Previous crises had regional names: the „Mexican crisis“, the „Asian crisis“, the „Russian crisis“, etc. Today’s crisis is not called the “Western crisis”. The sovereignty of naming (and shaming) is still with the West. But change is imminent, as the increasing comments from non-Western observers show: As a result of the crisis, the West’s economic policy reputation has lost dramatically in non-Western circles. Increasingly, these countries and their elites (not to speak of the masses of the population) want to go their own way, without relying on Western concepts and dogmata. The deep poverty which IMF (West-dominated) loans cum conditionalities caused after the Asian crisis has contributed to this will “to do things differently”. While the crisis started in the West, globalization caused some of its effects to spill over into other regions. The US Fed attempts at quantitative easing were derided by non-Western policymakers as instigating a “currency war” by driving the dollar down (and the other currencies up). Rich countries, which accounted for over 60% of global output in 2000 will command only 50% next year. The “non-Western” countries will have larger economies than the Western ones. Consequently, they demand more influence and power in global economic policy making, in the IMF, in the World Bank in other international fora. The West, especially the US and the EU, are fighting desperate rear-guard actions, attempting to hold on to their 1944 (Bretton-Woods) established power base.
The non-Western countries demand of the West to go to the root causes of the present crisis, for the sake of re-establishing a more sustainable and less volatile global balance. But so far, the West has only made feeble attempts to address the root causes, be they the dominance of the financial sector, be they the global competitiveness race, be they the private and public sector debt crises. The domination of financial market actors is not being attacked, existing re-regulation (increases in risk-weighted equity ratios, outlawing of naked selling, etc.) remains within traditional thinking. The lobbying power of the financial sector is undiminished and has wilted the initial “we have to do everything different” mood.
Institutionally, this crisis has shown that global economic policy governance is inadequate, thus being unable to tackle the continuing global imbalances. Camdessus et al. have proposed to merge the G-20 with the IMF Monetary and Financial Committee. This is inadequate. Rather, the G-20, enriched by adding poor countries (maybe on a rotating basis) and merging the EU member chairs into one, could become – on the basis of a UN mandate – a new Global Economic Policy Council which meets at head-of state level several times a year. Substance work would be done by Thematic Groups, composed of researchers, government reps, NGO and others, which attempt to find optimal solutions for global problems; topics would be macroeconomic balance and exchange rates plus financial sector regulation; development and poverty problems; labor markets and social safety; global public goods (including international crime as a public bad); trade and global competition (mainly to help small and poor countries against the negotiating power of multinational companies). The Policy Council would mandate the work and back it politically and see to its implementation (I have written several articles on this topic). Electronic media and other communication tools would be used to test solutions, to name and shame non-compliers, to bring in the best knowledge from all over the world.
Globalization has reduced nation state regulation, but has not replicated it (or created something else) at the global level. The present crisis is a manifestation of this lack. Chinese reserve build-ups and Western indebtedness are two sides of the same coin. The Global economy needs global solutions and – probably – unconventional institutions. The substance of a new global governance must be to aim for more global balance, to restrain the power of the financial sector and multinational companies with the purpose to increase human welfare globally, but also with a view to much increased “fairness” or equity. A socio-economic sustainability target for the world requires substantial input and influence from all parts of the world.
Whether the long-term dominance of the West is over, is a mute question. It is relevant, however, that the West listens to the South, the East to the North, i.e. everybody to everybody. The West has lost credibility, and with it its claim to guide the world. A more sustainable future needs to recognize the new economic, political and social realities, in order to be able to reduce fragilities and vulnerabilities.
Bretton Woods was in 1944. The future is now. It is time that the West realized this.