The financial crisis of 2008 and beyond proved without a doubt that the interdependent world must increasingly rely on global cooperation. However, in key economic areas, including finance, world trade, and development aid, regionalization has recently become an overwhelming trend.
The era of Western dominance in global economic governance is over. Many of the economies of the "rest" now grow at much faster rates and have achieved tremendous success in lifting people out of poverty, while the West tries to tackle the problem of its indebtedness and reregulate international finance, something it failed to do in the past. The change in the distribution of global economic power has not, however, been followed by an adjustment of power within the organizations governing the world system : their pace of reform has remained very slow, while the purposes that they used to serve have been evolving quickly over the last decade. This has not gone unnoticed in the emerging economies, which have continuously called for the democratization of international governance and greater equality.
Yet moves like the U.S. Congress’ recent denial of a long-negotiated International Monetary Fund (IMF) reform clearly display the West’s lack of understanding of the world in which we live in. This decision strongly contributed to the further erosion of the existing global multilateral framework.
In actions like this, the West risks allowing global governance to plunge into chaos. While the voices of emerging countries are rarely adequately heard, the "exit" option is still unfavorable to them, so they have chosen instead to weaken their "loyalty" to the existing system. Today non-Western regions and states are attempting to bypass the institutions of global economic governance. They address economic problems increasingly through new channels, where the dominant position of the West is diffused. As a result, we are witnessing the emergence of a new, more fragmented and decentralized world economic order, in which global multilateral institutions — such as the IMF, World Bank, and the World Trade Organization (WTO) — play only limited roles alongside regional orders and national strategies. This could lead to a more anarchic world, which would be characterized by stronger competition between regions or nations and growing global ungovernability.
The West should start building a more inclusive system. This requires two major steps.
First, much more innovative thinking about the roles of international organizations and the new global interdependence is needed. There are many national problems that can only be solved globally, while the keys to solving global problems are on the domestic level. There are also new types of global public goods that cannot be addressed on the regional level alone or through loose forms of international cooperation. For example, the problems of macroeconomic imbalances, currency manipulation, supply chain resilience, rapid mobility of capital, and tax evasion cannot be tackled domestically, nor can regionalism deliver fully effective responses to these challenges. Therefore the IMF should rethink its role and choose to undertake new tasks, as global finance hasevolved greatly within the last decade. Global finance needs a real dispute settlement system between nations. Thanks to the WTO, such a mechanism has been shown to work effectively in world trade.
The WTO can also bounce back if, instead of dreaming of completing the outdated Doha Round, it focuses on its deliberative and dispute-settlement functions and on effectively managing the competitive liberalization of world trade via regional blocs in order to consolidate them later into the global framework. Most importantly, the key to managing world trade today is in regional supply chains of production and the flow of foreign direct investment.
Second, it is time for the West to make real adjustments in its share of power in international organizations. The leadership of the Bretton Woods institutions should be based on merit, not on Euroatlantic origin. The informal deal between the United States and EU concerning the leadership of the IMF and World Bank, which is prohibitive for the most qualified candidates from the rest of the world, must finally come to an end. Sooner rather than later, the EU should seriously consider holding a single seat in institutions like the IMF and the UN Security Council, while the United States should give up its veto power in the IMF.
The basis for renewal is still solid, though less clear than several years ago. In fact, the global economic crisis of 2008 onward has proven the resilience of the current system : the world has not plunged into another Great Depression, nor did it have to resort to protectionism. In fact, emerging powers realize that reforming the existing institutions is easier and less costly than creating new ones. The West must realize that this reform is in its own interest as well.