I am being a little lazy this week in that I am serving up ‘one I made earlier’. Following a week where economic policymakers gathered for the annual meeting of the IMF and World Bank, Christos Cabolis (chief economist at the IMD.. in Lausanne) and myself have an article in the excellent Prospect magazine, where we look forward to the kinds of institutions that are needed to marshall the world order of the 21st century.
It says much about the defunct nature of the IMF that they have little relevance in a world where markets appear untamed (equities had one of the largest turnarounds ever last week, whilst the volatility in gilts is mind boggling). It would be easy to spend time castigating the likes of the IMF and WTO (World Trade Organisation), but I have done that many times before (and also at last week’s Global Goals conference).
Instead, its is better, we feel to try to start a debate on the kinds of institutions that will be required to police cyber warfare, give institutional structure to new forms of money and even, produce meaningful climate change.
Hope you enjoy the article – I attach a link here and the text below.
The Queen’s death reminds us that an era of stability has come decisively to an end. We are currently facing a number of global shocks—a sharp breakout in inflation and a corresponding rise in interest rates, a bloody war in Europe and rising tensions between China and the US, the two largest economies in the world. Longer-term issues such as climate change, declining productivity, rising indebtedness and extreme income and wealth inequalities in the wake of the financial crisis leave us in no doubt that the world has changed.
We now must focus attention on the institutional infrastructure required to marshal the world order of the 21st century. Many of the institutions that were established to mediate the post-World War Two order are now defunct. Even those that fulfilled the roles that were intended for them may now have nothing more to offer.
The World Bank is such an example, especially in the context of economic growth across Asia and the rise of rival sources of funding (e.g. the Asian Development Bank.)
[Also should draw attention to the fact that the “stability” of the 20th and 21st centuries was not necessarily relevant in most parts of the world – Yugoslavia, Eritrea, Congo, Syria, Iraq, Afghanistan etc – not quite relevant here in my view
Another Bretton Woods institution, the International Monetary Fund, is experiencing a decline in its credibility and influence. Notably, two of its major, recent funding programmes—for Argentina and Greece—have been severely criticised. The World Trade Organisation has been powerless and largely ignored in the face of trade wars. All three institutions have had multiple crises of leadership. The same is true of the World Health Organisation, which has allowed itself to be compromised by geopolitics during the most severe international health crisis of recent times.
These institutions are now largely obsolete, and any debate that seeks to resurrect them is a waste of time. More effort should be spent on identifying the policy challenges of the 21st century and mapping out the institutions that can address them.
We must consider which powers, actors and countries are likely to shape the new world order. During the most recent wave of globalisation, power was rooted in the role of the USA as the dominant player, and indeed many of the world institutions were themselves rooted there—the UN, World Bank, IMF, with others based in European cities (WTO and WHO in Geneva and the OECD in Paris).
The new, multipolar world will be one dominated by at least three large regions—the US, the EU, China (the India-Dubai region is a potential fourth pole)—who do things increasingly distinctively, from their socio-economic models to internet regulation. These will be composed of groups of small advanced nations (the Nordics, Ireland, Singapore, Switzerland, Netherlands, New Zealand, Belgium and Switzerland) that top a range of league tables from democracy to innovation to human development, then a group of disparate non-superpower powerful countries (the UK, Russia, Japan, Australia, and possibly India), [I don’t follow the order of these groups here – is there a reason the small nations would be followed by larger ones? – I think the super powers and the small states are the most coherent, focused ones that’s why I have prioritiesd followed up by a group of emerging economies with large, fast-growing populations (e.g. Ethiopia, Indonesia, Kenya, Nigeria, Vietnam).
The needs and aims of these groups and nations, together with the ways in which they respond to new threats to security, will determine what the next set of institutions will look like and where they will be based. The new challenges of the future—climate change, potential energy shortages, and economic volatility, coupled with new technologies—will necessitate collaboration between them and other stakeholders, such as corporations. This will in turn demand global governance, new standards and regulation, and coordination through new institutional bodies. New world institutions or collaborative arrangements will need to be hammered out. What should they focus on and what might they look like?
We now have the highest debt-to-GDP ratio in centuries. As inflation forces interest rates higher, it may be too late for an international institution (like the IMF) to gently persuade countries to reduce debt levels. But it is crucial that there is an institution that can oversee the chaos that may result from a new debt crisis. This body—a debt conference—would have at least two objectives: coordinating debt reduction and forgiveness across the major economies, and then putting in place a new set of “rules of the road” that will set in place new tenets of economic governance.
Meanwhile, questions over the “future of money” have gathered pace—turbocharged with the rise of crypto currencies and the steady advance of central bank plans for digital currencies. This new trend will necessitate the laying out of standards for payments and the technologies that drive them. It will require bodies that can oversee the intersection of centralised and decentralised money systems, and that help to order the spread of competing payment and money services across emerging countries.
Health and science:
Advances in medical research, in particular gene-editing technology, raise important ethical questions about the ways in which scientists can alter our genetic makeup. This could exacerbate health inequality, enabling the wealthy to live longer, at a higher health quality. In extremis, this may even raise the prospect of genetically edited athletes and soldiers. Where technological advances outstrip debates in law and philosophy, there is a need for global standards and laws to marshal this development.
The coronavirus pandemic has been remarkable for the innovations it has spurred in medicine and medical practice, and for the attention it has focused around mental health issues. This shift in emphasis is also percolating through national policy agendas, though mostly in smaller progressive countries— Iceland, Scotland and New Zealand have joined together to form a “Wellbeing Alliance”. With global poverty now significantly reduced from decades past, mental health is the next great frontier in health policy. It requires a global approach to co-ordinate best practice, diffuse this to the many countries that do not place mental health at the centre of their health services, and in particular to work with actors like corporations to improve the mental well-being of workers.
An increasingly common phenomenon is the disabling of healthcare systems, energy infrastructure and public services by cyberattacks. Many such attacks originate from Eastern Europe and especially Russia. The Baltic states, Ukraine, Syria, Turkey and Taiwan have all been targets for cyberattacks in recent years, not to mention the prominent cyberattacks by Iran as part of its “soft war” military strategy. Cyber-crime and cyber war occur in a grey zone in international law where there are no formal rules on how to punish cyber attackers who operate within a particular country. It is not clear whether a cyber-attack on a French hospital that originates in Lithuania that indirectly results in avoidable deaths, for instance, can be considered an act of war that permits a direct physical military response. Some corporations have already opened a debate on the need for legal infrastructure to deter cyberattacks, be they by state or private actors.
That the world is enduring severe climate change is now incontrovertible. The 2015 Paris Accord is a formal acknowledgement of what must be done to combat it. In our view, nation states have not yet solved the game theoretic problem of producing a framework that aligns the cost and responsibility for climate damage. An international institution with carbon and levying powers, or even a framework agreement between large international cities, may offer potential solutions.
One trend that become more apparent in recent years is the contest over distant locations that are difficult to reach, such as outer space or the Arctic. The US, Europe, Qatar and China have all sent probes to Mars. Space commerce, space defence and space tourism are set to grow. The invasion of geopolitics into largely inaccessible places raises the risk that these areas become contested, and that subsequent competitive behaviour become disorderly. While bodies like the Arctic Council already marshal the various interests acting in the Arctic, we envisage that a constitution will be necessary to oversee space exploration, space combat and space tourism.
We speculate that these areas, and the potential new institutions that will shape and shepherd them, will form the contours of the “new world order” that many talk about. Unlike the 20th century, the engineering of these institutions cannot be left to governments alone but must involve corporations, cities, citizen assembly bodies and universities. At a time when the old world order is crumbling, these institutions offer an exciting opportunity to build something new.