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2003 G8 Pre-Summit Conference

Governing Globalization:
G8, Public and Corporate Governance

Tuesday, May 27, 2003
INSEAD, Fontainebleau, France

Hosted by the Research Group on Global Financial Governance, the Guido Carli Association, the G8 Research Group, the EnviReform Project, INSEAD, the Club of Athens-Global Governance Group, le Comité pour un Parlement Mondial, Futuribles and the Académie de la Paix

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Globalisation, Governance and the G8 Summit
Seiichi Kondo, Organisation for Economic Co-operation and Development
Draft of May 23, 2003

Introduction

Ambassador Valaskakis, distinguished participants, ladies and gentlemen,

I am extremely honoured to have the opportunity to share with you some of my views on the challenges of globalisation. I extend special thanks for the invitation to Ambassador Valaskakis, who is not only a distinguished scholar but also someone who made a marked contribution to the OECD as its former Canadian Ambassador.

This morning I plan to present my personal analysis of the challenges globalisation poses for us, and the role the G8 can play in establishing a global governance system to cope with them.

I Enormous challenges

Globalisation gives us tremendous opportunities. Technological revolution and proliferation of the market economy have accelerated this process. However, the reality we see today is far from what one expects as benefits of globalisation worldwide. Millions of people are totally left out of the potential benefits, anti-globalisation movements persist, and the world economy suffers from dark clouds of uncertainty. Why?

My answer is this. Globalisation sets out a new paradigm, requiring new intellectual and institutional approaches to world problems, but our traditional approaches are obsolete, and we have not yet found the new ones.

Quadruple governance structure a new system

First, we need a new institution to properly and effectively cope with globalisation a new system beyond sovereign states. If you ask ordinary citizens what their concerns are, and who are responsible for them, the answers would not be war or the state in the traditional sense of the word, but Al Qaida, HIV/AIDS, SARS, abnormal climate, drugs, refugees and migration, and Enron. These symbolise 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 military and police power, and to collect taxes, in order to protect them from foreign invasion, to ensure democracy and freedom, safety of the society, and to build social safety nets. This has become increasingly difficult. States have given way to business the role of achieving economic growth and creating jobs, and they have little effective means to control cross-border threats. Citizens are disappointed with the erosion of state power and are either losing interest in politics, or are driven to support radical parties, and inclined to rely on civil society movements which respond better to their day-to-day concerns.

States have responded to this challenge by creating inter-governmental organisations to tackle cross-border issues. Today, few national policies can be implemented without inter-governmental co-operation. International organisations too, however, have only limited power. Ironically it is national interests protected under "sovereignty" that constrain the smooth work of international organisations. States that regulate their national economies to promote fair competition and fair distribution of wealth among citizens often fail to regulate the world economy for fair competition and fair distribution of wealth among world citizens. It is civil society groups that are concerned with this dilemma.

Therefore, I would suggest that there are four major players in the international scene: states, international organisations, business, and civil society. Each one of them has certain power, and therefore global governance requires its participation, but none of them has a dominant power. In other words, the distribution of power is such that no one of them can be fully in charge of global governance. Each one has to be accountable to the people, but no one alone can be fully accountable. Global governance requires interactive co-operation among these four actors.

Many of you may feel uncomfortable with the idea of this collective global governance among four different actors, because it is inefficient, there is no clear decision-making mechanism, and collective responsibility often means no one is in charge. The only solution to this potential shortfall is to establish clear "mutual accountability" among the four actors. States and international organisations should establish good public governance, business should have good corporate governance, and civil society too needs to establish good civil society governance. And they should scrutinise each other to ensure proper functioning of each responsibility, through "peer reviews.".

This new idea of governance based on interactions among actors may be a concept foreign to many ears, with the exception of the so-called "new medievalists," only because we are so used to hierarchical governance structures under the modern sovereign state system. I believe that this new system will work, with states that still retain a great deal of power, and an established system of accountability through elections, playing a principal role in establishing the new governance system.

Inter-disciplinary approach a new intellectual paradigm

Another problem we are facing under globalisation today is that of complexity. All issues, including the economy, environment, social affairs, and human psychology, are so closely linked with each other that it is impossible for any specific policy to achieve its own goal without impacting other policies. None of the policies will be free from being influenced by the impact of other policies. .

Our traditional approach, based on science and rationalism, however, is not fully equipped with tools to tackle these problems. This approach, often called reductionism, is good at analysing issues, finding simple rules that are governing the field, establishing causal links between input and output, and producing desirable outcomes using these rules. Development of physics contributed to the introduction of machines and information technology. Economics contributed to the sophisticated policies that contribute to sustainable economic growth. Biology and chemistry equipped us with tools to combat diseases. We soon learned that issues do not operate independently from others, but ignored it assuming that the impact is relatively small. Globalisation changed the picture entirely. Inter-linkages between issues became a principal challenge. One can no longer ignore the impact of economic growth on social cohesion and bio-diversity. This requires an inter-disciplinary approach. Scientists, economists, and policy-makers must get out of their own fields. This is after all a natural thing to do because the distinction between natural, social, and human sciences is, albeit useful, an artificial one. So is the distinction between physics, biology, mathematics, economics, sociology, philosophy, and history. So is the distinction between economic policy, labour policy, and environment policy. So is the distinction between government, business and civil society. We have divided the whole into segments for the purposes of analysis. But we have not been able to put the results together. Assembling the various outcomes alone is not enough, because as we all know, "the whole is larger than the sum of its components."

Therefore, completely new approaches have been initiated, such as complexity theory and chaos theory. Some interesting progress has been made, but the new theories are still in a formative stage and not yet applicable to policies in the real world. It appears that it will take many more years. Human capacity may not be strong enough to bring us to a totally satisfactory stage.

In light of the fact that the issues are too serious to wait until a new methodology is fully developed, efforts, ambitious and yet realistic, have already started in various fields. Economists started talking about "externalities" and discussing how to internalise them. We often hear about cross-cutting attempts among academics and policy-makers, such as, bio-chemistry, political economy, trade and environment policy in WTO, and sustainable development policy in the OECD. The Monterrey Summit on Financing for Development in March 2002 appealed for a "holistic approach." A recent initiative in the OECD promotes policy coherence for development, which means each government reviews its policies in such areas as trade, investment and agriculture to make sure that trade-offs between development policy and those policies, such as agricultural subsidies, are addressed, and synergies created. Positive links between trade and development through trade capacity building 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, but to compare policy inputs and outputs, using measurable indicators. Causal links are left in a black box.

There is a long way to go, but we have at least started our new journey in the right direction.

II The Role of the G8 Summit

Recent development in the establishment of global governance

The new paradigm I referred to earlier is not confined to theory. The interactions between 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. They constitute members of national government, but also of international bodies. They are increasingly engaged in interactions with business and civil society. These networks often evolve into what international political economists call "international regimes." Those regimes establish a normative body that controls states behaviour. This situation is differently perceived by scholars. Realist Susan Strange saw this as a chaotic situation because there is no hegemon, and called this "the retreat of the state" [1]. Liberalist Ann-Marie Slaughter described it as "disaggregation of the state" [2].

Wherever the truth lies, the crucial question for global governance is, who can and will oversee the operation of these different regimes effectively so that a multidisciplinary approach can take place?

Role of the G7/8

The G7, and subsequently the G8, have tackled the challenges of globalisation from the very beginning. It has been playing the central role in our endeavour to establish global governance.

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. This practice was followed by subsequent meetings, and in Evian, 13 non-G8 country leaders from all the continents will be invited. International organisations have been consistently important Summit partners, ranging from universal organisations such as the UN, to economic ones such as IMF and OECD, social ones such as ILO, and technical ones such as ISO. The Summit in Lyon in 1996 invited four heads of international organisations to participate in the discussion on development. This will be repeated in Evian.

The Summit often requests international organisations to conduct analyses to help formulate policies in new areas. It took initiatives to reform the UN and other organisatrions, and created new institutions, such as the FATF to fight against money laundering. The Summit clearly supervised existing international regimes, initiated their reforms, and created new regimes.

The Summit also engages in dialogue with non-governmental players.

The leaders in Okinawa in 2000 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. (paragraph 4)."

The inter-disciplinary approach is evident in the Summit. It was started as primarily an economic summit, but has been consistently expanding its scope to 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."

The Summit has been using various international organisations to address these issues.

The Summit has therefore a great potential to become a central institution to oversee global governance.

You may ask how effective the G8 is in the implementation of its policies? My answer is positive. In its early days, G7 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, the G8 process succeeded in providing the basis for a "fair and viable solution" to end violence in Kosovo. The Summit is far from being a perfect institution of global governance, but is closer to it than any other fora. The Shadow G-8, led by Fred Bergsten and Thierry de Montbrial, talks about "The Decline of the G8," but which institutions are not in decline under the challenges of globalisation?

How can we improve this governance system, then?

My answer is to expand the Summit to a quadruple institution a meeting among leaders of states, international organisations, business and civil society. States should take initiatives to transform the G8 Summit into this format. The Summit becomes a summit of the leaders of the four actors, who scrutinise each other to ensure good governance on each part. It supervises the interactions among the networks of four players to respond to the challenges of globalisation. In this way, the states can restore the balance between its delivery capacity and citizens expectations.

There still are two major challenges :

First, 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 is divided into two camps over Iraq. The rupture over trade is deepening. Overcoming this cleavage is essential for the G8 to take a leading role to establish global governance.

Second, how to make the system more inclusive. The ideas that have led the Western world to the construction of prosperous societies and the international system to date, namely democracy, market economy and respect for human rights, are not necessarily fully shared. If the G8 wants to establish real global governance, it may have to step out of its traditional values and embrace more inclusive ideas to which all the peoples in the world will subscribe. This may require expansion of G8 membership or closer consultation with non-G8 countries.

Conclusion

The G8 has a great potential to become a truly global governance system, addressing difficult challenges institutional as well as methodological. It can serve as a principal network which loosely bundles all other networks, interacting with each other. This is like flying geese, with the G8 in the lead. How successful this can be depends on the political will of the eight leaders. Evian is a historic opportunity for the leaders to demonstrate their determination and their co-operative spirit. If it fails, the dark clouds of uncertainty and nationalistic protectionism may cover the world economy. If successful, the world will start again to walk toward co-operative multilateralism.

Notes

  • 1. Susan Strange, The Retreat of the State, 1996
  • 2. Ann-Marie Slaughter, "The Real New World Order," Foreign Affairs, Sep.-Oct., 1997

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