Macroeconomic Issues

The Toronto Economic Summit takes place amid continuing uncertainty in the global economy. At the centre of the policy agenda are the macroeconomic issues of trade protectionism, currency imbalances, and uneven capital flows. Closely linked are serious bilateral issues between Japan and the US on trade and capital flows, between the US and Europe on protectionism and agricultural subsidies, and between the rich industrial world and the poor industrializing Third World mired in intractable problems of international debt, especially for the poorest developing nations.

It is increasingly clear there is a basic shift in the world economy. The dollar no longer reigns supreme. The economic centre of gravity no longer is in the Atlantic, but in the Pacific. Economic strength resides not in empires or even multinational firms, but in finance, technology and management. As the global economy has changed, so have the mechanisms for managing it. The post-1945 reforms and institutions the gold standard, fixed exchange rates, the rules of international trade, the role of the dollar as a reserve currency have all come under strain. By 1971 the strain was too much the US devalued the dollar and set off a chain of ad hoc international policy-making which continues to this day. Five years later, the French introduced the Summit concept as a political vehicle to discuss reform and new policy instruments. But the world economy had been and still is evolving faster than the instruments to manage it thanks to the very influences like global communications and transportation that brought us the global village as a single marketplace. Obviously the US has been at the very centre of these momentous changes. Indeed, the history of the summits can be interpreted as a slow process of introducing international agreement and discipline to the member countries, including the United States. For make no mistake about it, the Summit has been very much a process of this United States, plus the six other countries.

Japan's interests in the Economic Summit process at one level is no different from any of the other countries to be seen on the high road of multilateralism while advancing its own domestic political agenda. Put differently, each country's leader wants to be seen in the best light, avoiding the wrath of other countries except where, as in the case of France at the 1985 Bonn Summit, a parochial position on agriculture, made for good politics at home.