The author is one of several CIGI-sponsored Canadian university students who attended the INET conference, Crisis and Renewal: International Political Economy at the Crossroads, at Bretton Woods, NH, April 8–11, 2011. Each student was asked to write a short reflection on the conference themes.
While the global economic context is different, panellists at the 2011 INET conference in Bretton Woods faced a central problem similar to the issue tackled by participants at the Bretton Woods conference of 1944: how to reconcile global economic openness with domestic stability. Former UK Prime Minister Gordon Brown aptly framed the “crossroads” confronting the world economy, stating that global economic problems facing the world economy today require collective action and enhanced coordination among countries. Brown highlighted that this reality co-exists uncomfortably with an opposing reality marked by shifts toward national protection in both emerging and established economies. Further, impasses have become evident at the multilateral level among Group of Twenty (G20) countries, where negotiations within the G20 over how to proceed with global economic reform have stalled on narrow debates over the terminology of what constitutes a global “imbalance.” In the context of these divergent trajectories and impasses, the INET conference provided an important venue for thinking about how to recalibrate the multilateral-national nexus in the post-2007 period and provided the requisite intellectual innovations needed to move beyond the circumstances the global economy faces today.
The theme of institutional (re)design was central to the new line of thinking presented at the conference. A primary topic of discussion was the need to recalibrate the relationship between supranational regulation and national sovereignty. This dilemma is particularly acute in the context of the European sovereign debt crisis. The panel participants addressing this topic reached a general consensus that if the European Union (EU) is to persist as a viable monetary union, tighter monitoring of fiscal rules and a redesign of EU fiscal mechanisms are required. Solutions to the sovereign debt crisis are not confined to the borders of sovereign jurisdictions. In working toward a recalibration of governance, the EU must balance a supranational fiscal mechanism with increased central bank authority at the national level. A second institutional (re)design issue was the reconfiguring of state-market complementarity. The panel argued for a shift away from the more/less dichotomy and a move towards a conceptualization of the state as being “differentiated” in its relationship to the market. In “doing the state differently,” national governments must act as both as investor in technological and economic development while also acting as an insurer against market risk.
The Basel III counter-cyclical capital buffer lies at the intersection of these two dimensions of institutional design by seeking to rebalance the regulatory role of the state with financial institutions, but to also reconcile the balance between multilateral coordination and domestic implementation of global macroprudential regulation. According to Claudio Borio of the Bank for International Settlements, the Basel III counter-cyclical buffer “goes beyond the illusion of sovereignty by devolving authority to host countries, which stand to lose the most from economic cycles.” Garry Schinasi, visiting fellow at Bruegel, argued further that global solutions are necessary to manage transnational financial institutions and systemic risk, with national governments being obligated to maximize the policy frameworks, shielding domestic stability from risk. In the context of Basel III, the G20, despite its current impasses, constitutes an important linkage between the domestic and international regulatory realms, as well as for redesigning state-market relations in financial governance. Despite headway made by Basel III in this direction, reconciling multilateral economic negotiations with domestic coordination marks the most challenging task facing the global economy.
To accommodate the dual trajectory of national protection with an open global economy[1], supranational with domestic regulation as well as between state-market relations, “flexibility” must become central to the institutional (re)design of the global financial architecture. Erik Berglöf, chief economist at the European Bank for Reconstruction and Development indicated in his presentation that flexibility includes the alignment of incentives, combining multilateral and bilateral efforts to break through collective action problems. Flexibility is central to the management of global impasses and it is certainly needed to address the largest impasse facing the global economy today and into the post-crisis period: the co-existence of competing development models.
The economic models of Asia have gained increased credibility over the post-crisis phase, and present the biggest challenge to cooperation within the global economy over the coming years. The most pressing issue is how to reconcile these emergent norms with the long-established norms and practices of the Western-led economic order. Balancing these different economic models relies on the appropriate institutional design mechanisms, with flexibility comprising a central pillar of post-crisis institutional design. To reconcile these competing economic models, a move toward decentralized economic governance may provide the necessary governance solution for accommodating developmental pluralism and the transition toward a multipolar economic order.[2] As Joseph Stiglitz pointed out, the intellectual shift occurring within the International Monetary Fund regarding the Fund’s position on the use of capital controls is indicative of a larger normative shift in the global economy that is increasingly accommodating to non-Western approaches to economic development, by affording increased policy autonomy to emerging economies.
The 2011 INET conference at Bretton Woods served as a fundamental learning experience and allowed me to locate where my current research on the G20 as a key multilateral link between national and international economic governance in the post-2007 period fits within wider scholarly debates surrounding this key historical juncture. With its thin multilateral and network structure, the G20 process lies at the centre of this recalibration of the multilateral-national trajectory of economic governance by facilitating the multilateral engagement of domestic financial regulation and macroeconomic management. Furthermore, the G20 provides the necessary platform for generating norms reflective of an increasingly multipolar economic order. Although the G20 is currently characterized by dissonance on the major issues needed to attain balanced global growth, the forum provides the minimum mechanism for balancing multilateralism and national sovereignty in the context of power diffusions within the global economy. Changes to its structure are also necessary for attaining equitable participation within global economic affairs. Although current circumstances facing the global economy appear highly unfavourable to global cooperation, the INET conference showed that rather than reverting to pessimistic conclusions, scholars and practitioners must use these transitional global moments as opportunities to develop new ways of thinking about how to redesign economic governance arrangements, innovate through impasses and move toward a more inclusive and sustainable global economic order.
Notes
[1] See Dani Rodrik, The Globalization Paradox: Democracy and the Future of the World Economy (2011).
[2] See Eric Helleiner and Stefano Pagliari, “The End of an Era in International Financial Regulation? A Post-crisis Research Agenda” (2011).