Western Democracies at a Crossroads

WESTERN DEMOCRACIES AT A CROSSROADS Jahangir Amuzegar T,he summer of 1990 will long be remembered as a very active period in global diplomacy. A series of summit meetings of the Organization for Economic Cooperation and Development (OECD) in Paris, the European Community (EC) in Dublin, the North Atlantic Treaty Organization (NATO) in London, and the Group of Seven (G-7) industrial countries in Houston followed within a few weeks of each other. These historic conferences marked the end of the 45-year Cold War, the eclipse of communism as an ideological and moral doctrine, and the decline of the Soviet Union as both a global superpower and the world's last empire. The breakup of the Eastern bloc, the absence of a Soviet threat, and the end of the arms race should hold forth the hope of a more promising relationship among the industrial democracies. The West's ideological, strategic, and economic victory over the communist camp logically should pave the way for closer economic cooperation, in lieu ofthe past emphasis on political and military alliance. Yet, ironically, the potential for such an outcome cannot be taken for granted. Constant vigilance is still needed to maintain Western solidarity in the political and economic arenas. Chances are that, without proper foresight and intelligence, divergent national objectives and interests might stifle the type of cooperation strategy needed to ensure world peace and prosperity. Although the demise of the old politico-military bipolarity may open opportunities for Jahangir Amuzegar is an international economic consultant, a former executive director of the International Monetary Fund, and a former member of the SAIS faculty. 27 28 SAIS REVIEW expanded trade, investment, and exchange of technology, the perils of intensified economic factionalism and rivalry must not be ignored. The checkered history of economic cooperation among the G-7 in the past two decades gives a clear warning of the potential for political conflicts, economic clashes, and trade wars. Dissension in Houston Early signs ofsuch divisions could already be detected at the Houston summit. With respect to almost all major issues on the summit's agenda—agriculture, aid to the Soviet Union, relaxation of economic sanctions against China, debt reliefto the Third World, and environmental protection—the leaders were deeply divided. Summit strategists chose to focus on areas of easily attainable consensus while papering over contentious issues by allowing individual nations to go their own way. On some points, private reservations were in sharp contrast with seemingly unqualified public support. The carefully crafted final summit communiqué, with masterful vagueness and judiciously selected code words, spoke confidently of the substantial progress achieved in recent years in promoting a stronger world economy, supporting income growth and job creation, expanding international trade, and reducing imbalances in Japan and the United States. Continuing high unemployment levels in some countries, the lingering threat of inflation in others, and the danger of protectionism, according to the communiqué, required that deficit countries (meaning the United States) reduce fiscal deficits, encourage private savings, and increase competitiveness. Surplus nations (meaning Germany and Japan) were once again called upon to stimulate domestic demand and to promote domestic investment. A successful outcome to the Uruguay Round oftrade negotiations—to be concluded by the end ofthe year—was given the highest priority on the international economic agenda. To this end, members were asked to agree to greater liberalization of trade in agriculture and progressive reduction in support and protection of farm products. Free flows of direct foreign investment, special attention to the plight of the neediest countries, debt reduction and relief for nations implementing reforms, and new loans by public and private agencies were among the other economic prescriptions. Finally, there was renewed commitment to preserve the environment for coming generations.1 1. For the full text of the communiqué, see The New York Times, July 12, 1990. WESTERN DEMOCRACIES AT A CROSSROADS 29 Public reaction to these high-minded declarations was a combination of skepticism, caution, and anticipation. More than anything else the communiqué was considered a political statement, falling short of any sanctioned commitments. Specific agreements on a vast array of key economic issues were reduced to a set of compromises that helped preserve a semblance of...