Limits of Power
By John Kornblum

Boris Yeltsin's recent death coincided with a watershed of sorts in the history of the post-Cold War world. His passing came almost exactly ten years after hopes for traditional multilateral cooperation reached their peak with Russia's entry into the club of the world's leading nations at the Denver summit in 1997.

Yeltsin was welcomed warmly by host Bill Clinton in recognition of his dedication to the integration of a newly-democratic Russia into the group of leading industrial nations. Economic officials such as Treasury Secretary Robert Rubin had at first argued that Russia was not ready to participate in management of Western economies. Others argued that Russian membership was essential to ensure success of the G-7's growing political role. In the end, Russia got a sort of split membership, and was not admitted to the economic discussions.

Despite this limitation, the spirit of the 1997 gathering was confident and hopeful. Great Britain's Prime Minister Tony Blair presented his vision of the "Third Way," which was intended to combine the power of markets with social consciousness. With the Balkan conflict heading towards a solution, the new economy boom just picking up speed, and the Russian financial meltdown a year off, the leaders who gathered in Denver that year were convinced that the G7/8 countries would become the global coordinators of worldwide economic policy in the twenty-first century.

The contrast between the optimism of the Denver meeting and the tense atmosphere which precedes this year's Heiligendamm summit couldn't be greater. It demonstrates how premature the expectations of ten years ago turned out to be.

After the crises that followed 9/11, Iraq, and the war on terrorism, and in light of the challenges all of us are facing with climate change, some commentators have even started to wonder whether the G7/8 has lost its reason to exist. Where are China, India and Brazil? How can this group of representatives of the Old Economy seriously believe that they can objectively represent the interests of the many new players in a globalized economy? Thousands of demonstrators from all over the world still seem to believe that the G7/8 wields real power, but their goal is to destroy whatever influence might be left; they have turned Heiligendamm into an armed fortress.

Only five years ago German Foreign Minister Joschka Fischer declared that anchoring multilateralism in their foreign policies was one of the most important goals of European and German nations. But the faster globalization spreads to the far corners of the earth, the harder it is to fit countries and issues into neat organizational boxes. Neither ambitious entrepreneurs nor disgruntled nationalist dissidents feel it necessary to accept the authority of the world's leading industrialized nations, the United Nations, or anyone else.

Why have our carefully designed plans for an orderly multilateral management of the new era fared so badly? Are we the victims of our own success? The forces let loose by technological change and by the end of the Cold War appear to have made highly organized hierarchical structures increasingly unworkable, both in government and the private sector.

"We are entering an age of irrationality," argues Francois-Henri Pinault, CEO of France's PPR Group. "We are at the beginning of a social trend and a change in values which will go on for years - after all the age of rationality lasted for more than a century."

For example, the Kyoto Protocol was designed to be a rational means of dealing with the challenges of climate change. Unfortunately, it neglected to provide a role for the billions of persons whose existence depends on the production of greenhouse gases.

Our highly structured concept of global management is too slow to satisfy the new sense of urgency spreading among the world's populations. Old hierarchies cannot make room for new, ambitious players. In a way, George Bush's "coalitions of the willing" in Iraq and the anti-EURO voters of France and the Netherlands are part of the same phenomenon.

Henry Kissinger has often pointed out that when new international players enter the scene, the old order will start to crumble. This was certainly the case when the United States, Germany, and Russia pushed their way into the club of leading industrial powers in the late nineteenth century. It happened again after World War II in the wake of decolonization.

We are again leaving an era characterized by a stable, but inflexible world order and entering an era of growing pluralism and transparency, accentuated by unsettling change. Rather than controlling events, both governments and corporations are likely to find themselves scrambling to keep up with developments that can no longer be managed rationally. They will be obliged to abandon old structures and ways of thinking. They must learn to find new paths in the search for solutions.

Pinault's prediction that we are entering "an age of irrationality" highlights the biggest challenge arising from these trends. Democracy and rule of law replaced autocratic societies in the nineteenth century. Today's multilateral organizations reflect the post- World War II conviction in Europe and the United States that a "structured" series of institutions should be established to guide the postwar world.

Motivated by a combination of Woodrow Wilson's American idealism and European state theory, postwar statesmen believed that Europe and America should create a binding democratic world order as the only means of overcoming the aggression and nationalism of the past. Thus, the UN, the Bretton Woods system of global economic management, NATO, and of course the European Union were created.

The rules of the game for this system were based not only on the values of the leading industrial nations, but also on their political and economic goals. The discipline of the Cold War made it possible for them to maintain these rules as the basis for international cooperation, but the end of the Cold War led to a new, more diffuse situation.

With the expansion of the EU and NATO, for example, our Atlantic world has not only become significantly larger, but it has also become an ever-deepening network of societies who are committed to common democratic principles, but who do not necessarily pursue identical goals. As our Cold War model recedes into the past, even European commentators are resurrecting more indirect models of governance such as the Hanseatic League.

These are revolutionary thoughts, especially for Europeans and Americans. Political and psychological recovery of the Western world from the depressions and wars of the twentieth century was predicated on structures of multilateral cooperation. They helped Europe overcome nationalism. For America they meant the end of isolation. They also provided a means of establishing Western leadership over the economic and security management of the entire world.

Thus it is no wonder that Western members of the G7 were so happy to welcome Boris Yeltsin into "their club" ten years ago. He signified Russian acceptance of Western rules of the game.

In 2007 his successor is confusing all of us by clearly being unwilling to play by our rules. He is joined by several new members of the EU and much of the non-Western world. These trends do not mean that institutions will or should disappear or that traditional multilateral cooperation is no longer practical. But it does mean that a new set of values and structures will emerge.

Future international cooperation will be based on constantly changing alliances rather than from the firm structures of one or more organizations. Industrial corporations and financial institutions will play a more important role in helping governments to build consensus around workable solutions. Market-based solutions will increasingly be substituted for treaties or new organizations. A new type of global corporate citizenship is likely to emerge, through which the tools of production and capital can be applied to pressing political and social issues through methods based on profit and loss rather than government programs.

An excellent example of new methods of cooperation is Chancellor Merkel's transatlantic market place initiative. It includes a wide group of Atlantic nations in a cooperative process between government and business. It does not establish any hierarchies other than the priority of concrete agendas.

Its implementation will draw on various methods, and there will be both formal agreements and informal declarations and understandings. But there will be few entry requirements and no impermeable walls or barriers between participants and non-participants.

Since the results will be based on outcomes rather than bureaucratic structures, they can be "open sourced," as they say in the software business. Such open-sourced networks are likely to form the foundation for the next phase of post-Cold War history.

As these new methods are redeveloping, it will be particularly important not to lose sight of the values on which they should continue to be based. If freedom and democracy are to be maintained as the foundation for the future, global behavior must be guided by the principles of the UN Charter. Achievement of this goal should become the new common foundation of the Atlantic world: openness and pragmatism, yes, but also guided by a firm commitment to our democratic values.

Ambassador John Kornblum is a former U.S. Ambassador to Germany, an AICGS Trustee, and Chairman of Lazard and Co. GmbH.

A German version of this essay originally appeared in the May 29, 2007, edition of Handelsblatt, and in the June 8, 2007, AICGS Advisor.

To read this essay in German, please click here.