Building Collaboration Without Crisis

By Ian Bremmer and David Lipton

Versions: عربي (Arabic), 中文 (Chinese), Français (French), 日本語 (Japanese), Русский (Russian), and Español (Spanish)

Too often, a spirit of international cooperation evaporates just when it is most needed and most promising. And then, lack of cooperation leads to crisis; crisis belatedly forces cooperation; but that cooperation must begin with picking up the pieces.

We saw this during the Great Depression when the international community was unable to find common ground and cooperate on monetary, exchange rate, and trade policies. Then in the wake of the Second World War, perhaps the single greatest cataclysm in history, the painful lessons of that failure gave birth to the economic and political cooperation we have known all our lives. Now, as the forces of economic and political fragmentation rise again, are we fated to repeat the mistakes of our history?

For two generations, countries supported a global order based on institutional arrangements aimed at protecting economic stability and safeguarding security. That order, although imperfect, commanded broad support by permitting meaningful and constructive international cooperation while sufficiently preserving national prerogatives and sovereignty to receive broad and continued support. Through long periods of prosperity punctuated by recession, and throughout the Cold War and its aftermath, that order produced decades of economic progress and stability, and unprecedented increases in living standards lifted hundreds of millions out of poverty and created a global middle class.

Growing discontent

Today, however, we are witnessing rising challenges to the global order, including an erosion of popular support, and a deepening atmosphere of uncertainty. We will seek to enhance the dialogue on cooperation in an October 7 seminar held during the IMF Annual Meetings in Washington. Ian also has written a background paper on the topic.

On the economic front, there is growing discontent in advanced economies stemming from the damage of the global financial crisis, slowing income growth, technologies that make many jobs obsolete, and the individual and community displacement that comes from global interconnectedness. The downsides of modern capitalism have now appeared in sharp relief.

Stagnant middle class wage and job growth and rising inequality are fraying the social contract. Opportunistic political leaders are successfully playing on fear of fast-moving change that seems beyond the control of ordinary citizens—and even their elected representatives. In the United States, economic progress by minorities and women, celebrated by many, has provoked a backlash from those who feel they are falling behind. Some emerging market economies are struggling to cope with the yawning gap between the rising expectations of the new middle class and the ability of governments to deliver amid slowing global and domestic growth.

But the challenges extend beyond economics. Indeed, economics, politics and security are becoming inextricably intertwined in our world. Most importantly, the global political landscape is changing. For almost a decade, the United States and Europe have concentrated political energy on recovery from the global financial crisis, and that focus has sapped the will to engage proactively with the wider world. At the same time, China’s rapid growth and active involvements in Asia and Africa are tilting the global balances of economic and political power. Despite some slowdown, China still accounts for 37 percent of all global growth. The emerging market countries are rightfully demanding a greater say in international fora and institutions.

Geopolitical forces

Meanwhile, the emergence of non-state actors imposes new threats and costs that make cooperation more complicated. Wars in the Middle East have bred failed states, the rise of ISIS, and a flood of refugees that burdens the region and Europe. Terrorism and cyber threats are now worrisome facts of life for all countries. These issues can be dealt with only through international cooperation.

In the geopolitical realm, there are other important factors that complicate cooperation. While not a new phenomenon, there is strong resentment of United States tactics, including its frequent use of sanctions (which is viewed as a “weaponization of finance”), attacks from unmanned drones within the borders of other countries, and surveillance on foreign leaders.

European leaders face a formidable set of internal problems—including managing the refugee crisis, negotiating Brexit, controlling terrorism, and placating populations weary of reform and change.

Finally, the emerging powers—Brazil, India, China, Russia, and South Africa—and others aspire to more influence in their regions and in the world, along with power and influence in global institutions commensurate with their growing international importance and interests. Unconvinced that advanced countries will cede this ground, even over time, they have proposed and funded alternative approaches, either through the creation of institutions like the Asian Infrastructure Investment Bank and the emerging market economies New Development Bank, or by stepping up their own national efforts to support development and extend their influence abroad.

Yet another dimension adding to complexity comes from disruptive new technologies, including advances in information, distributed ledger, and big data technologies, as well as artificial intelligence. These developments hold great promise, but they raise questions about the profitability and sustainability of existing institutions and companies, and may erode the effectiveness of existing legal and regulatory systems.

Because these trends make the future uncertain, they may also stunt demand by prompting precautionary savings and keeping nervous investors on the sidelines.

How to plan for your retirement amid this uncertainty, particularly when interest rates linger near zero? How to invest in Europe’s future in a time of “exit?” How to invest in a Middle East where states are disintegrating, alliances are shifting, and non-state actors loom? How to prepare for disruptions within individual countries as workers are displaced by machines, or as information technology empowers all kinds of non-state actors to challenge the state’s ability to govern effectively.

“What is to be done?”

To repeat a question famously posed early in the last century when the global order was being called into question, what is to be done?

The irony of the present predicament is—as we said at the start—that there is more to be achieved by interconnectedness and cooperation than ever. If the advanced economies face a tougher challenge as they mature and productivity growth slows, they can hardly afford to throw away the gains from trade. The emerging market world will continue to depend on the trade, capital and technology that are part and parcel of interconnectedness if it is to sustain and eventually accelerate high growth rates and achieve a convergence of living standards.

It is essential to protect the gains from globalization, by banding together to revitalize growth. The Group of Twenty advanced and emerging market economies continues to play an essential role in this process, and its member countries need to implement and accelerate the group’s growth initiative from this year’s Hangzhou summit, making use of all policy levers—monetary, fiscal and structural—to lift the global economy. Recent IMF analysis shows that there remain huge synergies from comprehensive, consistent and cooperative action.  By acting together, much more is possible and feasible.

But as we do so, we must make our global and national economies more inclusive to reduce the economic insecurity and rising inequality that has accompanied globalization. In a capitalist society, most change creates winners and losers. We also recognize that geopolitical “creative destruction” is exacerbating the anxiety provoked by economic displacement.

So, our efforts to lift growth must be accompanied by policies that support the poor and those displaced or negatively affected by change. Our countries must be more open to redistributive policies. That requires a particular focus on providing displaced workers—both in industry and services—with the skills that will enable them to compete in the 21st century economy. Where governments can meet their citizens’ expectations for rising living standards and enhanced personal security, populist messages lose their urgency and appeal. Prosperity, in turn, bolsters security and geopolitical cooperation.

There is a lot of fanciful talk about building walls these days. In reality, the defensive wall we need is to improve the international community’s firewall against future crises. That effort requires better coordination to limit spillovers due to economic vulnerabilities; stronger financial regulations to prevent banking and capital market abuses; and tax cooperation and harmonization to limit the national revenue erosion that results from cross-border profit shifting by corporations.

These efforts call for a closer embrace of the multipolarity of our world. We need to protect and, where necessary, reform core multilateral institutions like the IMF, World Bank, and United Nations. Their continuing influence depends on letting governance evolve to reflect changing global power realities. The same approach implies supporting and integrating the new institutions and initiatives promoted by the emerging markets. It also calls for enhancing existing regional financial arrangements, such as the Chiang Mai Initiative, through greater cooperation and coordination.

Lastly, the time has come to break down the longstanding divide between economics and security in national and international policymaking. The two are inseparable in a globalized world where territorial disputes and market volatility can reverberate and disrupt without regard to our 20th century constructs. Moreover, only an integrated approach—one that recognizes that security threats have economic repercussions, while economic instability generates security threats—can navigate the hazards of failed states, non-state actors, and regional conflicts to secure a peaceful and stable world.

To avoid repeating the mistakes of our history and succumbing to economic and political fragmentation, the time has come for serious dialogue and a renewed spirit of cooperation.


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