Jobs, Crime And Money:
Challenges For The G8 Summit In 1998

The Background To Birmingham
Nicholas Bayne

The Background To Birmingham

Every year since 1975 the leaders of the world's seven major economies - the G7 - have held a summit meeting, to address problems which only they can settle. They tackle the burning issues of the day and provide leadership to the international community. With the spread of globalisation, their decisions have a growing impact on business and the citizen.

This year's summit is at Birmingham on 15-17 May, 1998, the fourth such summit to be held in Britain. It has many original features. It is:-

• the first summit to be held outside London;
• the first with the Russians as full participants, making the G7 into the G8;
• the first where the heads will meet alone, without supporting ministers;
• the first whose agenda is limited to three main themes, each reflecting popular anxieties about globalisation.

Despite these new features, the Birmingham summit builds on the achievements of its predecessors. Snapshots of the three previous summits held in Britain illustrate the evolution of the G7 and G8.

History of the Summit in Three Chapters

London I, 1977. The first British summit was chaired by the last Labour Prime Minister, James Callaghan, who welcomed the last Democrat US President, Jimmy Carter. The European Commission and Presidency were admitted to the summit, fixing the G7 membership for the next 20 years.

The 1977 summit focused on macro-economic issues: employment and inflation. It concluded there was no trade-off between the two: the Declaration said: "Inflation does not reduce unemployment: on the contrary it is one of its major causes." The leaders urged on the Tokyo Round of trade negotiations, helping them towards their conclusion in 1979.

London II, 1984. The second British summit was chaired by Margaret Thatcher, then at the height of her powers. She valued the support which the G7 gave to her economic policies and took time off election campaigns to attend the summits of 1983 and 1987. Helmut Kohl was already German Chancellor. Macroeconomic issues were off the agenda. The leaders discussed a new round of trade negotiations in the GATT - which became the Uruguay Round - and the debts and financial problems of developing countries. Political issues were also active, especially terrorism.

London III, 1991. The third British summit was held in John Major's first year as Prime Minister, just after the Gulf War. In economic issues it strove to complete the Uruguay Round of trade negotiations - which was not achieved till 1993 - and to prepare for the 1992 Rio Environment Conference.

The great innovation in 1991 was the invitation to Mikhail Gorbachev to meet the heads of government. Since the Cold War ended two years before, the G7 had concentrated on helping Central European countries. Now they wanted to help the Russians. The Soviet Union disintegrated later in 1991; but the leaders renewed the invitation to Boris Yeltsin, who has been coming to the summits since 1992. The G7 focused first on mobilising economic help for Russia; and then on fitting the Russians into the summit framework. This process is completed at Birmingham, which is the first G8 summit.

Birmingham 1998 - the Players

Successful summits depend in part on the personal chemistry between the leaders. The same group will gather at Birmingham as were present for the Denver summit of 1997: Tony Blair, Bill Clinton, Jacques Chirac, Helmut Kohl, Ryutaro Hashimoto, Romano Prodi, Jean Chretien, Jacques Santer and Boris Yeltsin. Blair, though the chairman, is the most recent arrival.

Last year Clinton, the host, was riding high, while the continental Europeans were struggling. This year the positions are more balanced:-

• Clinton has thrown off accusations of impropriety; and the US economy is still very strong. But he has not obtained from Congress 'fast-track' authority for new trade negotiations or the release of new funds needed by the IMF.

• Blair's first year in office has been an outstanding success. The British economy is also buoyant, though it is slowing down. But Britain will not yet join the European single currency - the euro.

• The continental European leaders - Kohl, Chirac, Prodi and Santer for the Commission - have had a powerful boost from the progress towards Economic and Monetary Union. France, Germany, Italy and eight other member states have met the necessary criteria and are ready to launch the euro. Their economies are in much better health than a year ago. Kohl, however, faces elections later this year.

• Chretien has no national rivals in Canada, which continues to record good growth and achieved its first budget surplus for many years.

• In contrast, Hashimoto is under political pressure and Japan's economy remains depressed. He launched a record economic recovery programme in April, but no one knows if it will do any good.

• Yeltsin's health and performance are unpredictable. He has sacked his old Cabinet and brought in a new, untried prime minister. Russia makes painfully slow progress to economic recovery, with salaries not paid and taxes not collected.

Birmingham 1998 - The Play: Globalisation and the G8

Successful summits also depend on good preparations. This year's preparations have been different from what was done before. At the 13 May conference, Colin Budd (from the British hosts), Don Campbell (from Canada) and Ambassador Koji Watanabe (from Japan) will explain what is happening.

For the first time, the leaders will not be flanked by their foreign and finance ministers. These will hold their own meetings, plus a joint meeting, over the previous weekend of 8-10 May. They will dispose of a mass of issues which do not need the input of the leaders, but which have come to clutter up the summits. This will leave the heads free to concentrate on the subjects which concern them most.

The heads' discussion will focus on three themes only, not the open-ended agenda of previous years. The chosen themes are all issues which reveal popular anxieties about globalisation. The leaders know that globalisation is the key to their economic prosperity, by lowering costs and improving quality and choice. But their electorates worry about its darker side: about loss of jobs; about rising crime; about the risk of financial panic and the scandal of world poverty. The heads will try to respond to these anxieties, without forfeiting the benefits of globalisation.

Act 1: Employment and Growth.

At the 13 May conference, Richard Layard (LSE) and Bronwyn Curtis (Nomura International) will speak on these issues.

Unemployment has been on the G7's agenda from the very beginning. They learnt early on not to give hostages to inflation. But they also learnt that jobs lost in a recession were not all restored by economic recovery. Job creation strategies needed to go much wider: to embrace other policies like education, welfare and wage and tax policies; and to focus on groups, like the young, the old and those who have dropped out of the labour market altogether.

The summits at Naples in 1994 and Lyon in 1996 launched this comprehensive approach. But the benefits are slow to appear and more attention is needed. The leaders at Birmingham will look again at the range of measures used in each country, to identify what works well and why and to share ideas and experience. They will focus on first-time work for young people; on countering social exclusion; on new business creation; on active ageing policies, to keep older people productive; and on tax and welfare measures which promote job creation.

In this way the G8 will counter more dangerous policies to protect jobs - such as trade protection. Globalisation thrives in free and competitive markets; but it has provoked a new wave of protectionist arguments. The G7 have always defended the open multilateral trading system, whose 50th anniversary immediately follows the summit. But the argument is far from won.

Act 2: International Crime.

At the 13 May conference, George Staple (Clifford Chance) and Valerie Strachan (UK Customs and Excise) will address these issues.

Terrorism, hijacking and hostage-taking were the first non-economic issues to reach the G7 agenda, back in the 1970s. Drug smuggling and money laundering followed in the 1980s. But globalisation adds a new dimension. The open borders and new technologies which enhance life for the honest citizen make things easier for the criminal too. The end of the Cold War has removed barriers to drug trafficking and raised fears of nuclear smuggling.

So people everywhere fear rising crime, even when the figures do not justify it. In some countries organised crime undermines the very fabric of the state. To meet these fears, the G8 launched a new programme of work against crime in 1995, creating the Lyon Group of officials. G8 interior ministers have met twice and at Birmingham the leaders should announce some results.

The G8 will focus on measures to check hi-tech crime and track down criminals who exploit new technology for fraud and theft; on financial crime and money-laundering; on smuggling of people and firearms. They will both strengthen the links between themselves - now well developed - and stimulate the worldwide work of the UN against organised crime and drugs.

Act 3: Finance, Trade and Investment in the Light of the Asian Crisis.

At the 13 May conference, Professor Charles Goodhart (LSE) and Dr DeAnne Julius (Former Chief Economist, British Airways) will speak on these issues, the heart of the third theme for Birmingham, "Global Economic Issues".

The Birmingham summit has to respond to the Asian financial crisis. Globalisation stimulates flows of international private capital, to support investment; but the scale and volatility of these flows increases the risk of financial panic. The G7 have wrestled with international debt problems since the early 1980s. At Halifax in 1995 they advocated reforms of the IMF and World Bank following the Mexican financial crisis. But these were not enough to prevent the panic sweeping East Asia last year, which required the Fund, the Bank and supporting governments to mobilise the gigantic sum of $112 billion to bring it under control.

The leaders at Birmingham will aim to set directions for new international financial architecture designed to avert such crises in future. This will include: better financial supervision; more accurate economic data; stricter surveillance of policies. They will also look at the wider consequences of the crisis. The affected countries of East Asia will boost their exports to stimulate recovery. Other countries' trade balances must absorb them, but without losing the drive to open up markets for trade and investment.

The implications for the poorest countries are of special concern. The G7 have pioneered debt relief schemes for low-income countries and the last two summits have focused on development issues. But globalisation can work against poor countries, especially if they make policy mistakes. The debt relief, trade concessions and aid flows on offer from the G7 have not proved enough to prevent many poor countries falling further behind.

Finale: What Future for the G8?

At the 13 May conference, a panel of experts - Joe Daniels (Marquette University, USA), Mike Hodges (LSE), John Kirton (University of Toronto) and Alan Rugman (Oxford) - will speak on the future of the G8 and respond to questions.

Birmingham may go beyond its three chosen themes; and the 1999 summit in Germany may focus on quite different subjects. What about a new Round of trade and investment negotiations, to start in 2000? Or the global environment? Or nuclear safety, both military and civil? Whatever themes are chosen, the heads are likely to meet again alone next year, with a limited agenda and separate meetings of ministers to handle items of less priority.

The admission of Russia and the change from G7 to G8 raises other questions of membership. Will Russia's presence affect the way the summits work? Now Russia is in, what about other candidates, such as China, with its economic and political weight, or countries like India and Brazil to give a voice to the developing world? Will the launch of EMU mean a change in the European Union's presence in the G8?

The G8 must continue to adapt, beyond the changes introduced in 1998, to meet the demands laid upon it as the new millennium approaches.