Robert Hutchings Says Barack Obama Should Seize the Opportunity to Forge a Grand Bargain on Global Finance
The world is on the cusp of the most profound shift in global power and influence in a century. Managing this quiet revolution calls for nothing short of a new international system, with a radical revision of existing institutions and patterns of doing business. It is a time for thinking big.
Over the weekend, leaders of the Group of 20 world economic powers gathered in Washington to consider a "Bretton Woods II" world financial architecture. The institutions created at Bretton Woods, N.H., two generations ago -- the World Bank and the International Monetary Fund -- served their purposes over the years, but they are woefully inadequate for meeting the global financial challenges of the 21st century.
The G-20 summit was a long-overdue initiative, but it did not go far enough. The summit made modest progress in addressing the immediate crisis, but it hardly touched the harder challenges of institutional reform. The "action plan" announced on Saturday was mostly and predictably a vague set of broad goals.
The summit failed for two principal reasons. First, the mechanisms do not exist, at the IMF or elsewhere, to regulate governmental financial institutions, much less non- or quasi-governmental institutions such as China's sovereign wealth funds. Second, leaders of influential countries such as China and India made clear their disinterest in participating in global institutions that are dominated by the Western powers. Why should China and India pay attention to an IMF in which their combined voting weight is just over 5 percent and which is always led by a European (with the World Bank always led by an American)? The immediate challenge of creating a "Bretton Woods II" might begin with the Europeans and Americans voluntarily relinquishing their cozy agreement to reserve the top IMF and World Bank jobs for themselves and proposing a revision of the voting weights at both institutions to give the rising economic powers a greater stake and role (and to oblige them to pay higher dues as well).
This would clear the way for a strengthening of IMF roles in gathering and disseminating financial information, developing enforceable standards and codes for banks and sovereign wealth funds, and enhancing surveillance of financial systems -- internationally and in individual countries -- in conjunction with central banks. To give this new system more political clout, the G-20 itself should be given a stronger mandate and role to complement this enhanced IMF.
This does not go far enough, though. It is not just the global financial mechanisms but also the institutions governing trade, energy, the environment, development assistance and security that need to be overhauled.
When he takes office, President Obama and his new administration should seize the "Bretton Woods moment" -- the growing recognition around the world that a new global order needs to be fashioned -- to articulate and develop a larger vision around which others can rally.
How to begin? As Dwight Eisenhower advised, if a problem cannot be solved, enlarge it. Tackling these problems piecemeal or in isolation won't do it. The solution lies in a "global grand bargain" -- a set of loosely linked trade-offs whereby the United States and Europe give a bit on the Doha trade round and induce Brazil and India to follow suit, China takes economically difficult steps to reduce carbon emissions because it sees progress in other areas, and Russia sees its international role strengthened and therefore undertakes to act as a reliable energy provider and promoter of nuclear nonproliferation.
Early breakthroughs may be possible in some areas, such as a deal on climate change that brings in China and India and creation of a global fund to begin weaning us from fossil fuels. But this new system is not the work of a few months. It is not a single negotiated settlement, a single treaty or a single institution but, rather, a flexible set of reciprocal concessions among a dozen or so key countries that would evolve step by step. Just as the post-World War II order took the better part of a decade to put in place, so too will the new order evolve over the course of years.
Many of the foreign policy problems the Obama administration will inherit -- Iraq, Afghanistan, Iran, Pakistan, North Korea -- carry more risks than opportunities. They do not lend themselves to grand new initiatives or foreign policy successes. The best (if uninspiring) counsel is to proceed with caution and prudence.
It is precisely in the area of creating a new international order that the administration should show boldness and imagination. The time to act is at the beginning, when the president's power and support is at its high point. Obama should articulate a vision that can cut through entrenched positions, internationally as well as domestically, and allow him to take initiatives that would come to fruition later in his term.
In their meeting Saturday, G-20 leaders agreed to gather again no later than the end of April. This offers the Obama administration an ideal opportunity to begin refashioning the G-20 as a flexible forum for working out and monitoring this grand bargain -- not to replace existing institutions such as the United Nations but to serve as a kind of global steering group of the world's more powerful countries.
Robert Hutchings is diplomat in residence at Princeton University's Woodrow Wilson School. He was chairman of the U.S. National Intelligence Council from 2003 to 2005. The Agenda is an occasional series on policy issues facing the Obama administration.