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From: wolda002@umn.edu
Date: Mon May 03 2010 - 02:25:26 EDT
The End of the Third World?
Modernizing Multilateralism for a Multipolar World
Issue: 881 Posted: April, 18 2010
The global economic crisis has shown that multilateralism matters. Staring
into the abyss, countries pulled together to save the global economy. The
modern G-20 was borne out of crisis. It showed its potential by quickly
acting to shore up confidence. The question now is whether this was an
aberration, a blip?
Will historians look back on 2009 and see it as a singular case of
international cooperation or the start of something new? Some now view
Woodrow Wilson’s attempt to create a new international system after World
War One as an opportunity lost that left the world adrift amidst dangers.
Will this be a similar moment?
The danger now is that as the fear of the crisis recedes, the willingness
to cooperate will too. Already we feel gravitational forces pulling a world
of nation-states back to the pursuit of narrower interests.
This would be a mistake. Economic and political tectonic plates are
shifting. We can shift with them, or we can continue to see a new world
through the prism of the old. We must recognize new realities. And act on
them.
New Poles of Growth
The world economy is rebalancing. Some of this is new. Some represents a
restoration. According to Angus Maddison, Asia accounted for over half of
world output for 18 of the last 20 centuries. We are witnessing a move
towards multiple poles of growth as middle classes grow in developing
countries, billions of people join the world economy, and new patterns of
integration combine regional intensification with global openness.
This change is not just about China or India. The developing world’s
share of global GDP in purchasing power parity terms has increased from
33.7 % in 1980 to 43.4 % in 2010. Developing countries are likely to show
robust growth rates over the next five years and beyond. Sub-Saharan Africa
could grow by an average of over 6% to 2015 while South Asia, where half
the world’s poor live, could grow by as much as 7 % a year over the same
period.
Economic Shifts Mean Potential Power Shifts
Increased income and growth in the developing world means increasing
influence. The old world of fireside chats among G-7 leaders is gone.
Today’s discussion requires a big table to accommodate the key
participants, and developing countries must have seats at it.
Last year’s G-20 Summit at Pittsburgh recognized that change. But it will
take more than words on paper. Woodrow Wilson’s words on paper did not
realize their lofty ideals. Arranging a new sharing of responsibilities
among mutual stakeholders in international systems will not be easy. But
happen it must. The failure of 1919 led to countries that could not
cooperate in 1929 and the start of a new war in Europe in 1939.
In discovering a new forum in the G-20, we must be careful not to impose a
new, inflexible hierarchy on the world. Instead, the G-20 should operate as
a “Steering Group” across a network of countries and international
institutions. It should recognize the interconnections among issues and
foster points of mutual interest. This system cannot be hierarchical, and
it should not be bureaucratic. It also must prove effective by getting
things done.
Financial Reform
Of course we need better financial regulation, with stronger capital,
liquidity, and supervisory standards. A new supervisory framework should
consider systemic risks, reverse regulation that reinforces the ups and
downs of cycles, consolidates supervision to avoid gaps, and considers
inflation in asset prices as well as in goods and services.
But beware unintended consequences. We should not compound costs by
encouraging financial protectionism or unfairly constraining financial
services to the poor. Regulations agreed in Brussels, London, Paris or
Washington might work for big banks in the developed world. But what about
the smaller ones, whether in developed or developing countries?
These regulations could choke off the financial sector, innovation, and
risk management in developing countries. They could make it harder to
invest across national borders.
“Lend local” requirements could have the same effects as “buy
local.” “Local physical presence” requirements could thwart services
just as they can choke trade. “Local liquidity” requirements could
fragment global liquidity management and add huge costs without
strengthening safety.
Derivatives now have a bad name. This is understandable when one remembers
AIG. But derivatives are used by farmers in the American Midwest to protect
against volatility in grain prices. Mexico used energy options to lock in a
price for the oil that pays for much of the government’s budget.
Managing for Crisis Response
Take crisis response: in a world in transition, the danger is that
developed countries focus on summits for financial systems, or concentrate
on the mismanagement of developed countries such as Greece.
Developing countries need summits for the poor. One lesson from this crisis
is that effective safety nets prevented the loss of a generation – unlike
the Asian crisis in the 1990s. Hearing the developing country perspective
is no longer just a matter of charity or solidarity: It is self-interest.
These developing countries are now sources of growth and importers of
capital goods and developed countries’ services.
Reform
The World Bank Group must reform to help play this role. And it must do so
continually at an ever quicker pace. Government and public institutions
tend to be slower to change than private organizations facing competition.
We recognize this risk. To address it, we have launched the most
comprehensive reforms in the institution’s history.
Reform cannot be a one-time effort. It must be a constant —adaptation and
re-adaptation, with continuous feedback loops to meet changing realities.
We cannot predict the future with assurance. But we can anticipate
directions –and one is that the age of a multipolar global economy is
coming into view. This is no aberration, no blip. We still live in a world
of nation-states. But there are now more states wielding influence on our
common destiny. They are both developed and developing, spanning all
regions of the globe. This can be all to the good. But the contours of this
new multipolar economy are still forming. It needs to be shaped.
The modern multilateral system needs to fit these changes.
Modern multilateralism must be practical. It must recognize that most
governmental authority still resides with nation-states. But many decisions
and sources of influence flow around, through, and beyond governments.
Modern multilateralism must bring in new players, build cooperation among
actors old and new, and harness global and regional institutions to help
address threats and seize opportunities that surpass the capacities of
individual states. Woodrow Wilson wished for a League of Nations. We need a
League of Networks.
It is time we put old concepts of First and Third Worlds, leader and led,
donor and supplicant, behind us. We must support the rise of multiple poles
of growth that can benefit all.
Robert B. Zoellick is the President of The World Bank Group. This is an
abridged version of the speech made at the Woodrow Wilson Center for
International Scholars
On April 14, 2010reprinted by permission