A World in Crisis Means A Chance for Greatness

By Robert B. Zoellick
Sunday, October 26, 2008

Aspiring U.S. politicians dream of being FDR, but rarely do the times and the person converge. The next president will have the chance to be a 21st-century FDR.

For either Barack Obama or John McCain, the first duty will be to restore confidence. Hundreds of billions of dollars have been allotted to fix the financial breakdown. But fears have gripped the country. The new president needs not only a bold program but also the resolution to reassure.

The parallels with FDR offer a striking starting point. The new administration will need to recapitalize banks. It will also need to offer millions of American families a lifeline by helping homeowners manage their mortgage debts while staying in their homes. This modernized New Deal would simultaneously extend a hand to the broad middle class while countering the continuing slide in house prices that continue to drive down communities, lenders' portfolios and trust. The new president will need to overhaul a failed financial regulatory and supervisory system in a way that preserves innovation.

He will need to establish clearing and settlement mechanisms to ensure that failing firms do not freeze credit markets, to set strong liquidity as well as capital standards for the financial sector, and to thwart irresponsible behavior. And beyond all that, the new team will need a fiscal-stimulus package that the New Deal left out.

Political leadership is not just about programs and bills. The new president will need to use his first hundred days to build his standing. He must point the way to use the United States' ingenuity and restored sense of purpose to build for the future: quality schools, basic health-care choices and worker assistance to help citizens adjust to change in a competitive world; immigration rules that let the United States attract talent and regenerate its spirit; and more low-carbon technology to enable growth while protecting both the environment and national security. Then, after opening the coffers of the U.S. Treasury, the president will need to guide both Congress and the public to rebuild savings and responsibility.

The next president faces another historic challenge: reintroducing the United States to the world. He could make a good start by promptly sending the vice president and the new secretaries of state, Treasury and defense to consult with countries large and small, developed and developing, on all continents. In early 1989, Secretary of State James A. Baker III visited 15 NATO allies in eight days. With four emissaries, the new president could reach 50 countries or more in his first months in office.

Those envoys should have a simple message: to listen and learn. Of course, the new team should have some initial ideas and priorities to discuss, but taking the time to hear other world leaders' insights and concerns will prove as shrewd an investment as recapitalizing the banks.

In 1944, FDR and the other architects of the postwar Bretton Woods system built for the future even as they fought the armies of the past. The Bretton Woods generation left two legacies: first, international institutions (such as the World Bank and the International Monetary Fund) and, second, an intellectual and political commitment to act multilaterally to turn the problems of an era into opportunities.

The new president can build on that legacy by modernizing multilateralism and markets. A new Bretton Woods should start by recognizing that the old G-7 club of the world's most industrialized nations needs to give way to a new steering group that includes rising economic stakeholders. Rather than return to mid-20th-century models, the new multilateralism needs to be flexible, not fixed. It must be pragmatic, too -- maximizing the strength of interconnected global actors, including not just existing institutions such as the World Bank, the IMF and the United Nations but also private-sector firms and NGOs. In a networked world, we need networked multilateralism. That should be a litmus test for a Bretton Woods 2.0.

The new multilateralism will need to connect, for example, growth, development, trade, energy and climate change. The world expects to negotiate a new climate-change treaty by the end of next year, and that depends on recognizing development interests while shifting to lower carbon growth. To help the "bottom billion" in post-conflict and fragile states, the United Nations and the World Bank need to secure development with roots deep enough to break the cycle of fragility and violence.

A new president should build on his predecessor's financial innovations for development, including for HIV/AIDS treatment, the Millennium Challenge Corporation and the new Climate Investment Funds. The aftershocks of the developed countries' financial crisis and recession will also require the United States to work with other countries, the World Bank and the IMF to help the most vulnerable. We need a human rescue, not just a financial rescue. With the global economy under stress, the world will be watching the president's commitment to cutting trade barriers and wasteful agricultural subsidies in the Doha World Trade Organization negotiation.

The rise of such developing economies as China and India provides the world with multiple poles of growth that can help a global recovery. But the emergence of these big new economic players also serves as fodder for scaremongers, intent on whipping up fear about the effects on living standards in the developed world.

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