table 13.1 indicates, the 35 percent overall Kananaskis compliance score is considerably less than the 53 percent for Genoa 2001, the record high of 80 percent for Okinawa 2000, 39 percent for Cologne 1999, and 45 percent for Birmingham 1998. Kananaskis exceeds the 27 percent for Denver 1997 but is less than the 36 percent for Lyon 1996. Compliance scores in the six years prior to Kananaskis averaged 47 percent, placing Kananaskis behind the overall six-year average. Its score also compares poorly with the average score of 43 percent for the U.S. and Canada on all their commitments in the areas of sustainable development and assistance to Russia from 1988 to 1995 (Kokotsis 1999). The Kananaskis score is, however, somewhat more favourable than the 32 percent calculated by George von Furstenberg and Joseph Daniels (1992) for the economic and energy commitments from 1975 to 1988. The 2002 scores reveal that compliance varied widely by issue area. Commitments on combating terrorism were particularly high as the summit members turned in a perfect score. The environment also fared well, with the leaders complying with Table 13.1

G8 compliance assessments by country, 1996–2002a 1998–99d 1999–2000e 2000–01f 2001–02g Cologne Okinawa Genoa Birmingham

2002–03h Kananaskis

1996–97b Lyon

1997–98c Denver

+0.26

0

+0.25

+0.34

+0.92

+0.69

+.64

+0.42

+0.34

+0.6

+0.5

+0.67

+0.35

+0.36

+0.42

+0.50

+0.75

+0.5

+1.0

+0.69

+0.55

Germany

+0.58

+0.17

+0.25

+0.17

+1.0

+0.59

+.18

Japan

+0.21

+0.50

+0.2

+0.67

+0.82

+0.44

+.18

Italy

+0.16

+0.50

+0.67

+0.34

+0.89

+0.57

–0.11

Canada

+0.47

+0.17

+0.5

+0.67

+0.83

+0.82

+.82

Russia

N/A

0

+0.34

+0.17

+0.14

+0.11

0.00

European Union

N/A

N/A

N/A

+0.17

N/A

N/A

N/A

Average

+0.36

+0.27

+0.45

+0.39

+0.80

+0.53

+0.33

France United States United Kingdom

Notes: aScores are an equally weighted average of a country’s compliance to commitments made at the summit. bApplies to 19 priority issues. cApplies to 6 priority issues. dApplies to 7 priority issues. eApplies to 6 priority issues. fApplies to 12 priority issues. gApplies to 9 priority issues. hApplies to 13 priority issues.

Commitments Kept or Promises Broken?

191

their education and water and sustainable agriculture commitments at 63 percent and 57 percent respectively. Commitments on ofﬁcial development assistance (ODA) and conﬂict prevention turned in higher than average scores, with 50 percent and 38 percent respectively. Issues scoring lower than the overall compliance average included good governance in Africa, development (with regard to debt relief for the HIPCs), arms control and disarmament, and transnational crime and corruption, all at 25 percent each. Agricultural trade and economic growth scored only 13 percent and peer review in Africa scored 0 percent. The poorest performance came on free trade where the leaders either failed to comply or did the opposite of what they committed to –13 percent of the time. The issue area that encompasses corporate governance was thus the one where the G8 members delivered most poorly, even in the immediate wake of the sharp economic turndown bred by September 11 and the Enron and WorldCom scandals. Nor did they do much better with the campaign for better corporate and public governance on a more global scale. Here their priority commitment was on transnational crime and corruption, speciﬁcally ‘working to secure the early establishment of a UN Convention on Corruption, and the early ratiﬁcation of the UN Convention Against Transnational Organized Crime; we support the Transitional Authority of Afghanistan’ (G8 2002a). Yet here they produced only an overall compliance performance of +25. Only current and incoming hosts Canada and France fully complied with this tightly September 11–linked pledge. Compliance also varied widely by country. The highest complying member was the host, Canada, with an overall score of 85 percent. The momentum of a summit that was highly successful on other performance dimensions may have helped propel Canada as host to a strong compliance effort as well. France, the incoming host for 2003, stood next as a strong complier, with 62 percent, which tied it with Britain for second place. The United States, which was to host in 2004, scored slightly better than average with a score of 38 percent. It was followed by Germany at 15 percent, and Japan and Russia at 8 percent each. The poorest performer was Italy, with a score of –9 percent. In many ways, these compliance scores broadly correspond to the compliance patterns across summit members during the fourth summit cycle from 1996 to 2001, and during the earlier cycles dating back to 1975. There are, however, some notable differences. During these earlier periods, Britain and Canada usually ranked at or near the top, with France at or near the bottom and Germany, Japan, Italy, and the U.S. in the middle range. The 2003 ﬁndings conﬁrm this high compliance by a now ﬁrst-placed Canada, but show France moving into second place and tying the score of a Britain in second place. The United States, a traditionally low complier, moved ahead of both Germany and Japan. And although Russia performed poorly (as it had from Birmingham 1997 onward), it ranked ahead of Italy which scored in the negative range.5 Whatever its failures, Kananaskis did bring France and the United States together up into the relatively high-performing range. 5 Lower consecutive compliance scores for Russia are consistent with Russia’s overall lack of domestic capacity for implementing G8 commitments, coupled with the slow socialisation process of its new summit membership.

192

Corporate, Public and Global Governance: The G8 Contribution

These ﬁndings reﬂect a pattern found in earlier compliance studies conducted by John Kirton and his colleagues, which suggests that ‘In the year leading up to a country hosting a G7/8 summit, that country will comply with its commitments from the previous year’s summit at a higher level than it did in the immediately earlier year. The prospective new host thus appears to take its G7/8 responsibility seriously and make the G7/8 system appear credible, by leading through example, with a higher-than-usual compliance record’ (G8 Research Group 2001, 5). This was clearly the case in the post-Okinawa period, when Italy, as the host for the 2001 Genoa Summit, scored higher than usual on compliance. This pattern again repeated after Genoa, when Canada, next in the hosting rotation, ranked ﬁrst among its peers, surpassing its next closest members by a signiﬁcant 13 percent margin. This pattern arose yet again after Kananaskis, when France, a traditionally lower complying scoring country but now next in the hosting rotation turned in a score of 64 percent — second only to Canada. Explaining Compliance What this Kananaskis compliance pattern further suggests is that the ‘hosting effect’ may have a broader temporal transnational force. It not only propels both the outgoing host (Canada) and the incoming host (France) to a stronger than usual compliance record. It also exerts an even longer shadow of the institutional future by inspiring the host two years after (the U.S.) to an abnormally high compliance effort as well. The Kananaskis compliance pattern also suggests that the hosting effect may have a limited two-year shelf life, as the sense of institutional responsibility ﬂowing from serving as G8 hosts in 2000 and 2001 had clearly worn off for Japan and Italy respectively during the year following Kananaskis. However, with these temporal limitations, there does appear to be evidence of the autonomous causal force of a distinctively international institutional variable — summit hosting — even for a soft law body devoid of a formal charter, secretariat, guaranteed budget or any of mainline precision, obligation, and delegation that legalisation is thought to bring. Beyond this extended hosting effect, the Kananaskis compliance patterns offer evidence to answer the hitherto elusive question of what causes member countries to comply with their commitments within the G7/8. Most generally, scholars, commentators, and practitioners alike have long charged that even when summits produce far-reaching, timely, and ambitious collective commitments, they lack the ability to comply with their commitments in the post-summit year. Even when they do keep their word, they are unable to impose their collective will on largely autonomous societal actors within their own democratic polities. Summit success, if measured in part or most importantly by compliance with commitments reached, is therefore ephemeral at best and does not endure in the following months. The contrary is suggested by the compliance assessments conducted annually by the University of Toronto G8 Research Group since the 1996 Lyon Summit, by Kokotsis (1999) for the 1988–1995 period, and by von Furstenberg and Daniels (1992) for the 1975–1989 period. These ﬁndings show that the G8 has been a productive forum for enabling the leaders of the most powerful countries in the

Commitments Kept or Promises Broken?

193

world to not only generate ambitious and timely commitments across a wide span of international issue areas, but also to achieve a substantial level of compliance with their agreed-upon commitments. What accounts for this compliance, both generally and in the case of the Kananaskis Summit in 2002? There is no single accepted explanation for summit compliance.6 Yet a number of important conjectures have dominated the debate. Several conclusions can be drawn from the Kananaskis evidence about the four key causal variables that stand at the centre of this causes-of-summit-compliance debate. First, compliance patterns over time suggest that the international level dimension of political control — that is, the direct involvement of popularly elected democratic leaders and not lower-level ofﬁcials — means that the heads of state and government themselves have personally discussed and altered the agreements and have forged a consensus on how these agreements will be implemented domestically. They thus both personally understand and have a sense of ownership about them. At the domestic level, deep public support for summit leaders in general and for the particular issues at the core of the commitments they embrace grants them an enormous amount of political capital or freedom to implement their summit commitments back home. Also important are leaders less afﬂicted by electoral uncertainties (such as U.S. president Bill Clinton, British prime minister Tony Blair, Canadian prime minister Jean Chrétien, French president Jacques Chirac, and German chancellor Gerhard Schroeder, in general, between 1994 and 2003), leaders’ longer experience and greater skill at the summit table, leaders’ socialisation, and balanced expectations. Here, Kananaskis ﬁgured well for it featured a group of domestically popular and politically secure leaders who collectively approved the Kananaskis framework of building on the African focus from Genoa the year before. With re-election victories by Chirac and Schroeder as well as mid-term election victories for Bush’s Republicans — and the domestic political success brought on by the easy classic military victory of the U.S.-led war in Iraq in 2003 — most G8 leaders were showing strength in their electoral mandates. Two notable exceptions were Japanese prime minister Junichiro Koizumi and Canadian prime minister Jean Chrétien — the former had plunged from historic highs following the Genoa Summit, and the latter was approaching the time when he had announced he would step down. Despite the so-called ‘lame duck’ effect of an outgoing leader, however, Chrétien delivered impressive post-Kananaskis results. Without question, Kananaskis was his legacy summit, as he forged a consensus between the G8 leaders on the importance 6 In Chapter 14, Kirton expands the compliance explanatory basis by drawing on the impact of summit intervulnerability. He argues that although the largest and most closed members of the G7/8 — such as the U.S. — may initially resist compliance measures, a number of factors cause them to change policy, increase their levels of cooperation, and thus create enhanced conditions for increased compliance patterns over time. These factors include the growth of smaller members in terms of their relative capabilities, the entry of new members who become active and create new coalition opportunities, and the effect of the vulnerability increase across the . These vulnerabilities lead larger countries to join the smaller ones in cooperation and compliance in an evolving recognition of the centrality of the G7/8 institution in their foreign and domestic policy.

194

Corporate, Public and Global Governance: The G8 Contribution

and urgency of the African and NEPAD initiatives. Chrétien not only delivered exceptional results in terms of securing a record-high number of commitments on these issues (72 percent of the total), but he also delivered the highest compliance scores of the G8 (85 percent). Second, summits succeed most when they beneﬁt from limited membership or constricted participation. In such cases, the leaders have the opportunity to offer their views and insights within an atmosphere of free and open dialogue. Their face-to-face encounters offer them a unique opportunity to listen and understand the position and preferences of their colleagues, exchange competing views and perspectives, and ultimately forge a consensus and broker comprehensive deals on timely international issues and concerns. In this regard, the leaders meeting at Kananaskis faced a very formidable challenge. They extended their invitation to include a very diverse group of individuals including the European Commission leaders, the Spanish prime minister (as president of the European Council), United Nations secretary general Koﬁ Annan, and leaders from four African nations.7 This diverse group of 16 leaders met, for the ﬁrst time in summit history, not on the margins of the summit process, but as full summit partners. Several hours on the second day of a two-day summit were devoted exclusively to this group, as leaders both within the G8 and the African group assembled to forge a consensus on the Africa Action Plan as well as various aspects of the NEPAD initiative. When summits have confronted expanded membership in the past, overall compliance levels have been negatively affected. Beginning in 1997 with Russia’s addition to the G7, compliance scores for the next three years were consistently lower than average for the 1997–2002 period, as Russia’s individual compliance scores across all issue areas were at or near the bottom. And although Kananaskis had the advantage of bringing together virtually the same group of leaders to discuss the same issues from the Genoa Summit the year before, the African group at Kananaskis met for the ﬁrst time within the summit framework rather than on the margins as in the year before. The complexities of coming to a cooperative consensus on the key African development themes among such a diffuse group of participants did, however, result in the generation of an unprecedented number of commitments. Yet in the year after Kananaskis, the compliance results on the African commitments were mixed at best. As shown in Table 13.2, the highest compliance came in the area of education (63 percent), followed by ODA (50 percent), good governance and HIPCs (25 percent), and peer review (0 percent).8 The prospect for durable downstream 7 The leaders from the four African nations were presidents Olusegun Obasanjo of Nigeria, Abdoulaye Wade of Senegal, Thabo Mbeki of South Africa, and Abdelaziz Bouteﬂika of Algeria. 8 In the area of education, where the leaders committed themselves to supporting the development and implementation of national education plans that reﬂect the Dakar goals of ‘Education for All’, ﬁve of the eight summit members worked to fulﬁl their African education commitments: Canada, Britain, France, Japan, and the United States. Germany delivered a score of zero (work in progress) while Russia scored in the negative range. Information for Italy was not available at the time of this study. In the area of African good governance, the

Table 13.2

2002 Kananaskis compliance scores France

Germany

Italy

Japan

Russia

United Kingdom

United States

Averagea

Africa: Good Governance

+1

+1

0

–1

0

–1

+1

+1

+0.25

Africa: Peer Review

0

0

0

0

0

0

0

0

0.00

Africa: Education

+1

+1

0

N/Ab

+1

–1

+1

+1

+0.63

Development: HIPC

+1

0

0

0

–1

+1

+1

0

+0.25

Development: ODA

+1

+1

0

0

0

0

+1

+1

+0.50

Arms Control and Disarmament

0

0

0

0

0

+1

0

+1

+0.25

Conﬂict Prevention

+1

+1

+1

–1

–1

0

+1

+1

+0.38

Economic Growth: Agricultural Trade

+1

0

0

0

0

0

0

0

+0.13

Economic Growth: Free Trade

+1

0

0

0

–1

0

0

–1

-0.13

Environment: Sustainable Agriculture

+1

+1

0

0

+1

N/Ab

+1

0

+0.57

+1

0

+1

0

+0.57

b

Environment: Water

+1

+1

0

N/A

Fighting Terrorism

+1

+1

+1

+1

+1

+1

+1

+1

+1.00

Transnational Crime and Corruption

+1

+1

0

0

0

0

0

0

+0.25

+0.85

+0.62

+0.15

–0.09

+0.08

+0.08

+0.62

+0.38

+0.35

Final Country Averagec

195

Notes: aThe average of all countries’ compliance scores per issue. bNo information available on a country’s compliance score; no compliance score is awarded and the country is excluded from the average for that issue. cThe average of all issue area compliance scores per country.

Commitments Kept or Promises Broken?

Canada

196

Corporate, Public and Global Governance: The G8 Contribution

delivery through compliance by both the G8 (and its African partners) was thus mixed. Enlarged participation, although constructive in generating commitments, was less successful in delivering compliance with commitments that count. A third condition of a summit’s success lies in the ability of the leaders ‘to accurately sense that they collectively can and must act against acute global challenges, and that each can and should play an equal part in producing an effective collective response’ (Kirton and Kokotsis 2002, 6). Nowhere were these successes more apparent than in the ﬁght against terrorism, where the Kananaskis leaders produced a perfect performance. In committing to ‘sustained and comprehensive actions to deny support or sanctuary to terrorists, to bring terrorists to justice, and to reduce the threat of terrorist attacks’ (G8 2002b), all summit members moved very aggressively to support their commitments in this area by complying fully with their collectively agreed-upon promises. Not only did the September 11 attacks precipitate a more comprehensive and sustained effort on behalf of the G8 to deal with the ﬁght against terrorism, subsequent global terrorist attacks, notably in Bali, Moscow, Saudi Arabia, Morocco, Madrid, and London, accentuated the acute sense of vulnerability felt not only by Americans, but by all summit countries whose citizens similarly fell victim to the lethal reaches of global terrorist networks. As a result, this collective shock-induced sense of vulnerability surfaced as a key driving force inducing the summit to comply with its priority commitments, as leaders recognized a concerted response is critical if effective change is to result. Finally, as the summit process has become increasingly more institutionalised, the capacity of the summit members to comply with their priority commitments has similarly increased. The number, depth, and breadth of G7/8 ministerials changes positively with compliance over time. The growth of ministerial and ofﬁcial institutions takes the pressure off leaders by allowing others to prepare and implement the G7/8 consensus and commitments within their areas of expertise. It thereby frees leaders to focus on only the most difﬁcult and timely issues. With the shift in the summit ministerial process in 1998 (which meant standalone meetings for the foreign and ﬁnance ministers immediately before the summit), the leaders had the opportunity for the ﬁrst time to concentrate on a very speciﬁc set of thematic issues. This generated a stronger depth of understanding and personal commitment to their agreements that carried through into more effective compliance the following year. In the case of Kananaskis, the effects of enhanced summit institutionalisation brought on by the creation of a new development ministers forum in September 2002 meant that these ministers had, for the ﬁrst time, a separate process through which to forge concrete action on their development commitments. By meeting face-to-face leaders committed themselves to expanding capacity-building programmes related to political governance focussing speciﬁcally on improving administrative and civil services, strengthening parliamentary oversight, promoting participatory decision making and judicial reform. Here Canada, Britain, France, and the U.S. scored in the positive range, while Germany and Japan came in at zero. Both Italy and Russia scored negatively overall. In the area of African peer review, the leaders scored a zero (work in progress) as concerns by African countries loomed over the threat to sovereignty of unwanted domestic intrusions.

Commitments Kept or Promises Broken?

197

to discuss their priority development commitments from Kananaskis, the ministers were able to exchange perspectives and take stock on how these commitments were being implemented domestically. Pleased with the outcome of their ﬁrst meeting in Windsor, Ontario, on 26–27 September 2002, the ministers reconvened in Paris on 24 April 2002 to continue the discussion on implementing their priority development commitments. Not surprisingly, therefore, on the issue of African education and ODA, two themes repeated at both the Windsor and Paris ministerials, the summit produced some of the highest compliance results (63 percent and 50 percent respectively). A further institutional variable helps account for the high compliance levels in the areas of terrorism and the environment. On the issue of terrorism in particular, where there was the greatest resolve by the leaders to comply with their Kananaskis commitment, there was a well-established foreign ministers process that created a regularised communications process between the ministers on issues of foreign affairs and international security. Such frequent and high-level ministerial interaction has been associated with a well-developed coordination follow-through mechanism, as better liaison between foreign ministries increases expectations that compliance will occur. Similarly, an annual G8 environment ministerial process began at the time of the World Summit on Sustainable Development (WSSD) at Rio in 1992; there have meetings of environment ministers most years since, sometimes combined with energy ministers as in 2005. These ministerials have proceeded to endorse international environmental conventions, stressing the importance of their continued domestic implementation. Moreover, departments such as foreign affairs and the environment provide more effective domestic mechanisms for countries to coordinate collective action on key implementation issues. These institutional structures, which possess adequate resources and capacity to fulﬁl their commitments, are thus more likely to facilitate greater systemic compliance. By contrast, in issue areas with agencies or departments that are bureaucratically less capable of dealing with the domestic implementation of international commitments, or where institutional links do not exist between national governmental departments and corresponding G8 ministerial processes (such as in agriculture), there are lower compliance scores. Conclusion For the 2003 Evian G8 Summit, French president Jacques Chirac in many ways adopted the Kananaskis model of a more informal gathering of the heads of state and government in a rather secluded resort setting, removed from the frenzy of the international media corps and focussed on the key themes slated to emerge — African development; corporate responsibility in its ﬁnancial, social, ethical, and environmental dimensions; terrorism and global security; and democracy, through increased dialogue with civil society. As the dean of the summit process, Canadian prime minister Jean Chrétien was fortunate to have Chirac as his successor host, for Chirac was also a veteran summiteer and a man who shared many of Chrétien’s personal and political convictions, particularly on Africa. But as Chirac’s summit agenda became increasingly more diffuse in the months leading up to Evian, and as his invitation list continued to grow, with representatives coming from more

198

Corporate, Public and Global Governance: The G8 Contribution

countries than at any other prior summit, the prospects for high commitment and compliance decreased. However productive Evian proved to be in its commitments on corporate, public, and related aspects of global governance, its accomplishments might not be translated into subsequent real action in the following years, even as the divisions over the 2003 invasion of Iraq healed. References Bayne, Nicholas (1999). ‘Continuity and Leadership in an Age of Globalisation’. In M. R. Hodges, J. J. Kirton and J. P. Daniels (eds.), The G8’s Role in the New Millennium, pp. 21–44 (Aldershot: Ashgate). G8 (2002a). ‘G8 Africa Action Plan’. 27 June, Kananaskis. <www.g8.utoronto.ca/ summit/2002kananaskis/africaplan.html> (August 2006). G8 (2002b). ‘The Kananaskis Summit Chair’s Summary’. 27 June, Kananaskis. <www.g8.utoronto.ca/summit/2002kananaskis/summary.html> (August 2006). G8 Research Group (2001). ‘The 2001 G8 Compliance Report’. <www.g8.utoronto. ca/evaluations/2001compliance> (August 2006). Kirton, John J. (1999). ‘Explaining G8 Effectiveness’. In J. J. Kirton and J. P. Daniels (eds.), The G8’s Role in the New Millennium, pp. 45–68 (Aldershot: Ashgate). Kirton, John J. and Ella Kokotsis (2002). ‘The G8 from Genoa to Kananaskis and Beyond: Performance, Prospects, and Potential’. Paper prepared for a conference on ‘Sustaining Global Growth: Prosperity, Security, and Development Challenges for the Kananaskis G8’ 19 June, Calgary. <www.g8.utoronto.ca/conferences/2002/ calgary/prospects_kirton.pdf> (August 2006). Kokotsis, Eleanore (1999). Keeping International Commitments: Compliance, Credibility, and the G7, 1988–1995 (New York: Garland). von Furstenberg, George M. and Joseph P. Daniels (1992). ‘Economic Summit Declarations, 1975–1989: Examining the Written Record of International Cooperation’. Princeton Studies in International Finance No. 72, Princeton.

Commitments Kept or Promises Broken?

199

Appendix 13.1: The Kananaskis Priority Commitments 1. Africa: Good Governance ‘Expanding capacity-building programmes related to political governance in Africa focusing on the NEPAD priority areas of: improving administrative and civil services, strengthening parliamentary oversight, promoting participatory decisionmaking, and judicial reform’ (Africa Action Plan). 2. Africa: Peer Review ‘The NEPAD maintains that “development is impossible in the absence of true democracy, respect for human rights, peace and good governance”. We agree, and it has been our experience that reliable institutions and governance are a precondition for long-term or large-scale private investment. The task of strengthening institutions and governance is thus both urgent and of paramount importance, and for this reason, we commit to… • •

• •

‘Supporting African peer-review arrangements — including by: ‘Encouraging cooperation with respect to peer-review practices, modalities and experiences between the Organisation for Economic Co-operation and Development (OECD) and the ECA, including the participation by the ECA [United Nations Economic Commission for Africa] in the OECD Development Assistance Committee (DAC) peer-review process where the countries under review so agree; ‘Encouraging, where appropriate, substantive information sharing between Africa and its partners with respect to items under peer-review; and, ‘Supporting regional organizations in developing tools to facilitate peerreview processes’ (Africa Action Plan).

3. Africa: Education ‘Supporting the development and implementation by African countries of national educational plans that reﬂect the Dakar goals on Education for All, and encouraging support for those plans — particularly universal primary education — by the international community as an integral part of the national development strategies’ (Africa Action Plan). 4. Arms Control and Disarmament ‘The G8 calls on all countries to join them in commitment to the following six principles to prevent terrorists or those that harbour them from acquiring or developing nuclear, chemical, radiological and biological weapons; missiles; and related materials, equipment and technology’ (Statement by the Leaders: The G8 Global Partnership against the Spread of Weapons and Materials of Mass Destruction).

200

Corporate, Public and Global Governance: The G8 Contribution

5. Conﬂict Prevention ‘Training African peace support forces including through the development of regional centres of excellence for military and civilian aspects of conﬂict prevention and peace support, such as the Koﬁ Annan International Peace Training Centre’ (Africa Action Plan). 6. Economic Growth: Agricultural Trade ‘Without prejudging the outcome of the negotiations, applying our Doha commitment to comprehensive negotiations on agriculture aimed at substantial improvements in market access, reductions of all forms of export subsidies with a view to their being phased out, and substantial reductions in trade-distorting domestic support’ (Africa Action Plan). 7. Economic Growth: Free Trade ‘Working toward the objective of duty-free and quota-free access for all products originating from the Least Developed Countries (LDCs), including African LDCs, and, to this end, each examining how to facilitate the fuller and more effective use of existing market access arrangements’ (Africa Action Plan). 8. Environment: Sustainable Agriculture ‘Supporting the development and the responsible use of tried and tested new technology, including biotechnology, in a safe manner and adapted to the African context, to increase crop production while protecting the environment through decreased usage of fragile land, water and agricultural chemicals’ (Africa Action Plan) 9. Environment: Water ‘Supporting African efforts to promote the productive and environmentally sustainable development of water resources’ (Africa Action Plan). 10. Fight against Terrorism ‘We are committed to sustained and comprehensive actions to deny support or sanctuary to terrorists, to bring terrorists to justice, and to reduce the threat of terrorist attacks’ (Chair’s Statement). 11. Transnational Crime: Corruption ‘Working to secure the early establishment of a UN Convention on Corruption, and the early ratiﬁcation of the UN Convention Against Transnational Organized Crime’ (Africa Action Plan).

Chapter 14

Coming Together: The Evian Legacy John J. Kirton1 and Victoria V. Panova

The 29th annual G7/8 Summit, in Evian, France, on 1–3 June 2003, was the G8’s ﬁrst major, comprehensive introduction to the challenges of generating good corporate, public, and global governance for the world. It was not a promising moment to begin such a new, formidable, and multidimensional task, for the Evian Summit had promised to be an unusually suspense-ﬁlled event. The suspense had come from doubts about whether U.S. president George W. Bush would even attend, how long he would stay, whether he and French host Jacques Chirac would reinforce or repair their recent United Nations–bred divisions over Iraq, whether larger lead-up European Union summits in St. Petersburg with the ‘East’ and Evian with the ‘South’ would energise or exhaust the G8, and whether continental European protestors would again consume the summit in violence, destruction, and death. Yet underneath the suspense lay an unusually large potential. It had come from Evian’s launch of a new summit cycle with Russia now as a full member, its unprecedented outreach to countries around the world, its need to advance the ambitious action plans launched at Kananaskis the previous year, and the new challenges of building a democratic Iraq, containing North Korea as well as India and Pakistan, mitigating the severe acute respiratory syndrome (SARS) epidemic, and bringing better corporate governance, economic growth, and clean water to the world. Seldom before had a G8 so divided confronted an opportunity so large. In the end, the Evian Summit delivered both the drama of potential failure and a dénouement of solid success. The climax came just before noon on the second day of the summit, when Bush and Chirac, at their bilateral, showed they could work together, through smiles, embraces, and the use of ﬁrst names. With the divisive legacy of the Iraq war thus purged, the G8 summit released a torrent of 14 documents, painstakingly prepared in advance by ofﬁcials and containing a record 206 concrete commitments — the highest in summit history to that time. Yet there were few that bore the leaders’ personal stamp or were backed by the ﬁnancial resources, mandates, and follow-up mechanisms that G8 leaders alone can provide. The reconciliation had been left too late in the day to do more, especially as George Bush left Evian a day early for the Middle East.

1 John Kirton gratefully acknowledges the ﬁnancial support of the Social Sciences and Humanities Research Council of Canada, through its grant to the ‘After Anarchy’ project and to the ‘EnviReform’ project at the University of Toronto, and the research assistance of Ella Kokotsis, Nikolai Roudev, Michael Malleson, and Antara Haldar.

202

Corporate, Public and Global Governance: The G8 Contribution

The Evian Summit was thus one of coming together, rather than forging ahead in historic ways. Yet in avoiding disaster, overcoming divisions, and delivering a plethora of new promises, it showed that the G8 leaders of the twenty-ﬁrst century knew they could no longer afford the spectacular failures that their G7 predecessors had produced, across a Franco-American divide, in the quarter century before. The G8 thus proved its resilience. It thereby provided the United States with a potent platform on which to pioneer a new layer of global governance as President Bush took the helm for the G8 summit at Sea Island, Georgia, in June 2004. In doing so, Evian laid the foundation for the G8’s growing involvement in generating good corporate, public, and global governance for the new century. Providing Evian with its unusual drama were two international institutional forces: the deep divisions among G8 members produced by the United Nations Security Council (UNSC) over Iraq and a France that, as host of the 2003 G8 summit, was slow to produce a streamlined, focussed agenda and process. Propelling Evian toward its solid performance, however, were the common vulnerabilities among G8 members bred by a precarious, globalising international system and the institutional momentum from the highly successful Kananaskis Summit in 2002. These forces were reinforced, as the concert equality model of G8 performance suggests, by the strong equalisation of capabilities among G8 members, the efﬁcient treatment of the unprecedented number and range of invited participants, and the highly experienced and politically secure G8 leaders there (Kirton 1989, 1993; Kirton and Kokotsis 2003). Evian thus proved that G8 summit success depends not only on the attributes of the institution and its members each year, but also on international institutional forces in the larger environment as well. In particular, Evian provided a dramatic test of the respective international institutional power of two competing systems of global governance — the United Nations of 1945 and its impulse for the major powers falling apart over old principles, and the G8 of 1975 with its instinct for a coming together of the major democratic powers to pioneer new principles for the 21st-century world. At Evian, it was the G8 that prevailed and thus brought its two co-founders, France and the United States, together again. The Global Context: Common Challenge and Vulnerability As a conservatively oriented concert, the G8 performs best when it confronts a widespread array of serious, interrelated challenges, closely related to the core democratic values of the institution and its members and led by readily recognisable ‘second shocks’ that expose the vulnerabilities and threaten the core interests and common democratic values that all G8 members share (Kirton 1989, 1993).2 As the ﬁrst half of 2003 unfolded, the world offered more than enough such demands to call forth 2 The initial formulation speciﬁed a seminal shock followed by a subsequent shock of highly similar character at a usually lengthy interval, as with the two oil shocks of 1973 and 1979. In a globalising era, there have been more subsequent or successive shocks, in some cases even becoming routine, as the vulnerability brought by globalisation has become a chronic condition of even the most powerful, yet democratically open, countries in the world. It is thus likely that successive shocks, with their increasing frequency, if lesser magnitude for

Coming Together: The Evian Legacy

203

a forceful G8 response. These demands arose simultaneously in each of the politicalsecurity, economic, and North-South domains. In each ﬁeld they offered immediate threats that afﬂicted all G8 members and that all G8 members could readily recognise from precursor shocks and could consider assaults on the common democratic values the G8 was created to protect. In the political-security ﬁeld, the ﬁrst challenge was the physical and political reconstruction of Iraq. This included repairing transatlantic unity after the divisive UN diplomacy of early 2003, identifying and eliminating any Iraqi weapons of mass destruction (WMD) capability, designing the model and raising the resources for the reconstruction of a post-Saddam Iraq, and dealing with the aftermath in the Middle East and Muslim world beyond. The second, closely related challenge, where arms control and non-proliferation were again fused with regional security and terrorism, was coping with the other two points of the ‘axis of evil’ in North Korea and Iran, as well as India and Pakistan. The third was the ongoing war against terrorism, ranging from reconstructing Afghanistan to combating the al Qaeda terrorist network and its allies in Chechnya, Saudi Arabia, and around the world. This conﬁguration, punctuated in the summit’s lead-up by successor terrorist shocks on Russia in Chechnya and on the Americans, British, and French in Saudi Arabia and Morocco, made Evian more of a political-security summit than its French hosts had hoped it would be. A second set of challenges came in the core economic domain. After the hopes generated by G7 and global recovery in 2002, the ﬁrst half of 2003 saw growth sharply decline and the spectre of deﬂation appear throughout most of the G8. Europe plunged back toward recession, Japan remained stagnant, and even the hitherto locomotivelike U.S. economy slowed. The SARS outbreak, radiating throughout Asia from its Chinese epicentre, threatened to remove another engine of demand from the global economy. The fear that SARS might infect Japan, as it already had the United States and neighbouring Canada and Russia, raised an additional scare. Potential ﬁnancial crises lingered in Argentina and Brazil under their new leaderships, and in Venezuela and Turkey with their old ones. The recent failure of the World Trade Organization (WTO) to meet its interim deadlines in December 2002 and March 2003 heightened the challenge of concluding the Doha Development Agenda by its fast-approaching deadline of 2005. Most immediately, continuing failures of corporate governance within G8 countries raised questions about whether these microeconomic engines of growth driven by multinational corporations (MNCs) would be able to fuel G8 and global recovery as well. The third set of challenges was in the realm of North-South development. In Africa, a growing famine and infectious disease crisis cried out for an immediate response, even as Robert Mugabe’s repression in Zimbabwe, an opaque peer review process in the African Union, and the complicity of corporations and governments in corruption threatened the Kananaskis-generated hope that Africa was now on the long awaited recovery path. In Asia, the SARS epidemic added a second region and shock. Despite a new willingness from donor countries to increase their ofﬁcial development assistance (ODA) and health expenditures, the simultaneous demands each, can have the same impact as the singular second shock of old, especially as the former induce greater ongoing learning on the part of a seminally cybernetic G7/8.

Corporate, Public and Global Governance: The G8 Contribution

204

of Africa, Iraq, Afghanistan, and potentially North Korea threatened to overwhelm the promised and prospective help at hand. To a greater extent than usual, these three sets of challenges were tightly interrelated. The aftermath of Iraq had a direct bearing on oil supply and prices and thus on G8 and global economic growth and the resources available for assisting the developing world. The SARS outbreak was a health crisis that harmed economic growth in China and Canada and would further destroy prospects for development in poor countries in Asia and Africa should it spread. While continental Europe remained less immediately affected than other G8 countries by the new Asian-centred threats from North Korea, SARS, and Asian deﬂation, the functional and geographical interconnections gave all G8 members a similar sense of risk. Moreover, failures of corporate governance rendered governments less able to ﬁght terrorism, less able to inspire the consumer and investor conﬁdence required for economic growth, and less able to make their development dollars in Africa and elsewhere work for poor and vulnerable people on the ground. Furthermore, in all three areas, the G8’s core principle of open democracy was directly engaged. Creating a stable democracy in Iraq, as well as in Afghanistan and in the Middle East, was key to regional security and the war against terrorism, even as communist North Korea’s secrecy was a cause of the most immediate threat. For generating global growth, the critical levers were improved transparency and accountability in corporate governance, and an end to the secrecy in communist China and the opaqueness in the World Health Organization (WHO) that had exacerbated the global SARS threat. And an adequate political peer review mechanism and an end to the Mugabe regime in Zimbabwe were both important in unleashing development in Africa over the long term. The Kananaskis Momentum In the face of such intense global demand, the G8 seemed ready to supply an appropriate democratic response from the strong momentum ﬂowing from the Kananaskis Summit the previous year (Fowler 2003). That summit, one of the most successful in G7/8 history, had earned a grade of B+ from Nicholas Bayne and a B from the G8 Research Group (Bayne 2005, 192; G8 Research Group 2002). It had produced a historic high of 189 commitments, mobilised massive new monies for safely eliminating WMD, for ODA in Africa, and for debt relief for the poorest, created a new G8 ministerial institution for development and other follow-up mechanisms, included African leaders at the summit as partners, deﬁned the hosting order for the subsequent eight-year cycle of summitry with Russia as a full member, and avoided a repeat of the civil society protest and violence that had afﬂicted Genoa the year before (Bayne 2003; Kirton and Kokotsis 2003). Momentum-building continuity, beyond iteration in the agenda, further ﬂowed from the extensive, self-binding, built-in agenda the leaders at Kananaskis speciﬁed through remits for Evian (G8 Research Group 2003c).3 As Appendix 14.1 shows, 3

On the signiﬁcance of iteration in the summit agenda, see Bayne (1999).

Coming Together: The Evian Legacy

205

Kananaskis had produced six such remit mandates for Evian, well above the 1996– 2002 cycle average of 3.1 and the total average of 2.6 from 1975 to 2002. This inheritance, the second highest to date in summit history, helped ensure that the leaders at Evian returned to the issues and the implementation of their G8 Africa Action Plan, to the progress, guidelines, and projects of their Global Partnership against the Spread of Weapons and Materials of Mass Destruction, and to cooperative G8 action on transport security. At Kananaskis the leaders had also created three new G8 institutions, adjusted the mandates of the existing ones, and continued the work of two others (see Appendix 14.2). In particular, they created the G8 Nuclear Safety and Security Group, an ‘appropriate mechanism’ to review annual progress on the Global Partnership, and a group of experts on transport security, which would receive direction from G8 leaders conducting a semi-annual review. For the long-term future, Kananaskis had further speciﬁed a summit hosting order, casting a uniquely long shadow of the institutional future over the next eight years to 2010. The momentum from Kananaskis was further reinforced by the determination of Canada, as its priority for Evian, to focus on completing the Kananaskis commitments and on keeping the Africa Action Plan and Global Partnership alive. At the start of the French-hosting season, Canadian prime minister Jean Chrétien had signalled that his core concern was making sure his Kananaskis legacy was fulﬁlled. This determination was reinforced by his own view, shared by most others, that Kananaskis had been an outstanding success, and by the fact that Evian would be his last summit. With regard to the Global Partnership, this meant that Canada concentrated on getting the full commitment of US$20 billion in place, by securing ﬁrm pledges to add to the more than US$18 billion that all G8 members had pledged together as the Evian Summit drew near. Canada also sought to involve new donors, beyond the G8, to complete the legal framework necessary to dismantle nuclear weapons and to establish special bilateral agreements on particular aspects. On `Africa, Canada encouraged the Africans to deliver on their commitments, especially with regard to peer review. Another source of momentum was the vibrant ministerial process in the lead-up to Evian (see Appendix 14.3). While the French held fewer lead-up G8 ministerials than had the energetic Canadians, they still mounted a greater-than-average nine ministerial meetings on the road to Evian. Moreover, they institutionalised the Canadian innovation of a G8 development cooperation ministers meeting, by hosting the second such gathering in Paris in April 2003 (Whelan 2003). Another promising platform was provided at the pre-summit ﬁnance ministers’ preparatory meeting, held in Deauville on 16–17 May 2003: the generation of twice as many commitments as produced at the preparatory ﬁnance ministerial the year before. With the French host taking his American and Canadian colleagues on a tour of the nearby Normandy beaches, where North American and British forces had landed to liberate France and Europe in 1944, the instinct to come together in the G8 seemed to be reinforced. A similar spirit was evident at the G8 foreign ministers meeting in Paris on 22–23 May (Kirton 2003a). At the leaders level, with Japan in the lead, bilateral and plurilateral pre-summit diplomacy suggested a similar desire to cross rather than continue the UN-created Iraq war divide.

206

Corporate, Public and Global Governance: The G8 Contribution

Yet the G8’s compliance record demonstrated that the divisive impact of the UN debates over Iraq remained. By the start of 2003, G8 members had already complied with their Kananaskis priority commitments to a level of +25 percent, with traditionally lagging France coming in at an above average +38 percent (G8 Research Group 2003b). On the eve of Evian, however, compliance had risen only slightly, to +35 percent (G8 Research Group 2003a), as the diversion and division caused by the UN’s treatment of the war in Iraq during the ﬁrst ﬁve months of 2003 took hold. Propellers of Performance: Causes of Concerted Success Predominance and Parity in Capabilities and Vulnerabilities Changes in relative capability in the world and in the G8 also propelled the Evian Summit toward success. Globally, the G8’s collective predominance continued to strengthen, as ﬁnancial crises and political uncertainty continued to afﬂict the once promising big emerging markets in the Americas, notably Argentina and Brazil. The real effects of the SARS crisis assaulted the long-held assumption that Asia was an assured engine of global growth. Within the G8, there was a sharp shift toward equality, driven by exchange rate shifts. Against the euro America’s dollar plunged by 9 percent between January and mid May 2003, and by 20 percent from May 2002. American gross domestic product (GDP) grew at an annual rate of only 1.4 percent in the ﬁnal quarter of 2002 and 1.6 percent in the ﬁrst quarter of 2003. It was accompanied by a historically high current account deﬁcit, rising ﬁscal deﬁcit and unemployment, consumers with low conﬁdence and high debt, and new worries about pernicious deﬂation taking hold. In contrast, Japan had a rapidly rising currency and even year-over-year growth. To be sure, its growth rate diminished every quarter, reaching zero as the summit approached. It still had its long-known problems of deﬂation, government budget deﬁcits (at 7.7 percent of GDP), and government and private sector debt. Indeed, in a mini-ﬁnancial shock, Japan’s ﬁfth largest bank went bankrupt two weeks before the Evian Summit began. Yet there was real evidence that the tide had ﬁnally turned. In Europe in the year leading up to April 2003, the euro gained 22 percent against the U.S. dollar. This change overwhelmed Europe’s stagnant GDP growth, as Germany and Italy slipped into recession. In Britain, the pound was stable and growth slow. The Canadian dollar jumped to more than US$0.74 by late May 2003, and Canada continued to be the G7 growth leader, as in the past several years. More importantly, Russia surged. The ruble strengthened against the U.S. dollar in 2002 by 5.9 percent. GDP growth of 4.3 percent in 2002 rose to 6 percent during the ﬁrst three months of 2003. Unemployment decreased by 4 percent to hit 8 percent. Real income grew by 9 percent. In addition, in October 2002 Russia was dropped from the black list maintained by the Financial Action Task Force (FATF). Russian debt to the International Monetary Fund (IMF) declined to US$6.4 billion, against its quota of US$8 billion, as Russia paid off US$1.6 billion in 2002. The central government’s external debt dropped to US$125.5 billion, with Russia having paid

Coming Together: The Evian Legacy

207

US$14.5 billion during the year. It was estimated that Russian debt in 2003 would be 40 percent of GDP, the normal level for countries of the EU. Constricted Participation Summits succeed when they have constricted participation in membership but efﬁciently managed diffuse participation from their invited guests. Evian’s particular formula was thus a further cause of success. Evian featured the core eight members attending for the ﬁrst time as full equals, along with the largest guest list invited to the longest summit by far. Evian was an extended, funnel-like sequence of ﬁve summits in two cities. It started in St. Petersburg with an EU-Russia summit and a symbolic EU-G8 summit, and continued in Evian with a ‘G27’ summit on the afternoon of 1 June, a gathering that evening over dinner of the G8 and the New Partnership for Africa’s Development (NEPAD), and, ﬁnally, the G8 summit itself on 2–3 June. For the ﬁrst time, there was no gathering of G7 leaders without Russia. At Evian itself, two of the invited guests — India and Mexico — had been present as guests of the host on the eve of the G7 Paris Summit in 1989 and included in the G20 ﬁnance ministers and central bank governors, which was formed in 1999 (see Appendix 14.4). Both were democracies, as were two of the other four G20 members invited to Evian (Brazil and South Africa). The democratic core of the Evian Summit remained intact. Evian’s cadence of going from broader to narrower gatherings allowed the core G8 members to deal efﬁciently with their numerous diverse guests before they got down to real business among themselves. However, it brought some disadvantages. It left an impression that the G8 was indeed a directoire, with outsiders coming to plead their case before the G8 decided on its own what to do in the end. Moreover, with the EU-St. Petersburg start, it also appeared to reinforce a euro-centricity appropriate to the nineteenth-century world, at a time when the major challenges were arising in Asia, the Middle East, and Africa. It was also the antithesis of the style most favoured by the Americans, who had spoken immediately after Kananaskis of having a short summit when they hosted in 2004 at an already chosen site. When the G8 leaders ﬁnally sat down by themselves, they were more exhausted and close to overexposed in the media than they were energised to make the bold new decisions the world wanted to hear and see. Most importantly, the lengthy cadence made it easier for George Bush to leave the summit a day early, creating a little drag in momentum and in the concluding deal-closing drama on the summit’s last day. Common Principles A third cause of success was the Evian agenda’s match with the G8 members’ common principles of open democracy, individual liberty, and social advance. It proved powerful enough to transcend the recent UN-created divisions over Iraq. That divide was always a thin disagreement about policy rather than a deep disagreement about principle from France, which routinely and unilaterally dispatched its own armed forces into Africa. It had come with a kaleidoscope of cross-cutting cleavages, as the four G8 members that had sent forces to Iraq had come from North America, Asia,

208

Corporate, Public and Global Governance: The G8 Contribution

and Europe, and from left-wing, centrist, and right-wing leaders alike. The recent terrorist attacks on G8 nationals, in the Middle East as well as in Russia, constituted the second shocks of vulnerability that reinforced the G8’s common aversion and inspired the unifying pro-democracy ‘spirit of September 11’ to return. More importantly, the growth-inhibiting scandals of corporate governance arising in most G8 countries drove the members’ shared sense of responsibility to the democratic rule of law to a deeper domestic level, as they reached down collectively to regulate the behaviour of ﬁrms. To be sure, the intense UN-bred divisions over Iraq remained, forcing much of the summit’s ‘coming together’ pressure to be deployed reactively, rather than employed proactively to forge bold new initiatives. Yet the reservoir of common principles was sufﬁciently deep to drive the G8 leaders to extend their most distinctive constitutional principle — the foundational conviction, activated in 1999 over Kosovo and Chechnya and contrary to the UN Charter, that G8 members had the right to intervene, even pre-emptively, in the internal affairs of sovereign states, to prevent genocide and protect the democratic human rights of otherwise defenceless people within. At Evian, the G8 leaders (minus the already departed Bush) spent their last evening together accepting their ‘need to take seriously our responsibilities for states that are dictatorial, abusive and repressive’, discussing what to do about such states, and understanding that ‘unless we deal with these problems to do with freedom, human rights and democracy, the world is a less stable place’ (United Kingdom Parliament 2003; Kirton 2003b). Political Control Since summits succeed when the leaders are in ﬁrm political control of their domestic polities, a fourth factor promoting success was the presence at Evian of Jacques Chirac of France as host, George Bush of the United States, Tony Blair of Britain, Gerhard Schroeder of Germany, Junichiro Koizumi of Japan, Silvio Berlusconi of Italy, Jean Chrétien of Canada, and Vladimir Putin of Russia. This exact group had gathered for the G8 summits in both 2001 at Genoa and 2002 at Kananaskis, so there was unusual leadership continuity, and thus no need to waste time on socialising newcomers — apart from the Greek EU president — into the club. These leaders brought an unusually high degree of G8 leadership experience, led by Chrétien’s nine years, Chirac’s eight, and Blair’s seven. This trilogy had a particular interest in bridging the Iraq divide. There was also considerable electoral security, as none of the leaders was likely to face and lose elections in the year following the summit.4 In addition, all leaders were domestically popular politicians, if in large part because their publics had rallied behind their respective national positions on the Iraq war. Before the war, at the end of February 2003, Bush still sported a substantial 4 Host Chirac was still at the beginning of the ﬁve-year term he won in 2002. Chrétien had already announced his resignation effective February 2004, Schroeder had been re-elected in 2002, and Berlusconi elected on May 2001. Koizumi had been appointed prime minister in April 2001 and Putin elected in March 2000. In Britain, Blair’s Labour Party had been elected with a strong majority in June 2001; Bush, too, had been elected in 2001.

Coming Together: The Evian Legacy

209

majority approval rating, if one well down from his unprecedented post–September 11 peak. To be sure, Koizumi had plunged below 50 percent from the extraordinary highs he had initially enjoyed. And Blair was similarly sagging under the weight of domestic opposition to a war against Iraq. But among G7 members who were against or ambivalent toward the attack, the leaders’ popularity surged. As the Evian Summit approached, the coalition victory in Iraq carried Bush to new heights, pushed Blair to majority levels, and led Canadians to rally behind their Anglo-American cousins, too. However, it left France, Germany, and Russia still supporting their leaders’ antiattack stance. The divisive temptation to play to the voter back home remained. Summit Plans and Preparations At the beginning of their presidency, the French hosts had said they wished to replicate the Kananaskis model, had chosen Evian as the site on this basis, and intended to focus on the single African theme. Yet they soon moved to prepare a ceremonysaturated summit with 15 agenda items and dozens of guests, taking place in two cities and countries over ﬁve days. This fulsome format reﬂected a unilateral French decision, acquiesced in by its G8 partners. While Britain and Canada applauded the meeting with the African leaders, the Americans, as they had in 1989, strongly sought to reduce the number of invited guests. Yet all were bound by their public commitment at Kananaskis to go to the EU summit at St. Petersburg as the French and Russians wished. For the agenda, the French offered a varying array of 12 to 15 items with changing names, making it difﬁcult for G8 partners to determine precisely what was to be discussed at what time. France’s initial four themes had, by May, turned into three — growth, security, and sustainable development — into which the 15 individual items would be stuffed. This stufﬁng, and the removal of the traditional opening dinner (now given over to the dialogue with the invited Africans), left very little time for leaders to be alone at the start. By the end of April, all that the preparatory process could produce were agreements on oceans and transportation safety, on shoulder-launched surface-to-air missiles that could shoot down civilian airliners (MANPADS), on potable drinking water, and, less clearly, on polio. These seemed rather insufﬁcient to justify such a large event. The combined sherpa and sous-sherpa meeting that took place at Evian over four mid-May days was very tense. Many proposals were offered by the Anglo-American coalition, but the French insisted on having things their way. Yet it was agreed the G8 leaders would start in St. Petersburg with an entirely ceremonial meeting with leaders of the EU and Commonwealth of Independent States (CIS). They would depart on the morning of 1 June for a meeting of 27 world leaders (including the G8) in Evian in the afternoon. In the late afternoon, the G8 would huddle alone to discuss Africa and NEPAD, and then meet their African guests. The next morning the G8 proper would start and end one and a half days later with a chair’s summary and a media brieﬁng by the chair as well as several other delegations. All knew the world would be waiting to see if the Americans stayed to the end to brief or rushed to get out of France as soon as they could (Kirton 2003c).

210

Corporate, Public and Global Governance: The G8 Contribution

Substantively, it was agreed that Evian would produce documents on seven subjects: the Global Partnership; famine; fresh water; marine and ocean issues and tanker safety; HIV/AIDS and SARS; counter-terrorism capacity building; and a responsible market economy. Also possible were agreements on corruption and transparency (related to the responsible market economy, perhaps as an appendix or addendum), trade and development (a Doha-related text), health, science and technology for sustainable development, and security of transport (mostly MANPADS). Still conceivable was an agreement on non-proliferation and WMD regarding radioactive source security, designed to ensure that radioactive materials used medically would not produce ‘dirty’ bombs. Thus, two weeks before the Evian Summit started, only half of its potential deliverables had been agreed. Global Partnership against the Spread of Weapons and Materials of Mass Destruction On the Global Partnership, the ﬁrst of the Kananaskis legacy issues, the leaders would agree to complete the donations to the US$20 billion funding package committed at Kananaskis, and produce a multilateral agreement and an end to the road blocks of the past year. These countries could sign contracts, spend, and get people in to do the actual work. Here the approaching summit created an action-enforcing deadline to ﬁnalise agreements in time for a high-proﬁle public announcement. The eight weeks leading up to mid May saw all G8 countries compromising, with Russia moving the most on the obstacles relating to liability and taxation. New donors, starting with Russia’s neighbours, came forward. With Ukraine seeking entry, there was some discussion of admitting the CIS states, once real projects were operating in Russia itself. Africa On Africa, the second Kananaskis legacy issue, uncertainty prevailed. It was one of the 15 items the French identiﬁed, and was linked to corporate social responsibility, the Extractive Industries Transparency Initiative (EITI), water, and peace and security items as well. On the key issue of the NEPAD peer review, the G8 leaders were waiting to hear what their African partners had done and what they intended to do. At Evian, the African personal representatives (APRs) would release their own ﬁnal report on the implementation of the G8 Africa Action Plan. It would show that some G8 countries, such as Britain and Canada, had done reasonably well in implementing their commitments, while others had not. Zimbabwe, while a dark cloud hanging over the summit, was not central to what the G8 planned to do. Another core African issue was APR succession. The APRs, still writing their report to leaders, aimed at recommending the form that APR succession would take. As of mid May there was no consensus, and a very broad range of options were still at play. The issue was led by Canada, which sought an effective follow-up mechanism, and the British, who proposed, in the ﬁrst speciﬁc suggestion, that G8 sous-sherpas for Africa be added to the main summit preparatory team. A further idea was that the group of APRs be expanded to include African representatives. The choice would be left for the leaders at Evian to decide.

Coming Together: The Evian Legacy

211

Economic Issues In keeping with recent summits, Evian was likely to do little to sustain global economic growth. There would be language in the communiqué, and possibly in standalone papers, on the macroeconomic situation, on structural reforms (which made the Germans and Japanese nervous), on ﬁnancial crisis prevention and resolution, and on debt relief. No large steps were likely to come. The most concrete move was likely to be on heavily indebted poor countries (HIPCs), where the leaders would seek to get others to put money in. Here, the leaders would look at what came out of the Deauville ﬁnance ministerial and pick where they wanted to add emphasis. On trade, the leaders would highlight speciﬁc issues such as intellectual property, agriculture, and patents, promising to solve these issues where WTO deadlines had been missed. Their statement on trade would be read carefully to see G8 intentions for the WTO’s ministerial meeting at Cancun in September. Corporate Governance, Corruption, and the Extractive Industries Transparency Initiative This light touch on traditional economic issues left room for the new subject of corporate governance to take a prominent place. The initial French theme of a ‘responsible market economy’ had become fused with several cognate concepts — a speciﬁc British initiative on transparency in resource-extracting industries, an American concern with corruption, and a broader emphasis on corporate governance and corporate social responsibility. Three different approaches would thus come together at Evian. The ﬁrst, narrow approach was on transparency in payments for resource-extracting industries. Here Britain pushed for G8 action. The second was the U.S. focus on corruption and transparency. Whereas the British emphasis was on corporations and their corporate responsibility, the U.S. approach focussed on governments and creating problems for governments that took bribes. The third approach, favoured by the French, was on a responsible market economy. The French sought a statement of high principles, from governments and corporations together, to avoid corrupt practices. These three approaches produced three papers in the preparatory process: a G8 presidency paper on a responsible market economy, a combined UK-U.S. paper on corruption and transparency, and a British paper on EITI. These were expected to be melded into one paper, most likely on a responsible market economy, containing some elements of the British EITI, and perhaps including an annex on corruption and transparency. In no case were binding disciplines likely to come. Sustainable Development and Health Environmental issues came under corporate social responsibility, and in speciﬁc items on science and technology, water and oceans/maritime safety. The centrepiece could well be science and technology for sustainable development, in the form of a paper on breakthrough developments in science and technology and research and development (R&D). The British, supported by the Japanese, drove this process.

212

Corporate, Public and Global Governance: The G8 Contribution

On water, Evian would leverage the EU’s pledge of 1 billion euros, by inspiring donations from other states. The summit would also call for strong measures on maritime safety, and perhaps even a pledge, resisted by the Japanese, to phase out or otherwise deal with tankers with single hulls. In the ﬁeld of health, there would be a follow-up to the Global Fund against AIDS, Tuberculosis, and Malaria. Despite the US$1 billion donation from the U.S., the G8 would emphasise getting on with spending the money already committed, rather than pledges of new money. Russia might mount an initiative on contributing to the fund by training African specialists in the Russian Federation. The communiqué would also mention SARS. Peace and Security and Conﬂict Prevention With such a diffuse agenda and no opening dinner of their own, the leaders would leave many of the burning political-security issues to their foreign ministers, meeting in Paris on 22–23 May, or to bilateral meetings before the summit or on site at Evian. On conﬂict prevention, at Evian there would be a special African dimension. Performance There was thus much left to do at the summit itself. And, on the whole, it got done. Dimensions of Performance The ﬁrst major accomplishment in the domain of deliberation came at the end of the summit’s ﬁrst morning. The bilateral meeting between Bush and Chirac ended with Bush calling ‘Jacques’ his ‘friend’ and putting his arm around him as the two walked off. In return, Chirac assured the world that Bush was ﬂying off early from Evian on his Middle East peace mission with the united agreement and the full weight of the G8 behind the U.S.-crafted peace plan. Subsequent peace and security decisions on North Korea showed that the new spirit of unity was real. All G8 members publicly conﬁrmed in writing that they were prepared, if necessary, to use unspeciﬁed ‘other measures’ to deal with a North Korea they deemed to be violating international law (G8 2003c). With the personal bonds restored, a cornucopia of speciﬁc collective decisions came. In 14 separate communiqués Evian produced 206 speciﬁc commitments, an all-time high. As Appendix 14.5 indicates, Evian was at its most decisionally productive in the ﬁeld of sustainable development, with 69 commitments, and in the political-security issues of terrorism, where it produced 63. While less productive on economics, its 38 commitments still exceeded Kananaskis in this regard. In sharp contrast to the 2002 summit, however, in the traditional area of development, Evian was much less successful, with only 21 commitments. The Evian Summit thus launched the ﬁfth cycle of summitry with a sharp shift to the new agenda of global issues, led by the environment, and political-security issues led by terrorism, at the expense of the old G7’s concentration on economics and development.

Coming Together: The Evian Legacy

213

In the areas where the leaders at Evian closely followed the Kananaskis agenda, mandate, and momentum, they made important advances — on MANPADS in the ﬁeld of transport security, on radiological terrorism in regard to WMD, and on peer review, water, famine, and infectious disease on the African front. They also revived action on sustainable development and on global environmental protection. Only in regard to the hard-core economic issues, from trade through exchange rates to ﬁscal and monetary policy and the prospect of deﬂation, did they do little at a time when global challenges loomed large. One area of innovation and ambition was the new featured area of corporate governance, its companions of corruption and transparency, and the responsible market economy overall. Here, the G8 leaders successfully synthesised the competing French, British, and Americans approaches and texts to produce an expansive solution. In the Chair’s Summary, as a means of ‘Strengthening Growth World-Wide’, the G8 leaders highlighted their commitment to ‘strengthen investor conﬁdence by improving corporate governance, enhancing market discipline and increasing transparency’ and to ‘the principles of our Declaration on Fostering Growth and Promoting a Responsible Market Economy, accompanied with speciﬁc actions to improve transparency and to ﬁght corruption more effectively, including a speciﬁc initiative on extractive industries’ (G8 2003b). As this passage suggests Evian was most successful in deliberatively legitimising and developing this issue area, and directionally introducing principles to guide behaviour. Yet in their component documents the leaders also offered two commitments on corporate governance, one on corporate social responsibility, and 27 on corruption and transparency (including four on EITI). It was clear that this was an area where the French hosts found a way to accommodate the Americans and, to a lesser extent, the British, whatever the strains over Iraq had been. In return, the French passion for a responsible market economy was left in the domain of lofty principles. The leaders did less to ensure delivery, by adding mechanisms to ensure that their many promises would be kept. In money mobilised, Evian was but a US$500 million summit, raising much less than Kananaskis did the year before (see Appendix 14.6). In the Action Plan on Health G8 leaders promised, ‘in keeping with our pledge at Kananaskis to provide, on a fair and equitable basis, sufﬁcient resources to eradicate polio by 2005, we have pledged an additional US$500 million and remain committed to playing our full part to ensure that the remaining funding gap is closed’ (G8 2003a). This one clear promise of more money from the G8 was thus a result of a promise made at Kananaskis, and acknowledged that more money was still needed to get the job done. Not on the list was a promise to raise the US$3 billion for the Global Health Fund that U.S. leadership made possible, if the EU and other G8 partners, along with others, would produce a matching US$2 billion. That fundraising was left to a later European summit and then speciﬁc pledging conference. Without a clear G8 commitment, these occasions proved unable to produce the required amount. Elsewhere, Evian did set the stage for future G8 funding commitments. In many areas, the communiqués frankly noted the need for major new money, but failed to identify how, when, or from whom it would be obtained.

214

Corporate, Public and Global Governance: The G8 Contribution

Evian offered ﬁve remits or requests that bound the G8 to return to issues at its U.S.-hosted summit the following year (see Appendix 14.1). Although this was fewer than Kananaskis, these remits were heavily concentrated on terrorism (including MANPADS). The one on the Africa Action Plan was deferred to the British-hosted summit in 2005. Moreover, Evian’s ﬁnal communiqué ended without any hint of where or when the next summit would be held, leaving the Americans with a completely free hand for designing and delivering the summit in their presidential election year of 2004.5 It was clear that the United States wished to be bound only where terrorism was concerned. If the money mobilised and remit mandates were slender, the G8 institutions created, adjusted, or approved at Evian were substantial. The summit institutionally developed G8-centred global governance by creating three new bodies, issuing eleven instructions to existing ones and approving the work of four (see Appendix 14.3). This compared favourably to Kananaskis’s institutional legacy of three, three, and two respectively. Evian’s heavy reliance on adjusting and approving the work of G8 institutions showed that the leaders were content, or forced, to rely on the existing array of ministerial and ofﬁcial-level G8 bodies, rather than engage in ambitious G8 system building themselves. While the institutions so employed covered a wide range of bodies and subject areas, they focussed heavily on those for ﬁnance and terrorism, where the Iraq divisions were less pronounced and where the subsequent shocks of vulnerability were most intense. Proximate Producers of Performance Driving this transition to the ‘globalisation agenda’, and Evian’s exceptional decisional productivity on the environment and terrorism, was the new sense of vulnerability in a globalising world that all G8 members shared as a result of seminal and recent successive shocks. As Appendix 14.7 details, the G8 leaders referred to such shocks in their documents on the environment and terrorism, the two issue areas where they subsequently produced the most commitments. In the case of terrorism, they included both the recent singular shock of September 11, 2001, and the several successive shocks that took place over the year leading up to Evian. The institutional momentum from Kananaskis also mattered. As Appendix 14.8 shows, the Evian summiteers began their documents on transport security and MANPADS, water, and famine, by referencing their action plans made at Kananaskis the year before. They also invoked the recent authorisation of UN institutions to justify their treatment of water, science and technology for sustainable development, health, trade, and corruption and transparency. The authorisation from both the G8 and UN was concentrated in the environment, where most of the commitments came. The importance of G8 institutional momentum was again apparent in regard to the one speciﬁc case of money mobilised, as the G8 justiﬁed its new money to eradicate polio as being ‘in keeping with our pledge at Kananaskis’.

5 The U.S. announced on 15 July 2003, more than a month after the Evian Summit, that the 2004 summit would be held at Sea Island, Georgia, from 8 to 10 June.

Coming Together: The Evian Legacy

215

Conclusion To some extent, the G8 at Evian fell victim to the UN-created divisions over Iraq that had proliferated during the ﬁrst several months of 2003. Those divisions were set aside only very late in the Evian preparatory process, indeed only when a UNSC resolution passed with the support of all G8 members the week before the Evian Summit began. They were not fully dispelled until midway through the summit, during the well-publicised bilateral encounter between the two traditional presidents — Chirac of France and Bush of the United States. Evian was also held hostage to its status as the longest and largest summit ever, extending over ﬁve days in two countries with close to one third of the world’s leaders involved. On the whole, this thrust toward outreach was useful. But it left little time for the G8 leaders to meet alone to talk freely, to add their own unique political impulse, and to offer ambitious action to deal with many of the serious issues at hand. The available time was further reduced by the need for Bush, with an already crowded international travel schedule, to leave Evian early for the Middle East. Evian saw little of the unique value of the summit — the leaders themselves personally going well beyond what they could do individually or through their ofﬁcials and international civil servants to make major advances in global governance and mobilise the monies at times required to make these advances real. Yet on the whole the G8 transcended the divisive force from the UN to produce a successful summit. Standing out were the easy involvement of a rising Russia as a full member, the unprecedented outreach sessions that ran smoothly, the historically high number of concrete commitments, the normative development in the new area of corporate governance, the direction given to the G8’s formidable array of existing institutions, and, above all, the ambitious action on terrorism and sustainable development. And the Evian G8 delivered: one year later, its priority commitments had been kept at a relatively high level of +51 percent. Driving Evian toward this lofty level, despite the diversions and divisions of the UN over Iraq, were two particular forces. The ﬁrst was the common sense of vulnerability brought by the successive shocks bred by globalisation, most clearly in regard to terrorism and sustainable development. Here it was concert equality rather than American leadership that dominated (Putnam and Bayne 1987). As the body count of G8 citizens in the year before the summit showed, terrorism was a common aversion rather than an all-American one. And sustainable development, in the dimensions of science and technology, water, and tanker safety, was far more of a French and European passion than an American one. The second force was the strong institutional momentum from the G8’s summit at Kananaskis the previous year. Despite the low compliance with those commitments, on its major thrusts it bound its members and new French host to provide the institutionalised, iterative continuity that drove the Evian Summit ahead. The strength of the G8’s autonomous institutional self-binding in a globalising era shows that G8 leaders remained undeterred by allegedly uncontrollable market or societal processes, in contrast to what the false new consensus model claims (Bergsten and Henning 1996). And while UN authorising action added to the institutional momentum driving Evian forward as the democratic institutionalist model predicts

216

Corporate, Public and Global Governance: The G8 Contribution

(Kokotsis 1999), it was the G8 alone that proved to be the dominant force. In the face of the successive shocks bred by a now chronic globalised intervulnerability, the G8 knew that institutionally, it was on its own. At Evian it thus engaged in an unprecedented outreach to involve consequential countries, give strong direction to the institutionalised system, and strengthen the G8’s place as the emerging centre of global governance in the years ahead. References Bayne, Nicholas (1999). ‘Continuity and Leadership in an Age of Globalisation’. In M. R. Hodges, J. J. Kirton and J. P. Daniels (eds.), The G8’s Role in the New Millennium, pp. 21–44 (Aldershot: Ashgate). Bayne, Nicholas (2003). ‘Impressions of the Kananaskis Summit’. In M. Fratianni, P. Savona and J. J. Kirton (eds.), Sustaining Global Growth and Development: G7 and IMF Governance, pp. 229–240 (Aldershot: Ashgate). Bayne, Nicholas (2005). Staying Together: The G8 Summit Confronts the 21st Century (Aldershot: Ashgate). Bergsten, C. Fred and C. Randall Henning (1996). Global Economic Leadership and the Group of Seven (Washington DC: Institute for International Economics). Fowler, Robert (2003). ‘Canadian Leadership and the Kananaskis G8 Summit: Toward a Less Self-Centred Policy. In D. Carment, F. O. Hampson and N. Hillmer (eds.), Canada Among Nations 2003: Coping with the Canadian Colossus, pp. 219–241 (Toronto: Oxford University Press). G8 (2003a). ‘Health: A G8 Action Plan’. 2 June, Evian. <www.g8.utoronto.ca/ summit/2003evian/health_en.html> (August 2006). G8 (2003b). ‘Chair’s Statement’. 3 June, Evian. <www.g8.utoronto.ca/summit/ 2003evian/communique_en.html> (August 2006). G8 (2003c). ‘Non-Proliferation of Weapons of Mass Destruction A G8 Declaration’. 2 June, Evian. <www.g8.utoronto.ca/summit/2003evian/wmd_declaration_ en.html> (August 2006). G8 Research Group (2002). ‘G8 Performance Assessment by Country and by Objectives’. <www.g8.utoronto.ca/evaluations/2002kananaskis/assessment_ 2002.html> (August 2006). G8 Research Group (2003a). ‘From Kananaskis to Evian: The 2003 Compliance Report’. <www.g8.utoronto.ca/evaluations/2003compliance/> (August 2006). G8 Research Group (2003b). ‘2002 Kananaskis Interim Compliance Report’. <www.g8.utoronto.ca/evaluations/2002interimcompliance/> (August 2006). G8 Research Group (2003c). ‘G7/8 Summit Remit Mandates, 1975–2003’. <www.g8.utoronto.ca/evaluations/factsheet/factsheet_remits.html> (August 2006). Kirton, John J. (1989). ‘Contemporary Concert Diplomacy: The Seven-Power Summit and the Management of International Order’. Paper presented at the annual convention of the International Studies Association, 29 March–1 April, London. Kirton, John J. (1993). ‘The Seven Power Summits as a New Security Institution’. In D. Dewitt, D. Haglund and J. J. Kirton (eds.), Building a New Global Order:

Coming Together: The Evian Legacy

217

Emerging Trends in International Security, pp. 335–357 (Toronto: Oxford University Press). Kirton, John J. (2003a). ‘Impressions of the G8 Foreign Ministers Meeting’. Paris, 23 May. <www.g8.utoronto.ca/evaluations/2003evian/assess_formin_kirton.html> (August 2006). Kirton, John J. (2003b). ‘After Westphalia: Security and Freedom in the G8’s Global Governance’. In T. Noetzel and M. Lerch (eds.), Security and Freedom: Foreign Policy, Domestic Politics, and Political Theory Perspectives (Baden-Baden: Nomos). Kirton, John J. (2003c). ‘Bush Needs the G8, and It Needs Him’. Globe and Mail, 3 June, p. A15. Kirton, John J. and Ella Kokotsis (2003). ‘The G7/8 Contribution at Kananaskis and Beyond’. In M. Fratianni, P. Savona and J. J. Kirton (eds.), Sustaining Global Growth and Development: G7 and IMF Governance, pp. 207–226 (Aldershot: Ashgate). Kokotsis, Eleanore (1999). Keeping International Commitments: Compliance, Credibility, and the G7, 1988–1995 (New York: Garland). Putnam, Robert and Nicholas Bayne (1987). Hanging Together: Co-operation and Conﬂict in the Seven-Power Summit, 2nd edn (London: Sage Publications). United Kingdom Parliament (2003). ‘Hansard’. 4 June, Column 168. <www.publications.parliament.uk/pa/cm200203/cmhansrd/vo030604/ debtext/30604-08.htm> (August 2006). Whelan, Susan (2003). ‘Interview’. 15 May. <www.g8.utoronto.ca/oralhistory/ whelan030515.html> (August 2006).

218

Corporate, Public and Global Governance: The G8 Contribution

Appendix 14.1

Kananaskis and Evian Summit Remit Mandates

2002 Kananaskis Summit Remit Mandates for 2003 and Beyond ‘We will continue our dialogue with our African partners. At our next Summit, we will review progress on the implementation of the G8 Africa Action Plan on the basis of a ﬁnal report from our Personal Representatives for Africa’ (Chair’s Summary). ‘Noting the importance of commercial creditor participation, we agreed to ask the World Bank and IMF to prepare a comprehensive report on legal action brought against HIPCs by non-participating creditors, including by commercial creditors, and on options for HIPCs to obtain technical assistance to facilitate resolution of disputes’ (Statement by G7 Leaders: Delivering on the Promise of the Enhanced HIPC Initiative). ‘Recognizing that this Global Partnership will enhance international security and safety, we invite other countries that are prepared to adopt its common principles and guidelines to enter into discussions with us on participating in and contributing to this initiative. We will review progress on this Global Partnership at our next Summit in 2003’ (Statement by G8 Leaders: The G8 Global Partnership Against the Spread of Weapons and Materials of Mass Destruction). ‘With respect to nuclear safety and security, the partners agreed to establish a new G8 Nuclear Safety and Security Group by the time of our next Summit’ (Statement by G8 Leaders: The G8 Global Partnership Against the Spread of Weapons and Materials of Mass Destruction). ‘We will take the necessary steps to ensure the effective implementation of our [Africa] Action Plan and will review progress at our next Summit based on a ﬁnal report from our Personal Representatives for Africa’ (G8 Africa Action Plan). ‘Continuing to work with African partners to deliver a joint plan, by 2003, for the development of African capability to undertake peace support operations, including at the regional level’ (G8 Africa Action Plan). 2003 Evan Summit Mandates for 2004 and Beyond ‘We will review progress on our [Africa] Action Plan no later than 2005 on the basis of a report’ (Chair’s Summary). ‘We agree to exchange information on national measures related to the implementation of these steps by December 2003. We will review progress at our next meeting in 2004’ (Enhance Transport Security and Control of Man-Portable Air Defence Systems (MANPADS): A G8 Action Plan). ‘The G8 Presidency will produce a report for the 2004 Summit’ (Building International Political Will and Capacity to Combat Terrorism: A G8 Action Plan). ‘CTAG will analyse and prioritise needs, and expand counter-terrorism capacity building assistance… by seeking to increase counter-terrorism capacity building assistance and co-ordination (by the 2004 Summit); … … [and] will expand regional assistance by encouraging regional assistance programmes including delivery through regional and donor sponsored training centres (by the 2004 Summit) [and]

Coming Together: The Evian Legacy

219

seeking to address unmet regional assistance needs (by the 2004 Summit)’ (Building International Political Will and Capacity to Combat Terrorism: A G8 Action Plan). ‘The G8 Presidency will produce a report [on terrorism] for the 2004 Summit’ (Building International Political Will and Capacity to Combat Terrorism: A G8 Action Plan). Note: Includes only deadlines and reports to be submitted to the next or subsequent G8 summits; includes injunction to complete action ‘by the 2004 Summit’ even if no actual report to the summit is expressed, as this implies that G8 leaders will be watching and will take up the item again if necessary.

220

Corporate, Public and Global Governance: The G8 Contribution

Appendix 14.2 Kananaskis and Evian Summit Institutionalisation 2002 Kananaskis Summit G7/8 Institutions Created (3) ‘Given the breadth and scope of the activities to be undertaken, the G8 will establish an appropriate mechanism for the annual review of progress under this initiative which may include consultations regarding priorities, identiﬁcation of project gaps and potential overlap, and assessment of consistency of the cooperation projects with international security obligations and objectives. Speciﬁc bilateral and multilateral project implementation will be coordinated subject to arrangements appropriate to that project, including existing mechanisms’ (Statement by G8 Leaders: The G8 Global Partnership Against the Spread of Weapons and Materials of Mass Destruction). ‘With respect to nuclear safety and security, the partners agreed to establish a new G8 Nuclear Safety and Security Group by the time of our next Summit’ (Statement by G8 Leaders: The G8 Global Partnership Against the Spread of Weapons and Materials of Mass Destruction). ‘In order to ensure timely implementation of this initiative, we will review progress every six months, providing direction as required to G8 experts. G8 experts will pursue these priorities and will promote policy coherence and coordination in all relevant international organizations (ICAO [International Civil Aviation Organization], IMO [International Maritime Organization], WCO [World Customs Organization], ILO [International Labour Organization]), in partnership with industry’ (Cooperative G8 Action on Transport Security). G7/8 Institutions Adjusted (3) ‘We agreed that Russia will assume the 2006 G8 Presidency and will host our annual Summit that year’ (Chair’s Statement). ‘The G8 Summit cycle will begin again in 2003 in France followed by the United States (2004), the United Kingdom (2005), Russia (2006), Germany (2007), Japan (2008), Italy (2009) and Canada (2010)’ (Russia’s Role in the G8). ‘At our next Summit, we will review progress on the implementation of the G8 Africa Action Plan on the basis of a ﬁnal report from our Personal Representatives for Africa’ (Chair’s Statement). G7/8 Institutions Continued (2) ‘We welcomed the offer of the President of France to host our next Summit in June 2003’ (Chair’s Statement). ‘We will continue our dialogue with our African partners’ (Chair’s Statement). 2003 Evian Summit G7/8 Institutions Created (3) ‘We … created a Counter-Terrorism Action Group (CTAG)’ (Chair’s Summary); ‘To this end, the G8 will create a Counter-Terrorism Action Group (CTAG)’ (Building International Political Will and Capacity to Combat Terrorism: A G8 Action Plan). ‘The G8 will direct a working group to identify those elements of the IAEA [International Atomic Energy Agency] Code of Conduct that are of greatest relevance

Coming Together: The Evian Legacy

221

to prevent terrorists from gaining access to radioactive sources’ (Non-Proliferation of Weapons of Mass Destruction Securing Radioactive Sources: A G8 Action Plan). ‘We will convene senior G8 policy and research ofﬁcials and their research institutions to compare and to link programmes and priorities’ (Science and Technology for Sustainable Development: A G8 Action Plan). G7/8 Institutions Adjusted (11) ‘We agreed to widen our dialogue to other African Leaders on NEPAD [New Partnership on Africa’s Development] and the G8 Africa Action Plan. We invite interested countries and relevant international institutions to appoint senior representatives to join this partnership’ (Chair’s Summary). ‘We invite them [ﬁnance ministers] to report back to us in September on the issues raised by the ﬁnancing instruments, including the proposal for a new International Finance Facility’ (Chair’s Summary). ‘In this context [susceptibility of heavily indebted poor countries to exogenous shocks], we have asked our Finance Ministers to review by September mechanisms to encourage good governance and the methodology for calculating the amount of “topping-up” debt relief available to countries at completion point based on updated cost estimates’ (Chair’s Summary). ‘In accordance with our statement at Kananaskis, we established the G8 Nuclear Safety and Security Group, and adopted its mandate and the Core Principles shared by each of us, to promote the safe and secure use of civil nuclear technology’ (Chair’s Summary). ‘We direct Finance Ministers to assess progress and identify next steps [on terrorist ﬁnance]’ (Chair’s Summary). ‘To develop strengthened co-operation, we also ask Ministers to initiate a dialogue with counterparts in other countries [on terrorist ﬁnance]’ (Chair’s Summary). ‘We tasked our relevant Ministers to examine as soon as possible the measures necessary to support a plan for the revitalisation and reconstruction of the Palestinian economy, including the leveraging of private investment, within the framework of the Middle East Peace Process’ (Chair’s Summary). ‘We are providing urgent humanitarian aid and, to address the ﬁnancial consequences of this situation, we are instructing our relevant Ministers to report within one month on how best to help Algeria recover’ (Chair’s Summary). ‘We will jointly ask UN bodies, the IFIs [international ﬁnancial institutions], FSF [Financial Stability Forum], standard-setting bodies and other relevant international organizations to work with us on these issues [of corruption and transparency]’ (Fostering Growth and Promoting a Responsible Market Economy: A G8 Declaration). ‘Building on the work of the G8 Contact Group on famine, we will work actively to take this Action Plan forward in all relevant international fora’ (Action Against Famine, Especially in Africa: A G8 Action Plan). ‘We direct our ministers and ofﬁcials, working urgently with WTO [World Trade Organization] partners, to establish a multilateral solution in the WTO to address the problems faced by these countries, rebuilding the conﬁdence of all parties, before the Cancun Ministerial’ (Health: A G8 Action Plan).

222

Corporate, Public and Global Governance: The G8 Contribution

G7/8 Institutions Approved and Continued (4) ‘We endorsed the report prepared by our Africa Personal Representatives’ (Chair’s Summary). ‘We welcomed the report of our Finance Ministers’ discussions on our increased resources and on ﬁnancing instruments’ (Chair’s Summary) ‘We endorse the “G8 Roma and Lyon Groups Statement on Biometric Applications for International Travel”’ (Enhance Transport Security and Control of Man-Portable Air Defence Systems (MANPADS): A G8 Action Plan). ‘We … support issuance in June by the Financial Action Task Force (FATF) of a revised 40 Recommendations that includes strong customer due diligence provisions, enhanced scrutiny for politically exposed persons and a requirement to make corruption and bribery a predicate offence for money laundering’ (Fighting Corruption and Improving Transparency: A G8 Declaration).

Coming Together: The Evian Legacy

223

Appendix 14.3 2002

Inter-Summit Ministerials and Equivalents, 2002–03

27 September

G8 Development Cooperation Ministers Meeting, Windsor, Ontario, Canada G7 Finance Ministers and Central Bank Governors, Washington DC Statement by G8 Foreign Ministers in Connection with Terrorist Hostage Taking in Moscow

27 September 25 October

2003 21–23 February G7 Finance Ministers, Paris 11–12 April G8 Finance Ministers and Central Bank Governors, Washington DC 24 April G8 Development Ministers, Paris 25–27 April G8 Environment Ministers, Paris 29 April G8 Energy Ministers, Paris 5 May G8 Justice and Home Affairs Ministers, Paris 22–23 May G8 Foreign Ministers, Paris 16–17 May G7 Finance Ministers, Deauville, France 30–31 May G8-EU Summit, St. Petersburg 1–3 June G8 Summit, Evian

224

Corporate, Public and Global Governance: The G8 Contribution

Appendix 14.4 The Pre-Summit ‘G15’ Membersa The Trilogy: 1989, 2003, and G20 India Mexico Duo I: 1989 and G20 Brazil China South Africa Saudi Arabia Duo II: 1989 and 2003 Egypt Senegal Solo I: 1989 Only Algeria Cambodia Cameroon Cyprus Gabon Pakistan Philippines Portugal Venezuela Yugoslavia Zimbabwe Solo II: 2003 Only Malaysia Morocco Solo III: G20 Only Argentina Australia South Korea Turkey a

Countries represented at the 1989 G7 Paris Summit, the 2003 G8 Evian Summit, or the G20 ﬁnance ministers and central bank governors.

Coming Together: The Evian Legacy

Appendix 14.5

225

2003 G8 Evian Summit Commitments by Document

Chair’s Summary Economics Growth and Responsible Market Economy Corruption and Transparency Trade Subtotal Development Health Famine Subtotal Sustainable Development Sustainable Development Science Marine Environment and Tanker Safety Water Subtotal Political-Security Non-Proliferation of Weapons of Mass Destruction Radioactive Sources Transport Security/MANPADS Terrorism

16

Subtotal Total

63 207

4 26 8 38 10 11 21 29 24 16 69 2 20 18 23

226

Corporate, Public and Global Governance: The G8 Contribution

Appendix 14.6 2003 G8 Evian Summit Money Mobilised New Money Promised ‘In keeping with our pledge at Kananaskis to provide, on a fair and equitable basis, sufﬁcient resources to eradicate polio by 2005, we have pledged an additional US$500 million and remain committed to playing our full part to ensure that the remaining funding gap is closed’ (Health: A G8 Action Plan). Old Money Reafﬁrmed ‘We are determined to sustain and broaden our efforts towards … reaching our Kananaskis commitment of raising up to US$20 billion over 10 years’ (Chair’s Summary). Need for More Money and G8 Responsibility Recognised ‘We noted that achieving these ambitious goals would require considerable efforts from both developed and developing countries, including increased resources. We welcomed the report of our Finance Ministers’ discussions on our increased resources and on ﬁnancing instruments. We invite them to report back to us in September on the issues raised by the ﬁnancing instruments’ (Chair’s Summary). ‘We tasked our relevant Ministers to examine as soon as possible the measures necessary to support a plan for the revitalisation and reconstruction of the Palestinian economy, including the leveraging of private investment, within the framework of the Middle East Peace Process’ (Chair’s Summary). ‘We are providing urgent humanitarian aid and, to address the ﬁnancial consequences of this situation, we are instructing our relevant Ministers to report within one month on how best to help Algeria recover’ (Chair’s Summary). ‘To these ends, we direct our ministers and ofﬁcials to pursue urgently with WTO [World Trade Organization] partners the actions outlined below … Deliver capacity building technical assistance to developing countries in need to help them participate fully in WTO negotiations, implement trade agreements, and respond to the trade opportunities created, in co-operation with other bilateral and multilateral donors’ (Cooperative G8 Action on Trade). ‘The CTAG will analyse and prioritise needs, and expand counter-terrorism capacity building assistance’ (Building International Political Will and Capacity to Combat Terrorism: A G8 Action Plan). Monitoring of Possible More Needed Money with G8 Responsibility Acknowledged ‘We welcomed the progress made towards completing our commitment in Kananaskis to ﬁll the estimated ﬁnancing gap in the HIPC [Heavily Indebted Poor Countries] Trust Fund, through the pledges of $850 million made in Paris in October 2002. We will continue to monitor the ﬁnancing needs of the Trust Fund’ (Chair’s Summary).

Coming Together: The Evian Legacy

227

‘We will address new needs [relating to famine] when they are conﬁrmed with appropriate aid commitments’ (Action Against Famine, Especially in Africa: A G8 Action Plan). ‘We welcome the increased bilateral commitments for HIV/AIDS, whilst recognising that signiﬁcant additional funds are required. We commit, with recipient countries, to fulﬁl our shared obligations as contained in the Declaration of Commitment on HIV/AIDS for the 2001 United Nations General Assembly Special Session’ (Health: A G8 Action Plan). Notes: The category ‘money mobilised’ deals with the G8 itself putting, being likely to put, or possibly putting in the future additional ﬁnancial resources from the G8 for speciﬁed purposes. To be included in this category an item requires explicit communiqué references to ﬁnancial resources (broadly deﬁned) and to the G8’s role or responsibility in relation to these ﬁnancial resources. It excludes communiqué notations of where the G8 is already contributing ﬁnancially without any additional element that more ﬁnancing might be needed, from the G8 or not (for example, to the International Atomic Energy Agency). It also excludes communiqué references to the new purposes to which existing G8 funds might be put (such as radiological accidents from the Global Partnership). Also excluded are promises to improve the efﬁciency, timeliness, responsiveness, ﬂexibility, sustainability, appropriateness, and speciﬁc mix, as opposed to the overall volume, of aid (as in combating famine in Africa). Also excluded are general statements that specify neither action, nor level nor timing (for example, ‘We undertake to work toward reversing the decline of ofﬁcial development assistance to agriculture’ or ‘We will support efforts to ensure funding for genetic resources’).

228

Corporate, Public and Global Governance: The G8 Contribution

Appendix 14.7

G8 Summit Shocks Cited, 2003 Evian

‘The risks associated with radioactive sources have been the subject of increasing attention for several years now, particularly by the IAEA [International Atomic Energy Agency], with respect to safety and possible radiological accidents. But 11 September highlighted the risk posed by the use of certain highly radioactive sources for malevolent or terrorist purposes, i.e. the exposure of populations to radiation, or the use of one or more sources in a radiological dispersion device’ (Non Proliferation of Weapons of Mass Destruction: securing Radioactive Sources: A G8 Action Plan). ‘The threat of terrorism still, however, remains serious as has been seen in a series of terrorist incidents including in Indonesia, Kenya, Morocco, Pakistan, the Philippines, Russia, Saudi Arabia, Tunisia and Yemen over the past year’ (Building International Political Will and Capacity to Combat terrorism: A G8 Action Plan). ‘The recent sinking of the “Prestige” [off Europe’s shore] has again demonstrated that tanker safety and pollution prevention have to be further improved’ (Marine Environment and Tanker Safety: A G8 Action Plan). Note: ‘G8 Summit Shocks Cited’ are explicit references to singular, dramatic events concentrated in time and place, contained in the introductory opening passages or chapeau on each discrete document issued by or in the name of the leaders at the annual G8 Summits. With various degrees of directness and explicit causal connection, they constitute a causal justiﬁcation (and thus ‘process-tracing proof’) that the noted shock is a shared cause of the agenda discussions, principles, commitments, mobilised monies, remit mandates and institutional development and direction that follow in the document. The most intensely shock-driven summits are those that reference such shocks in the opening passage of their overall summary document(s), and that do so in many of each individual document issued by leaders at the Summit. Such opening passages can run a continuum from ‘things are going well in the world’ to ‘things are going badly in the world’ with ‘shocks’ sometimes grounding the latter, while ‘breakthroughs’ (such as the fall of the Berlin Wall) can sometimes ground the former. The strength of such shocks can be measured in part by their durability — the number of years from the time that they happened to their referencing in a G8 communiqué. The ﬁrst passage noted above at Evian provides a relatively pure case in which G8 leaders state that while the problem has long existed and been addressed by the relevant UN multilateral organisation, a shock (that implicitly showed that the UN body was/is unable to cope) now requires ambitious (implicitly direct and autonomous) action on the part of the G8.

Coming Together: The Evian Legacy

229

Appendix 14.8 2003 Evian Summit Institutional Momentum G8 and United Nations ‘Good governance needs to be promoted and capacity must be built for recipient countries to pursue an appropriate water policy, and ﬁnancial resources should be properly directed to the water sector in a more efﬁcient and effective way, in order to achieve the goals of the Millennium Declaration and the Plan of Implementation of the World Summit on Sustainable Development (WSSD) in the water and sanitation sector, and to reverse the current trend of environmental degradation through the protection and balanced management of natural resources. We are committed to playing a more active role in the international efforts towards achieving these goals, on the basis of the Monterrey consensus and building upon the outcomes of the Third World Water Forum and the Ministerial Conference held in Japan in March 2003 … we will take the following measures individually and/or collectively, particularly taking into account the importance of proper water management in Africa, in support of the New Partnership for Africa’s Development, as stated in the G8 Africa Action Plan’ (Water: A G8 Action Plan). G8 Alone ‘We shall continue to implement the Action Plan we agreed at Kananaskis to ensure safe, secure, efﬁcient and reliable transportation world-wide’ (Enhance Transport Security and Control of Man-Portable Air Defence Systems [MANPADS]: A G8 Action Plan). ‘G8 action to address famine in Africa will take place within the framework of the G8 Africa Action Plan, in support of the New Partnership for Africa’s Development’ (Action Against Famine, Especially in Africa: A G8 Action Plan). UN Alone ‘We recall the signiﬁcant decisions we took last year at the Monterrey Conference on Financing for Development to increase international development assistance’ (Fighting Corruption and Improving Transparency: A G8 Declaration). ‘The multilateral system embodied in the World Trade Organisation (WTO), and the current Doha Development Agenda, is thus central to the G8’s approach … We are therefore committed to delivering on schedule, by the end of 2004, the goals set out in the Doha Development Agenda’ (Cooperative G8 Action on Trade). ‘We recognise the need, as acknowledged in the World Summit on Sustainable Development (WSSD) Plan of Implementation, to support the development of cleaner, sustainable and more efﬁcient technologies’ (Science and Technology for Sustainable Development: A G8 Action Plan). ‘We reafﬁrm our commitment to achieving the development goals set out in the Millennium Summit and at the World Summit on Sustainable Development’ (Health: A G8 Action Plan).

230

Corporate, Public and Global Governance: The G8 Contribution

Note: Institutional momentum is deﬁned as public promises made at or by speciﬁed summits or conferences or action plans issued by international institutions, as referenced in the introductory opening passages of each discrete document issued by the annual G8 summits or in the G8 leaders’ name. With various degrees of directness and explicit causal connection, they are speciﬁed by G8 leaders as a reference, impulse, justiﬁcation or legitimation — in short as a shared institutional cause (and thus ‘process-tracing’ proof) of the subsequently identiﬁed G8 agenda discussions, principles, commitments, mobilised monies, remit mandates, and institutional development that follow in the document. Of particular importance is whether the institutions causally speciﬁed are those of the G8, of the broader United Nations system, or of other institutional systems. It can be hypothesised that the speciﬁcation of both G8 and UN as authorising references will lead to the greatest subsequent G8 action, followed by action by the G8 alone. Within each category, the strength of the variable is measured by the number of times reference is made to such institutional authorisations and to the number of different institutional authorisations to which reference is made.

Appendices

This page intentionally left blank

Appendix A

Statement of the G7 Finance Ministers and Central Bank Governors Paris, 23 February 2003

Our economies are experiencing slower growth, yet they remain resilient. Geopolitical uncertainties have increased. We remain conﬁdent in the underlying strength of our economies and in their capacity to grow more vigorously. We recognise the imperative for higher growth rates and resolve to take steps to achieve this result. To this end, Europe is committed to accelerating labour, product and capital market reforms to achieve a more ﬂexible economy; Japan has reiterated its commitment to structural reforms, including in the ﬁnancial and corporate sectors; the U.S. is implementing action to create jobs, encourage capital formation and savings and raise productivity growth. We also remain steadfast in our commitment to ensure sustainable public ﬁnances and price stability. We are all committed to the Doha Development Agenda and to meeting its overall timetable and interim milestones. We will continue to cooperate closely. If the economic outlook weakens, we are prepared to respond as appropriate. We will continue to monitor exchange markets closely and cooperate as appropriate. To strengthen corporate governance and to bolster further investor conﬁdence, we are implementing ambitious domestic reforms. Strengthened market discipline, improved corporate disclosure, increased transparency and effective regulation are common principles that underpin sound ﬁnancial systems and ensure their coherence. We support the work of the Financial Stability Forum and other fora, covering independent auditing, high-quality accounting standards, sound corporate governance and ﬁnancial information quality. We will review the progress of their work. We encourage developing and emerging market countries to pursue sound policies and to enhance their investment climates. These policies will help attract foreign direct investment, reduce external vulnerabilities and raise sustained growth. We welcome Brazil’s pursuit of sound economic policies and social reforms. As Argentina moves forward to fulﬁll its commitments agreed with the IMF [International Monetary Fund], we look forward to the authorities restoring contract enforcement and engaging in a dialogue with its private creditors. We welcome Turkey’s commitment to economic and ﬁnancial stabilization as agreed with the IMF. We are implementing our April 2002 action plan to prevent and resolve ﬁnancial crises in emerging market countries. Progress has been made in ensuring greater discipline through clarifying normal and exceptional access to ofﬁcial ﬁnance in crisis situations. We welcome the positive response of the private sector to collective

234

Corporate, Public and Global Governance: The G8 Contribution

action clauses and its on-going work with the public sector on model clauses. We look forward to the early adoption of effective collective action clauses and to the discussion of a concrete proposal from the IMF on a sovereign debt restructuring mechanism at its Spring meeting. As a complement, we welcome work on a code of good conduct based on negotiating principles. We urge the IMF to enhance crisis prevention, including by making its surveillance more effective. We urge all countries to implement and enforce laws to combat the ﬁnancing of terrorism. We will continue to provide technical assistance to countries that lack appropriate measures to combat terrorist ﬁnancing. We urge the IMF and the World Bank to step up their assessments and their provision of technical assistance in coordination with the United Nations and to present an action plan at the Spring meetings. We urge the Financial Action Task Force to foster effective asset freezing. We encourage more effective oversight of informal ﬁnancial institutions and charities and we look forward to revised Financial Action Task Force recommendations by June. We urge all OECD [Organisation for Economic Co-operation and Development] countries to implement the standards set out in the OECD’s 2000 report on access to bank information and to ensure effective exchange of information for all tax purposes. A level playing ﬁeld is crucial to avoid tax evasion shifting from those countries that engage in exchange of information to those that do not. Our duty, our responsibility for the prosperity and sustainable development of the world require us to address vigorously the challenge of global poverty. To build on the positive outcomes of Monterrey and Johannesburg, developed and developing countries should mobilize greater ﬁnancial resources and improve aid effectiveness by setting and achieving measurable results and adopting growth-oriented policies. We reafﬁrm our support for the Millennium Development Goals, including on health, education and water supply and sanitation, as well as to the completion of the Highly Indebted Poor Countries (HIPC) initiative and of the Global Health Fund. Their achievement calls for an increased volume of development resources. We have made progress particularly on HIV/AIDS and will continue to focus on the Goals and their ﬁnancing, including facilities, with a view to making further progress by Evian. Consistent with the G8 Africa Action Plan, we are ready to provide substantial support to African countries that implement New Partnership for Africa’s Development (NEPAD) principles and are committed to improving governance and demonstrate solid policy performance. We recognize the fundamental importance of rules-based trade in driving economic growth and poverty reduction.

Appendix B

Statement of the G7 Finance Ministers and Central Bank Governors Washington DC, 12 April 2003

We met today at a time in which the world economy faces many challenges. In this light, we reafﬁrm our commitment to multilateral cooperation. Growth in most of our economies has been subdued, though uncertainties have diminished. A strong and lasting recovery is essential for our own countries and for the world. To this end, we each commit to pursue sound macroeconomic policies that support sustained growth. In a low inﬂation, low interest rate environment, there is potential for higher growth through productivity-enhancing structural reforms, and to buttress investor conﬁdence through continued improvements in corporate governance practices, market discipline, and transparency. We will respond as needed to developments in the economic environment. We will continue to monitor exchange markets closely and cooperate as appropriate. We underscore the importance to global growth and poverty reduction of successful trade liberalization through the timely implementation of the Doha Development Agenda, notably in ﬁnancial services. We encourage all emerging market countries to pursue sound policies and to enhance their investment climates. These policies will help attract ﬁnancial ﬂows, importantly including foreign direct investment, to reduce external vulnerabilities, and to support sustained growth. We welcome the strong macroeconomic policies and ambitious structural reforms that Brazil’s authorities are implementing. We reiterate our commitment to strengthen crisis prevention and resolution measures. We are pleased to see progress being made on each element of our Action Plan of last April, as detailed in the accompanying update. We will continue to work to further implementation in this area. We reafﬁrm our strong commitment to combat terrorist ﬁnancing and pledge to maintain the momentum we have achieved thus far. We will work with the Financial Action Task Force [FATF], the UN, and the International Financial Institutions to implement the work plan that we endorsed in February. We welcome the Action Plan of the IMF [International Monetary Fund] and World Bank, and are encouraged by the progress of the Pilot Program agreed with FATF; we urge them to successfully carry forward this important initiative. We look forward to revised FATF recommendations by June, establishing an enhanced standard in the ﬁght against ﬁnancial crime. We reafﬁrm our February commitment to address the challenge of global poverty and our support for the Millennium Development Goals and the Monterrey consensus. Achieving these will require mobilization of greater ﬁnancial resources by developed and developing countries. We will continue to focus on the goals and

236

Corporate, Public and Global Governance: The G8 Contribution

their ﬁnancing, including facilities, with a view to progress by Evian. Aid is most effective in countries with sound policies, good governance, and an environment conducive to private sector-led growth. We reiterate our support for NEPAD [New Partnership for Africa’s Development] principles. We will develop an approach for dealing with non-IDA [International Development Association] countries within the Paris Club for consideration at our May meeting. We also encourage developing countries, working with the World Bank, to integrate trade objectives as key elements of their PRSPs [poverty reduction spending papers] and CAS [country assistance strategy] lending programs. We recognize the need for a multilateral effort to help Iraq. We support a further UN Security Council resolution. The IMF and the World Bank should play their normal role in rebuilding and developing Iraq, recognizing that the Iraqi people have the ultimate responsibility to implement the right policies and build their own future. It is important to address the debt issue and we are looking forward to the early engagement of the Paris Club. G7 Action Plan Implementation, April 2003 In April 2002, we adopted an integrated Action Plan to strengthen crisis prevention and resolution measures designed to promote conditions for sustained growth of private investment in emerging markets. The progress made on each element of the Action Plan is set out below. Surveillance and Crisis Prevention Better information is key to sound economic analysis and improved pricing of risk, with a view to promoting more stable capital ﬂows. In this regard, the IMF has made progress in deepening its surveillance capacity, including through the development of more robust debt sustainability analyses and greater focus on national balance sheets. The IMF and its Independent Evaluation Ofﬁce (IEO) have identiﬁed areas for further progress to make surveillance more comprehensive, independent and accountable, including a fresh perspective in program countries and improved analysis of vulnerabilities. We urge the Fund to intensify its work in these and other critical areas, including currency mismatches, reporting progress to the 2003 Annual Meetings. To complement these measures, we support the presumption of publication of Article IV reports, Public Information Notices (PINs) of relevant Board discussions, program documents, and reports on the observance of standards and codes (ROSCs), especially for countries with IMF programs, while taking into account its impact on deletion and correction policy. Program documents for cases of exceptional access should always be published. Access Limits Consistent with the need for greater discipline in the provision of ofﬁcial ﬁnance in crisis situations, we support the IMF Board’s decision that normal access should be

Appendix B

237

limited to 100 per cent of quota in any one year and a cumulative total of 300 per cent of quota. Lending under any facility, or combination of facilities, above these limits will be considered exceptional. Over the past year, the IMF has set out criteria and procedures to inform decisions and judgements for cases where exceptional access is contemplated. These stronger procedures, including early Board involvement and a separate report evaluating the case for exceptional lending, will be applied to any exceptional lending, even where the member is not experiencing a capital account crisis. We welcome the recent establishment of a strong presumption that only the SRF [supplemental reserve facility] will be used for any exceptional lending to address signiﬁcant balance of payment pressures on the capital account. We also welcome the progress made in clarifying the Fund’s policy for lending in cases where members are in arrears to their private creditors. Code of Conduct In the light of growing interest in exploring a voluntary ‘code of good conduct’, and since good investor relations are key to timely, orderly debt restructurings, we have instructed our ofﬁcials to prepare a report, in consultation with issuers and the private sector, on these issues by our Fall meeting. We note that the Fund has already started to examine the concept and we look forward to a progress report on its work. Collective Action Clauses (CACs) We remain committed to promoting the early and widespread adoption of CACs. To date, experts from the private and ofﬁcial sector have made progress toward developing model clauses for use in sovereign bond contracts. We expect that G7 countries will continue their leadership by adopting CACs in their own bonds governed by the laws of a foreign jurisdiction. Consistent with the policy of the European Union to introduce these clauses in new foreign bond issues, some EU members will start issuing bonds with such clauses this year. We welcome the leadership that Mexico has shown by including CACs in its successful bond issues under New York law. Sovereign Debt Restructuring Mechanism (SDRM) The extensive analysis and consultations undertaken in the course of the Fund’s development of a concrete SDRM proposal have promoted a better understanding of the issues to be addressed in the more orderly resolution of sovereign debt crises. In view of the experience gained through the implementation of CACs and the interest in a code of conduct, and recognizing that it is not feasible now to implement the SDRM proposal, work should continue on issues raised in the SDRM discussions, such as aggregation, scope of debt, and inter-creditor equity that are of general relevance to the orderly resolution of ﬁnancial crises.

This page intentionally left blank

Appendix C

G8 Finance Ministers Statement Deauville, France, 17 May 2003

We met today ahead of the Evian Summit. While major downside risks have receded, our economies continue to face many challenges. We are nonetheless conﬁdent in the potential for stronger growth. Our task is to realise this potential. We will therefore continue to cooperate to achieve higher growth in all of our economies, while ensuring domestic and external sustainability, and thereby to contribute to global economic growth. We are strengthening our commitments to structural reforms and sound macroeconomic policies. As we face a common challenge of ageing, our contribution to higher worldwide growth should rely more strongly on a good system of education and life-long learning, research and development, innovation and entrepreneurship, on the foundation of a sustainable ﬁscal and monetary framework. Europe will continue to foster innovation and to accelerate labour, product and capital market reforms so as to achieve a more ﬂexible economy. The U.S. will act to create jobs and to encourage savings and investment by the private sector. Japan will continue its structural reforms, including in its ﬁnancial and corporate sectors, and intensify its efforts to combat deﬂation. Canada will maintain monetary prudence and ﬁscal balance, while investing in productivity. Russia, which has greatly improved its performance, will pursue structural reforms, in particular in the ﬁnancial sector. To bolster investor conﬁdence, we will continue to reinforce corporate governance practices, market discipline, transparency and regulation in line with the principles agreed in February. We welcome the work program agreed by the Financial Stability Forum in Berlin on potential ﬁnancial vulnerabilities and corporate governance and related matters, including rating agencies and ﬁnancial analysts, and will review the results of this work in September. We have agreed to appoint Roger Ferguson as FSF Chair. We favour the emergence, through open and public processes involving the private sector, of high-quality internationally recognized accounting standards that are applied, interpreted and enforced, with due regard to ﬁnancial stability concerns. We will closely monitor the on-going work on Basel II and will review the issue at our next meeting in September. We also encourage voluntary private sector initiatives that foster and complement such international efforts to promote corporate social and environmental responsibility as the OECD [Organisation for Economic Co-operation and Development] guidelines for Multinational Enterprises and the UN Global Compact principles. We reafﬁrm our strong commitment to combat terrorist ﬁnancing. We call on the Financial Action Task Force to deepen its engagement with the UN and the International Financial Institutions, to foster worldwide compliance with

240

Corporate, Public and Global Governance: The G8 Contribution

international standards against terrorist ﬁnancing and delivery of related technical assistance. We look forward to further work on the misuse of alternative remittance systems and non-proﬁt organisations and to developing more effective freezing regimes. We welcome the progress achieved by the IMF [International Monetary Fund], the World Bank and the FATF on the pilot program of assessments and look forward to its evaluation. We look forward to revised FATF recommendations by June, establishing an enhanced standard in the ﬁght against money laundering and ﬁnancial crime. We urge all OECD countries to implement the standards set out in the OECD’s 2000 report on access to bank information and to ensure effective exchange of information for tax purposes. We reafﬁrm our commitment to strengthen our crisis prevention and resolution measures through improved IMF surveillance, greater transparency and more orderly, timely and predictable workouts of unsustainable debt. We welcome Brazil, South Africa and Uruguay’s decisions to adopt collective action clauses following on Mexico’s lead, and we encourage countries to adopt CACs with terms that facilitate debt restructuring. While keeping debt restructuring a last resort, we have agreed on a new Paris Club approach, as set out in the annex, for non-HIPC [heavily indebted poor countries] low- and middle-income countries ready to follow an exit strategy and to seek comparable treatment. We welcome initiatives being taken, including issuers, private sector and ourselves, on the development of a code of conduct. We look forward to reviewing progress in September. We are at a turning point on development as on trade issues. We owe it to developing countries to take up our responsibilities. First, we need to raise economic growth in our own economies. Second, within a predictable medium-term framework, we need to provide the developing countries the resources necessary to support their commitment to implement structural and governance reforms, so as to accelerate their growth and social progress. Third, we are determined to achieve the objectives and overall timetable set out in the Doha Development Agenda and to ensure that the Cancun ministerial takes the decisions necessary to reach these goals. Commitments taken must be fulﬁlled. It is our duty as much as it is to the beneﬁt of all. We ask Francis Mer to report to the Heads of States and Government in advance of the Evian summit on these issues, with a view to delivering on these commitments in order to meet the Millennium Development Goals. We reafﬁrm our commitment to achieve these Goals, including health, education and water, to support the Global Health Fund and to complete the Heavily Indebted Poor Countries initiative. The ﬁght against global poverty calls for increased resources. Building on our recent announcements of increased resources and on our discussions to date on ﬁnancing instruments, including facilities, we call for a report by September. Equally, as set out in the document made public today, we stress the importance of improving the effectiveness of our bilateral and multilateral aid, including by focusing on poor countries committed to reforms, setting and achieving measurable objectives, adopting growth-oriented policies and reducing transaction costs of assistance. We are also committed to promoting good governance, improved transparency and public ﬁnancial management and the ﬁght against corruption. We will review progress next year. We recognize the importance of rules-based trade in driving economic growth and poverty reduction. Building on NEPAD, we agree that

Appendix C

241

Africa must become more integrated into the global economy and we will leverage the beneﬁts for Africa of our trade commitments. We look forward to the results of IFIs’ [international ﬁnancial institutions’] study of market-based mechanisms to reduce the impact of short-term commodity price volatility. Annex: A New Paris Club Approach to Debt Restructuring The Paris Club of ofﬁcial creditors is a central element of the existing framework for crisis resolution. In the context of the current efforts to make the resolution of crises more orderly, timely and predictable, the Paris Club can make a contribution. The debt of heavily indebted poor countries is already addressed under an existing international initiative. For other countries experiencing serious debt problems, Finance Ministers encourage the Paris Club to improve its methods. They endorse appropriate action to achieve lasting debt sustainability, while ensuring that debt restructuring remains the last resort. Given the need to preserve access to private capital, the Paris Club should tailor its response to the speciﬁc ﬁnancial situation of each country rather than deﬁning standard terms under this new approach. When a country approaches the Paris Club, the sustainability of its debt would be reviewed and analysed in coordination with the IMF. For a country, which has unsustainable debt and is committed to policies that will avoid a return to the Paris Club, as well as to seeking comparable treatment from its other external creditors, including the private sector, the Paris Club would deﬁne a process to provide debt relief in stages. These stages would be designed to have a strong link with economic performance and public debt management. A satisfactory track record in implementing an IMF program and in paying Paris Club creditors would be needed, after which the debt restructuring would be carried out in several steps linked to IMF conditionality. Under this approach, the Paris Club could draw on a wide range of options to facilitate the return to debt sustainability, including: • • •

debt reduction in exceptional cases when its need is clearly demonstrated, an active policy of adjusting the ‘cut-off date’ (claims contracted after that date are not eligible for restructuring in the Paris Club), over time, use of ﬂexible instruments such as debt buybacks and swaps.

In this context, coordination between ofﬁcial and other creditors, notably private creditors, is particularly important. The Paris Club has taken a number of steps to increase transparency of its procedures over the past years notably through meetings with private sector representatives and the information provided on its web site. This dialogue should continue and could take the form of early discussions with the private sector on the issue of the comparability of treatment of their respective claims. Finance Ministers urge the Paris Club to adopt such an approach in future restructuring cases and will review its implementation in Spring 2004.

242

Corporate, Public and Global Governance: The G8 Contribution

A G7 Finance Working Paper: Aid Effectiveness The Monterrey Conference on Financing for Development endorsed the concept of partnership between developing and developed countries, with all stakeholders committed to increasing both the volume of aid and the effectiveness of aid with a view to achieving the Millennium Development Goals (MDGs). Our challenge is to work together with developing countries to implement the most valuable lessons we have learned from our many years of experience in supporting development: sound economic policies, good governance and access to world markets form the basis of long-term prosperity. To achieve this objective and to increase aid effectiveness, this paper outlines some key principles and actions in four important areas: • • • •

to improve the quality of poverty reduction strategies, particularly the need to better reﬂect a credible plan to achieve lasting growth; to make further steps to improve harmonisation, building on the February 2003 Rome Declaration; to focus development assistance on measurable results; and, to send a clear signal on the importance we attach to good governance in considering the allocation of our international assistance.

Beyond providing aid, however, developed countries have a responsibility to afford poor countries the opportunity through trade to earn the resources that will sustain growth and poverty reduction. We are all committed to achieving the objectives set out in the Doha Development Agenda and to meeting its overall timetable. Further trade liberalizing actions by developing countries themselves are also critical to promote lasting growth and poverty reduction. A. Enhancing the Role of Poverty Reduction Strategies 1. We recognize that poverty reduction strategy papers (PRSPs) have provided a valuable framework for increasing country ownership of reform efforts, measuring progress towards the MDGs, and for increasing poverty reduction expenditures, including through debt relief provided under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative. However, this is a work in progress and improvements to the process are still needed. Developing countries, with the support of the international community, must now make efforts to improve and adapt PRSPs, with a particular emphasis on the following areas: •

Prioritizing sources of, and removing impediments to, growth. Most countries in Africa need to double their GDP [gross domestic product] growth rates to achieve the poverty reduction MDG [Millennium Development Goal]. However, experience suggests that PRSPs do not sufﬁciently prioritize actions necessary to drive productivity growth. In particular, policies and institutions that contribute to increased competitiveness, link macro- and micro-economic policy reform, and enable private sector led growth, have all been under-

Appendix C

243

represented in the PRSP dialogue. We will work with recipient countries and the IFIs to support improvements in PRSPs on these issues. • Addressing corruption. Corruption continues to impede economic growth, deter foreign investment and undermine the effectiveness of public resources. We call on the IFIs to support governments in the development of anticorruption plans, underpinning their poverty reduction strategies. These plans would build upon and operationalise international and regional conventions and agreements against corruption. Implementation of these plans should be monitored through an internationally agreed assessment framework. • Strengthening public expenditure management and accountability. Many aid recipients, particularly those in sub-Saharan Africa, continue to have chronic weaknesses in expenditure management and, in most cases, the PRSP is not in line with the national budget process (i.e., from a timing, capacity and resource allocation perspective). We call on all low-income countries’ governments to develop, with the IFIs’ assistance, country-led action plans for better public ﬁnancial management and accountability as part of their poverty reduction strategy. All PRSPs should include such action plans with measurable targets. For countries making such efforts, we commit: – to increase our assistance and undertake efforts to ensure our aid is more predictable; – to align our own approaches with these plans and harmonize our requirements, where appropriate; and, – to increase our use of country-systems where these meet appropriate ﬁduciary standards. We also call on the IMF and World Bank to further increase their efforts in this area, to streamline and better coordinate their tools, to strengthen their assessment mechanisms, and to report on progress at the Annual Meetings. 2. Aligning capacity building efforts to PRSP goals. We recognize the need to help countries identify and address the barriers to effective implementation of their poverty reduction strategies. In particular, we need to align our capacity building efforts to address these gaps. Efforts to tackle corruption and to improve expenditure management, as noted above, are two important areas in this regard. Another key area identiﬁed by developing countries is trade-related technical assistance. The World Trade Organization (WTO) has created the Global Trust Fund and has improved its training programs. The World Bank has noted that trade needs to be better integrated into development strategies, including PRSPs and World Bank Country Assistance Strategies (CAS). We urge the World Bank to follow up on its own conclusions and take action to address trade policy capacity building — both with respect to its own work on the ground and in cooperation with the WTO and other relevant bodies. This includes working to improve follow-up on work undertaken in the context of the Integrated Framework for Least Developed Countries. 3. Expanding the use of country-driven development strategies. We strongly encourage all developing countries that are not currently developing PRSPs, or undertaking a similar exercise, to develop a nationally owned plan to address

244

Corporate, Public and Global Governance: The G8 Contribution

poverty. We encourage IFIs to assist those countries, particularly middle-income countries, which have begun this process and to consider what incentives may be needed to engage additional countries. The IFIs could be instrumental in promoting the adoption of development indicators in middle-income countries as well. This would allow for a more coherent establishment of indicators and measurements systems across countries. B. Harmonizing Our Efforts 4. Alignment of aid with poverty reduction strategies. Efforts have already been made to align donors’ strategies and interventions with recipients’ poverty reduction strategies. There is strong evidence that the IFIs in particular are using the PRSP or country-owned national strategies as a basis for their own country strategies. This has contributed to strengthened aid effectiveness while also enhancing country ownership over the programs ﬁnanced by aid. In countries with PRSP or equivalent processes, we agree to make further efforts to link our assistance with their priorities. 5. Harmonizing procedures. Harmonizing donors’ administrative procedures and building on country systems and approaches will relieve recipient governments from unproductive duplication of administrative tasks required by donors, both bilateral and multilateral. We agree to build on the outcomes of the recent Rome High level Forum and the work to date of the OECD’s Development Assistance Committee (DAC), the World Bank and other multilateral development banks (MDBs). In particular, we agree to call on the DAC to monitor progress on harmonization efforts and, if necessary, to consider to work — together with the MDBs — on speciﬁc recommendations and timeline for further harmonization efforts, bearing in mind the need to set standards at the highest rather than the lowest denominator. We urge the DAC to consult recipient countries on this matter and incorporate their opinions when they make such recommendations. Progress towards achieving commitments must also be monitored and regularly reported on. 6. Untying aid. In order to increase the effectiveness of development assistance, we call on the DAC to ensure the effectiveness of the untying recommendation and to review the extent to which all members have taken steps to fully implement it, in spirit and in action. We urge all DAC members to accelerate the implementation of this recommendation. Building on this outcome, we expect the DAC to continue to explore options for further progress in this area and to report on progress in implementing current agreements. C. Focus on Results 7. Our ability to demonstrate that aid works directly affects the level of public support for ODA [ofﬁcial development assistance]. We welcome the MDBs initiative towards better measuring, monitoring and managing of results, and we urge full and time-bound implementation for country assistance strategies, sector policies and speciﬁc ﬁnancing operations. We support a role for the Development

Appendix C

245

Committee in discussing annual progress towards achieving the MDGs. Since achievement of the MDGs depends on developing countries creating an environment for growth, improved productivity, and strong governance, it will also be important to monitor progress on these as well. To move this agenda forward we believe additional efforts are needed in the following areas: •

•

•

New country indicators. The World Bank and UN, who are undertaking cooperative work to translate the global MDGs into sectoral goals, are supporting the development of PRSP goals for individual countries. More needs to be done, including improved coordination with other institutions, to ensure relevant baseline data is collected, appropriate intermediate benchmarks are established and a results-based system is in place to measure outcomes, in particular common country outcomes that can facilitate crosscountry comparisons, where possible. The World Bank should also develop indicators to measure the environment for growth, improved productivity and strong governance, in coordination with other institutions; Supporting statistical capacity. Operational plans for establishing baseline data and measurable indicators in priority areas are critical to success of the PRSP process. We commit to support the World Bank, PARIS 21, and other institutions in their efforts to reinforce their capacity building work with developing countries in the area of collecting and analysing statistics, especially in those countries at risk of missing the MDGs; and, Improving and broadening the results approach. We call on the World Bank to improve existing mechanisms, for instance, transforming the Country Assistance Strategy to more results-based documents and strengthening the overall Performance-based Allocation exercise, including more robust Country Policy and Institutional Assessments (CPIA). We will support the inclusion of results indicators, similar to those of IDA 13, for other large multilateral funds, starting with coming replenishments. We also commit to work in the DAC on a timeframe to extend such initiatives to our bilateral agencies.

D. Promoting and Rewarding Good Governance 8. Recent work by the OECD/DAC, World Bank and others have highlighted the limited progress on structural and governance reforms that threaten the attainment of MDGs in many countries. Of particular concern, the Bank’s 2002 CPIA process found that two-thirds of low-income countries have a business environment that could seriously inhibit domestic and foreign investment, including serious shortcomings in respect for property rights and rules-based governance. Public sector governance, including control of corruption, remains a concern in more than three-quarters of low-income countries. We consider improvements in the environment for private sector activity and public sector management as prerequisites for aid effectiveness. 9. Improving the selectivity of aid. We commit to increase selectivity in our assistance, focussing our aid on the poorest but best performing countries. A fundamental principle of the Monterrey Consensus and the New Partnership for Africa (NEPAD)

246

Corporate, Public and Global Governance: The G8 Contribution

is that developing countries will commit to improve governance. We renew our promise to scale-up the volume of our aid to governance performance. This will lead to increased, and more predictable, aid for those countries committed to reform. By coordinating our efforts in this regard, we also increase the overall incentive to improve policies and pursue good governance. We will also work to reinforce the capacity of weak performers, while recognising the needs of poor people in these countries. To support our efforts, we agree to call on the IFIs to work towards more transparent and objective means to identify good performers so as to strengthen the incentive of all aid recipients to improve governance. We support current efforts underway in the DAC and MDBs to improve indicators for governance, given the known problems related to adequacy, reliability and comparability. To help move this agenda forward, we will ask the World Bank to publish individual CPIAs. 10. Strengthening transparency and accountability. Too many countries refuse to allow publication of their IMF Article IV consultations (44 countries in FY2002 [ﬁscal year 2002], including 15 of 33 sub-Saharan African countries and 7 of 10 North African and Middle Eastern countries) and World Bank CASs. We will press to establish presumption of publication of all country surveillance, program reviews, reports and strategies, including Article IV, PRGF/SMP [staffmonitored programme] staff papers, and all MDB country strategies, while taking into account the impact on deletion and correction policy. This will help promote local debate and ownership over the reform process. We will also ask that they require all IMF exceptional access cases to include publication of staff reports, and a separate report for each IMF exceptional access case that lays out clearly the justiﬁcation of such access, which also would be published. We will urge that they seek full disclosure of MDB performance allocation systems, and ensure that all ﬁduciary and governance diagnostics are made public. With respect to Africa, we renew our support to the NEPAD process and look forward to progress in the implementation of the African Peer Review Mechanism, including its governance aspects. We will ask the IFIs to look for opportunities to coordinate their monitoring and surveillance mechanisms with NEPAD’s own work. 11. Enhancing participation. Recent work by the IMF and World Bank suggests the quality of in-country debate and consultation on key issues, such as IMF programs and PRSPs, while improving in some cases, nevertheless remains uneven. Broadening this dialogue to include Parliamentarians, private sector and civil society organizations, local administrations and other important groups is key to building accountability and ownership over reform agenda. We urge developing countries, assisted by the MDBs and other organizations, to address this issue. We are committed to help facilitate this process, including providing support to country-led efforts to analyse the poverty and social impact of key policy reforms. E. Increasing Trade Opportunities 12. The World Bank estimates that global income would rise by over $800 billion from free trade in all goods, of which close to two-thirds of these beneﬁts would

Appendix C

247

ﬂow to developing countries. Increasing trade opportunities for developing countries through the Doha Development Agenda is therefore essential if developing countries are to achieve their Millennium Development Goals. We are committed to seize the opportunity provided by the Doha Round. 13. Enhancing ‘South-South’ trade. We note that developing countries now pay over 70 percent of their trade duties to each other; tariff rates on South-to-South trade are nearly four times higher than South-to-North trade. Clearly, more needs to be done to promote trade amongst developing countries, including support to regional cooperation and infrastructure projects.

This page intentionally left blank

Appendix D

G8 Declaration: Fostering Growth and Promoting a Responsible Market Economy Evian, 2 June 2003

Efﬁcient capital markets are critical to achieving and maintaining economic growth. To support growth, economies need sound legal systems, effective regulation and transparent corporate governance practices. These factors underpin effective disclosure that is fundamental to well-functioning markets. Sound social frameworks and attention to the long-term impacts, including on the environment, of investment decisions and business processes are also important for sustainable growth. Timely and accurate information assists shareholders in exercising control and investors in allocating funds to their most productive uses. In support, governmental authorities should ensure that corporate reporting assists them in monitoring markets and in identifying vulnerabilities. Trust and conﬁdence are key ingredients of a well-functioning market economy. Restoring investor conﬁdence through sound corporate governance, as well as corporate structures and market intermediaries that are more accountable, is essential to promoting growth in our economies. We encourage the many initiatives underway, in national capitals, international ﬁnancial institutions and by international standardsetting bodies, to strengthen governance standards and disclosure regimes. Corporate integrity, strengthened market discipline, increased transparency through improved disclosure, effective regulation and corporate social responsibility are common principles that are the foundations for sound macro-economic growth. Common Values and Principles 1. Corporate governance 1.1 Market integrity We commit to pursue with strong resolve our ﬁght to further improve the integrity of the international economy (including efforts against money laundering, ﬁnancial crime and terrorist ﬁnancing), which is essential for its efﬁciency, fairness and transparency. We will continue to work towards investor protection, enhanced regulatory compliance and vigorous law enforcement, including through comprehensive cross-border assistance.

250

Corporate, Public and Global Governance: The G8 Contribution

1.2 Strengthened market discipline and effective regulation We re-afﬁrm our support of sound regulatory regimes that encourage and promote market dynamism and foster fair and effective competition among market participants. In order to support the beneﬁcial process of globalisation, we aim in particular to enhance international cooperation and to foster a sound level playing ﬁeld. We strongly support the work undertaken by the Financial Stability Forum (FSF). 1.3 Accountability and enhanced corporate governance We reafﬁrm that companies must be accountable to their shareholders. As underscored in the OECD [Organisation for Economic Co-operation and Development] Principles of Corporate Governance, other stakeholders also have strong interests in these issues. To this end, we call for continued efforts globally to enhance corporate governance. We also strongly support the on-going review of the OECD Principles and the implementation of the International Organization of Securities Commission (IOSCO) principles relating to corporate governance. 1.4 Increased transparency and quality of ﬁnancial information Integrity, quality and accessibility are the cornerstones of reliable ﬁnancial information. We call on all information providers — ﬁrst and foremost companies and their auditors, as well as ﬁnancial analysts, investment banks and rating agencies — to abide by these principles. Recognizing the need for ﬁnancial stability, we commit to promoting high quality, internationally recognized accounting standards that are capable of consistent application, interpretation and enforcement, especially for listed companies. 2. Corporate social responsibility Consistent with the outcomes of the World Summit on Sustainable Development, we support voluntary efforts to enhance corporate social and environmental responsibility. We will work with all interested countries on initiatives that support sustainable economic growth, including the creation of an environment in which business can act responsibly. We also welcome voluntary initiatives by companies that promote corporate social and environmental responsibility, such as the OECD Guidelines for Multinational Enterprises and the UN Global Compact principles consistent with their economic interest. We encourage companies to work with other parties to complement and foster the implementation of existing instruments, such as the OECD guidelines and the ILO [International Labour Organization] 1998 Declarations on Fundamental Principles and Rights at work. 3. Corruption and transparency We emphasise our determination to ﬁght corruption, one of the key obstacles to economic and social development, and mismanagement of public revenue and expenditure. Signiﬁcant and lasting progress in these areas can only be achieved through the concerted efforts of all governments, international institutions, the private sector and civil society. To this end we set out the attached G8 action plan.

Appendix D

251

We will jointly ask UN bodies, the IFIs [international ﬁnancial institutions], FSF, standard-setting bodies and other relevant international organizations to work with us on these issues and to further integrate them in their programs and actions.

This page intentionally left blank

Appendix E

Fighting Corruption and Improving Transparency: A G8 Declaration Evian, 2 June 2003

We emphasise our determination to ﬁght corruption and mismanagement of public resources in both revenue raising and expenditures. Transparency inhibits corruption and promotes good governance. Increased transparency of government revenue and expenditure ﬂows, as well as strengthened enforcement efforts against bribery and corruption, will contribute to achieving these goals and to increasing integrity in government decision-making — thereby ensuring that resources, including development assistance, achieve their intended purposes. We recall the signiﬁcant decisions we took last year at the Monterrey Conference on Financing for Development to increase international development assistance. We reafﬁrm that the decisions we take over how this money is spent will be informed by judgements we have made regarding countries’ commitment to transparency, good governance and related performance. 1. Urgent progress must be made in improving public ﬁnancial management and accountability (PFMA) to ensure that public and donor resources are used efﬁciently and effectively. This requires action by recipient countries, donors and the IFIs [international ﬁnancial institutions], including greater transparency by all and more coherent and sustained efforts to build capacity in developing countries. We will: 1.1 focus bilateral assistance on countries demonstrating commitment to improve performance on transparency, good governance and rule of law; 1.2 require ﬁduciary assessments before countries can access budgetary support (as already done with the World Bank Poverty Reduction Support Credit program); work to ensure that all ﬁduciary and governance diagnostics are made public; and improve coordination and harmonisation of our administrative procedures; 1.3 encourage all developing countries to create, as part of their poverty reduction strategies, plans for concrete action on PFMA setting measurable and timebound targets, and call on the IMF [International Monetary Fund] and World Bank to strongly support these efforts in the context of their own assistance; 1.4 develop with donors and governments a PFMA performance assessment based on the HIPC [heavily indebted poor country] Tracking exercise;

254

2.

3.

4.

Corporate, Public and Global Governance: The G8 Contribution

1.5 work with others to: achieve full disclosure of multilateral development bank (MDB) performance allocation systems; require publication of all MDB Country Assistance Strategies; urge presumptive publication of Article IV staff reports; and require publication of staff reports for all exceptional access cases, including a report for each that lays out clearly the related justiﬁcation; 1.6 encourage participation in and publication of ﬁscal policy transparency ROSCs [reports on the observance of standards and codes] by all IMF members, including making this standard practice for exceptional access cases; 1.7 call on developing countries to implement their commitments in regioal and international conventions on corruption through anti-corruption action plans, underpinning Poverty Reduction Strategy Papers (PRSPs). These action plans should be supported by the IMF, World Bank and other donors; we call upon them to join us in further increasing support and assistance in this regard. We will strengthen the enforcement of our Anti-Bribery Laws and will encourage the private sector to develop related compliance programs. We will: 2.1 accelerate peer reviews of each country’s implementation of the OECD [Organisation for Economic Co-operation and Development] Convention on Combating Bribery of Foreign Public Ofﬁcials, accompanied by the public release of these results, so as to complete a ﬁrst cycle of reviews by 2007. We will work together with our OECD Convention partners to ensure stable, long-term ﬁnancing for these reviews; 2.2 encourage the private sector to develop, implement and enforce corporate compliance programs relating to our domestic laws criminalizing foreign bribery. We are committed to actively contributing to the completion of a UN Convention against Corruption. This should include effective preventive measures, effective mechanisms for international cooperation in criminal matters and asset recovery and it should provide an effective follow-up mechanism for monitoring implementation of the Convention. We encourage technical assistance for this purpose. We will each seek in accordance with national laws to deny safe haven to public ofﬁcials guilty of corruption, by denying them entry, when appropriate, and using extradition and mutual legal assistance laws and mechanisms more effectively. We reafﬁrm our commitment to ﬁght ﬁnancial abuses and to: 4.1 encourage wider accession to and ratiﬁcation of the UN Convention on Transnational Organised Crime so that money laundering, corruption and other relevant crimes are universally criminalized and that all countries have the power to identify, trace, freeze or seize and ultimately conﬁscate and dispose of assets from the proceeds of these crimes. 4.2 require that our own ﬁnancial institutions establish procedures and controls to conduct enhanced due diligence on accounts of ‘politically exposed persons’, and thereby to detect and report transactions that may involve proceeds of foreign ofﬁcial corruption.

Appendix E

5.

6.

255

4.3 support issuance in June by the Financial Action Task Force (FATF) of a revised 40 Recommendations that includes strong customer due diligence provisions, enhanced scrutiny for politically exposed persons and a requirement to make corruption and bribery a predicate offence for money laundering. 4.4 encourage all countries to work to come into compliance with the revised FATF Recommendations, and to apply the Basel Committee’s guidance on customer due diligence for their banking sectors; We recognise the importance of promoting Transparency in Government Procurement and the Awarding of Concessions. To this end, we will: 5.1 work towards including in our regional and bilateral trade agreements provisions requiring transparency in government procurement and the awarding of concessions, as well as provisions on trade facilitation; 5.2 at the Ministerial meeting in Cancun, in accordance with the Doha Development Agenda, commence negotiations aimed at achieving an inclusive multilateral agreement on transparency in government procurement. An agreement on Transparency in Government Procurement should include, among others, rules on publication of laws, procurement opportunities, qualiﬁcation requirements, technical speciﬁcations and evaluation criteria. 5.3 ensure that transparency also constitutes a core element of a trade facilitation agreement. Consistent with these principles and recognizing the importance of revenues from the extractive industries (oil, gas and mining), we have agreed to pilot on a voluntary basis an intensiﬁed approach to transparency. To this end, we will: 6.1 encourage governments and companies, both private and state-owned, to disclose to the IMF or another agreed independent third party such as the World Bank or Multilateral Development Banks, in a consistent fashion and common format, revenue ﬂows and payments from the extractive sectors. This information should be published at an aggregated level, in accessible and understandable ways, while protecting proprietary information and maintaining contract sanctity. 6.2 work with participating governments to develop and implement agreed action plans for establishing high standards of transparency with respect to all budget ﬂows (revenues and expenditures) and with respect to the awarding of government contracts and concessions 6.3 assist those governments that wish to implement this initiative with capacity building assistance; 6.4 encourage the IMF and the World Bank to give technical support to governments participating in the initiative and to develop linkages with other elements of this Action Plan.

This page intentionally left blank

Appendix F

Science and Technology for Sustainable Development: A G8 Action Plan Evian, 2 June 2003

We recognise the need, as acknowledged in the World Summit on Sustainable Development (WSSD) Plan of Implementation, to support the development of cleaner, sustainable and more efﬁcient technologies. Co-operative scientiﬁc research on transformational technologies offers potential to improve public health by cutting pollution and reduce greenhouse emissions to address the challenge of global climate change. Our countries must optimise the use of natural resources including through recycling. We will focus our efforts on three areas that present great opportunities for progress: co-ordination of global observation strategies; cleaner, sustainable and more efﬁcient energy use; agricultural sustainability, productivity and biodiversity conservation. In undertaking these activities, we are committed to working co-operatively with other developed countries. We are conscious that, to meet the objectives of the WSSD, developing countries and countries with economies in transition need to build and strengthen their capacity to assimilate and generate knowledge for sustainable development. We reafﬁrm our commitment made at the WSSD to assist them through international co-operation in enhancing their research capacities. 1. Strengthen international co-operation on global observation We will: 1.1 Develop close co-ordination of our respective global observation strategies for the next ten years; identify new observations to minimise data gaps; 1.2 Build on existing work to produce reliable data products on atmosphere, land, fresh water, oceans and ecosystems; 1.3 Improve the world-wide reporting and archiving of these data and ﬁll observational gaps of coverage in existing systems; 1.4 Favour interoperability with reciprocal data-sharing; 1.5 Develop an implementation plan to achieve these objectives by next spring’s Tokyo ministerial conference. 2. Accelerate the research, development and diffusion of energy technologies We will: 2.1 Promote energy efﬁciency of all sources and encourage the diffusion and uptake of advanced energy efﬁcient technologies, taking pollution reduction

Corporate, Public and Global Governance: The G8 Contribution

258

2.2

2.3

2.4

2.5

2.6

2.7

2.8 2.9

into account. Possible measures include standards, public procurement, economic incentives and instruments, information and labelling; Promote rapid innovation and market introduction of clean technologies, in both developed and developing countries, including at the Milan Conference of the Parties of the United Nations Framework Convention on Climate Change and beyond, at the International Energy Agency (IEA) and other international fora such as the UN Economic Commission for Europe, the Expert Group on Technology Transfer, etc, ﬁnding appropriate methodologies to involve the private sector; Support efforts aimed at substantially increasing the share of renewable energy sources in global energy use: – stimulate fundamental research in renewable energies, such as solar photovoltaics, off-shore wind energy, next generation wind turbines, wave/tidal and geothermal, biomass; – collaborate on sharing research results, development and deployment of emerging technologies in this area; – work towards making renewable energy technologies more price competitive; – participate in the International Conference on Renewable Energies, spring 2004 in Bonn; Accelerate the development of fuel cell and hydrogen technologies (power generation, transportation, hydrogen production, storage, distribution, enduse and safety): – increase international co-operation and exchange of information in precompetitive research based on the principle of full reciprocity through the IEA and other existing organisations; – work with industry to remove obstacles to making fuel cell vehicles price competitive, striving to achieve this goal within two decades; – accelerate developing internationally agreed codes and standards in appropriate existing organisations; – work together to facilitate the use of hydrogen technologies in our and other markets, including through development of infrastructures; Expand signiﬁcantly the availability of and access to cleaner, more efﬁcient fossil fuel technologies and carbon sequestration systems and pursue joint research and development and expanded international co-operation, including demonstration projects; Encourage the Global Environment Fund to include energy efﬁciency, renewables, cleaner fossil fuel technologies, and sustainable use of energy when setting up its programme; Develop codes and standards for next generation vehicles, cleaner diesel and biodiesel, recognising that social needs for fuel quality are diverse among G8 countries; In accordance with our national procedures, promote clean and efﬁcient motor vehicles including next generation vehicles; Work in consultation with industry to raise energy efﬁciency of electrical and electronic equipment;

Appendix F

259

2.10 We take note of the efforts of those G8 members who will continue to use nuclear energy, to develop more advanced technologies that would be safer, more reliable, and more resistant to diversion and proliferation. 3. Agriculture and biodiversity We will: 3.1 Promote the conservation and sustainable use of genetic resources for food and agriculture: – support the International Treaty of Plant Genetic Resources for Food and Agriculture by concluding negotiations over a standard material transfer agreement that facilitates access to plant genetic resources for agricultural research and development and equitable sharing of beneﬁts arising from their use; – support efforts to ensure funding for genetic resources conservation in the framework of the priorities set up by the Food and Agriculture Organisation Commission on Genetic Resources; 3.2 Help developing countries improve their agricultural productivity in a sustainable manner: – support the Consultative Group for International Agricultural Research’s vital role in disseminating agricultural research, as well as the Global Forum for Agricultural Research and other regional and national agronomic research organisations and North-South and South-South research partnerships; – support actions to provide technology suited to local economic social and environmental conditions to the rural poor in developing countries particularly in Africa, including public-private partnerships; 3.3 Promote sustainable agricultural technologies and practices, including the safe use of biotechnologies among interested countries, that contribute to preventing famine, enhancing nutrition, improving productivity, conserving water and other natural resources, reducing the application of chemicals, improving human health and preserving biodiversity; – participate in the 22–25 June 2003 Agricultural Science and Technology ministerial conference in Sacramento, to implement the commitment from the Rome World Food Summit; 3.4 Use modern technologies such as satellite imaging technologies to help us: – combat illegal logging; – promote sustainable forest management; – promote agricultural biodiversity and conservation. We will enhance our understanding of resource material ﬂows and continue work on resources productivity indices, notably in the Organisation for Economic Cooperation and Development. We will discuss various aspects of the global climate change problem at the World Conference on Climate Change (Moscow, September 2003). We will work in partnership with developing countries and relevant multilateral organisations to facilitate utilisation in developing countries of the results of relevant research and development in these technologies, and so contribute to sustainable

260

Corporate, Public and Global Governance: The G8 Contribution

development. Trade liberalisation of environmentally friendly products will contribute to this as well. We will convene senior G8 policy and research ofﬁcials and their research institutions to compare and to link programmes and priorities, to involve and assist in more effective planning and potential linkage of future programmes addressing research on global observation, cleaner energy, agriculture and biodiversity. This group should also consider ways to assist developing countries that have their own research programmes in these three areas, inter alia by examining the possibility of opening our research programmes to third countries.

Appendix G

Chair’s Summary Evian, 3 June 2003

We met in Evian for our annual Summit, conﬁdent that, through our joint efforts, we can address the challenges of promoting growth, enhancing sustainable development and improving security. Our discussions with the Leaders of emerging and developing countries (Algeria, Brazil, China, Egypt, India, Malaysia, Mexico, Nigeria, Saudi Arabia, Senegal, South Africa) and with the President of the Swiss Confederation and the representatives of the UN, the World Bank, the IMF [International Monetary Fund] and the WTO [World Trade Organization] provided an opportunity for an exchange of views on growth and international co-operation. New proposals have been put forward which could underpin our future work. The following is a summary of our decisions. 1. Strengthening Growth World-Wide Macro-economics, structural reforms, trade and responsible market economy. Our economies face many challenges. However, major downside risks have receded and the conditions for a recovery are in place. We are conﬁdent in the growth potential of our economies. We reafﬁrm our commitment to multilateral co-operation, to achieve the objectives and overall timetable set out in the Doha Development Agenda as reﬂected in our Action Plan on Trade, and to implement sound macro-economic policies supportive of growth, while ensuring domestic and external sustainability. Our common responsibility is to raise growth in our own economies, and thus contribute to a stronger global economy. As this contribution should rely more strongly on structural reforms and ﬂexibility, we therefore reafﬁrm our commitment to: • • •

• •

implement structural reforms of labour, product and capital markets; implement pension and health care reforms, as we face a common challenge of ageing populations; raise productivity through education and lifelong learning and by creating an environment where entrepreneurship can thrive, fostering competition and promoting public and private investment in knowledge and innovation; strengthen investor conﬁdence by improving corporate governance, enhancing market discipline and increasing transparency; the principles of our Declaration on Fostering Growth and Promoting a Responsible Market Economy, accompanied with speciﬁc actions to improve

262

Corporate, Public and Global Governance: The G8 Contribution

transparency and to ﬁght corruption more effectively, including a speciﬁc initiative on extractive industries. Prevention and Resolution of Financial Crisis. We welcomed the progress achieved over the last year on strengthening the international framework for ﬁnancial crisis prevention and resolution so as to improve conditions for sustained private investment in emerging markets. The IMF should continue to enhance its surveillance by making it more comprehensive, independent, accountable and transparent. It should also pursue work on issues of general relevance to the restructuring of sovereign debt. We will exercise improved discipline in the provision of ofﬁcial ﬁnance. We remain committed to promoting an early and widespread adoption of collective action clauses, building on the concrete steps already taken by several countries. We welcome initiatives being taken by issuers, the private sector and our ofﬁcials on the development of a Code of Conduct. We look forward to their progress. We welcomed the agreement reached by our Finance Ministers on a new tailored Paris Club approach for responding to debt problems of non-HIPC [heavily indebted poor countries] countries. We expect this ‘Evian approach’ to address debt sustainability problems more conclusively, while ensuring that debt restructuring remains the last resort. We look forward to the results of ongoing efforts to strengthen the international framework for ﬁnancial crisis prevention and resolution. 2. Enhancing Sustainable Development We focused on the implementation of the internationally agreed Millennium and Johannesburg Development Goals in the following areas: Africa. Our discussions with the Presidents of Algeria, Nigeria, Senegal and South Africa, the Leaders of countries represented on the NEPAD [New Partnership for Africa’s Development] Steering Committee, demonstrated our common will to contribute to the development of Africa. We endorsed the report prepared by our Africa Personal Representatives. We agreed to widen our dialogue to other African Leaders on NEPAD and the G8 Africa Action Plan. We invite interested countries and relevant international institutions to appoint senior representatives to join this partnership. We will review progress on our Action Plan no later than 2005 on the basis of a report. Famine. To alleviate the threat facing millions of people, especially in Africa, we committed to responding to the emergency food aid needs and agreed on ways to improve famine prevention mechanisms and long term food security. Water. Following on from the Kyoto World Water Forum, we adopted an Action Plan to help meet the Millennium and Johannesburg goals of halving the number of people without access to clean water and sanitation by 2015.

Appendix G

263

Health. We agreed on measures to: •

• • • •

strengthen the Global Fund to Fight AIDS, Tuberculosis and Malaria, and other bilateral and multilateral efforts, notably through our active participation in the donors’ and supporters’ conference to be hosted in Paris this July; improve access to health care, including to drugs and treatments at affordable prices, in poor countries; encourage research on diseases mostly affecting developing countries; mobilise the extra funding needed to eradicate polio by 2005; improve international co-operation against new epidemics such as SARS [severe acute respiratory syndrome].

Financing for Development. We reafﬁrmed our commitment to address the challenge of global poverty and our support for the Millennium Development Goals and the Monterrey consensus. We noted that achieving these ambitious goals would require considerable efforts from both developed and developing countries, including increased resources. We welcomed the report of our Finance Ministers’ discussions on our increased resources and on ﬁnancing instruments. We invite them to report back to us in September on the issues raised by the ﬁnancing instruments, including the proposal for a new International Finance Facility. Debt. We reafﬁrmed our commitment to the Heavily Indebted Poor Countries (HIPC) initiative, launched at our Cologne Summit. Since Kananaskis, where we pledged to provide our share of the shortfall of up to $1 billion, progress has continued in the implementation of the HIPC initiative. Twenty-six of the world’s poorest countries are now beneﬁting from debt relief, totalling more than $60 billion committed in nominal terms. However, in the light of continued implementation challenges and the slow pace of country progress in the initiative, we have identiﬁed the following priority areas: •

•

•

•

To encourage and assist eligible countries in taking the steps necessary to complete the HIPC process, our Finance Ministers asked the IMF and the World Bank to identify, by their next Annual Meetings, the speciﬁc impediments in each country and the steps that need to be taken to tackle them; Not all ofﬁcial and commercial creditors have yet agreed to participate in the initiative. We urged the IMF and the World Bank to intensify their efforts to secure the full participation of all creditors. Further options to deal with the issues of litigation should also be explored; We welcomed the progress made towards completing our commitment in Kananaskis to ﬁll the estimated ﬁnancing gap in the HIPC Trust Fund, through the pledges of $850 million made in Paris in October 2002. We will continue to monitor the ﬁnancing needs of the Trust Fund; We reafﬁrmed the objective of ensuring lasting debt sustainability in HIPC countries and noted that these countries will remain vulnerable to exogenous shocks, even after reaching completion point. In this context, we have asked our Finance Ministers to review by September mechanisms to encourage good

264

Corporate, Public and Global Governance: The G8 Contribution

governance and the methodology for calculating the amount of ‘topping-up’ debt relief available to countries at completion point based on updated cost estimates. Market-based mechanisms and other effective instruments to address the impact of commodity price ﬂuctuations on low-income countries should also be explored. E-Government. We welcomed work on the e-government model promoting efﬁciency and transparency in developing countries and will work towards enlarging the number of beneﬁciary countries. Human Security. We took note of the report of the Commission on Human Security submitted to the United Nations Secretary-General. Science and Technology for Sustainable Development. We adopted an Action Plan on how best to use science and technology for sustainable development focused on three areas: • • •

global observation; cleaner, more efﬁcient energy and the ﬁght against air pollution and climate change; agriculture and biodiversity.

Those of us who have ratiﬁed the Kyoto Protocol reafﬁrm their determination to see it enter into force. Illegal logging. From the perspective of sustainable forest management, we conﬁrmed our determination to strengthen international efforts to tackle the problem of illegal logging. Marine environment and tanker safety. We endorsed an Action Plan to reduce the threat posed by excessive exploitation of marine resources and to enhance maritime security. Nuclear safety. In accordance with our statement at Kananaskis, we established the G8 Nuclear Safety and Security Group, and adopted its mandate and the Core Principles shared by each of us, to promote the safe and secure use of civil nuclear technology. 3. Improving Security Commendable progress has been achieved against terrorism world-wide. However, we note with concern the remaining threats of terrorist networks, the challenges of proliferation of weapons of mass destruction in several countries and the risks to peace and security that unresolved conﬂicts pose to the world.

Appendix G

265

Non-proliferation. We adopted a Statement on the proliferation of weapons of mass destruction and endorsed an Action Plan on the prevention of radiological terrorism and the securing of radioactive sources. Terrorism. We adopted an Action Plan on capacity building against terrorism and created a Counter-Terrorism Action Group (CTAG), in support of UN CounterTerrorism Committee (CTC), in order to combat terrorist groups world-wide. One of the best ways to do it is to choke off the ﬂow of ﬁnancing that supports it. We direct Finance Ministers to assess progress and identify next steps. To develop strengthened co-operation, we also ask Ministers to initiate a dialogue with counterparts in other countries, including those whose ﬁnancial institutions, both formal and informal, may serve as conduits for such ﬁnancing, at their forthcoming meeting in Dubai next September. Transport security and control of Manpads. In order to reduce further the risks of terrorist action against mass transportation, we reviewed the implementation of the measures agreed upon at Kananaskis and decided to take new initiatives concerning sea and air transport security. We agreed on actions to prevent the use of ManPortable Air Defence Systems (Manpads) against civil aviation. Global Partnership. We reafﬁrmed our Kananaskis commitments to prevent terrorists, or those that harbour them, from acquiring weapons of mass destruction. To that end, we reviewed the implementation of the Global Partnership Against the Spread of Weapons and Materials of Mass Destruction launched last year. We welcomed the progress achieved so far. We are determined to sustain and broaden our efforts towards: • • • •

reaching our Kananaskis commitment of raising up to US$20 billion over 10 years; developing and initiating concrete and worthwhile projects; fully implementing the guidelines; opening this initiative to new countries.

To this end, we endorsed an Action Plan on the Global Partnership. Small arms. We welcomed the upcoming meeting of States on the illicit trafﬁc in small arms to be held at the United Nations in New York in July 2003. 4. Regional Issues Iraq. We welcomed the unanimous adoption of United Nations Security Council Resolution 1483 and share the conviction that the time has now come to build peace and reconstruct Iraq. Our shared objective is a fully sovereign, stable and democratic Iraq, at peace with its neighbours and ﬁrmly on the road to progress. We welcomed the announcement made by the UN regarding a preparatory meeting for an international conference on the reconstruction of Iraq.

266

Corporate, Public and Global Governance: The G8 Contribution

Israel and Palestine. We welcomed the approval by the Palestinians and by Israel of the Quartet Roadmap and emphasised our determination to jointly support its implementation. We discussed the desirability of reaching a comprehensive peace settlement that includes Syria and Lebanon. We tasked our relevant Ministers to examine as soon as possible the measures necessary to support a plan for the revitalisation and reconstruction of the Palestinian economy, including the leveraging of private investment, within the framework of the Middle East Peace Process. North Korea. We addressed the North Korean nuclear issue in our Statement on non-proliferation. We support the efforts made by the different parties to seek by peaceful means a comprehensive solution to the North Korean nuclear issue and to other matters, including unresolved humanitarian problems such as the abductions. We also support the Peace and Prosperity Policy pursued by the Republic of Korea. Afghanistan. We conﬁrmed our support for President Karzai’s Transitional Administration. We reafﬁrmed that the Bonn Process needs to be fully implemented, in both spirit and substance. We expressed our remaining concern on the security situation. In order to combat drug trafﬁcking from Afghanistan, we support full implementation of the Afghan National Drug Strategy and the ‘Paris Pact’ proposed on 22 May by the United Nations during the Conference on Drug Routes. Iran. We addressed the proliferation implications of Iran’s advanced nuclear programme in our Statement on non-proliferation. Algeria. We expressed our deepest sympathy for the Algerian people after the recent devastating earthquakes. We are providing urgent humanitarian aid and, to address the ﬁnancial consequences of this situation, we are instructing our relevant Ministers to report within one month on how best to help Algeria recover. Zimbabwe. We are concerned about reports of further violence by the authorities in Zimbabwe against their own people. We called on the Government of Zimbabwe to respect the right to peaceful demonstration. Consistent with the fundamental principles of the NEPAD partnership, we welcomed the contribution of other African States to promoting a peaceful resolution of the crisis and a prosperous and democratic future for the people of Zimbabwe. *** We welcomed the offer of the President of the United States to host our next Summit in 2004.

Appendix H

Statement of the G7 Finance Ministers and Central Bank Governors Dubai, 20 September 2003

Recent data indicate that a global recovery is underway. Equity markets have rebounded, conﬁdence has increased, ﬁnancial conditions have improved, oil prices are expected to remain stable and inﬂation is under control. Macroeconomic policies should continue to support the recovery while ensuring medium-term ﬁscal sustainability. However, for growth to strengthen, be sustained and be less unbalanced, structural reforms must be accelerated. We support the progress made to reform tax and regulatory regimes, labour markets and pension systems. Further efforts are needed. Our top priority is to raise productivity and employment. We will do our part in further reforms as set out in the attached Agenda for Growth. We reiterate the importance of a rules based and multilateral approach to trade. We are disappointed at the breakdown of trade negotiations in Cancun. We urge a speedy resumption of the Doha Round which is vital for global growth and the alleviation of world poverty. We believe that the immediate blockages can be removed and, with an effort on all sides, agreement reached on the remaining issues. We welcome the International Financial Institutions’ proposed assistance for countries to deal with the transition to a more open trading system. We reafﬁrm that exchange rates should reﬂect economic fundamentals. We continue to monitor exchange markets closely and cooperate as appropriate. In this context, we emphasize that more ﬂexibility in exchange rates is desirable for major countries or economic areas to promote smooth and widespread adjustments in the international ﬁnancial system, based on market mechanisms. Effective and persuasive surveillance is crucial. Even in current favourable conditions, the IMF [International Monetary Fund] should identify vulnerabilities, in particular currency mismatches, and provide candid advice on policy reforms. We welcome the agreement to publish exceptional access reports. We welcome the increasingly widespread use of collection action clauses (CACs) in foreign sovereign bond issues. We look forward to further work on the Code of Conduct, which will be discussed by the G20 meeting in October. We encourage emerging market countries to pursue sound policies and to enhance their climate. This will help attract ﬂows, reduce external vulnerabilities, and support sustained growth. We welcome the progress Brazil and Turkey have made in implementing structural reforms and support further efforts. We welcome today’s agreement between Argentina and the IMF. The implementation of the

268

Corporate, Public and Global Governance: The G8 Contribution

program will be the key to restore strong and long-lasting economic growth and investment climate. We look forward to a speedy agreement with private creditors ensuring fair treatment. We remain committed to transparency and effective exchange of information between countries as vital weapons is the ﬁght against money laundering and tax evasion. We strongly urge those OECD [Organisation for Economic Co-operation and Development] countries that have not taken necessary steps — in particular in allowing access to bank information — to do so as soon as possible. We welcome the work of the Financial Stability Forum, in particular in areas of audit, ﬁnancial analysts, credit risk, reinsurance and rating agencies, and encourage it to continue strengthening cooperation in these areas. We reafﬁrm our commitment to ﬁght global poverty and to help developing countries achieve the international development goals of the Millennium Declaration. In this respect, we discussed ﬁnancing issues and results based measurement. We asked the IMF and the World Bank to do further work on aid effectiveness, absorption capacity, ﬁnancing facilities and results-based measurement mechanisms, and report at the Annual Meetings in September 2004. We welcome the views of developing and emerging market countries on these issues. We reafﬁrm our strong commitment to complete the Heavily Indebted Poor Countries Initiative. We urge all bilateral creditors to join with us in cancelling out the 100% of their eligible claims. We ask the IFIs to review the methodology for calculating the amount of ‘topping up’ debt relief. We look forward to the outcome of the IFIs [international ﬁnancial institutions] work on low income countries vulnerabilities to exogenous shocks. Since September 11, 2001, we have made signiﬁcant progress in the ﬁght against terrorist ﬁnancing, although much remains to be done. We look forward to the Fund and Bank making terrorist ﬁnancing/money laundering assessments a permanent part of their work. We have intensiﬁed the dialogue with several non-G7 countries to prevent abuse of non-proﬁt organisations and alternative remittance systems. We seek to eliminate terrorist ﬁnancing through implementation of measures in accordance with the FATF [Financial Action Task Force] Eight Special Recommendations. We welcome both the Afghan donors meetings this month and the upcoming Iraq Donors’ Conference. We reafﬁrm our support for a multilateral effort to help rebuild and develop Iraq, based on a needs assessment led by the World Bank at the Donors’ Conference in Madrid, next month. We support the IMF and the World Bank rapidly providing, subject to their policies, ﬁnancial and other assistance to Iraq and call upon regional ﬁnancial institutions to do likewise. We call upon the Paris Club to make its best effort to complete the restructuring of Iraq’s debt before the end of 2004. We urge all non-Paris creditors to cooperate. Agenda for Growth: September 2003 We, the G7 Finance Ministers and Central Bank Governors, have today agreed on an Agenda for Growth. This Agenda follows the successful cooperative approach of our two recent G7 Action Plans — the October 2001 Action Plan on Terrorist Financing

Appendix H

269

and the April 2002 Action Plan on Emerging Markets — in which we deﬁned objectives and then reported on progress toward those objectives at subsequent meetings. Higher growth is essential to raise incomes and create more jobs. Without higher growth we will not have the resources to deal with an aging society, provide adequate national security, or, more generally, provide the means for people to pursue a more enjoyable life for themselves and their children. Moreover, higher economic growth in the G7 is one of the most effective ways we can reduce poverty around the world. Higher economic growth throughout the G7 will redress global imbalances that arise inter alia from uneven growth within the G7. Economic growth has been too low for too long in the G7, and while there are notable recent policy changes, it is time to bolster our efforts. Key Objectives The reasons for low growth differ from country to country. But as shorter-term demand-side problems are addressed and the global recovery proceeds, longer-term supply-side impediments to higher productivity growth and employment are being revealed in many countries. Our key objectives, therefore, are on the supply-side — structural policies that increase ﬂexibility and raise productivity growth and employment. What Have We Done Recently? Progress achieved so far provides a good foundation to build on. Examples, one for each country, include: reductions in marginal tax rates on dividends and capital gains in the United States; improved incentives to work in the United Kingdom; sustainability of the public pension system along with higher limits on savings in private retirement plans in Canada; pension reform in France; tax reform in Germany; ﬂexibility in labor contracts in Italy; and new R & D [research and development] tax credit in Japan. What More Will We Do? Each of our governments intends to pursue additional pro-growth policies. Examples include: tort reform in the United States; a reform agenda 2010 for labor market and the pension system in Germany; public sector reform and further steps in health care reform in France; pension reform in Italy; Basic Policy for Economic and Fiscal Management and Structural Reform 2003 in Japan; measures to improve skills and labor force productivity in the United Kingdom; and full implementation of the ﬁve year tax reduction plan announced in 2000 in Canada. In the European Union, investment needs to be revitalized, with a particular emphasis on infrastructure and research and development.

270

Corporate, Public and Global Governance: The G8 Contribution

Why Do This As a Group? These are primarily national responsibilities, but there are spillovers. Higher growth in the United States beneﬁts the other G7 countries; but higher growth in the other G7 countries beneﬁts the United States too. Moreover, many pro-growth polices, such as trade liberalization, involve all of us. Working as a group we intend to do regular supply-side surveillance, benchmarking proposals and reviewing results. This will complement our ongoing demand-side surveillance and mutually encourage progress toward pro-growth policies.

Appendix I

G20 Finance Ministers and Central Bank Governors Communiqué Morelia, Mexico, 26–27 October 2003

We, the Finance Ministers and Central Bank Governors of the G20 held our ﬁfth meeting in Morelia, Mexico. We reviewed the current world economic situation and noted that, while risks remain, a global recovery is underway, aided by supportive macroeconomic policies in many countries. We welcomed the recent positive performance of several economies. We discussed ways to promote economic growth that is more balanced among major regions. We emphasized the need to reduce ﬁscal and external vulnerabilities and imbalances in both industrial and emerging market economies. We agreed that the adjustment of signiﬁcant imbalances in systemically important regions or countries requires robust implementation of appropriate policies. Further efforts, including the acceleration of structural reforms to foster potential growth and improve macroeconomic stability, are needed. We conﬁrmed that those countries with efﬁcient and solid markets and institutions are the ones that are best prepared to make the most out of their participation in the global economy. We also noted the importance of a policy framework to provide medium-term sustainability, ﬂexibility and fairness. We are determined to work together to deepen our commitment to these goals. We, Finance Ministers and Central Bank Governors, are committed to giving impetus to the multilateral trade approach as one of the most effective ways to promote global growth, reduce poverty and ensure that the beneﬁts of globalization are broadly shared by all, particularly the poorest countries. We therefore called on all World Trade Organization (WTO) members to quickly re-energize the negotiation process toward the fulﬁllment of the Doha development agenda, recognizing that ﬂexibility and political will from all are urgently needed. We also encourage the International Financial Institutions (IFIs) to continue to develop their initiatives to support this aim. Our understanding of the signiﬁcance of institution building in the ﬁnancial sector has beneﬁted from a number of case studies provided by members on this subject. By reviewing these case studies, we have compiled a number of valuable lessons to assist countries in attaining the beneﬁts of globalization. In particular, the case studies highlighted the positive effects on the whole economy of reforms in the ﬁnancial sector and provided insights into the appropriate management of the process of reform. Increased ﬁnancial liberalization, integration, and effective regulatory policies and supervision, with due regard to the appropriate timing

272

Corporate, Public and Global Governance: The G8 Contribution

and sequencing, are means to enhance the development of the ﬁnancial system. Our analysis has underlined the fact that solid institutions and sound, deep and sophisticated domestic ﬁnancial markets are key elements to maximize the beneﬁts of globalization, promote growth and signiﬁcantly reduce the risk of ﬁnancial crises. We will continue to address these issues in our future agenda. We reafﬁrm our mandate to review and promote crisis prevention and resolution measure. We encourage the IMF [International Monetary Fund] to continue to enhance its capacity to identify vulnerabilities, such as currency and other balance sheet mismatches, and provide advice to member countries on policy reforms. We welcome the increasingly widespread use of collection action clauses (CACs), and we support their inclusion in future sovereign bonds issued under foreign jurisdiction. We also encourage the adoption of the best practices embodied in key international standards and codes, which will help support strong, stable growth and reduce the risk of future ﬁnancial crises. With a view to promote the development of a workable code of conduct, we encourage an inclusive group of issuers and market participants to engage in further discussions, with G20 members participating on a voluntary basis. We ask G20 Deputies to review the progress made by the issuers and market participants at the next G20 Deputies meeting in March. We discussed the future of CCL [contingent credit lines] and the role that precautionary facilities or arrangements, conditioned on sound economic policies could have in crisis prevention. We urged the IMF to continue its work on these issues. We took note of the diversiﬁed ways for individuals and companies and other entities to abuse the international ﬁnancial system to undertake illicit activities including tax evasion. We discussed and explored ways to enhance the bilateral exchange of ﬁscal, ﬁnancial and customs information needed by countries to enforce their won ﬁscal and other laws. These measures will contribute to efforts to combat abuses of the ﬁnancial systems such as ﬁscal evasion, fraud and money laundering. We are committed to cooperate to effectively ﬁght such abuses and make a strong call on all countries especially those OECD [Organisation for Economic Co-operation and Development] countries that have not taken necessary steps — in particular in allowing access to bank information — to join us in this effort and look forward to having regular reports on the progress of international initiatives in this area. We also agreed to monitory developments in Offshore Financial Centers (OFCs), based on the IMF’s work. We remain committed to disrupting terrorist ﬁnancing networks. We recognized that this effort requires a focus on both the formal and informal ﬁnancial sectors. Therefore, while we will continue efforts to improve our formal ﬁnancial systems, to expand their scope, and to protect them from this abuse, we will also concentrate efforts to subject informal ﬁnancial sectors to appropriate domestic actions. We pledged to carry forward our work in this regard, through support of the activities of IFIs and other relevant international fora, and through appropriate domestic actions. We resolved to advance our implementation of the AML/CFT [anti-money laundering and combating ﬁnancing of terrorism] standards. We welcomed the good progress on the IMF/World Bank pilot program in cooperation with FATF [Financial Action Task Force], and we look forward to making terrorist ﬁnancing and money laundering assessments a permanent part of IMF and World Bank work. In this

Appendix I

273

context we urged FATF to make progress, as appropriate, in the enlargement of its membership. Aware of the need to make progress in ﬁghting global poverty and promoting economic growth, we discussed the framework for advancing the implementation of the Monterrey commitments. This framework consists of a partnership among developed and developing countries, which are dedicated to sound policies and the mobilization or resources, both domestic and international, and is needed to meet the internationally agreed development goals, including the Millennium Development Goals (MDGs) set out in the UN Millennium Declaration. We believe that trade liberalization is critical to providing conditions for developing countries to meet the MDGs. The G20 is uniquely placed to deepen the linkages between aid, good governance, ﬁnancing and trade. We welcomed the further work commissioned on ﬁnancing for development at the recent IMF/World Bank Annual Meetings, including the commitment to closely consult emerging markets and developing countries. We look forward to considering the outcomes of this process at our next meeting. Considering the importance of full ﬁnancing of the Enhanced HIPC [heavily indebted poor countries] Initiative, we welcomed the support received from many bilateral creditors, and urge all who are not currently doing so to provide their share of debt relief. The G20 thanks Mexico for its excellent leadership throughout this year and its generosity in hosting the Morelia, G20 Ministerial. We will continue our work next year under the presidency of the Federal Republic of Germany and welcomed their invitation to host out next gathering in Berlin. We have also agreed today to work during 2005 under the chairmanship of the People’s Republic of China.

This page intentionally left blank

Bibliography Aaronson, Susan (2002). ‘Global Corporate Social Responsibility Pressures and the Failures to Develop Universal Rules to Govern Investors and States’. Journal of World Investment, vol. 3, no. 3, pp. 487–506. Abercrombie, Keith and Arthur McCormack (1976). ‘Population Growth and Food Supplies in Different Time Perspectives’. In P. Ghosh (ed.), Health, Food, and Nutrition in Third World Development, pp. 18–39 (Westport CT: Greenwood Press). Aglietta, Michel (2000). ‘The International Monetary Fund and the International Financial Architecture’. Working Paper No. 2000-08. <www.cepii.fr/anglaisgraph/ workpap/summaries/2000/wp00-08.htm> (August 2006). Albert, Michel (1991). Capitalisme Contre Capitalisme (Paris: Seuil). Alchian, Armen (1950). ‘Uncertainty, Evolution, and Economic Theory’. Journal of Political Economy, vol. 58, no. 3, pp. 211–221. Allard, Patrick (2002). ‘Les États-Unis et la gouvernance mondiale’ (The United States and Global Governance). In Report No. 37, ‘Gouvernance Mondiale’. Conseil d’Analyse Économique, Paris. <www.cae.gouv.fr/rapports/dl/037.zip> (August 2006). Allen, Franklin and Douglas Gale (1994). Financial Innovation and Risk Sharing (Cambridge MA: MIT Press). Allen, Franklin and Douglas Gale (2000). ‘Corporate Governance and Competition’. In X. Vives (ed.), Corporate Governance: Theoretical and Empirical Perspectives, pp. viii, 238 p. (Cambridge: Cambridge University Press). ‘Annual WTO Parliamentary Conferences on World Trade Will Take Place Beginning at Cancun’. (2003). Angola Press Agency, 20 February. Attali, Jacques (1995). Verbatim III (Paris: Fayard). ‘Auch der Mittelstand denkt über einen Kodex nach’. (2003). Frankfurter Allgemeine Zeitung, 9 April. Baker, Andrew (2006). The Group of Seven: Finance Ministries, Central Banks and Global Financial Governance (London: Routledge). Bancel, Franck (1999). ‘Directions in French Corporate Governance’. Entreprises et Histoire, vol. 21 (June), pp. 4–28. Barro, Robert J. and Jong-Wha Lee (2002). ‘IMF Programs: Who Is Chosen and What Are The Effects?’ NBER Working Paper No. 9851, Cambridge MA. <www. nber.org/papers/w8951.pdf> (August 2006). Basel Committee on Banking Supervision (1997). ‘Core Principles for Effective Banking Supervision’. September 1997, Basel. <www.bis.org/publ/bcbs30a.pdf> (August 2006).

276

Corporate, Public and Global Governance: The G8 Contribution

Basel Committee on Banking Supervision (1999). ‘Sound Practices for Loan Accounting and Disclosure’. Basel. <www.bis.org/publ/bcbs55.pdf> (August 2006). Bauer, Michel and Bénédicte Bertin-Mourot (1997). ‘Administrateurs et Dirigeants du CAC 40’. CNRS and Boyden, Paris. Bayne, Nicholas (1999). ‘Continuity and Leadership in an Age of Globalisation’. In M. R. Hodges, J. J. Kirton and J. P. Daniels (eds.), The G8’s Role in the New Millennium, pp. 21–44 (Aldershot: Ashgate). Bayne, Nicholas (2000). Hanging In There: The G7 and G8 Summit in Maturity and Renewal (Aldershot: Ashgate). Bayne, Nicholas (2003). ‘The New Partnership for Africa’s Development and the G8’s Africa Action Plan: A Marshall Plan for Africa?’ In M. Fratianni, P. Savona and J. J. Kirton (eds.), Sustaining Global Growth and Development: G7 and IMF Governance, pp. 227–130 (Aldershot: Ashgate). Bayne, Nicholas (2003). ‘Impressions of the Kananaskis Summit’. In M. Fratianni, P. Savona and J. J. Kirton, eds., Sustaining Global Growth and Development: G7 and IMF Governance, pp. 229–240 (Aldershot: Ashgate). Bayne, Nicholas (2005). Staying Together: The G8 Summit Confronts the 21st Century (Aldershot: Ashgate). Bell, Daniel (1977). ‘New Politics, New Policies: The Future World Disorder’. Foreign Policy, Summer, p. 132. Bergsten, C. Fred and C. Randall Henning (1996). Global Economic Leadership and the Group of Seven (Washington DC: Institute for International Economics). Bergsten, C. Fred (2001). ‘Launching a New Trade Round at the WTO: The Role of the Genoa Summit’. In C.F. Bergsten (ed.), Toward Shared Responsibility and Global Leadership: Recommendations for the G8 Genoa Summit from the G8 Preparatory Conference, pp. 17–22 (Washington DC: Institute for International Economics). Bergsten, C. Fred and Thierry de Montbrial (2003). ‘Restoring G8 Leadership of the World Economy: Recommendations for the Evian Summit from the Shadow G8’. Institute for International Economics and Institut Français des Relations Internationales, Washington DC and Paris. <www.iie.com/publications/papers/ g8-2003.pdf> (August 2006). Berle, Adolf Augustus and Gardiner Coit Means (1933). The Modern Corporation and Private Property (New York: Macmillan). Betts, Paul (2003). ‘Executives Urge G8 to Unite for Growth’. Financial Times, 21 May. Bianco, Jean-Louis and Jean-Michel Sévérino (2001). ‘Un autre monde est possible (Tome II): A déﬁs globaux, politique économique globale’ (Another World Is Possible (Book II): Global Challenges, Global Economic Policy). Note Classique No. 23. Fondation Jean Jaures, Paris. Biermann, Frank and Steffen Bauer (2004). ‘Assessing the Effectiveness of Intergovernmental Organizations in International Environmental Politics’. Global Environmental Change, vol. 14, no. 2, pp. 189–193. Bird, Graham (2003). The IMF and the Future Issues and Options Facing the Fund (London: Routledge).

Bibliography

277

Blustein, Paul (2001). The Chastening: Inside the Crisis That Rocked the Global Financial System and Humbled the IMF (New York: Public Affairs). Bordo, Michael D. and Harold James (2000). ‘The International Monetary Fund: Its Present Role in Historical Perspective’. In A. H. Meltzer (ed.), Expert Papers (Washington DC: International Financial Institution Advisory Commission). Boughton, James (2001). Silent Revolution: The International Monetary Fund, 1979–1989 (Washington DC: International Monetary Fund). Bowie, Norman E. (1999). Business Ethics: A Kantian Perspective (Malden MA: Blackwell Publishers). Braintrust Research Group (2003). ‘The Regional Nature of Global Multinational Activity’. <www.braintrustresearch.com> (May 2003). Brean, Donald (2001). ‘Corporate Governance: International Perspectives’. In J. J. Kirton, J. P. Daniels and A. Freytag (eds.), Guiding Global Order: G7 Governance in the Twenty-First Century, pp. 223–244 (Aldershot: Ashgate). Breton, Albert and Ronald Wintrobe (1982). The Logic of Bureaucratic Conduct: An Economic Analysis of Competition, Exchange, and Efﬁciency in Private and Public Organizations (Cambridge: Cambridge University Press). Buck, Tobias and Frances Williams (2003). ‘EU Farm Reform Lifts Trade Hopes’. Financial Times, 27 June, p. 1. Bull, Hedley (1995). The Anarchical Society: A Study of Order in World Politics (New York: Columbia University Press). Camdessus, Michel (2003). ‘Toward a Monetary and Financial Architecture for the 21st Century’. Third Governor Jose B. Fernandez Jr. Memorial Lecture, Asian Institute of Management, 4 April. (Reported in The Philippine Star, 21 April). Carriere, Giovanni, Andrew Cowen, Jose Antonio Marco, et al. (2002). ‘European Corporate Governance: A Changing Landscape?’ <mitsloan.mit.edu/50th/pdf/ corpgoveuropepaper.pdf> (August 2006). Chabal, Patrick (2002). ‘The Quest for Good Government and Development in Africa: Is NEPAD the Answer’. International Affairs, vol. 78, no. 3, pp. 447– 462. Chirac, Jacques (2003). ‘Introductory Remarks by the President of the French Republic at the Working Meeting with the Trade Union Organizations Held as Part of the G8 Summit Preparations’. 25 April, Paris. <www.g8.fr/evian/english/navigation/ news/news_update/introductory_remarks_by_the_president_of_the_french_ republic_at_the_working_meeting_with_the_trade_union_organizations_held_ as_part_of_the_g8_summit_preparations.html> (August 2006). Chirac, Jacques (2003). ‘Excerpt from New Year Speech to the Diplomatic Corps by the French President’. 7 January. <www.g8.fr/evian/english/navigation/news/ priorities_of_the_g8_french_presidency.html> (August 2006). Chirac, Jacques (2003). ‘The Group of Eight Bringing Fairness to Globalization’. International Herald Tribune, 25 January. Clapp, Jennifer (2005). ‘Global Environmental Governance for Corporate Responsibility and Accountability’. Global Environmental Politics, vol. 5, no. 3, pp. 23–34. Clarke, John I. (1999). Il futuro della popolazione mondiale (The Future of World Population) (Milan: Garzanti).

278

Corporate, Public and Global Governance: The G8 Contribution

Clarke, Thomas and Richard Bostock (1997). ‘Governance in Germany: Foundations of Corporate Structure?’ In K. Keasey, S. Thompson and M. Wright (eds.), Corporate Governance: Economic and Financial Issues (Oxford: Oxford University Press). Cohn, Theodore H. (2002). Governing Global Trade: International Institutions in Conﬂict and Convergence (Aldershot: Ashgate). Committee on the Financial Aspects of Corporate Governance (1992). Report of the Committee on the Financial Aspects of Corporate Governance (Cadbury Committee Report) (London: Gee). Cragg, Wesley (2000). ‘Human Rights and Business Ethics: Fashioning a New Social Contract’. Journal of Business Ethics, vol. 27, no. 1-2, pp. 205–214. Croome, John (1995). Reshaping the World Trading System: A History of the Uruguay Round (Geneva: World Trade Organization). Crouch, Colin and Wolfgang Streeck (eds.) (1997). Political Economy of Modern Capitalism: Mapping Convergence and Diversity (London: Sage Publications). De Gregorio, José, Barry J. Eichengreen, Takatoshi Ito, et al. (1999). ‘An Independent and Accountable IMF’. Centre for Economic Policy Research, Geneva. <www. cepr.org/pubs/books/P130.asp> (August 2006). De Waal, Alex (2002). ‘What’s New in the “New Partnership for Africa’s Development”?’ International Affairs, vol. 78, no. 3, pp. 463–476. Drobetz, Wolfgang and Andreas Schillhofer (2003). ‘Gute Corporate Governance Senkt De Kapitalkosten’. Frankfurter Allgemeine Zeitung, 13 January, p. 20. Edwards, Jeremy and Klaus Fischer (1994). Banks, Finance, and Investments in Germany (Cambridge: Cambridge University Press). Energy Information Administration (2002). ‘Petroleum Supply Monthly’. February. United States Department of Energy. Energy Information Administration (annual). ‘Petroleum Supply Annual’. United States Department of Energy. Engelen, Klaus C. (2004). ‘Preventing European “Enronitis”’. International Economy, vol. 18 (Summer), pp. 40–47. Engelen, Klaus C. (2004). ‘Lemons into Lemonade’. International Economy, vol. 18 (Fall), pp. 56–59, 84–86. Estrin, Saul (2002). ‘Competition and Corporate Governance in Transition’. Journal of Economic Perspectives, vol. 16, no. 1, pp. 101–124. ‘Fortune 500’ (2002). Fortune. <money.cnn.com/magazines/fortune/fortune500_ archive/full/2002/> (August 2006). Fowler, Robert (2003). ‘Canadian Leadership and the Kananaskis G8 Summit: Toward a Less Self-Centred Policy’. In D. Carment, F. O. Hampson and N. Hillmer (eds.), Canada Among Nations 2003: Coping with the Canadian Colossus, pp. 219–241 (Toronto: Oxford University Press). ‘France’s Indefensible Support for the CAP’ (2003). Economist, 21 June, p. 45. Fratianni, Michele and John C. Pattison (2001). ‘The Bank for International Settlements: An Assessment of Its Role in International Monetary and Financial Policy Coordination’. Open Economies Review, vol. 12, no. 2, pp. 197–222.

Bibliography

279

Fratianni, Michele and John C. Pattison (2001). ‘International Organisations in a World of Regional Trade Agreements: Lessons from Club Theory’. World Economy, vol. 24, no. 3 (March), pp. 333–358. Fratianni, Michele and John C. Pattison (2002). ‘International Standards, Crisis Management, and Lenders of Last Resort in the International Financial Architecture’. In M. Fratianni, P. Savona and J. J. Kirton (eds.), Governing Global Finance: New Challenges, G7 and IMF Contributions, pp. 143–163 (Aldershot: Ashgate). Fratianni, Michele and John C. Pattison (2002). ‘International Financial Architecture and International Financial Standards’. Annals of the American Academy of Political and Social Science, vol. 579 (January), pp. 193–199. Fratianni, Michele (2003). ‘The International Monetary Fund and its Critics’. In M. Fratianni, P. Savona and J. J. Kirton (eds.), Sustaining Global Growth and Development: G7 and IMF Contributions and Challenges, pp. 155–176 (Aldershot: Ashgate). Fratianni, Michele, Paolo Savona, and John J. Kirton (eds.) (2003). Sustaining Global Growth and Development: G7 and IMF Contributions and Challenges (Aldershot: Ashgate). Frey, Bruno S. and Friedrich Schneider (1986). ‘Competing Models of International Lending Activity’. Journal of Development Economics, vol. 20, no. 2, pp. 225– 245. Frey, Bruno S. (1997). ‘The Public Choice of International Organizations’. In D. C. Mueller (ed.), Perspectives on Public Choice: A Handbook (Cambridge: Cambridge University Press). Funabashi, Yoichi (1987). Managing the Dollar: From the Plaza to the Louvre (Washington DC: Institute for International Economics). G7 (1975). ‘Declaration of Rambouillet’. 17 November, Rambouillet. <www. g8.utoronto.ca/summit/1975rambouillet/communique.html> (August 2006). G7 (1995). ‘Halifax Summit Communiqué’. 16 June, Halifax. <www.g8.utoronto. ca/summit/1995halifax/communique> (August 2006). G7 (1996). ‘Economic Communiqué: Making a Success of Globalization for the Beneﬁt of All’. 28 June, Lyon. <www.g8.utoronto.ca/summit/1996lyon/ communique.html> (August 2006). G7 (2001). ‘G7 Statement’. 20 July, Genoa. <www.g8.utoronto.ca/g7/summit/ 2001genoa/g7statement.html> (August 2006). G7 Finance Ministers (2002). ‘Statement of G7 Finance Ministers’. 15 June, Halifax. <www.g8.utoronto.ca/ﬁnance/fm061502.htm> (August 2006). G7 Finance Ministers (2003). ‘Statement of G7 Finance Ministers and Central Bank Governors’. 12 April, Washington DC. <www.g8.utoronto.ca/ﬁnance/fm041203. htm> (August 2006). G8 (1999). ‘Communiqué’. 20 June, Cologne. <www.g8.utoronto.ca/summit/ 1999koln/ﬁnalcom.htm> (August 2006). G8 (2000). ‘G8 Communiqué Okinawa 2000’. 23 July, Okinawa. <www.g8.utoronto. ca/summit/2000okinawa/ﬁnalcom.htm> (August 2006). G8 (2002). ‘The Kananaskis Summit Chair’s Summary’. 27 June, Kananaskis. <www.g8.utoronto.ca/summit/2002kananaskis/summary.html> (August 2006).

280

Corporate, Public and Global Governance: The G8 Contribution

G8 (2002). ‘G8 Africa Action Plan’. 27 June, Kananaskis. <www.g8.utoronto.ca/ summit/2002kananaskis/africaplan.html> (August 2006). G8 (2003). ‘Co-operative G8 Action on Trade’. 2 June, Evian. <www.g8.utoronto. ca/summit/2003evian/trade_en.html> (August 2006). G8 (2003). ‘Fostering Growth and Promoting a Responsible Market Economy: A G8 Declaration’. 2 June, Evian. <www.g8.utoronto.ca/summit/2003evian/growth_ en.html> (August 2006). G8 (2003). ‘Fighting Corruption and Improving Transparency: A G8 Declaration’. 2 June, Evian. <www.g8.utoronto.ca/summit/2003evian/corruption_en.html> (August 2006). G8 (2003). ‘Non-Proliferation of Weapons of Mass Destruction A G8 Declaration’. 2 June, Evian. <www.g8.utoronto.ca/summit/2003evian/wmd_declaration_ en.html> (August 2006). G8 (2003). ‘Health: A G8 Action Plan’. 2 June, Evian. <www.g8.utoronto.ca/ summit/2003evian/health_en.html> (August 2006). G8 (2003). ‘Chair’s Statement’. 3 June, Evian. <www.g8.utoronto.ca/summit/ 2003evian/communique_en.html> (August 2006). G8 Environment Ministers (1999). ‘G8 Environment Ministers Communiqué’. 26–28 March, Schwerin, Germany. <www.g8.utoronto.ca/environment/1999schwerin/ communique.html> (August 2006). G8 Research Group (2001). ‘The 2001 G8 Compliance Report’. <www.g8.utoronto. ca/evaluations/2001compliance> (August 2006). G8 Research Group (2002). ‘G8 Performance Assessment by Country and by Objectives’. <www.g8.utoronto.ca/evaluations/2002kananaskis/assessment_ 2002.html> (August 2006). G8 Research Group (2003). ‘2002 Kananaskis Interim Compliance Report’. <www. g8.utoronto.ca/evaluations/2002interimcompliance/> (August 2006). G8 Research Group (2003). ‘G7/8 Summit Remit Mandates, 1975–2003’. <www. g8.utoronto.ca/evaluations/factsheet/factsheet_remits.html> (August 2006). G8 Research Group (2003). ‘From Kananaskis to Evian: The 2003 Compliance Report’. <www.g8.utoronto.ca/evaluations/2003compliance/> (August 2006). Gardiner, W. Lambert (2006). Media: Past, Present, and Future (Bethesda: Academica Press). Gersemann, Olaf (2004). Cowboy Capitalism: European Myths, American Reality (Washington DC: Cato Institute). Giscard d’Estaing, Olivier (2006). Après l’Amérique, un monde nouveau: les déﬁs et les institutions de la communauté mondiale (Paris: Éditions Charles Léopold Mayer). Goldman, Marshall (2005). ‘The Russian Disease’. International Economy, vol. 19 (Summer), pp. 27–31. Goldsmith, James (1994). The Trap (London: Macmillan). Gourevitch, Peter (2003). ‘The Politics of Corporate Governance Regulation’. Yale Law Journal, vol. 112, no. 7, pp. 1829–1880. Gourevitch, Peter and James Shinn (2005). Political Power and Corporate Control: The New Global Politics of Corporate Governance (Princeton, NJ: Princeton University Press).

Bibliography

281

Graham, Carol and Paul Masson (2002). ‘The IMF’s Dilemma in Argentina: Time for a New Approach to Lending?’ Policy Brief No. 111, November, Washington DC. <www.brookings.edu/comm/policybriefs/pb111.pdf> (August 2006). Gray, John (1998). False Dawn: The Delusions of Global Capitalism (London: Granta). Grossman, Sanford J. and Oliver D. Hart (1986). ‘The Costs and Beneﬁts of Ownership: A Theory of Vertical and Lateral Integration’. Journal of Political Economy, vol. 94, no. 4, pp. 691–719. Hajnal, Peter I. (2001). ‘Civil Society at the 2001 Genoa G8 Summit’. Behind the Headlines, Toronto. Hajnal, Peter I. (2002). ‘Civil Society Encounters the G7/G8’. In P. I. Hajnal (ed.), Civil Society in the Information Age, pp. 215–242 (Aldershot: Ashgate). Hajnal, Peter I. (2002). ‘Partners or Adversaries? The G7/8 Encounters Civil Society’. In J. J. Kirton and J. Takase (eds.), New Directions in Global Political Governance: The G8 and International Order in the Twenty-First Century, pp. 191–208 (Aldershot: Ashgate). Hajnal, Peter I. (ed.) (2002). Civil Society in the Information Age (Aldershot: Ashgate). Hart, Oliver D. (1995). Firms, Contracts, and Financial Structure (Oxford: Oxford University Press). Hart, Oliver D. (1995). ‘Corporate Governance: Some Theory and Implications’. Economic Journal, vol. 105, no. 430, pp. 678–689. Hawke, John D. (2002), ‘Preserving the Independence of Bank Supervision’. Proceedings for the 38th Annual Conference on Bank Structure and Competition, ‘Financial Market Behavior and Appropriate Regulation over the Business Cycle’, Chicago. Federal Reserve Bank of Chicago. Helfferich, Karl Theodor (1914). Deutschlands Volkswohlstand 1888–1913 (Berlin: G. Stilke). Henderson, David (1998). The Changing Fortunes of Economic Liberalism: Yesterday, Today, and Tomorrow (London: Institute of Economic Affairs). Hopt, Klaus J. (1998). ‘The German Two-Tier Board: Experience, Theories, Reforms. In K.J. Hopt (ed.), Comparative Corporate Governance: The State of the Art and Emerging Research (Oxford: Oxford University Press). Huntington, Samuel P. (1993). ‘The Clash of Civilizations’. Foreign Affairs, vol. 72, no. 3, pp. 22–49. Imle, John F. Jr. (1999). ‘Multinationals and the New World of Energy Development: A Corporate Perspective’. Journal of International Affairs, vol. 53 (Fall), pp. 263–280. International Chamber of Commerce (2003). ‘Business and the Global Economy’. ICC Statement on Behalf of World Business to the Heads of State and Government attending the Evian Summit, 1–3 June, 20 May, Paris. <www.uscib.org/docs/icc_ g8_statement_2003.pdf> (August 2006). International Monetary Fund (1999). ‘External Evaluation of IMF Surveillance’. <www.imf.org/external/pubs/ft/extev/surv/index.HTM> (August 2006).

282

Corporate, Public and Global Governance: The G8 Contribution

International Monetary Fund (2006). ‘IMF Members’ Quotas and Voting Power, and IMF Board of Governors’. 16 August. <www.imf.org/external/np/sec/memdir/ members.htm> (August 2006). International Monetary Fund (annual). Direction of Trade Statistics Yearbook (Washington DC: International Monetary Fund). Jacquet, Pierre, Jean Pisani-Ferry and Laurence Tubiana (2002). ‘Les institutions économiques de la mondialisation’ (The Economic Institutions of Globalisation). In Report No. 37, ‘Gouvernance Mondiale’. Conseil d’Analyse Économique, Paris. <www.cae.gouv.fr/rapports/dl/037.zip> (August 2006). Johnson, Pierre Marc (2001). ‘Creating Sustainable Global Governance’. In J. J. Kirton, J. P. Daniels and A. Freytag (eds.), Guiding Global Order: G8 Governance in the Twenty-First Century, pp. 245–282 (Aldershot: Ashgate). Johnson, Pierre Marc (2002). ‘From Trade Liberalisation to Sustainable Development: The Challenges of Integrated Global Governance’. In J. J. Kirton and V. Maclaren (eds.), Linking Trade, Environment, and Social Cohesion: NAFTA Experiences, Global Challenges, pp. 27–36 (Aldershot: Ashgate). Johnson, Pierre Marc, Karel Mayrand and Marc Paquin (eds.) (2006). Governing Global Desertiﬁcation: Linking Environmental Degradation, Poverty, and Participation (Aldershot: Ashgate). Kaiser, Karl, John J. Kirton and Joseph P. Daniels (eds.) (2000). Shaping a New International Financial System: Challenges of Governance in a Globalizing World (Aldershot: Ashgate). Kaul, Inge, Isabelle Grunberg and Marc A. Stern (1999). Global Public Goods: International Cooperation in the 21st Century (New York: Oxford University Press for the United Nations Development Programme). Kennedy, David (2001). ‘The Forgotten Politics of International Governance’. European Human Rights Law Review, no. 2, pp. 117–125. ‘Killing Capitalism? Radical French Ideas for Reforming Capitalism’ (2003). Economist, 3 May, p. 60. Kirton, John J. (1989). ‘Contemporary Concert Diplomacy: The Seven-Power Summit and the Management of International Order’. Paper presented at the annual convention of the International Studies Association, 29 March–1 April, London. Kirton, John J. (1993). ‘The Seven Power Summits as a New Security Institution’. In D. Dewitt, D. Haglund and J. J. Kirton (eds.), Building a New Global Order: Emerging Trends in International Security, pp. 335–357 (Toronto: Oxford University Press). Kirton, John J. (1999). ‘Explaining G8 Effectiveness’. In J. J. Kirton and J. P. Daniels (eds.), The G8’s Role in the New Millennium, pp. 45–68 (Aldershot: Ashgate). Kirton, John J. (2001). ‘The G7/8 and China: Toward a Closer Association’. In J. J. Kirton, J. P. Daniels and A. Freytag (eds.), Guiding Global Order: G8 Governance in the Twenty-First Century (Aldershot: Ashgate). Kirton, John J. and Ella Kokotsis (2002). ‘The G8 from Genoa to Kananaskis and Beyond: Performance, Prospects, and Potential’. Paper prepared for a conference on ‘Sustaining Global Growth: Prosperity, Security, and Development Challenges

Bibliography

283

for the Kananaskis G8’ 19 June, Calgary. <www.g8.utoronto.ca/conferences/2002/ calgary/prospects_kirton.pdf> (August 2006). Kirton, John J. (2003). ‘Impressions of the G8 Foreign Ministers Meeting’. Paris, 23 May. <www.g8.utoronto.ca/evaluations/2003evian/assess_formin_kirton.html> (August 2006). Kirton, John J. (2003). ‘After Westphalia: Security and Freedom in the G8’s Global Governance’. In T. Noetzel and M. Lerch (eds.), Security and Freedom: Foreign Policy, Domestic Politics, and Political Theory Perspectives (Baden-Baden: Nomos). Kirton, John J. (2003). ‘Bush Needs the G8, and It Needs Him’. Globe and Mail, 3 June, p. A15. Kirton, John J. and Ella Kokotsis (2003). ‘The G7/8 Contribution at Kananaskis and Beyond’. In M. Fratianni, P. Savona and J. J. Kirton (eds.), Sustaining Global Growth and Development: G7 and IMF Governance, pp. 207–226 (Aldershot: Ashgate). Kirton, John J. and Michael J. Trebilcock (eds.) (2004). Hard Choices, Soft Law: Voluntary Standards in Global Trade, Environment, and Social Governance (Aldershot: Ashgate). Kirton, John J. and Peter I. Hajnal (eds.) (2006). Sustainability, Civil Society, and International Governance: Local, North American, and Global Contributions (Aldershot: Ashgate). Kobrak, Christopher and Michael-Jörg Oesterle (1999). ‘Nationalism and Internationalism in Corporate Governance: The Case of Daimler Chrysler’. Entreprises et Histoire, vol. 21 (June). Kobrak, Christopher (2002). ‘Mark Roe and the Roots of German Corporate Governance’. Presented at the European Business History Conference, August, Helsinki. Kokotsis, Eleanore (1999). Keeping International Commitments: Compliance, Credibility, and the G7, 1988–1995 (New York: Garland). Kovach, Hetty, Caroline Neligan, and Simon Burall (2003). ‘Power without Accountability?’ Global Accountability Report. <www.oneworldtrust.org/pages/ download.cfm?did=168> (August 2006). Krueger, Anne O. (2001). ‘International Financial Architecture for 2002: A New Approach to Sovereign Debt Restructuring’. American Enterprise Institute, 26 November, Washington DC. <www.imf.org/external/np/speeches/2001/112601. htm> (August 2006). Krueger, Anne O. (2001). ‘A New Approach to Sovereign Debt Restructuring’. Address given at the Indian Council for Research on International Economic Relations, 20 December, Delhi. <www.imf.org/external/np/speeches/2001/122001. htm> (August 2006). Laffont, Jean-Jacques and Jean Tirole (1993). A Theory of Incentives in Procurement and Regulation (Cambridge MA: MIT Press). Laïdi, Zaki (1994). Un monde privé de sens (Paris: Fayard). ‘Larger Forum Should Replace G8: Lamy’ (2003). Agence France-Presse, 24 July. Lawton, Thomas (2001). ‘The New Global Electronic Economy: The Contribution of the G8 Summit’. In J. J. Kirton and G. M. von Furstenberg (eds.), New Directions

284

Corporate, Public and Global Governance: The G8 Contribution

in Global Economic Governance: Managing Globalisation in the Twenty-First Century, pp. 39–60 (Aldershot: Ashgate). Le Prestre, Philippe G. (ed.) (2002). Governing Global Biodiversity: The Evolution and Implementation of the Convention on Biological Diversity (Aldershot: Ashgate). Legrain, Philippe (2004). ‘Europe’s No Basket Case’. International Economy, vol. 17 (Fall), pp. 82–83. Lück, Wolfgang (2002). ‘Corporate Governance und Aufsichstrat’. Frankfurter Allgemeine Zeitung, 21 October, p. 24. Luttwak, Edward (1999). Turbo-Capitalism: Winners and Losers in the Global Economy (New York: HarperCollins). Masciandaro, Donato (ed.) (2004). Global Financial Crime: Terrorism, Money Laundering, and Offshore Centres (Aldershot: Ashgate). McCraw, Thomas K. (1984). Prophets of Regulation: Charles Francis Adams, Louis D. Brandeis, James M. Landis, and Alfred E. Kahn (Cambridge MA: Belknap Press). Mchumo, Ali (2000). ‘On the D-G Selection and the Seattle Ministerial’. 8 February. <www.wto.org/English/news_e/pres00_e/chair1_e.htm> (August 2006). Meltzer, Allan H. (1999). ‘What’s Wrong with the IMF? What Would Be Better? In W.C. Hunter, G.G. Kaufman and T.H. Krueger (eds.), The Asian Financial Crisis: Origins, Implications, and Solutions (Norwell, MA: Kluwer Academic Publishers). Meltzer, Allan H. (2000). ‘Report of the International Financial Institutions Advisory Commission’. United States Congress, Washington DC. <www.house.gov/jec/ imf/meltzer.pdf> (August 2006). Mikesell, Raymond F. (1994). The Bretton Woods Debates: A Memoir (Princeton: International Finance Section, Department of Economics, Princeton University). Momani, Bessma (2002). ‘The Role of the International Monetary Fund in American Foreign Economic Policy Towards Egypt, 1985–1998’. PhD thesis, University of Western Ontario. Mussa, Michael (2002). Argentina and the Fund: From Triumph to Tragedy (Washington DC: Institute for International Economics). Nardozzi, Giangiacomo (2002). I rapporti tra ﬁnanza e distribuzione del reddito: un’interpretazione dell’economia di ﬁne secolo (The Relations between the Finance and the Distribution of Income: An Interpretation of the Economy at the End of the Twentieth Century) (Rome: Liss editizioni). Organisation for Economic Co-operation and Development (2001). International Direct Investment Statistics Yearbook, 1980/2000 (Paris: Organisation for Economic Co-operation and Development). Ostry, Sylvia (1997). The Post–Cold War Trading System: Who’s on First? (Chicago: University of Chicago Press). Ostry, Sylvia (2002). ‘Globalization and the G8: Could Kananaskis Set a New Direction?’ O. D. Skelton Memorial Lecture, Department of Foreign Affairs and International Trade Canada, Queen’s University, Kingston. <www.dfait-maeci. gc.ca/department/skelton/ostry-en.asp> (August 2006).

Bibliography

285

Pauly, Louis W. and Simon Reich (1997). ‘National Structures and Multinational Corporate Behavior: Enduring Differences in the Age of Globalization’. International Organisation, vol. 51, no. 1, pp. 1–30. Plumtre, A. F. W. (1977). Three Decades of Decision: Canada and the World Monetary System, 1944–75 (Toronto: McClelland and Stewart). Porshakov, Sergei (2006). ‘Improving Corporate Governance in Russia and the EU’. Russia in Global Affairs, vol. 4 (April–June), pp. 194–205. Powell, Colin (2003). ‘Remarks at the World Economic Forum’. 26 January, Davos. <www.state.gov/secretary/former/powell/remarks/2003/16869.htm> (August 2006). Prakash, Aseem and Jeffrey A. Hart (eds.) (1999). Globalization and Governance (New York: Routledge). Putnam, Robert and Nicholas Bayne (1987). Hanging Together: Co-operation and Conﬂict in the Seven-Power Summit, 2nd edn (London: Sage Publications). Putnam, Robert and C. Randall Henning (1989). ‘The Bonn Summit of 1978: A Case Study in Coordination’. In R. N. Cooper (ed.), Can Nations Agree (Washington DC: Brookings Institution). Quadrilateral Trade Ministers (1999). ‘Chair’s Statement’. 11–12 May, Tokyo. <www.g8.utoronto.ca/trade/quad33.html> (August 2006). Roe, Mark J. (1994). Strong Managers, Weak Owners: The Political Roots of American Corporate Finance (Princeton: Princeton University Press). Roe, Mark J. (2002). ‘Corporate Law’s Limits’. Journal of Legal Studies, vol. 31 (June). Romano, Roberta (1998). ‘Empowering Investors: A Market Approach to Securities Regulation’. In K. J. Hopt (ed.), Comparative Corporate Governance: The State of the Art and Emerging Research (Oxford: Oxford University Press). Roubini, Nouriel (2002). ‘Do We Need a New International Bankruptcy Regime? Comments on Bulow, Sachs, and White’. 4 April. <www.rgemonitor.com/bankreg. doc> (January 2003). Rugman, Alan M. (1994). Foreign Investment and NAFTA (Columbia, SC: University of South Carolina Press). Rugman, Alan M., John J. Kirton, and Julie A. Soloway (1999). Environmental Regulations and Corporate Strategy: A NAFTA Perspective (Oxford: Oxford University Press). Rugman, Alan M. (2000). The End of Globalization (London: Random House). Rugman, Alan M. and Alina Kudina (2002). ‘Britain, Europe, and North America’. In M. Fratianni, P. Savona and J. J. Kirton (eds.), Governing Global Finance: New Challenges, G7 and IMF Contributions, pp. 185–196 (Aldershot: Ashgate). Rugman, Alan M. and Alain Verbeke (2002). ‘Regional Multinationals and Triad Strategy’. Mimeo. Rugman, Alan M. and Alain Verbeke (2004). ‘A Perspective on Regional and Global Strategies of Multinational Enterprises’. Journal of International Business Studies, vol. 35, no. 1, pp. 3–18. Sartori, Giovanni (1994). Democrazia: cos’è (What Is Democracy?) (Milan: Garzanti).

286

Corporate, Public and Global Governance: The G8 Contribution

Savona, Paolo (1993). Il terzo capitalismo e la società (The Third Capitalism and the Open Society) (Milan: Longanesi). Scholte, Jan Aart (1999). ‘Global Civil Society: Changing the World’. CSGR Working Paper No. 31/99. <www2.warwick.ac.uk/fac/soc/csgr/research/ workingpapers/1999/wp3199.pdf> (August 2006). Sethi, S. Prakash (2002). ‘Corporate Codes of Conduct and the Success of Globalization’. Ethics and International Affairs, vol. 16, no. 1, pp. 89–106. Shiller, Robert J. (2005). Irrational Exuberance, 2nd edn (New Haven: Princeton University Press). Shleifer, Andrei and Robert W. Vishny (1997). ‘A Survey of Corporate Governance’. Journal of Finance, vol. 52, no. 2, pp. 737–783. Smith, Adam (1776). An Enquiry into the Nature and Causes of the Wealth of Nations (Edinburgh: Strahan and Cadell). Solomon, Robert (1977). The International Monetary System, 1945–1976 (New York: Harper & Row). Soros, George (1998). The Crisis of Global Capitalism (New York: Public Affairs). Steil, Benn (1996). The European Equity Markets: The State of the Union and an Agenda for the Millennium (London: Royal Institute of International Affairs). Stettler, Howard F. (1977). Auditing Principles, 4th edn (Englewood Cliffs: PrenticeHall). Strange, Susan (1996). The Retreat of the State: The Diffusion of Power in the World Economy (Cambridge: Cambridge University Press). Suleiman, Ezra N. (1978). Elites in French Society: The Politics of Survival (Princeton: Princeton University Press). Tanaka, Akihiko (2002). The New Middle Ages: The World System in the 21st Century, trans. J.C. Hoff (Tokyo: International House of Japan). Tarullo, Daniel K. (2001). ‘Rules, Discretion, and Authority in International Financial Reform’. Journal of International Economic Law, vol. 4, no. 4, pp. 613–682. ‘The G7 Blinks over Argentina’. (2003). Financial Times, North American, 20 January, p. 10. Tirole, Jean (1994). ‘The Internal Organization of Government’. Oxford Economic Papers, vol. 46, no. 1, pp. 1–29. Ullrich, Heidi K. and Alan Donnelly (1998). ‘The Group of Eight and the European Union: The Evolving Partnership’. G8 Governance November. <www.library. utoronto.ca/g7/governance/gov5>. Ullrich, Heidi K. (2001). ‘Stimulating Trade Liberalisation after Seattle: G7/8 Leadership in Global Governance’. In J. J. Kirton and G. M. von Furstenberg (eds.), New Directions in Global Economic Governance: Creating International Order for the Twenty-First Century, pp. 219–240 (Aldershot: Ashgate). United Kingdom Parliament (2003). ‘Hansard’. 4 June, Column 168. <www. publications.parliament.uk/pa/cm200203/cmhansrd/vo030604/debtext/3060408.htm> (August 2006). United States Census Bureau (2005). ‘Percent of People Who Are Foreign Born: 2005’. R0501. 2005 American Community Survey. (August 2006).

Bibliography

287

United States Department of Energy (2002). Transportation Energy Data Book (Oak Ridge TN: Oak Ridge National Laboratory). Valaskakis, Kimon (2001). ‘Long-Term Trends in Global Governance: From Westphalia to Seattle’. In, Governance in the 21st Century, pp. 45–66 (Paris: Organisation for Economic Co-operation and Development). Vaubel, Roland (1991). ‘The Political Economy of the IMF: A Public Choice Analysis’. In R. Vaubel and T. D. Willett (eds.), The Political Economy of International Organizations (Boulder: Westview Press). von Furstenberg, George M. and Joseph P. Daniels (1992). ‘Economic Summit Declarations, 1975–1989: Examining the Written Record of International Cooperation’. Princeton Studies in International Finance No. 72, Princeton. Wasescha, Luzius (2003). ‘Trade Policy Message to Ministers from the Chairman of the Trade Committee’. Council Meeting at the Ministerial Level, Organisation for Economic Co-operation and Development, 29–30 April, Paris. <www.oecd. org/dataoecd/22/51/2508920.pdf> (August 2006). Weiss, Linda (1998). The Myth of the Powerless State: Governing the Economy in a Global Era (Cambridge: Polity Press). Whalen, Christopher (2003). ‘Revisiting Sarbanes-Oxley’. International Economy, vol. 17 (Fall), pp. 40–43. Whalen, Christopher (2004). ‘Managing Risk’. International Economy, vol. 18 (Fall), pp. 51–55. Whalen, Christopher (2005). ‘The Next Great Pyramid Game’. International Economy, vol. 19 (Fall), pp. 22–25, 56. Whalen, Christopher (2006). ‘The Cox Revolution’. International Economy, vol. 20 (Winter), pp. 40–43. Whelan, Susan (2003). ‘Interview’. 15 May. <www.g8.utoronto.ca/oralhistory/ whelan030515.html> (August 2006). Whitely, Richard (1997). ‘Internationalization and Varieties of Capitalism: The Limited Effects of Cross-National Coordination of Economic Activities on the Nature of Business Systems’. Review of International Political Economy, vol. 5, no. 3, pp. 445–481. Williamson, John (1977). The Failure of World Monetary Reform, 1971–1974 (New York: New York University Press). Williamson, Oliver E. (1996). The Mechanisms of Governance (New York: Oxford University Press). Winston, Morton (2002). ‘NGO Strategies for Promoting Corporate Social Responsibility’. Ethics and International Affairs, vol. 16, pp. 71–87. Witherell, Bill (2002). ‘Corporate Governance and Responsibility: Foundations of Market Integrity’. OECD Observer no. 234 (October), pp. 7–9. <www.oecd.org/ dataoecd/39/43/1840502.pdf> (August 2006). Woods, Ngaire (2001). ‘Making the IMF and World Bank More Accountable’. International Affairs, vol. 77, no. 1, pp. 83–100. World Bank (2003). ‘World Development Indicators 2003’. Washington DC. World Trade Organization (1994). ‘Trade Policy Review Mechanism’. <www.wto. org/english/docs_e/legal_e/29-tprm_e.htm> (August 2006).

288

Corporate, Public and Global Governance: The G8 Contribution

World Trade Organization (1994). The Results of the Uruguay Round of Multilateral Trade Negotiations: The Legal Texts (Geneva: General Agreement on Tariffs and Trade). World Trade Organization (1994). ‘Marrakesh Agreement Establishing the World Trade Organization’. 15 April. <www.wto.org/english/docs_e/legal_e/04-wto_ e.htm> (August 2006). World Trade Organization (1996). ‘Procedures for the Circulation and Derestriction of WTO Documents’. WT/L/160/Rev.1. Decision adopted by the General Council, 18 July. Revision. World Trade Organization (1996). ‘Guidelines for Arrangements on Relations with Non-Governmental Organizations’. WT/L/162, 18 July. <www.wto.org/English/ forums_e/ngo_e/guide_e.htm> (August 2006). World Trade Organization (1996c). ‘Final Statistics of the 1st WTO Ministerial Conference in Singapore’. <www.wto.org/english/forums_e/ngo_e/statsi_e.htm> (August 2006). World Trade Organization (1998). ‘Final Statistics of the 2nd WTO Ministerial Conference in Geneva’. <www.wto.org/english/forums_e/ngo_e/statgen_e.htm> (August 2006). World Trade Organization (1998). ‘Focus Newsletter’. July. Geneva. World Trade Organization (2001). ‘Ministerial Declaration’. 14 November, Doha. <www.wto.org/english/thewto_e/minist_e/min01_e/mindecl_e.htm> (August 2006). World Trade Organization (2003). ‘Joint Statement’. Supachai Panitchpakdi, Director-General of the World Trade Organization, Horst Köhler, Managing Director of the International Monetary Fund, and James Wolfensohn, President of the World Bank Group, WTO General Council meeting on coherence, 13 May, Geneva. <www.wto.org/english/news_e/pres03_e/pr341_e.htm> (August 2006). Wrage, Stephen and Alexandra Wrage (2005). ‘Multinational Enterprises as “Moral Entrepreneurs” in a Global Prohibition Regime against Corruption’. International Studies Perspectives, vol. 6, no. 3, pp. 316–324. Young, Stephen (2003). Moral Capitalism: Reconciling Private Interest with the Public Good (San Francisco: Berrett-Koehler Publishers). Zoellick, Robert B. (2002). ‘Unleashing the Trade Winds’. Economist, 7 December, pp. 25–29. Zupi, Marco (2001). ‘The Genoa G8 Summit: Great Expectations, Disappointing Results’. International Spectator, vol. 36, no. 3, p. 59.

Index Abdelazzi, Bouteﬂika 113 accountability 6, 7, 12, 16, 17, 28, 99, 101, 104, 105, 106–107, 109, 110, 114, 116, 121–122, 128, 133, 139, 164, 204, 243, 246, 249, 262 deﬁnition 99 accounting 4, 7, 9, 44, 45, 57, 60, 62, 63, 68, 72, 73, 90, 129, 142, 233, 239, 250 Accounting Regulatory Committee 69 ActionAid 109 Action Plan on Emerging Markets 269 Action Plan on Health 213 Action Plan on Terrorist Financing 268 Action Plan on Trade 261 Adenauer, Konrad 39 Afghanistan 46–47, 49, 191, 203, 204, 266, 268 Afghan National Drug Strategy 266 Africa 7, 9, 14, 87, 134, 172, 173–174, 176, 177, 178, 184, 185, 188, 191, 193, 194, 195, 196, 197, 199, 203–204, 204, 205, 207, 209, 210, 212, 213, 218, 229, 241, 259, 262, 266. See also North Africa; sub-Saharan Africa leaders at G8 summit 30–31, 188, 194, 204 Africa Action Plan 7, 173, 175, 177, 178, 180, 188, 194, 205, 210, 214, 218, 220, 221, 229, 234, 262 Africa Growth and Opportunity Act 181 African Peer Review Mechanism 7, 246. See also peer review African Union 203 Africa personal representatives 210, 218, 220, 222, 262 ageing 88, 189, 239, 261, 269 Aglietta, Michel 143 Agreement on Public Health 117, 120 Agreement on Trade-Related Aspects of

Intellectual Property. See TRIPS Agricultural Science and Technology 259 agriculture 30, 78, 100, 109, 111, 117, 118, 119, 120, 153, 154, 161, 179, 181, 182, 184, 191, 195, 197, 200, 211, 257, 259, 260, 264 agriculture ministers 182 aid 136, 138, 151, 160, 175, 177, 178, 221, 226, 227, 234, 236, 240, 242, 243, 244, 245, 246, 262, 266, 268, 273. See also ofﬁcial development assistance Albert, Michel 66 Algeria 113, 177, 194, 221, 224, 226, 261, 262, 266 Allen, Franklin 56 Allianz 77 al Qaeda 27, 43, 47, 203 alternative summit 109, 174 Americas 12, 77, 78, 79, 206 Annan, Koﬁ 6, 194 Annemasse 109, 175 Anti-Corruption Convention (Organisation for Economic Co-operation and Development) 42 anti-trust legislation 62 antiglobalisation 27, 154, 172, 175 Argentina 3, 94, 136, 140, 142, 203, 206, 224, 233, 267 arms control 10, 17, 25, 189, 191, 195, 199, 203, 265 ASEAN 78, 82, 173 Asia 3, 12, 30–31, 55, 77, 78, 79, 83, 81, 82, 85, 90, 91, 134, 164, 203, 204, 206, 207, 207–208, 209 Association for Southeast Asian Nations. See ASEAN Association Française des Enterprises Privées 67 AstraZeneca 77 Attac 109

290

Corporate, Public and Global Governance: The G8 Contribution

auditing 233 Aufsichtsrat 58, 65, 70, 71 Australia 41, 42, 78, 224 Austria 36 Austro-Prussian War 36 AXA-UAP 58, 69 Bahrain 79, 80 Bali 196 Bangladesh 174 Bank for International Settlements 127 banking 7, 8, 56, 58, 62, 63, 64, 65, 66, 68, 70, 73, 127, 133, 139, 140, 141, 141–146, 206, 234, 240, 250, 255, 268 Bank of France 113 Bank of International Settlements 130, 131 Barings Bank 6, 7 Barro, Robert 135 Basel Committee on Banking Supervision 133, 141, 255, 239 Battle of Fontenoy 40 Bayne, Nicholas 104, 178, 183, 187, 204 Bébéar, Claude 69 Belgium 131 Bell, Daniel 49 Bergsten, C. Fred 31 Berle, Adolf 55, 57 Berlin Wall 95 Berlusconi, Silvio 208 biodiversity 164, 181, 257, 259, 260, 264 Bird, Graham 136, 137 Birmingham Summit 14, 108, 171, 172, 173, 174, 175, 176, 179, 181, 182–185, 191 compliance 190, 190–200 Bismarck 39 Blair, Tony 172, 174, 182, 193, 208, 209 Blustein, Paul 136–137, 139 board of directors 45, 49, 57, 58, 59, 62, 63, 64, 65, 66, 67, 69, 70, 72, 114, 127, 128, 129, 131, 132, 133, 134, 137, 139, 140, 141, 143 Bodin, Jean 38 Bonn Summit 1978 178 Bordo, Michael 137 Boughton, James 134, 135, 138, 142 Bouteﬂika, Abdelaziz 194 Brazil 3, 78, 113, 114, 159, 174, 203, 206, 207, 224, 233, 235, 240, 261, 267

Bretton Woods institutions 6, 37, 130, 131–132, 159 Broader Middle East and North Africa 174 Brussels 41 Bull, Hedley 28 Bush, George W. 103, 155, 166, 172, 176, 178, 179, 181, 182, 184–185, 193, 201, 202, 207, 208, 208–209, 212, 215 Chirac, Jacques 15, 32, 102, 182, 201, 212, 215 business 5, 6, 9, 10, 11, 16, 23, 24, 28, 29, 32, 36, 39, 55, 57, 74, 83, 109, 115, 119, 174, 183 CAC 40 59, 66, 67 Cadbury, Sir Adrian 128 Cadbury Committee 128 Calgary 108, 182 Cambodia 224 Camdessus, Michel 113 Cameroon 224 Canada 3, 4, 5, 9, 12, 16, 41, 78, 79, 80, 81, 82, 85, 89, 112, 131, 153, 165, 176, 179, 181, 184–185, 194, 196, 203, 204, 205, 206, 208, 209, 210, 239, 269 as G8 host 14, 182, 184–185, 191, 192, 192, 205, 220 as G8 member 112 compliance 190, 191, 192–200 Canadian Council of Chief Executives 119 Cancun ministerial 100, 101, 115–116, 116, 117, 118, 119, 120, 121, 122, 211, 221, 240, 255, 267 Canon 77 capital 41, 50, 55, 57, 58, 59, 60, 61, 64, 65, 67, 68, 69, 71, 87, 92, 95, 163, 233, 237, 239, 241, 249, 261 capital ﬂows 13–14, 61, 68, 151, 163, 235, 236 capitalism 7, 3, 24, 35, 44, 58, 63, 70–71 Capitalisme contre Capitalisme 66 capital theory 92 capture theory 134, 137–139 Caribbean 80, 81 Catholic church 39, 42 Caux Round Table 10, 24 Central African Republic 136 central bank governors 118, 130, 131, 133,

Index 223. See also ﬁnance ministers Central Europe 78, 177 certiﬁed public accountants 129 Chabal, Patrick 180 chaos theory 29 Chechnya 203, 208 chief executive ofﬁcer 49, 67, 69, 70, 102, 129 chief ﬁnancial ofﬁcer 129 China 4, 32, 78, 82, 87, 88, 89, 90, 91, 95, 113, 114, 159, 173, 174, 203, 204, 224, 261, 273 Chirac, Jacques 13, 23, 99, 101, 102, 103, 107, 108–109, 109, 113, 118, 119, 172, 174, 182, 193, 197, 201, 208 Bush, George W. 15, 32, 182, 201, 212, 215 Chrétien, Jean 172, 193, 197, 205, 208 Churchill, Winston 150 civil society 4, 5, 11, 13, 13–14, 16, 17, 28, 29, 31, 32, 43, 78, 99, 100, 101, 102, 104, 105, 106, 107, 107–109, 109, 110, 114–116, 117, 119, 121, 122, 149, 154–155, 157, 157, 165–166, 180, 197, 204, 246, 250 Clausewitz, Claus von 40 climate change 8, 27, 164, 181, 257, 259, 264 Clinton, Bill 115, 182, 184–185, 193 Coase 73 Coca-Cola 77 code of conduct 7, 64, 69, 75, 141, 143, 220, 234, 237, 240, 262, 267, 272 Colbert, Jean-Baptiste 39 Cold War 32, 37, 149, 151 collective action clauses 233, 237, 240, 262, 267, 272 Cologne Summit 7, 108, 112, 117, 174, 176, 180, 181, 184, 263 compliance 190, 190–200 Colombia 79, 80 Combating IPR Piracy and Counterfeiting 9 Commission on Human Security 264 commitments 187, 192, 192–193, 194, 196, 197, 198, 201, 204, 205, 210, 212, 215, 225 deﬁnition 188–200 ﬁnance ministers 205 Committee of Twenty 134 Committee on the Financial Aspects of

291

Corporate Governance 128 Common Agricultural Policy 181, 182 Commonwealth of Independent States 174, 209, 210 communism 93, 94, 149, 177 competition 5, 28, 68, 73, 92, 95, 100, 111, 120, 242, 261 complexity theory 29 compliance 14, 17, 106, 154, 163, 254. See also G8: compliance conditionality 130, 136, 138, 142, 241 conﬁdence 3, 10, 16, 23, 25, 206, 239, 249 conﬂict prevention 8, 172, 187, 191, 195, 200, 212 Congress of Vienna 36 Conseil National du Patronat Français 67 Consultative Group for International Agricultural Research 259 consumer groups 114, 115 contingent credit lines 272 Convention on Biological Diversity 166 Convention on Combating Bribery of Foreign Public Ofﬁcials 254 Core Principles for Effective Banking Supervision 141–142 corporate behaviour 6, 9, 10, 24, 27, 44–46, 56, 73, 208 corporate governance 4, 5, 6–7, 7, 9–10, 11–12, 14, 15, 16–19, 28, 44–46, 55–75, 100, 101, 102, 103, 104, 106, 127, 187, 188, 191, 201, 202, 203, 204, 208, 211, 213, 215, 233, 235, 239, 249, 250, 261 corporate law See law: corporate corporate responsibility 197 corporate scandals 3, 4, 8, 11, 14, 16, 55, 63, 101, 103, 128, 208 corporate social responsibility 4, 8, 106, 210, 211, 213, 239, 249, 250–252 corporations 5, 58–59, 62–67, 67–70, 71, 74, 87, 119, 127, 129, 130, 140–146, 163, 165, 173, 176, 179, 203 Corps des Mines 66 corruption 4, 7, 8, 9, 42, 106, 107, 116, 191, 195, 200, 210, 211, 213, 214, 222, 225, 240, 243, 245, 250, 253–255, 262 Costa Rica 136 Counseil d’État 66 counter-terrorism 9, 210, 218, 226

292

Corporate, Public and Global Governance: The G8 Contribution

Counter-Terrorism Action Group 218, 220, 226, 265 counterterrorism 9 country assistance strategies 236, 243, 245, 246, 254 Country Policy and Institutional Assessments 245, 246 Cour des Comptes 66 Credit Lyonnais 66 Credit Suisse 77 crime 5, 41, 44, 93, 171, 187, 189, 191, 195, 200, 235, 240, 249, 254 Crimean War 36 crisis prevention 156, 234, 235, 236, 236–237, 240, 262, 272 cross-border ﬂows 28, 73, 163, 164, 249 Cyprus 224 DaimlerChrysler 64, 69, 77 Dakar goals 194, 199 Daniels, Joseph 190, 192–200 Davos 104 debt relief 4, 6, 8, 109, 130, 154, 174, 175, 176, 180, 181, 184, 189, 191, 204, 206–207, 221, 236, 237, 240, 242, 262, 263–264, 268, 273 debt restructuring 6, 155, 237, 240, 241, 262. See also sovereign debt restructuring mechanism Declaration on Fostering Growth and Promoting a Responsible Market Economy 213, 261–262 deﬂation 5, 203, 204, 206, 213, 239 de Gaulle, Charles 39 De Gregorio, Jose 139 Delors, Jacques 160 democracy 3, 4, 7, 8, 10, 11, 13, 14, 27, 31, 32, 38, 39, 43, 46, 47, 48, 50, 63, 70, 93, 94, 95, 101, 102, 107, 108, 112, 113, 114, 129, 143, 149, 152, 156–157, 166, 167, 172, 178, 187, 189, 192, 197, 201, 202, 203, 204, 207, 208, 265 Democratic Republic of Congo 47, 136 demonstrations. See protests de Montbrial, Thierry 31 Denver Summit 3, 171, 190 Depression 36, 62, 68 deregulation 42, 44 Deutsche Bank 77

Deutsche Telekom 67, 70 developed countries 56, 118, 122, 132, 135, 136, 143, 153, 154–153, 164, 226, 235, 242, 257, 258, 263, 271, 273 developing countries 3, 4, 7, 8, 13, 14, 17, 31, 56, 93, 99, 102, 104, 107, 112, 113, 114, 116, 117, 118, 119, 120, 122, 151, 153, 154, 158, 159, 160, 160, 165, 173, 174, 177, 179, 180, 226, 233, 235, 240, 242, 243, 243–244, 245, 246, 247, 253, 254, 257, 258, 259, 260, 261, 263, 264, 268, 273 development 7, 8, 30, 81, 87, 92, 94, 109, 113, 114, 115, 118, 121, 137, 151, 154, 163, 164, 174, 180, 189, 191, 194, 195, 197, 199, 203–204, 204, 210, 212, 225, 234, 240, 242, 243–244, 262, 263 Development Assistance Committee 199, 244, 245, 246 development ministers 103, 173, 197, 204, 205, 223 Diageo 77 Digital Opportunity Task Force 174 directors. See board of directors dirigisme 36 disarmament 37, 191, 195, 199 disease 41, 178. See also health Doha declaration 119, 120 Doha Development Agenda 12–13, 16, 78, 99, 100, 101, 103, 111, 116, 116–118, 118, 119, 120–121, 121, 122, 160–162, 181, 203, 210, 229, 233, 235, 240, 242, 247, 255, 261, 267, 271 Doha ministerial 115, 116 dot.com 3, 4, 101 Dot Force 174, 176 Drop the Debt 175 drugs 9, 27, 189 Eastern Europe 24, 78, 177 East India Company 36 economic development 87, 88, 130, 188 ECOSOC 154 Ecuador 78, 136 education 9, 10, 25–26, 74, 75, 87, 88, 94, 163, 179, 179–180, 191, 194, 195, 197, 199, 234, 239, 240, 261

Index business 12, 16 Education for All 194, 199 education ministers 173 Edwards, Jeremy 70 Egypt 113, 116, 136, 224, 261 electoral process 43, 45–46, 129 El Salvador 136, 174 emerging economies 3, 4, 7, 73, 118, 153, 206, 233, 235, 236, 257, 261, 262, 267, 268, 271, 273 employment. See labour employment ministers 173 energy 9, 12, 78, 79, 81, 83, 165, 178, 181, 190, 257, 257–258, 258, 260, 264 energy ministers 173, 197, 223 Enhanced HIPC Initiative 176, 180, 188, 273. See also HIPC Initiative Enron 3, 7, 8, 12, 14, 24, 27, 44, 55, 63, 166, 171, 188, 191 environment 4, 13, 29, 42, 78, 79, 87, 88, 93, 108, 113, 114, 115, 150, 154, 156, 158, 160, 161, 163–164, 165, 172, 181, 184, 189, 190, 195, 197, 200, 211, 212, 213, 214, 229, 239, 249, 250, 264 environment ministers 103, 108, 112, 173, 197, 223 epidemics 41, 42 equity 13, 60, 61, 62, 63, 64, 66, 67, 68, 69, 132, 140, 149, 151, 152, 163, 164, 237, 267 Ericsson 77 ethics 10, 24, 48, 74–75 euro 206 Europe 3, 4, 11, 13, 14, 16, 17, 24, 28, 35, 35, 36, 39, 67, 68, 69, 77, 78, 79, 81, 83, 85, 115, 134, 171, 176, 178, 181, 183, 184, 184–185, 203, 206, 207, 208, 233. See also Central Europe; Eastern Europe; European Union; Western Europe European Commission 41, 68, 99, 194 European Community 83, 112 European Council 159–162, 182, 194 European Employers Confederation 119 European Parliament 69, 115 European Round Table of Industrialists 119 European Takeover Directive 69 European Union 10, 11, 12, 25, 37, 41, 49, 50, 57, 60, 67–70, 77, 78, 81,

293

82, 85, 89, 90, 91, 94, 99, 112, 114, 120, 132, 153, 154, 158–161, 175, 180, 181, 182, 184–185, 190, 201, 207, 208, 209, 212, 213, 237, 269. See also Europe; St. Petersburg European Union Summit as G8 member 112 gross domestic product 49, 89 Evian Summit 7–8, 11, 12–13, 14, 14–15, 17, 23, 32, 35, 48, 100, 101, 101–103, 106–116, 116, 117–118, 120, 122, 166, 171, 172, 173, 174, 176, 177, 179, 181–185, 197–198, 201–216, 218–219, 220–222, 223, 224, 229, 234, 236, 239, 240, 261–266 agenda 118, 209, 213 commitments 201, 212, 214, 215, 225 compliance 215 outreach 30–31 participation 207, 261, 262 performance 206–209, 212–214 preparations 205, 209–212, 215 exchange rates 132, 155, 206, 213, 233, 235, 236, 267, 272 Expert Group on Technology Transfer 258 Extractive Industries Transparency Initiative 8, 210, 211, 213 factors of production 44, 45, 92 famine 210, 213, 214, 221, 225, 227, 229, 259, 262 Ferguson, Roger 239 Fighting Corruption and Improving Transparency: A G8 Declaration 107, 116, 253–255 Fighting High Level Corruption 9 ﬁnance ministers 7, 8, 13, 17, 103, 104, 118, 132, 171, 173, 175, 176, 178, 221, 222, 226, 262, 263, 265 April 2003 223, 235–237 commitments 205 February 2003 223, 233–234 May 2003 205, 211, 223, 239–247 September 2002 223 September 2003 267–270 Financial Action Task Force 31, 206, 222, 234, 235, 240, 255, 268, 272–273 ﬁnancial crisis 3, 6, 55, 9, 155, 156, 206, 233–234, 237, 262, 272

294

Corporate, Public and Global Governance: The G8 Contribution

1997–99 3, 6, 7, 55, 139 Asia 3, 55, 164 Mexico 55, 164 ﬁnancial liberalisation 102, 271 Financial Stability Forum 6, 221, 233, 239, 250, 251–252, 268 Fischer, Klaus 70 Flextronics 77 Food and Agriculture Organisation 259 food safety 109, 181, 189 Ford Motor Company 72, 83 foreign direct investment 11, 77, 78, 81, 82, 153, 161, 233, 235, 245 foreign ministers 43, 103, 171, 173, 197, 205, 223 Fostering Growth and Promoting a Responsible Market Economy 106 Fourth Directive 68–69 France 9, 11, 32, 36, 40, 42, 56, 57, 58, 62, 66, 67, 82, 85, 112, 131, 132, 135, 155, 172, 173, 175, 184–185, 196, 202, 203, 205, 207, 209, 215, 269 as G8 host 14, 58–59, 101, 113, 172, 174, 175, 176, 191, 192, 192–200, 202, 208, 220 compliance 190, 191, 192–200, 206 gross domestic product 61 Franco-Austrian War 36 Franco-Prussian War 36 Fratianni, Michele 138, 140–146, 142 free trade 81, 150, 165, 191, 195, 200, 246. See also trade liberalisation Free Trade Agreement of the Americas 78, 79, 82, 83 French Constitution of 1791 38 Frey, Bruno 131–146, 135–136 Funabashi, Yoichi 135 G3 135 G5 132, 134, 135 G7 6, 25, 30, 46, 99, 107, 113, 117, 131, 132, 135, 137, 163, 164, 171, 173, 176, 177, 178, 179, 181, 184–185, 185, 187, 194, 203, 206, 207, 268, 269, 270 G7/8 6, 11, 14, 108, 112, 113, 116, 121, 159, 171, 189, 192, 193, 196, 201, 203, 204 G77 173 G8 3, 4, 6–9, 10, 12, 13, 14, 15, 16, 17, 23,

24–25, 27, 30–31, 31, 32, 49, 82, 83, 92, 99–100, 104, 101, 102, 103, 104, 105, 106, 107, 107–109, 109, 112–114, 116, 117, 118, 119, 120– 121, 121, 122, 154, 160, 164–165, 165, 167, 171–185, 187, 187–200, 201, 201–216. See also Birmingham Summit; Bonn Summit; Cologne Summit; compliance; Denver Summit; Evian Summit; Genoa Summit; Gleneagles Summit; Halifax Summit; Houston Summit; Kananaskis Summit; London Summit; Lyon Summit; Okinawa Summit; Paris Summit; Puerto Rico Summit; Rambouillet Summit; Sea Island Summit; St. Petersburg Summit; Tokyo Summit agenda 118, 164, 171, 172, 177–178 compliance 179–180, 187–198, 206, 215 membership 32, 107, 99, 113, 114, 224 outreach 120–126, 172, 173–174 performance 187–200, 202, 206–209 reform 32, 173 G8 Declaration: Fostering Growth and Promoting a Responsible Market Economy 249–252 G8 Information Centre 105, 172, 188 G8 Nuclear Safety and Security Group 205, 218, 220, 221, 264 G8 Research Group 105, 188, 192, 204 G8 Statement on Regional Issues 188 G10 131, 132, 134, 135 G20 ﬁnance ministers and central bank governors 166, 207, 224, 267, 271–273 Gabon 224 Gale, Douglas 56 Gardiner, Scot 47 Gates, Bill 42 General Agreement on Tariffs and Trade 100, 110 General Agreement on Trade in Services 119 General Arrangements to Borrow 135 General Data Dissemination System 141 generally accepted accounting principles 129 General Motors 77, 83 Geneva Convention 40

Index Geneva ministerial 114, 115 Genoa Plan for Africa 177, 188, 189 Genoa Summit 102, 107, 108, 117, 154, 172, 173, 173–174, 174, 175, 176, 177, 179, 179–180, 180, 181, 182–185, 193, 194, 204, 208 commitments 189 compliance 190, 190–200, 192 Germany 5, 8, 11, 13, 36, 50, 55, 56, 56–57, 58, 59, 60, 64, 64–65, 65, 66, 67, 69, 70–71, 71, 73, 82, 85, 112, 130, 131, 132, 135, 184–185, 194, 196, 206, 208, 209, 211, 269, 273 as G8 host 174, 220 compliance 190, 191 gross domestic product 61 Giscard d’Estaing, Olivier 24 GlaxoSmithKline 77 Gleneagles Summit 8–9, 11, 14, 32, 122, 172, 173, 174, 178, 181, 182–185 Global Accountability Report 99, 106, 110 Global Compact 6, 239, 250 Global Crossing 3 Global Environment Fund 258 Global Forum for Agricultural Research 259 Global Forum for Partnerships between Government and Businesses to Counter-Terrorism 9 Global Fund to Fight AIDS, Tuberculosis, and Malaria 174, 176, 180, 212, 213, 234, 240, 263 global governance 8, 9–10, 10, 13, 14, 15, 16, 25, 27, 30–31, 31, 48, 92–95, 99, 100, 101, 103, 104, 107, 116, 157–158, 121–122, 149–161, 187, 196, 201, 202, 214, 215, 216 quadripartite model 11, 16, 27–28, 28, 32 Global Information Society 7 globalisation 4, 5, 7, 9, 10, 10–11, 12, 13, 15, 15–16, 17, 23, 25, 27, 29, 32, 35, 40–41, 41, 43, 44, 45, 48, 50, 73, 101, 102, 103, 104, 107, 108–109, 109, 149, 150, 150–151, 153, 154, 163–167, 178, 183, 184–185, 187, 202, 214, 215, 250, 271, 272 deﬁnition 40 Global Partnership against the Spread of Weapons and Materials of Mass Destruction 188, 205, 210, 218,

295

265, 276. See also nuclear weapons; weapons of mass destruction Global Trust Fund 243 Göteburg 154 Gouvernance Mondiale 149 governance 4, 5, 8,9, 12, 28, 101, 104, 105, 129, 132, 139, 142, 143–144, 157, 158, 188, 191, 194, 195, 196, 199, 229, 236, 240, 242, 245–246, 253, 263–264, 273. See also corporate governance; global governance; public governance government sector. See public sector grandes écoles 66 grands corps 66 Greece 208 Greenspan, Alan 87 gross domestic product 25, 31, 49, 61, 89, 90, 91, 135, 206, 242 Grossman, Sanford 128 gross national product 64, 90, 90–91, 91, 175 Grotius, Hugo 39 growth 4, 5, 7, 8, 10, 12, 16, 28, 29, 81, 87, 89, 90–91, 91, 94, 95, 102, 103, 106, 118, 138, 143, 164, 172, 191, 195, 200, 201, 203, 204, 206, 209, 225, 233, 234, 235, 236, 239, 240, 242, 245, 249, 261, 267, 267–268, 268–270, 271, 273 Guidelines for Arrangements on Relations with Nongovernmental Organizations 111 Guidelines for Multinational Enterprises 239, 250 Hajnal, Peter I. 107–108 Haldar, Antara 201 Halifax Summit 7, 108, 176 Harbinson, Stuart 119 harmonisation 5, 68, 69, 165, 242, 243, 244, 253 Hart, Oliver 56, 128, 128–146 Hawke, John 141 health 9, 87, 88, 93, 117, 119, 163, 165, 187, 189, 203, 204, 210, 214, 225, 234, 240, 259, 261, 263. See also diseases; infectious disease heavily indebted poor countries. See HIPCs hedge funds 8, 9

296

Corporate, Public and Global Governance: The G8 Contribution

Helfferich, Karl 56 Herstatt Bank 131 HIPC Initiative 175, 176, 178–179, 181, 234, 240, 242, 263, 268. See also Enhanced HIPC Initiative HIPCs 109, 175, 191, 194, 195, 211, 218, 240, 241, 253, 262 HIPC Trust Fund 226, 263 HIV/AIDS 27, 87, 88, 180, 210, 227, 234 Holtzmann 64 Holy Roman emperors 39, 41 Honda 77 Hopt, Klaus 70 Hôtel Royal 102, 109 Houston Summit 121 Hudson Bay Company 36 Hu Jintao 113 human rights 13, 31, 32, 79, 163, 164, 178, 199, 208 human security 7, 264 Hungary 136 IBM 77 IG Metal 64 immigration 83, 87, 89, 94. See also migration India 113, 114, 159, 173, 174, 201, 203, 207, 224, 261 Indonesia 139, 228 industrialized countries. See developed countries infectious diseases 9, 88, 103, 176, 184, 189, 213. See also disease; health inﬂation 138, 235, 267 information and communications technology 88, 105, 122 information technology 7, 29, 45, 174, 176 insider model 58–59, 60, 61, 62, 65 Inspection des Finances 66 insurance 71, 177 integration 78, 81, 89 Intel 77 intellectual property rights 9, 78, 100, 211 International Accounting Standards 68, 69, 141 International Atomic Energy Agency 220, 228 International Chamber of Commerce 119 International Civil Aviation Organization 220

International Conference on Renewable Energies 258 International Criminal Court 50, 153, 166 International Development Association 93, 156, 236, 245 International Energy Agency 258 International Finance Facility 221, 263 International Financial Institution Advisory Commission 131 international ﬁnancial institutions 7, 8, 13, 106, 127, 130–133, 139, 140–141, 141, 142, 221, 235, 241, 243, 244–243, 246, 249, 251, 253, 267, 268, 271 International Labour Organization 13, 17, 30, 157, 160–162, 220, 250 International Maritime Organization 220 International Monetary and Financial Committee 134 International Monetary Fund 3, 6, 13, 16, 17, 30, 113, 114, 118–119, 127, 130, 131, 132, 134, 136, 137–139, 140, 155, 156, 159, 176, 179, 206, 218, 233, 234, 235, 236, 237, 240, 241, 243, 246, 253, 254, 255, 261, 262, 263, 267, 268, 272, 273 Articles of Agreement 132, 134–146 Independent Evaluation Ofﬁce 140–141, 236 Interim Committee 134 international organisations 3, 6, 11, 28, 29, 30, 31, 32, 43, 105, 106, 107, 108, 113, 114, 130 International Organization of Securities Commission 250 International Organization of Securities Commissions 132, 141 International Standards Organization 30 International Treaty of Plant Genetic Resources for Food and Agriculture 259 internet 42, 45, 157 investment 4, 7, 12, 16, 30, 57, 59, 61, 62, 63, 64, 67, 70, 71, 73, 74, 75, 77, 78, 87, 91, 100, 118, 120, 132, 140, 141, 153, 160, 165, 199, 221, 226, 233, 235, 236, 239, 249, 261, 262, 266, 268–267, 269 Iran 80, 103, 203, 266 Iraq 14, 16, 46, 48, 49, 79, 80, 82, 167, 171,

Index 184, 202, 203, 204, 205–206, 207, 214, 236, 265 reconstruction 6, 8, 103, 203, 236, 265, 268 Iraq war 1991 46 2003 4, 8, 11, 15, 32, 46, 47, 48, 78, 79, 82, 83, 102, 119, 166, 184–185, 188, 198, 201, 202, 205–206, 207, 207–208, 208–209, 209, 213, 215 Israel 47, 79, 266 Italy 4, 9, 36, 82, 94, 112, 131, 132, 172, 184–185, 194, 196, 208, 269 as G8 host 173–185, 192–200, 220 compliance 190, 191, 192–200 Ivory Coast 136 Jacquet, Pierre 149 Jamaica 136 James, Harold 137 Japan 3, 4, 5, 8, 13, 14, 24, 36, 50, 55, 56, 58, 78, 82, 102, 112, 119, 131, 132, 135, 153, 171, 172, 173, 175, 176, 181, 183, 184–185, 194, 196, 203, 205, 206, 208, 211, 212, 229, 239, 269 as G8 host 108, 172, 174, 182–185, 184–185, 192–200, 220 compliance 190, 191, 192–200 gross domestic product 61, 206 jihad 42, 47 Jordan 79 Jubilee 2000 Campaign 174, 180 July 7, 2005. See London bombings justice and home affairs ministers 173, 223 Kananaskis Summit 14, 15, 17, 102, 107, 108, 117, 171–200, 201, 202, 203, 204, 204–206, 207, 208, 209, 210, 213, 214, 215, 218, 220, 221, 226, 229, 261, 262, 263, 264, 265 commitments 188–189, 204, 205, 206, 212 compliance 188, 189–192, 192–197, 195, 206 Karzai, Hamid 266 keiretsu 58 Kenya 136, 228 Keynes, John Maynard 131, 132 Keynesianism 36

297

Kirton, John J.107, 173, 187, 192, 193, 201 Kodex Commission 64, 65 Koﬁ Annan International Peace Training Centre 200 Kohl, Helmut 39 Koizumi, Junichiro 193, 208, 209 Kokotsis, Ella 187, 189, 192–200, 201 Korea 37, 78, 82, 138, 173, 188, 224 Kosovo 31, 176, 184, 208 Krueger, Anne 155 Kuwait 46, 79, 80 Kyoto Protocol 6, 42, 50, 152, 155, 165, 166, 182, 264 Kyoto World Water Forum 262 L20 166 labour 4, 29, 41, 67, 68, 71, 72, 79, 87, 92, 95, 115, 174, 181, 187, 233, 239, 261, 267, 269 Labour Party (United Kingdom) 208 Lamy, Pascal 114 landmines 50 Latin America 81 Lausanne 109 law 11, 23–24, 37, 39, 44, 45, 57, 59, 62, 71, 93, 155 banking 62, 71 corporate 44, 65, 68, 71, 72, 127, 133 natural 39 securities 60 tax 62 League of Nations 37 least developed countries 153, 161, 181, 200, 243 Lebanon 182, 266 Lee, Jong-Wha 135 legitimacy 13, 17, 38, 43, 47, 48, 50, 104, 105, 112, 114, 122, 143, 149, 152, 153, 156–157, 159, 166, 181 liberalisation 67, 150, 153, 164 Libya 184–185 Lissaker, Karin 139 Locke, John 38 logging 259, 264 Loi nouvelles régulations économiques 67 London bombings 182, 185, 196 London stock exchange 9 London Summit 1977 31 London Summit 1991 31, 121 Long-Term Capital Management 3, 6, 55

298

Corporate, Public and Global Governance: The G8 Contribution

Louis XIV 38, 39 Louvre Accord 135 Lula da Silva, Luiz Inácio 113 Luttwak, Edward 44 LVMH 77 Lyon Group 222 Lyon Summit 30, 31, 101, 108, 113, 176, 181, 190–200, 192 compliance 190 macroeconomics 6, 91, 130, 141, 159, 178, 211, 235, 239, 242, 249, 261, 267, 271 Madagascar 136 Madrid 196 Malawi 136 Malaysia 113, 224, 261 Mali 136, 174 Malleson, Michael 201 Malthus 87, 88, 92 management 4, 7, 14, 45, 56, 57, 59, 60, 64, 65, 67, 68, 107, 127, 128, 129, 130, 131, 133, 134, 139, 140, 143 MANPADS 209, 210, 213, 214, 218, 225, 229, 265 Marini report 67 maritime security 211, 212, 264. See also tanker safety market access 117, 119, 120, 154–153, 181, 200, 242 Marshall Islands 48 Marshall Plan 178 Mauritania 136 Mbeki, Thabo 113, 194 Mchumo, Ali 115 Means, Gardiner 55, 57 Médecins Sans Frontières 175 media 10, 17, 25, 45, 109, 182–183, 183, 197 medieval society 28, 55 Meltzer, Allan 131, 137 Meltzer Commission 135, 137, 142. See also International Financial Institution Advisory Commission Mer, Francis 240 mercantilism 36, 46 Mexico 12, 55, 79, 80, 81, 82, 85, 164, 165, 174, 207, 224, 237, 240, 261, 273 Michelin 77 microeconomics 6, 91, 203, 242

Middle East 37, 47, 79, 80, 90, 103, 201, 203, 204, 207, 208, 212, 215, 246 Middle East Peace Process 221, 226, 266 migration 27, 41, 83, 89. See also immigration Mikesell, Raymond 132 military 27, 31, 36, 78, 82, 85, 91, 166, 200 Millennium Declaration 229, 268, 273 Millennium Development Goals 234, 235, 240, 242, 245, 247, 262, 263, 273 mining 153, 255 Mitbestimmung 71 Mitsubishi 77 Mitsui 77 Mittelstand 65 Mitterrand, François 39 Mohamad, Mahathir 113 Moldavia 48 Momani, Bessma 136 money laundering 7, 31, 222, 240, 249, 254, 268, 272 Mongolia 48 Monterrey consensus 229, 235, 245, 263, 273 Monterrey Summit. See United Nations International Conference on Financing for Development Moody-Stuart, Mark 174 Moral Capitalism 24 moral hazard 59, 137, 138, 139, 142 Morgan, J. P. 71 Morocco 103, 136, 196, 203, 224, 228 Moscow 196, 223 Mubarak, Hosni 113 Mugabe, Robert 203, 204 Multilateral Agreement on Investment 154 multilateral development banks 244, 246, 254, 255 multilateralism 11, 12, 13, 32, 37, 47–48, 48, 49, 50, 77, 78, 79, 83, 85, 109, 111, 112, 114, 116, 118, 120–121, 138, 149, 151, 152, 153, 156, 158, 163, 166, 184–185, 210, 221, 226, 228, 229, 235, 236, 240, 244, 255, 261, 263, 268, 271 multilateral trade negotiations 100, 101, 112, 117, 118, 119, 121, 122, 151, 179 multinational corporations 4, 7, 8, 12, 15, 23, 41, 43, 45, 77, 79, 81, 82, 83,

Index 106, 203, 239 Mussa, Michael 136, 137–146 mutual funds 9, 62 nanotechnology 88 Napoleon 39 NASDAQ 68 natural resources 81, 164, 229, 257, 259 neo-liberal globalisation 150–151, 154 NEPAD 7, 113, 174, 175, 177, 178, 180, 188, 194, 199, 207, 209, 210, 221, 229, 234, 236, 240–241, 245, 246, 262, 266 Netherlands 131 Neuer Markt 68 New African Initiative 177 New Partnership for Africa’s Development. See NEPAD New School of Athens 51 New York Stock Exchange 9, 63 Niger 136 Nigeria 8, 113, 177, 194, 261, 262 Nippon Keidanren Business Association 119 Nissan 77 Nokia 77 Non-Aligned Movement 113, 173 non-proliferation 203, 210, 259, 265, 225, 266 non-state actors 11, 43, 104, 173, 174–175 nongovernmental organisations 23, 31, 43, 78, 101, 104, 106, 107, 108, 109, 111–112, 112, 114–116, 115, 121–122, 122, 154, 166, 173, 174, 176, 179, 180, 183–185 Nortel 3, 4 North 153 North-South 122, 152, 153, 154, 203, 204, 259 North Africa 90, 246 North America 7, 11, 14, 79, 80, 82, 83, 85, 89, 90, 90–91, 91, 134, 171, 181, 183, 188, 207–208 North American Free Trade Agreement 12, 77, 78, 79, 81, 82, 83, 85, 165 North Atlantic Treaty Organization 46, 48, 49 North Korea 42, 103, 201, 203, 204, 212, 266 nuclear energy 259

299

nuclear safety 218, 220, 264 nuclear weapons 176, 177, 178, 199, 205 Obasanjo, Olusegun 113, 194 oceans 25, 209, 210, 211, 257 ofﬁcial development assistance 8, 25, 31, 103, 151, 154–153, 158, 159, 160–162, 191, 194, 195, 197, 203, 204, 229, 242, 244, 253. See also aid oil 8, 10, 17, 25, 31, 79, 80, 83, 153, 202, 204, 255, 262, 267 Okinawa Charter on Global Information Society 188 Okinawa Summit 7, 30, 31, 102, 107, 108, 109, 117, 172, 173, 174, 176, 179, 181, 182–185 commitments 188–200 compliance 190, 190–200, 192 Organisation for African Unity 173 Organisation for Economic Co-operation and Development 5, 11, 25, 30, 42, 43, 105, 118, 119, 174, 199, 234, 239, 240, 244, 245, 254, 259, 268, 272 Principles of Global Governance 250–252 Organization of the Petroleum Exporting Countries 179 Ostry, Sylvia 113 outsider model 58–59, 60, 61, 62 Oxfam International 109 Pakistan 201, 203, 224, 228 Palestine 221, 226, 266 Panitchpakdi, Supachai 99 Paris 143, 197 PARIS 21 245 Paris Club 236, 240, 241, 262, 268 Paris Summit 207, 224 parliament 166, 199, 246 Parmalat 3, 4 Pattison, John 142 peer review 28, 178, 191, 194, 195, 196, 199, 203, 204, 205, 210, 213 pension funds 261, 269 Persian Gulf 79, 80 Peru 138 Philippines 136, 224, 228 Philips 77 Phillips, Fritz 24 Pisani-Ferry, Jean 149

300

Corporate, Public and Global Governance: The G8 Contribution

Plaza Accord 135 Plumtre, A. F. W. 134 polio 180, 209, 213, 226, 263 pollution 25, 42, 44, 257, 264 population 11, 12, 16, 17, 36, 87, 88–89, 89–92, 92, 93, 94, 95 Portugal 224 poverty 88, 99, 113, 118, 151, 156, 164, 178, 185, 204, 234, 235, 246, 263, 268, 269, 273 deﬁnition 93 poverty reduction 118, 172, 173, 234, 235, 240, 242, 243, 253, 267, 271 poverty reduction strategy papers 236, 242–244, 244, 246, 254 Poverty Reduction Support Credit 253 Powell, Colin 104 présidents directeurs-générales 66 private sector 3, 5, 13, 16, 31, 104, 107, 127, 128–129, 129, 130, 133, 137, 138, 140, 140–146, 141, 143, 206, 233–234, 236, 239, 240, 241, 242, 245, 246, 250, 254, 258 privatisation 42, 44, 50, 67, 164 Probit model 135 production 4, 45, 95, 154, 161 productivity 4, 5, 10, 87, 91, 94, 233, 235, 242, 245, 257, 259, 261, 267, 269 protectionism 32, 100, 117, 152, 153–154, 154 protests 43, 102, 103, 108, 109, 154, 172, 174, 175, 180, 201, 204 public-private partnerships 6, 8, 9, 259 public ﬁnancial management and accountability 253 public governance 7, 9–10, 10–11, 12, 14, 15, 16, 100, 103, 104, 189, 191, 201, 202 public sector 9, 10, 129–130, 206, 234, 245, 269 Puerto Rico Summit 112 Putin, Vladimir 174, 176, 179, 208 Putnam, Robert 183

recession 203, 206 reductionism 29 regionalisation 9, 77, 78, 81 regionalism 12, 16, 77, 83, 85, 163 regional security 203, 204 regulation 5, 13, 41, 55, 59, 62, 67, 69–70, 72, 75, 132, 133, 138, 139, 150, 155, 164, 233, 249, 250, 267 religion 43, 91, 94 remittances 240 Renault 67 Renewable Energy Task Force 176, 179, 181 Renzo Imbenzi 115 reports on the observance of standards and codes 236, 254 Republicans 152, 166, 193 research and development 87, 89, 90, 91–92, 95, 211, 239, 258, 259, 269 Rhine model 66 Rhone-Poulenc 67 Rockefeller Sr, John D. 71 Roe, Mark 70 Roma Group 222 Rome Declaration 242, 244 Roosevelt, Franklin D. 48 Roudev, Nikolai 201 Rousseau, Jean-Jacques 38 Royal Philips Electronics 69 Ruggiero, Renato 115 rule of law 4, 7, 50, 253 Russia 3, 5, 6, 7, 9, 10, 36, 50, 55, 82, 85, 100, 176, 177, 178, 184–185, 190, 194, 196,201, 203, 204, 206, 206–207, 207, 208, 209, 210, 212, 228, 239 as G8 host 32, 172, 173, 174, 185, 204, 220 as G8 member 14, 99–100, 112–113, 164, 171, 172, 176–177, 191, 194, 201 compliance 190, 191 gross domestic product 206–207 Rwanda 46

Qatar 79, 80, 115 Quadrilateral Trade Ministers 104, 112, 153 Quebec City Summit of the Americas 78

Saddam Hussein 48, 203 sanitation 165, 229, 234, 262 Sarbanes-Oxley Act 5, 9, 63, 129 SARS. See severe acute respiratory syndrome Sartori, Giovanni 93

Rambouillet effect 100 Rambouillet Summit 31, 99, 112, 163

Index Saudi Arabia 79, 80, 103, 196, 203, 224, 228, 261 scandals. See corporate scandals Schneider, Friedrich 135–136 Scholte, Jan Aart 154 Schroeder, Gerhard 174, 176, 182, 193, 208 Schumpeter 73 Science and Technology for Sustainable Development: A G8 Action Plan 257–260 Sea Island Summit 8, 11, 14, 14–15, 32, 109, 112, 122, 172, 173, 174, 182, 202, 214, 218, 218–219, 266 Seattle ministerial 110, 111, 115, 117, 154, 166, 181, 182 securities 7, 57, 59, 60, 61, 62, 127, 133, 140–146 Securities and Exchange Commission 63 security 4, 12, 13, 43, 80, 83, 101, 118, 164, 174, 177, 197, 209, 210, 220, 261, 264–265 Senegal 113, 136, 194, 177, 224, 261, 262 September 11, 2001 3, 5, 7, 11, 12, 14, 15–19, 16, 17, 43, 43–44, 44, 47, 80, 83, 85, 85–86, 87, 95, 101, 103, 108, 115, 152, 154, 155, 158, 160, 166, 171, 172, 175, 178, 180, 184, 184–185, 188, 191, 196, 208, 209, 214, 228, 268. See also terrorism Seventh Directive 68–69 severe acute respiratory syndrome 27, 87, 88, 103, 113, 201, 203, 204, 206, 210, 212, 262 Shadow G8 31, 102, 105 shareholders 44, 45, 55, 57, 58, 59, 60, 61, 62, 63, 64, 66, 69, 70, 74, 127, 128, 128–129, 129, 131, 132, 133, 134–138, 140, 141, 143 Sharm El Sheikh 116 Shell Corporation 174 Shleifer, Andrei 56 shoulder-launched surface-to-air missiles. See MANPADS Singapore issues 120 Singapore ministerial 114, 115, 120 Slaughter, Ann-Marie 30 Smith, Adam 91 Smithsonian Institute Agreement 143 social development 188, 250 socialism 94

301

Société Générale 58 Solomon, Robert 134 Sommet Pour un Autre Monde 109 Sonderweg 56–57 Sony 77 Soros, George 42 Sound Practices for Loan Accounting and Disclosure 142 South 153, 201, 247, 259. See also NorthSouth South Africa 90, 101, 113, 114, 174, 177, 194, 207, 224, 240, 261, 262 South America 89–90, 90, 134 sovereign debt restructuring mechanism 6, 234, 237. See also debt restructuring sovereignty 11, 27–28, 35, 36, 37, 38, 39, 40, 41–43, 43, 46, 48, 49, 50, 57, 196, 208, 265. See also Westphalian principles Soviet Union. See USSR Spain 9, 36, 82, 194 special and differential treatment 119, 120 Special Data Dissemination Standard 141 Sraffa, Piero 92 Srebrenica 46 St. Petersburg European Union Summit 201, 207, 209, 223 St. Petersburg Summit 9, 11, 14, 122, 172, 173, 174, 182, 209 stagnation 5 Stalin 39 standards 6, 13, 44, 68, 69–70, 73, 74, 130, 131, 132, 141, 141–142, 143, 154, 156, 157, 158, 233, 239, 249, 250, 251–252, 258, 272 state 3, 5, 11, 11–12, 28, 29–30, 36, 39, 55, 73, 77, 156, 157, 164, 166 Statement by the G8 (Death in Genoa) 189 Stock Corporation Act (Germany) 71 stock market 9, 36, 55, 58–59, 61, 64, 74, 87 Strange, Susan 30 Strategic Approach to Poverty Reduction 189 Strategic Petroleum Reserve 80 Strengthening Growth World-Wide 213 Strong Managers, Weak Shareholders 70 sub-Saharan Africa 88, 90, 243, 246. See also Africa supranationality 37, 41

302

Corporate, Public and Global Governance: The G8 Contribution

surveillance 130, 135, 138, 140, 234, 236, 240, 246, 262, 267, 270 sustainable development 6, 24, 103, 156, 160, 181, 189, 190, 200, 209, 210, 211, 211–212, 212, 213, 214, 215, 225, 234, 257–260, 259, 261, 262–264, 264 Sweden 59, 131 Switzerland 41, 109, 120, 131, 261 Syria 266 Tanaka, Akihiko 28 tanker safety 210, 212, 215, 225, 228, 264. See also maritime security; transport security Tanzania 115 tariffs 36, 78, 100, 119, 181 Tarullo, Daniel 139 tax 7, 10, 17, 24, 25, 44, 45, 65, 70, 140, 210, 234, 240, 267, 268, 269 technology 11, 12, 16, 41, 44, 55, 87, 88– 89, 89, 91, 91–92, 92, 94, 163–167, 164, 189, 199, 200, 210, 211, 215, 221, 258, 259, 264 Telecom Italia 70 terrorism 5, 7, 8, 11, 14, 15–16, 41, 42, 48, 83, 95, 103, 115, 152, 172, 173, 174, 175, 177–178, 182–185, 184, 184–185, 187, 188, 189, 190, 195, 196, 197, 200, 203, 204, 208, 210, 212, 213, 214, 215, 218–219, 221, 228, 234, 264–265. See also London bombings; September 11, 2001 terrorist ﬁnancing 7, 234, 235, 239–240, 249, 268, 272 The Other Economic Summit 108 Third World Water Forum 229 Thirty Years War 35 Tobit model 135 Togo 136 Tokyo Summit 1979 31 Tokyo Summit 1986 117, 121, 184–185 Tokyo Summit 1993 117, 121 TotalFinaElf 77 Toyota 77 trade 12, 30, 31, 41, 73, 77, 78, 79, 81, 82, 100, 109, 109–110, 112, 114, 116, 117, 118, 120, 121, 121–122, 132, 153, 158, 159, 163, 164, 178, 181, 181–182, 184, 191, 195, 200, 210,

211, 213, 214, 225, 234, 236, 240, 241, 243, 246–247, 261, 261–262, 267, 273 trade agreements 12, 77, 78, 81, 156, 163, 226 trade barriers 37, 154 trade in services 100, 117, 119, 119–120 trade liberalisation 13, 100, 108, 117–118, 118, 119, 120, 120–126, 121, 178, 181–182, 235, 242, 260, 270, 273. See also free trade trade ministers 78, 109, 114, 115, 116 Trade Policy Review Mechanism 110–111 trade unions 94, 101, 108, 109, 112, 114, 115 transparency 4, 6, 7, 8, 9, 13, 23, 60, 64, 75, 99, 100, 101, 102, 105, 107–114, 114, 116, 117, 120, 121–122, 122, 139, 142, 154, 156, 157–162, 165, 166, 204, 210, 211, 213, 214, 225, 233, 235, 239, 240, 241, 246, 249, 250, 253–255, 261, 262, 264, 268 transportation 10, 17, 25, 42, 225 transport security 172, 188, 205, 209, 213, 214, 225, 265. See also maritime security; tanker safety Treaty of Rome 41 Treaty of Westphalia 35, 38, 39, 40 triad 12, 77, 78, 80–82, 82, 85 TRIPS 117, 119, 120 Truman, Harry S. 48 Tubiana, Laurence 149 Tunisia 228 Turbo-Capitalism 44 Turkey 203, 224, 233, 267 Tyco 3, 55, 63 Uganda 136 Ukraine 210 unilateralism 49, 50–51, 152, 166–167 United Arab Emirates 79, 80 United Kingdom 5, 6, 8, 12, 32, 36, 40, 42, 59, 78, 82, 85, 112, 129, 131, 132, 182, 184–185, 194, 196, 203, 206, 208, 209, 210, 211, 269 as G8 host 172, 173, 174, 220 compliance 190, 191 gross domestic product 61 United Nations 5, 6, 11, 15, 24, 25, 30, 31, 35, 37, 41, 46, 48, 82, 83, 93, 113,

Index 160, 165, 166, 167, 175, 194, 201, 202, 214, 215, 221, 229, 234, 235, 239, 245, 250, 261, 265 Charter 40, 47, 208 General Assembly 135, 227 Iraq 46, 203, 205–206, 207, 208, 265 secretary general 114, 264 Security Council 41, 47, 160, 202, 215, 236 United Nations Conference on Drug Routes 266 United Nations Convention against Corruption 191, 200, 254 United Nations Convention Against Transnational Organized Crime 191, 200, 254 United Nations Counter-Terrorism Committee 265 United Nations Economic and Social Council. See ECOSOC United Nations Economic Commission for Africa 199 United Nations Economic Commission for Europe 258 United Nations Environment Programme 158 United Nations Framework Convention on Climate Change 258 United Nations International Conference on Financing for Development 30, 101–102, 158, 160, 175, 229, 234, 242, 253 United States 3, 4, 5, 6, 8, 9, 11, 12, 13, 14, 15, 16, 17, 24, 27, 32, 36, 37, 41, 42, 43, 44, 45, 45–46, 46–47, 47–48, 49, 49–51, 55, 56, 57, 59, 60–62, 62, 64, 66, 68, 70, 71, 78, 79, 80, 81, 82, 83, 85, 89, 91, 94, 95, 103, 108, 112, 115, 120, 129, 131, 132, 134, 135, 136, 139, 149, 152, 153, 155, 158, 165, 166, 166–167, 172, 178, 179, 180, 181, 183, 183–185, 184, 184–185, 196, 202, 203, 205, 206, 208, 209, 211, 213, 214, 215, 233, 239, 269, 270 as G8 host 14, 109, 172, 173, 191, 192–200, 202, 207, 220, 266 compliance 190, 190–200, 191, 192–200, 193 gross domestic product 49, 61, 206

303

United States Business Round Table 119 United States Congress 45, 49, 155, 178, 181, 182 United States Department of State 136 United States Federal Reserve 137 United States Supreme Court 49 United States Trade Representative 78, 116 United States Treasury 136–137, 155 Uruguay 136, 240 Uruguay Round 117, 120, 153, 179, 182 USSR 3, 24, 36, 37, 112, 164 Vaubel, Roland 137 Venezuela 79, 80, 203, 224 Viénot report 67 Vietnam 37 Vishny, Robert 56 Vivendi 69 Volkswagen 77 von Furstenberg, George 190, 192–200 Vorstand 58, 65, 70 Wade, Abdoulaye 113, 194 Wal-Mart 77, 83 Wall Street Rule 64 war 11, 25, 27, 40, 43, 47, 49, 49–51 water 8, 163, 165, 191, 195, 200, 201, 209, 210, 211, 212, 213, 214, 215, 225, 229, 234, 240, 257, 259, 262 The Wealth of Nations 91 weapons of mass destruction 8, 44, 47, 49, 83, 103, 177, 181, 184–185, 185, 203, 204, 210, 213, 225, 264, 265 Weimar Republic 71 Western Economic Summit. See Rambouillet Summit Westphalian principles 11, 16, 35, 35–41, 50–51. See also sovereignty White, Harry Dexter 131, 132 Williamson, John 134 Wilson, Woodrow 36–37 Windsor 197 Witherell, Bill 105 Woods, Ngaire 134 World Bank 93, 113, 114, 118–119, 127, 130, 131, 135–136, 136, 142, 154, 156, 175, 179, 180, 218, 234, 235, 236, 240, 243, 244, 245, 246, 253, 254, 255, 261, 263, 268, 272, 273 WorldCom 3, 7, 44, 55, 63, 188, 191

304

Corporate, Public and Global Governance: The G8 Contribution

World Conference on Climate Change 259 World Customs Organization 220 World Economic Forum 104 World Environment Organization 13, 17, 157, 158, 160 World Food Summit 259 World Health Organization 157, 204 World Summit for Social Development 24, 25 World Summit on Sustainable Development 6, 101, 160, 179, 197, 229, 234, 250, 257, 262 World Trade Organization 3, 11, 12, 16, 17, 24, 30, 37, 41, 78, 78–79, 83, 99, 100, 101, 103, 105, 106, 107, 110–112, 112, 113, 114–116, 116, 117, 118–119, 120–121, 121, 122, 154, 158, 166, 179, 181, 203, 211, 221, 226, 229, 243, 261, 271. See also Doha Development Agenda Agriculture Negotiations Committee 119 dispute settlement 78, 100, 117, 120, 156, 157

General Council 109, 110, 111, 115 Marrakesh 109 ministerials. See Cancun ministerial; Doha ministerial; Geneva ministerial, Seattle ministerial; Singapore ministerial ministerial in 1998 114–126 secretariat 109–110, 111 Uruguay Round. See Uruguay Round World War I 36, 130 World War II 36, 37, 71, 205 Yeltsin, Boris 176 Yemen 228 Young, Stephen 24 Yugoslavia 46, 224 Yukos 4 Zimbabwe 203, 204, 210, 224, 266 Zoellick, Robert 116