EVENTS

Date:	Thursday, June 30, 2005
Time:	12:00 PM -- 4:00 PM
Location:	Wohlstetter Conference Center, Twelfth Floor, AEI 1150 Seventeenth Street, N.W., Washington, D.C. 20036

June 2005

Rhetoric and Reality: AEI Briefing on the G-8 Summit at Gleneagles

As the leaders of the G-8 nations meet in Gleneagles, Scotland, British prime minister Tony Blair plans to emphasize climate change and the plight of Africa. What are the merits of Blair's plan to combat poverty in Africa, and what will be the practical implications of this month’s landmark agreement to forgive $40 billion in debt for the world's poorest nations? What position should the Bush administration, which has rejected the Kyoto Protocol on global warming, adopt on climate change at Gleneagles? Besides soaring rhetoric and predictable pomp, is the summit likely to produce, for better or worse, any meaningful policy commitments? Is it time to consider expanding or contracting the G-8 to better reflect the global economy? Should human rights and democratic practices play a role in determining G-8 membership? These and other questions were the subject of a June 30 AEI pre-summit luncheon briefing.

Panel I: Institutional Reform for the G-8—Expand, Contract, Abolish?

Johannes Linn
Brookings Institution

The G-8 has become increasingly ineffective and illegitimate as it has moved from being a group of industrial nations focused on their own issues to one that looks at the issues of the rest of the world. Another body, the G-20, is better equipped to meet the goals that the G-8 has ostensibly set for itself. Specifically, the G-20 is more diverse and representative of the world’s population--including countries such as Mexico, India, and China--and has been quite effective on issues of finance and development.

The G-20 should be transformed into the “L-20,” a heads-of-state level group that would include all the key players in the global economy. The creation of an L-20 would obviate the need for the G-8.

Ariel Buira
G-24

The G-8 is not as important as it once was or presently considers itself to be. The body has been devalued by historical developments and increasingly lacks legitimacy and the capacity to shape events. For instance, while the United States used to be the largest capital surplus country and the biggest contributor to the World Bank and the International Monetary Fund, it has today become the world’s largest debtor country. Europe is now in crisis, and the developing world is catching up with the G-8 economically.

The world economy today faces a number of major problems that the G-8 alone is unable to solve. For instance, the capital flow from developing countries to rich countries constitutes a major misallocation of resources. The United States should be building up its assets, but instead it is building up its debt. As the economic cycle matures, interest rates will rise, commodity prices will decline, and a new round of financial crises will take place.

A more representative and inclusive group of countries, which would probably include ones that have experienced financial crises, would be better capable of dealing with these problems. A larger group would also result in a more efficient use of resources, higher rates of growth and employment, and might eventually decrease poverty. A broader, more inclusive process would give more attention to a number of issues of importance to developing countries that are currently being neglected by the G-8.

Claude E. Barfield
AEI

The notion that a G-8 or a G-20 can resolve global economic issues is wrong and belied by history. Although issues such as global warming may require some kind of coordination among countries, action must be taken at the nation-state level. Further, such action is only taken if it is in the interest of a nation. This reality is the fundamental flaw behind the “ineffectiveness” of the G-8 or any similar group.

It is also inaccurate to think that an enlarged G-8 would be more capable of taking effective action since it would be less likely to be able to reach consensus. Rather than prioritizing the inclusion of other nations for the sake of political correctness, it is more important to ensure that an institution actually works. A better approach would be to create a G-3, which would include the United States, China, and Europe. Keeping the body small would help reduce the problems of membership. But even under such an arrangement, power would remain at the nation-state level, and individual states would continue to behave based on their own internal circumstances and national interests.

Panel II: The Gleneagles Agenda—Africa and Climate Change

George Ayittey
American University

The campaign for increased aid to Africa is humiliating for Africans. It is degrading to see the salvation of a continent as being dependent upon rock concerts. Further, the money raised by such events is squandered by rampant corruption and incompetent leadership; it amounts to the blind leading the clueless. Leaders are rewarded for reckless behavior with hundreds of millions of dollars. This money does not reach the people for whom it is intended.

Africa does not need more aid poured into a leaky bucket. Rather, Africa needs reform, with “smart aid” distributed to the rural and informal sectors of the African economy. Real agents of reform in Africa can be found in civil-society and community-based organizations, and they are far more capable in bringing about change than trickle-down aid.

Roger Bate
AEI

Aid to Africa is unlikely to create long-term growth or to eliminate poverty; in fact, it has the distinct potential to be counterproductive. At best, targeted aid can help spur institutional changes inside Africa that are necessary for development. However, a careful and targeted approach to aid is difficult, slow, and decidedly unglamorous.

Timetables, especially for humanitarian and health goals, are rhetorically pleasing but dangerous. It is also important that Africa not be overloaded with environmental regulations that will choke its potential for growth. Poverty will not be made history by aging rock stars and goodwill, but by sound institutions and domestic economic growth.

Adam Lerrick
AEI

The recent announcement to forgive the $40 billion in debt to highly indebted poor countries (HIPC) in fact has nothing to do with debt relief, and HIPC debt cancellation has no real cost for international financial institutions. This debt was effectively relieved decades ago. Every time a country needed to make an interest payment on a loan, the international financial institutions simply gave them a new loan. Every time a debt payment has come up, more loans have been extended. No country has had to make a net payment on its debt in twenty-five years. This has been a policy of “defensive lending,” a well-concealed rollover of debt.

The charade of debt relief has a great deal of appeal, much more than aid. It is for this reason that NGOs and rock stars have latched on to it. They have sought to avoid the scrutiny and difficult choices that aid should entail. Consequently, aid packages have been passed masquerading as debt relief. The problem with the current HIPC debt relief is in the additional payment to countries that are failing or doing worse than many other African countries. This sets a bad example for all other countries.
 
Sarath Rajapatirana
AEI

To help Africa escape from poverty, a nexus has been formed, involving aid, investment, and growth. However, this nexus does not have an encouraging history. Aid does not necessarily finance investment, and investment does not necessarily lead to growth. Indeed, investment is not a money problem; the problem is getting the institutions and organizations to effect change and reform. Other problems from outside the nexus, such as civil strife, bad neighbors, and irresponsible leadership, can also limit progress.

Rather than debating how much money is necessary for Africa, it would be better to identify the activities, organizations, and commodities that are most deserving of aid. The good programs should be rewarded with grants. At the same time, the United States and the other countries of the G-8 should keep their goals modest, rather than seeking the unrealistic objectives such as the short-term elimination of “poverty” from Africa.

James K. Glassman
AEI

The topic of climate change will get a great deal of press from the G-8 summit, but little of substance is likely to be achieved at Gleneagles. In particular, climate change is the wrong issue to pair with the problem of African poverty, since the carbon mitigation requirements of the Kyoto Treaty will lead to lower economic growth.

It is likely that there will be attempts at Gleneagles to embarrass the United States regarding its climate change policy. In fact, voluntary initiatives in the United States have accomplished more to meet Kyoto emissions requirements than European nations’ adherence to the treaty has. Indeed, the United States will do better than Greece, Canada, Spain, and Portugal. In addition, it is useful to remember that the United States remains the single greatest contributor to United Nations programs on climate change.

AEI interns Paul Ibrahim and Sherwood Tondorf prepared this summary.