We're not yet out of the woods

THE White House is conducting post-mortems on the recently concluded Group of Seven summit, following unusually harsh press criticism of the process. Just as Richard III cried out in desperation, 'My kingdom for a horse', President Clinton seems to exhibit a similar frustration in his search for institutions that work. The G7 is clearly not seen as one of these.

However, Robert Rubin, the White House director of economic policy, tried to put a good gloss on the process by suggesting that something historic and meaningful was launched at the Naples economic summit. This was the recognition that not only did the G7 itself have to be strengthened to co-ordinate world economic policy effectively, but so did other multilateral institutions, as was mentioned briefly in the final communique.

These include the Bretton Woods institutions: the International Monetary Fund, the World Bank and the General Agreement on Tariffs and Trade. Adapting these post- Second World War institutions to the post-Cold War realities is a dominant concern of the present world leaders. Whether it be discord over Bosnia, frustration over wildy fluctuating exchange rates or mounting unemployment, the question on everyone's lips is: 'Who is in charge?'

Pluralism is the messy reality of the post-communist threat, when there is no 'red menace' glue to bind countries together. Mr Clinton's recent speech to the Polish parliament was on target in this regard: 'The challenges our generation faces are different than those our parents faced. They are problems that in many cases lack pressing drama . . . if we meet them well, our reward will not be stunning glory, but gradual improvements.'

Gradualism in an era of sound-bite politics and flavour-of-the-moment, CNN syndrome only compounds the problems of outmoded institutions. The challenges of today are very different from those of 50 years ago. The Bretton Woods system was an international commitment by a small group of homogeneous countries to crucial economic goals - freer trade and currency convertibility, all in the name of peace though prosperity. It is particularly appropriate that countries re-examine the challenges and the institutions meant to resolve them as we approach the 50th anniversary this month of the Bretton Woods institutions.

Today, there is no dominant power or clear leader like the US after the Second World War. In years past, if the US Administration put an initiative on the table, other countries would quickly react. At this summit in Naples, Mr Clinton offered a proposal to begin dealing seriously with issues not dealt with by Gatt, such as financial services, and was summarily rebuffed.

The new issues that seriously stretch existing institutions are the explosion of international financial flows, the wide reach of multinational enterprises and their investments, the great migrations of the 1990s, and the environment. These issues cut across national borders, and yet countries, as they regionalise their structures, tend to lose sight of - and even resent - multilateral disciplines.

Consensus is growing on the existence of a leadership vacuum, if not on the solution. This in itself should be seen as progress, if it jump-starts a serious dialogue. Mr Rubin says that a strengthened G7 with more institutional structures may be the answer.

Fred Bergsten, at the Institute for International Economics, proposes a flexible G3 world steering committee, made up of the US, European Union and Japan, and bringing in additional players as the situation warrants. Others disagree strongly. Michel Camdessus, managing director of the IMF, says these power structures are too limiting, because they do not reflect the real world of today. He proposes a beefed-up version of the IMF's interim committee.

Such questioning and proposals should not become a purely academic exercise. The system must evolve to survive, just as economies and countries must evolve to grow and prosper. The fact that the system has not been evolving adequately can be demonstrated clearly by its failure to assimilate new players.

Japan is a good case in point. Although clearly one of the dominant economic players, it was only belatedly and grudgingly accorded its rightful second-place status at the IMF and the World Bank, and like Germany, is not yet a permanent member of the UN Security Council. Like a junior partner, it has membership in all the right clubs but no real clout. Assimilating China and perhaps Russia will be the next systemic challenges, with broad security and economic repercussions.

So why not have a rethink? This may require abolishing some antiquated institutions, perhaps adding some new ones, and most definitely refurbishing existing ones. It does not mean starting from scratch. The system in place has worked reasonably well for the past 50 years and does not need to be scrapped. New structures are beginning to emerge as in the new World Trade Organisation that will replace Gatt. The point is that there must be consensus among the big players to change the status quo and to do it reasonably quickly, so that the world again believes that somebody is in charge.