Multilaterism Under Stress
Few doubt that the global economic order has shifted in the aftermath of the Great Recession. After all, the advanced economies are struggling as can be seen in their slow growth recoveries and major challenges. The US is mired in a high unemployment, high debt trap with low levels of consumer confidence; Japan, even before the recent natural disaster and nuclear accident, was in a demographically-induced low growth trap; and Europe is struggling to find a way to accommodate the economic crises of Greece, Portugal, Spain and Ireland without sacrificing the Euro or the principle of no debt default. This raises concerns for globalization inasmuch as these advanced economies have heretofore been the custodians of the multilateral system.
The New Economic Powers, prominently including China, Brazil and India, are becoming more important for world growth; however, they have yet to show a large appetite for taking up the multilateral gauntlet. Hence cracks are appearing. The Doha trade round is dead; capital import taxes are now tolerated if not sanctioned; development assistance is stagnant and being offered on markedly different terms; while at the same time major global challenges in areas ranging from climate change to migration to crime and drugs are left unattended. The system is most definitely under stress.
Pundits have many views, ranging from unrealistically high hopes in the G-20 to quixotic notions of a G-2 between the US and China. Others speak glowingly of the BRICS, a grouping of five very disparate countries united mostly by population size and the Goldman-Sachs acronym rather than by major policy or political convergence. Yet others, such as Prof. Rodrik of Harvard, see a trilemma that cannot be solved in which countries must choose only two among three goals: national economic aims, democracy, and global responsibilities. Thus, we have moved in one tumultuous decade from irrational exuberance to great recession to uncertain expectations.
As we face what El-Erian has dubbed the “new normal,” a state of affairs in terms of growth, debt, and uncertainty that serves to put a greater burden on governments, it may well be multilateralism that takes the hit. Governments are after all being asked to both regulate increasingly unpredictable markets and to intervene more directly in order to promote national economic goals that are proving more elusive. This is being accompanied by a multilateral system that is losing steam in terms of international governance. While the global system responded well to the H1N1 influenza, and did in the end manage to prevent a larger collapse with some coordination in stimulus packages and agreements to strengthen the IMF and the FSB, it has not shown great resolve in other matters.
This partial withdrawal from multilateral responsibilities weighs heavily on the system and does not augur well for developing countries that still harbor export-led aspirations and seek to become globally competitive. It is complicated by new players who see development assistance in a different light and who see the role of government policy in significantly more activist terms. This was less of a problem whilst advanced countries thrived; however, global tolerances will diminish given their less palatable policy choices going forward. High unemployment rates and high deficits in many advanced countries is one such example.
What is needed is a new and dramatic re-commitment to multilateralism and greater global understanding that national and international interests are so intertwined by globalization that policy externalities—impacts on others of national efforts—need to be considered and accommodated by all economic actors. This applies particularly in current circumstances to the emerging economic powers that hold considerable sway globally and yet are still not in the rich country league on per capita terms. This ambiguity needs resolution within the G-20 context if multilateralism is not to suffer and economic outcomes are not in the end to suffer as well.