2. It is not beyond the powers of political volition to tip the scale in this transition, towards a more secure and predictable peace, greater economic well-being, social justice, and environmental sustainability. No country can achieve these global public goods on its own, however, just as none is exempt from the risks and costs of doing without them. Multilateral diplomacy was invented and has been sustained because political leaders as well as the people they represent have recognized this simple fact. Indeed, the twentieth-century project of international organization is all about how to stretch national interests and preferences, temporally as well as spatially, so as to produce in greater quantities the public goods that the political market place of inter-State behaviour would otherwise underproduce. The United Nations, with its near-universal membership, its comprehensive mandate, a span of activities that ranges from the normative to the operational, and an institutional presence that is at once global, regional and country-based can and should be at the very centre of this endeavour.

3. On 17 December 1996, Member States did me great honour in electing me the Organization's seventh Secretary-General. Since taking office, I have had one overriding objective: to induce greater unity of purpose, coherence of efforts and responsiveness throughout the Organization so that it can more effectively help meet the challenges of our times. Each of the component entities that comprise the United Nations has made adjustments to the epochal changes of the past decade, and their progress during this past year is summarized in these pages. As we go forward, however, the Organization must learn to make far better use of its major potential source of institutional strength: the many complementarities and synergies that exist within it. The comprehensive package of reforms that I presented to the General Assembly on 16 July 1997, and which the Assembly will consider at its current session, were designed with that aim in mind.

 4. This -- my first -- annual report on the work of the Organization proceeds as follows. The remainder of this introduction briefly highlights some of the key forces that are transforming the world around the United Nations and, therefore, its agenda. Chapter II presents an overview of the Organization's activities of the past year, with a thematic emphasis on how the different programme areas have sought to adapt to and guide those forces in keeping with the principles of the Charter of the United Nations and the programme priorities set by Member States. In chapter III, I offer some overall reflections on the work of the Organization, and I indicate how and why my proposals for institutional reform constitute a necessary next step in ensuring that the Organization remains a vital and effective instrument of international collaboration as the world heads into a new century -- and a new millennium.

5. The diverse ramifications of the end of the cold war remain a palpable factor in the world even today, nearly a decade later. The cessation of super-Power rivalry and military confrontation set in train a whole host of progressive changes within and among countries. At the same time, the international community is still struggling with the adverse consequences of bipolarity's collapse. The inter-ethnic conflicts that followed the break-up of several multi-ethnic States, whether in Central Asia or the former Yugoslavia, are tragic cases in point. Some of the former proxy battlegrounds of the cold war in Asia and Africa continue to reel from instability. States that were held together by their perceived strategic utility to one side or the other in some instances have suffered grievously as a result; this was true, for example, in the Horn of Africa earlier in the decade, and most recently in the former Zaire. The help of all States, especially those that played leading roles in the cold war, is necessary to undo its remaining social, economic and political distortions.
 
6. A second fundamental force reshaping the world today is globalization; it is perhaps the most profound source of international transformation since the industrial revolution began to turn external trade into a routine feature of international life. Beginning in the 1960s, with the limited lifting of capital controls and the gradual emergence of multinational manufacturing firms, financial markets have become increasingly integrated and the production of goods and services transnationalized. Numbers tell part of the story: international financial flows tower over world trade by a ratio of 60:1, while the growth in world trade itself typically exceeds the increase in world gross domestic product by more than 5 per cent each year. The other part of the story is in the organization of these flows: they take place within markets which, for most purposes, have become single markets, and within firms or among related parties that treat the world, synoptically, as a single market place.

7. Globalization and the liberalization that produced it have generated a sustained period of economic expansion, together with the most rapid reconfiguration of international economic geography ever. Unprecedented wealth and standards of living exist in the industrialized world. Elsewhere, some countries that struggled with poverty a mere generation ago are now economic growth poles in their own right. Over the course of the next generation, a majority of the world's most rapidly growing economies will be located in what is now the developing world.

8. Globalization also poses numerous policy challenges, however. Among them are the inherent risks of markets lacking critical regulatory safeguards, as is true in some respects of international financial markets. Globalization is also eroding the efficacy of some policy instruments by which the industrialized countries had pursued full employment and social stability throughout the era that followed the Second World War. No consensus exists yet about how to replace the neo-Keynesian compromise that governed the political economy of advanced capitalism, but it would be folly to believe that the public in the industrialized countries is prepared simply to return to an era of unfettered market forces.

9. Additional policy challenges face the developing countries. To begin with, the benefits of globalization still affect relatively few among them. Some 40 per cent of the direct foreign investment flows to developing countries is accounted for by China alone; East Asia as a whole absorbs nearly two thirds. In contrast, Africa is the recipient of a meagre 4 per cent, while official development assistance has fallen. Among the countries bypassed by global capital flows are those that are experiencing the most enduring poverty. As indicated in the 1997 Human Development Report, published by the United Nations Development Programme, lack of global financial resources is no impediment to eradicating extreme poverty. Pro-growth policies at the national level coupled with targeted external assistance can enable currently marginalized countries to become active participants in the global economy. I consider it to be a core mission of the United Nations to help facilitate their successful transitions.
 
10. Furthermore, developing countries are in the difficult position of having to realign the character of their state apparatus in several directions simultaneously. The growing recognition that the State is not itself a creator of wealth has led to widespread privatization and deregulation, but even in market-oriented developing countries the State has critical roles to play in providing an enabling environment for sustainable development. The World Bank's 1997 World Development Report shows systematically how crucial an effective State is in this regard, as evidence from the so-called newly industrializing countries had suggested for some time. Finding the appropriate balance, however, especially in contexts where civil society is weak and transnational forces overpowering, is an exceedingly complex task. Various United Nations "good governance" programmes are designed to assist individual Governments in defining the balance that best meets their needs.

11. Third, globalization rests on and is sustained by a remarkable revolution in its own right in information technology, particularly the integration of increasingly powerful computers with telecommunication systems that permit high volume and high quality real-time voice and data transmissions. Indeed, the adjective "global" refers less to a place than to a space defined by electronic flows and a state of mind. World currency markets are the most global of all in this sense, and what has come to be known as the global factory relies similarly on such electronic infrastructure.

12. The information revolution has unfolded most extensively in the industrialized world, but it also holds enormous potential for the developing countries. It diminishes the constraints of distance in manufacturing industry and many services, and offers new tools in the form of administrative capacities, long-distance learning, telemedicine, the more effective management of micro-credit systems, agricultural production, and for a variety of other applications. Major efforts should be undertaken to support greater acquisition and utilization of information technologies by the developing countries.

13. The intensification of global environmental interdependencies constitutes yet a fourth transformative force. At the United Nations Conference on Environment and Development, held at Rio de Janeiro in 1992, the international community endorsed the concept of sustainable development as the key to reconciling economic and social progress, which all desire, with safeguarding the planet's ecosystems, on which all depend. Many of these systems are under increasing stress, however, with adverse consequences that range from the local destructiveness of flash floods resulting from deforestation, to the slower but globally indivisible atmospheric warming that results from increased emissions of greenhouse gases. As witnessed by the "Rio +5" summit, however, held at United Nations Headquarters in June 1997, progress since Rio has been disappointing, whether in meeting targets for controlling environmental degradation or providing technological and financial assistance to developing countries. We hope for a more favourable outcome at the Kyoto session, later this year, of the Conference of the Parties to the United Nations Framework Convention on Climate Change.

14. A fifth fundamental shift in the world today is the pronounced transnational expansion of civil society, itself made possible by a combination of political and technological changes. This is of great significance for the United Nations. Private investment capital exceeds by a factor of six the available official development assistance and must be further mobilized for development purposes. In recent years, the United Nations has found that much of its work at the country level, be it in humanitarian affairs, economic and social development, public health, or the promotion of human rights, intimately involves the diverse and dedicated contributions of non-governmental organizations and groups. In response to these growing manifestations of an ever-more robust global civil society, the United Nations is equipping itself to engage civil society and make it a true partner in its work. As part of my reform proposals, I have urged all United Nations entities to be open to and work closely with civil society organizations that are active in their respective sectors, and to facilitate increased consultation and cooperation between the United Nations and such organizations.

15. Sixth, and closely related, there is a growing trend towards democratization and respect for human rights. Countries in all parts of the world are voluntarily limiting the arbitrary powers of state agencies together with the abuses and the social and economic costs they engender. Some 120 countries now hold generally free and fair elections, the highest total in history. The social, economic and political benefits of basing systems of rule on the principles of human dignity and the will of the people are felt in domestic as well as regional peace and prosperity, though the transition to democracy itself is often slow and at times fraught with difficulty.

16. The same technological means that foster globalization and the transnational expansion of civil society also provide the infrastructure for expanding global networks of "uncivil society" -- organized crime, drug traffickers, money launderers and terrorists. These parasitic elements constitute a seventh factor shaping the international agenda today. They corrupt local and in some instances national politics, undermine judiciaries, and pose security threats even to the most powerful States. I have moved rapidly to consolidate in a high profile office at Vienna all United Nations efforts to combat these elements, but a redoubling of resolve is still necessary for them to be controlled, involving new partnerships among national and international agencies.

17. Finally, and somewhat paradoxically, these integrative trends are accompanied by tendencies towards fragmentation. In some instances, what appears to be fragmentation is in fact a move towards decentralization in policy-making and administration due to the desire for greater efficiency, effectiveness and accountability, thus posing no grounds for concern. In other cases, as noted above, fragmentation has been a by-product of the collapse of bipolarity and has led to intra-communal strife and conflict. Economic globalization, too, has brought about instances of fragmentation because market forces can and often do undermine indigenous cultural values. Indeed, the broad uncertainties and insecurities engendered by fundamental change frequently result in a heightened quest to redefine and reassert collective identities.

18. At their best, identity politics provide a robust sense of social coherence and civic pride, which have salutary effects for economic development and the peaceful resolution of disputes at home and abroad. At their worst, however, identity politics result in the vilification of "the other", whether that other is a different ethnic or tribal group, a different religion, or a different nationality.

19. This particularistic and exclusionary form of identity politics has intensified in recent years within and among countries. It is responsible for some of the most egregious violations of international humanitarian law and, in several instances, of elementary standards of humanity: genocidal violence; the conscious targeting of civilian populations, often women and children, by factional combatants; rape as a deliberate instrument of organized terror; and attacks on emergency relief workers and missions. Negative forms of identity politics are a potent and potentially explosive force. Great care must be taken to recognize, confront and restrain them lest they destroy the potential for peace and progress that the new era holds in store.

20. Times of transformation can be times of confusion. The policy-making process can easily get caught in transition traps, moments of discontinuity when taking the wrong step can have severe long-term consequences. The international community has an obligation to itself and to succeeding generations to strengthen the available multilateral mechanisms, among which the United Nations is a unique instrument of concerted action, so as to successfully harness the mutual benefits of change while managing its adverse effects. By adopting the proposals for reform I submitted to the General Assembly in July, Member States will equip the United Nations to better play its part in meeting this challenge.