Original article – As written for The Globe and Mail
The post-war multilateral economic system has been one of the most successful policy projects in modern history.
July 22nd marks 70 years since the end of the Bretton Woods conference where John Maynard Keynes and the representatives of 44 Allied nations gave birth to the key institutions that rebuilt the global economy after World War II: the International Monetary Fund (IMF), the World Bank and, much later, the World Trade Organization (WTO).
The 2008 financial crisis provided the greatest test these bodies have faced since their inception. Despite the Bretton-Woods institutions’ best efforts, the destruction of wealth, production and jobs following Lehman Brothers’ 2008 collapse was massive. Yet, in contrast with the 1930s, the system did prevent a complete meltdown and its actions paved the way for our nascent recovery.
Our multilateral institutions have managed to adapt to the regular upheavals that have rocked the global economy roughly once a decade since World War II. But as global economic power continues to shift to emerging markets, we need to help the multilateral system reinvent itself once more.
For those who doubt it’s worth the effort, recall that the IMF and World Bank are two of the few remaining international institutions where Canada has a seat at a major decision-making table. We lost our last campaign in 2010 for a seat on the United Nations’ Security Council and we took a pass on mounting a new effort. As a result, our chairs on the Fund and Bank executive boards are all the more valuable.
As a trading economy, Canada depends on other countries to consume our goods. Having spent 90 years as a net debtor to the rest of the world, we’re unusually reliant on other countries’ capital to finance our investment. Despite ranking as the world’s 11th biggest economy, our access to international trade and capital markets has always depended on international rules, expectations and decision-making processes to check the excesses of larger powers.
The effectiveness of the Bretton-Woods institutions has depended on a few dominant global powers to push their processes to workable conclusions. But these traditional leaders—the United States, Europe and Japan—are less free to act in a multi-polar world and are handicapped by domestic weakness.
America is hamstrung by a gerrymandered Congress so skewed toward extremism that it won’t ratify trade deals or reform the IMF’s voting system even though these initiatives are clearly in the United States’ interests. Europe will likely remain focused on its own existential sturm und drang for years. And Japan is still waiting for the “Three Arrows” of Abenomics to knock it out of two decades of stagnation.
Emerging markets now account for half of both global output, but their governments have been hesitant to pick up the mantel of the older powers and push multilateral processes to cloture.
The G20 has helped engage new powers in co-operative decision-making, but its nonbinding processes aren’t enough to keep the international system working. International decision-making is fragmenting into mega-regional trade deals, such as the Trans-Pacific Partnership (TPP); regional monetary arrangements such as the central-bank liquidity swaps under the southeast Asia’s Chiang Mai Initiative; and alternatives to the World Bank, such as the BRICS countries’ New Development Bank.
We still need the more fully-inclusive IMF, World Bank and WTO to guide the global recovery. There are specific actions relatively small countries like Canada can take to support them.
First, we need to integrate regional pacts into our multilateral institutions. Whether trade deals or currency swaps, regional arrangements can be stepping stones to more inclusive multilateral structures if Canada uses its influence to design them correctly. Multilateralism is not an all or nothing proposition.
Second, Canada can support efforts to slim down our multilateral negotiating processes. Early talks should be limited to systemically important countries. The IMF and World Bank already do this, with majoritarian decisions taken by representative Executive Boards of 24 and 25 members, respectively. Canada should lobby to move the WTO to similar processes and end the need for unanimous agreement amongst 188 members.
Third, Canada should advance reform through soft initiatives—the articulation of standards and voluntary efforts by the multilateral institutions to which countries can subscribe without the agreement of a super majority or global consensus. Rather than waiting for every country to come along, those willing to act can provide each other with mutual support.
Fourth, Canada should push to slim the work programs of our multilateral institutions. The WTO’s 12-year old negotiating agenda needs to be distilled to a manageable set of items on which it could deliver success. Similarly, the World Bank needs to get out of lending to middle-income countries and focus on the poorest nations that don’t and shouldn’t have access to capital markets.
Finally, Canada should deepen its collaboration in these institutions with allies, such as Australia and New Zealand—similar resource economies with massive capital inflows into over-valued real-estate sectors—and it make it clear to larger powers that effective support of the multilateral system is the quid pro quo for access to those resources.