We Must Place Our Hope in Multilateralism
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Those who look only to the past or the present are certain to miss the future.” These words spoken by President John F. Kennedy six decades ago resonate with renewed urgency today. With every year that passes, the failures of our outdated economic paradigm are exposed and the need for a new one becomes more obvious.
Global challenges that require global solutions are ever present, whether a changing climate or rising cyber threats. And just as we are facing these challenges, the three pillars of the post–Cold War era anchoring the global system—unipolarity, hyperglobalization, and neo-liberal economics—are collapsing around us. These seismic shifts are sowing the seeds of a new wave of populist nationalism exemplified by the “America First,” “Russia First,” “India First,” “China First,” and often “my country first and only” movements springing up round the world.
First, our unipolar world is giving way to a multipolar world—not a world with many states of equal power but a world of multiple centers of power. Twenty years ago, would President Putin have invaded Ukraine? Would an Israeli prime minister have held out for so long against the advice of a US president? Would Arab leaders have refused to meet a US president when he arrived in the Middle East?
Today, released from what seemed to them like a unipolar straitjacket, countries feel they can afford to hedge their bets, be fence-sitters, and act as “swing states.” We have seen this at work in dramatic form in the resistance of half the world—most non-Western countries—to supporting Ukraine in its war against Russia. Today, only 45 countries are imposing sanctions against Russia. Countries feel they can choose to be nonaligned or multi-aligned and can play one big power against another. And as the rising membership of the BRICS group— from 5 to 10, with more members on the way—demonstrates, countries are now forming opportunistic and potentially dangerous liaisons.
Second, we are also moving from the neoliberal world of free-trade economics to a more mercantilist world defined by US “friend-shoring,” European “de-risking,” and Chinese “self-reliance.” With this protectionist shift, governments are now playing a far more significant role in economic policy—and not principally through higher tariffs but through import and export bans, technology bans, and investment bans, as well as through sanctions.
Last year saw nearly 3,000 trade restrictions implemented globally. The IMF suggests that global losses from increased trade fragmentation could carry a long-term cost of up to 7 percent of global GDP—not to mention a slowdown in cooperation on global issues such as the green transition and AI.
Power-based world order
Third, we have transitioned from free-for-all hyperglobalization to globalization that is more constrained, as security concerns as well as environmental and equity considerations must now be taken into account. Central banks are no longer the only game in town, and a power-based order is replacing a rules-based order. With global trade in services rising, this does not mean deglobalization nor even slowbalization. What we are seeing is the adoption by more than 100 countries of national industrial policies, with over 2,500 protectionist measures recorded in the past year alone.
Purchasing policies based on “just in case” have replaced the familiar formula of “just in time,” with resilience and security of supply now preferred to simply getting the lowest price. And as they diversify from their dependence on one producer and adopt “China plus one, two, three, four, or even five” strategies, countries trading with China are relocating their export orders to Vietnam, Bangladesh, Mexico, and others.
With global growth estimated to be 2.8 percent by 2030, significantly below historical averages of 3.8 percent, the IMF’s World Economic Outlook warns that the 2020s could be the worst decade for growth in recent times. More protectionism will only diminish global growth at a time when further cooperation is required to increase trade and boost prosperity. Extreme poverty, which was to be abolished by 2030 under the United Nations Sustainable Development Goals (SDGs), now stands at about 700 million people. At current rates of progress, poverty will still affect 600 million in 2030.
“Popular disappointment with current leaders is reflected in populist nationalism, with voters blaming globalization itself for their fate when the real culprit is our failure to manage globalization well.”
In the 1930s, another era of retrenchment, Winston Churchill said that leaders were “resolved to be irresolute, adamant for drift, solid for fluidity, all-powerful to be impotent.” Today popular disappointment with current leaders is reflected in populist nationalism, with voters blaming globalization itself for their fate when the real culprit is our failure to manage globalization well.
But policies to play friend against foe, one-of trade and security deals, and transitory alliances will take countries only so far. The economic future of every continent depends more on a stable international system. Even if for different reasons, all continents need a multilateral order: Europe because it depends on trade; developing economies because they cannot full-fill their economic potential without a transfer of resources from developed economies; middle-income countries because they don’t want to be forced into a choice between China and the US—China itself cannot become a high-income country without a thriving export market.
America will also benefit from strengthening the multilateral order. It is no longer in a unipolar world where it can hope to succeed through acting unilaterally. Instead, the US is the obvious leader of a multipolar world to be advanced by working through the very multilateral institutions it created.
Stronger multilateralism
The World Trade Organization should put to best use the undoubted skills of its director-general, Ngozi Okonjo-Iweala, to solve trade disputes by conciliation, arbitration, and negotiation, marking a move away from its overly legalistic and now broken judge-based appeal system.
Simultaneously, the IMF should enhance its role in crisis prevention and crisis resolution. Under the strong leadership of Kristalina Georgieva, the IMF should give more priority to its pivotal role as an early-warning system for the world economy, mobilize its $1 trillion lending capacity to offer better insurance against economic shocks, negotiate a much-improved sovereign debt restructuring mechanism, and thus create a more comprehensive global financial safety net.
With 59.1 percent of voting shares in the IMF held by countries representing 13.7 percent of the world’s population, while India’s and China’s combined share is only 9 percent, the IMF must reform its constitution.
The World Bank must become, as its dynamic new president, Ajay Banga, has proposed, a global public goods bank focused on both human capital and environmental stewardship. It is estimated that emerging market and developing economies, excluding China, need $3 trillion a year by 2030 to fund climate action and the SDGs, of which $2 trillion should be raised domestically and $1 trillion will have to come from outside.
The Summers-Singh Group of Twenty (G20) report has proposed that multilateral development banks provide an annual increase of $260 billion. Innovative financial mechanisms, including the use of guarantees to de-risk and scale up private sector investment, must be mobilized to boost and complement these efforts. The World Bank and multilateral development banks will need further funds from shareholders through a capital increase.
Given that the membership of the Group of Seven is too narrow to be the steering committee for the world economy, the G20 should become what it was intended to be: the premier forum for global economic cooperation. For that to work, it needs to be more representative through a constituency system, and it should assemble a professional secretariat that can ensure continuity of policy from year to year.
Maintaining hope in challenging times is essential. Kennedy’s nuclear test ban treaty in the 1960s, Ronald Reagan’s and Mikhail Gorbachev’s nuclear arms reductions in the 1980s, multinational efforts to prevent the depletion of the ozone layer in the 1990s, the 2009 G20 summit stabilizing the global economy, and the more recent Paris accord on climate all demonstrate the potential for global cooperation. But success requires visionary leadership and a willingness to work together.
Two paths are before us. One leads toward global fragmentation and deepening crises, while the other will, if we work collectively, bring prosperity, progress, and hope. I choose hope. F&D
GORDON BROWN is a former prime minister of the United Kingdom.
This article draws on a speech by the author at the April 2024 PIIE-IMF conference on steering structural change.
Fairy Dust’s Economic Possibilities
ZACHARY CARTER/CHRONICLE/ALAMY STOCK PHOTO/WOOYAA/ISTOCK
Zachary Carter
Keynes celebrated the ideals of the Bretton Woods institutions as a victory for the human spirit
One of the most playful addresses delivered by John Maynard Keynes in his 30 years in public life was also one of his last. Speaking among the “veils and beards of Spanish moss” in the late-winter warmth of Savannah, Georgia, Keynes asked his audience of economists, lawyers, and diplomats to consider, for a moment, the fairies from “Sleeping Beauty.” What, Keynes wondered, might be asked of those benevolent sprites at the “christening” of his beloved “twins”—the World Bank and the International Monetary Fund? Keynes hoped for three “appropriate gifts.” First, a many-colored coat to serve as “a perpetual reminder that they belong to the whole world.” Second, a set of vitamins to give them “energy and a fearless spirit.” Finally, the gift of “wisdom, patience, and grave discretion” to win the trust of peoples in need.
Though it may have been lost on his audience, the invocation of “Sleeping Beauty” was more than a fight of fancy for Keynes; it was a literary allusion reinforcing what he understood to be the fundamental purpose of what became known as the Bretton Woods institutions. Prior to Walt Disney’s 1959 screen adaptation, “Sleeping Beauty” was best known as a lush ballet by the Russian composer Tchaikovsky, itself based upon a German story by the Brothers Grimm, who had drawn from a medieval French folktale. No nation could claim “Sleeping Beauty” as its instrument or property— the story’s timelessness was a product of its internationalism.
Brotherhood of man
For Keynes, at least, the Fund and the Bank embodied a geopolitical ideal more deeply cherished than any particular technical or administrative point of order. Indeed, he celebrated the Bretton Woods institutions as a victory for the human spirit, even as many of his own proposals were defeated across multiple rounds of negotiation. “As an experiment in international cooperation, the conference has been an outstanding success,” he gushed to Richard Hopkins, a British Treasury official, after the 1944 gathering in the mountains of New Hampshire. “We have been learning to work together,” he told the conference itself. “If we can so continue, this nightmare, in which most of us here present have spent too much of our lives, will be over. The brotherhood of man will have become more than a phrase.”
One of the great intellectual challenges for Keynes across the final 15 years of his life had been communicating to the economics profession that David Ricardo’s theory of comparative advantage was not in fact a substitute for this mode of cooperation, reciprocity, and cultural exchange. The global economy did not consist of two commodities, as it did in Ricardo’s famous thought experiment, and technological advance had diminished the significance of the efficiency gains to be harvested from trade liberalization. When US Secretary of State Cordell Hull advanced free trade at Bretton Woods as a solution to the war’s devastation, Keynes mocked “the lunatic proposals of Mr. Hull.” What mattered in the grand scheme of things was not so much the absence of tariffs but the maintenance of balance and the acknowledgment of the different developmental needs of different countries.
“Policy tools appropriate for this century will not simply replicate those of recent decades.”
In the late 1940s, those developmental needs included reconstruction of regions devastated by the war and industrialization of poor countries that had been excluded from the explosive growth Europe and the US had enjoyed since the turn of the century. Cheap imports could help countries access what they could not provide for themselves, but tariffs could also help nations develop or repair their war- damaged industrial sectors. No iron law, Keynes believed, could indicate which made more sense under specific circumstances.
Today, the climate crisis has established new developmental needs for even the wealthiest countries. No nation can hope to mitigate the doom bearing down upon the planet without the swift cultivation and deployment of new, clean technology. The policy tools appropriate for this century will not simply replicate those of recent decades. This is particularly true on questions of international trade, where tariffs, state subsidies, and state-owned enter-prises—so often maligned by economists as barriers to innovation and competition—will likely be essential for the development of a healthy global market for climate-friendly industry. For the moment at least, green technologies are infant industries that require far more protection than discipline.
Principle and platitude
Keynes’s greatest fear for the Fund and the Bank—expressed implicitly in his Savannah speech by reference to the malign fairy Carabosse, and more explicitly in his dispatches home—was that the “twins” would become instruments of US power rather than truly independent international bodies. And ultimately, the Soviet Union’s failure to ratify the Bretton Woods accords meant that both the Bank and the Fund were destined for careers on one side of the Cold War. Absent some forms of trade intervention and protection, the directives of Ricardian comparative advantage will always favor early entrants to the green technology space, leaving a few privileged nations to enjoy the full fruit of development. This is a recipe for domination, rather than cooperation.
But the future is what we make it. By helping different nations pursue new technology and expertise through experimentation with a broad economic policy palette, the Bretton Woods institutions can play a transformative role not only in the fight against climate change, but in the furtherance of international harmony. This is a role that only international institutions can play with any hope of success.
Keynes was aware at Savannah that talk of international coordination and cooperation was “pious words exceedingly difficult to fulfill.” The difference between high principle and empty platitude is often difficult to discern on paper—only through persistent communication and sincere dedication can great ideals be sustained. And this will be especially true in climate development policy, where universals will be rare and particulars complex. What makes sense for one country or technology will not necessarily apply to others. But if an international institution can survive for 80 years, outlasting both the Cold War and the 20th century, then it is not unreasonable to hope that it might serve as a forum for innovative cooperation across the next 80. “Fairies or no fairies,” as Keynes said at Savannah, “let the omens be good.” F&D
ZACHARY CARTER is a nonresident scholar with the Carnegie Endowment for International Peace and author of The Price of Peace: Money, Democracy, and the Life of John Maynard Keynes.
Mass Flourishing and Economic Dynamism
Edmund Phelps
EDMUND PHELPS
Regaining modern values can reverse the slowdown in innovation and its re wards
Why do some nations experience mass economic flourishing while others do not? Why did several Western nations—first the United Kingdom, then the United States, France, and Germany— see a remarkable period of innovation, economic growth, and human progress beginning about 1890? And why did innovation stall after about 1970?
My thesis, developed in my 2013 book Mass Flourishing: How Grassroots Innovation Created Jobs, Challenge, and Change and tested in its 2020 sequel, Dynamism: The Values That Drive Innovation, Job Satisfaction, and Economic Growth, is that the well-performing nations acquired higher levels of dynamism—the desire and capabilities of the nation’s people to innovate. The force behind this innovative dynamism that spurred people in large numbers to conceive innovations was the rise and spread of certain modern values: individualism, vitalism, and a desire for self-expression.
Individualism (not to be confused with selfshness) is the desire to have some independence and to make one’s own way. It can be traced back to the Renaissance. In the 15th century, the Italian philosopher Giovanni Pico della Mirandola argued that if human beings were created by God in his image, then they must share to some degree God’s capacity for creativity. In other words, Pico foresaw a sense of individualism in which people carved out their own development. Martin Luther spread the spirit of individualism during the Reformation with his demand that people read and interpret the Bible for themselves. Other thinkers that championed individualism were Ralph Waldo Emerson, with his concept of self-reliance, and George Eliot, who embodied the spirit of breaking with convention.
Vitalism is the notion that we feel alive when we are taking the initiative to “act on the world,” to use the German philosopher Georg Wilhelm Friedrich Hegel’s terminology, relishing discovery and ventures into the unknown. A vitalist spirit swept from Italy through France, Spain, and Britain later, during the Age of Discovery from the 15th until the 17th century. This spirit is found in the great sculptor Benvenuto Cellini’s work, with his zeal for competition; in Cervantes’s Don Quixote, when Sancho Panza, stuck in a place without challenges, goes so far as to hallucinate obstacles for a sense of fulfillment; and later by the French philosopher Henri Bergson, who conceived of people energized by the currents of life involving themselves in challenging projects and transforming themselves in a process of “becoming.”
Last, self-expression is the gratification that comes from making use of our imagination and creativity—voicing our thoughts or showing our talents. In being inspired to imagine and create a new way or new thing, people may reveal a part of who they are.
Modern values
Modern economies formed in nations where modern values arose. These economies were, at their core, driven by the judgment, intuitions, and imagination of a modern people— mostly ordinary people, as I like to say, working in various businesses. Those nations with high dynamism not only had higher rates of innovation but also higher rates of job satisfaction and happiness linked to non-pecuniary rewards such as feelings of achievement, exercising imagination to create new things, and overcoming challenges. Those nations were conducive to mass flourishing.
By contrast, dynamism was scarce and innovation and job satisfaction less abundant in societies where traditional values, such as conformism, fear of taking risks, service to others, and a focus on material rather than experiential gains, prevailed.
Is there evidence to support my theory? Calculations in Dynamism by one of my coauthors, Raicho Bojilov, reveal that innovation was consistently abundant in some countries and consistently meager in some others for about a century. During the post–World War II period of high innovation (comparable to the historically innovative period from the 1870s to World War I), indigenous innovation rates were strikingly high in the US (1.02), the UK (0.76), and Finland (0.55) but strikingly low in Germany (0.42), Italy (0.40), and France (0.32).
“The economic costs to the West caused by the loss of innovation are serious.”
Analysis of 20 Organisation for Economic Co-operation and Development countries by another coauthor, Gylf Zoega, shows that countries with people possessing high-strength doses of modern values—the US, Ireland, Australia, Denmark, and less so Switzerland, Austria, the UK, Finland, and Italy—did have relatively high rates of indigenous innovation, as my theory predicts.
Moreover, Zoega’s statistical investigation shows that values matter. He finds that not only does trust matter—a value neither modern nor traditional, I think—but also “the willingness to take the initiative, the desire to achieve on the job, teaching children to be independent, and the acceptance of competition contribute positively to economic performance . . . measured by TFP [total factor productivity] growth, job satisfaction, male labor force participation, and employment.” Teaching children to be obedient, however, reduced economic performance.
Unfortunately, the span of spectacular growth has since slowed. Cumulative growth of TFP in the US over 20-year periods went from 0.381 in 1919–39 to 0.446 in 1950–70, then down to 0.243 in 1970–90 and 0.302 in 1990–2010, Boji-lov’s calculations show.
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The slowdown in innovation and growth does not mean there has been no innovation since the 1970s—there have been breakthroughs in artificial intelligence and electric vehicles, for example. However, most of these innovations come from the high-tech Silicon Valley region of California, a small part of the economy. Massachusetts Institute of Technology economist Daron Acemoğlu commented recently that AI would add no more than 1 percent to US economic output over the next decade.
Loss of innovation
The economic costs to the West caused by the loss of innovation are serious. The resulting near stagnation of wage rates is disturbing to workers who grew up believing that their wages would rise enough to provide them with a better standard of living than their parents’. As capital investments run into diminishing returns that are no longer offset by impressive technical progress, much capital formation has been discouraged. As real interest rates sank to lower levels, the price of many assets, such as houses, rose relentlessly from about 1973 to 2019, so fewer people than ever could afford to live in them.
The social costs have been great, too. General Social Survey household data show that reported job satisfaction in the United States has been on a downhill slide since 1972. Anne Case and Angus Deaton in Deaths of Despair show data on the outbreak of despair in America, linking it to economic developments.
The decline of innovation and its rewards is attributable largely to deterioration of those modern values that fuel the dynamism of the people, I believe. The horrifc rise of the “money culture,” to use a term by American philosopher John Dewey, may weaken a nation’s dynamism, as I argue in Mass Flourishing.
I am heartened that others are taking interest in further developing my ideas on restoring economic dynamism. Melissa Kearney, director of the Aspen Economic Strategy Group, has for example shifted the organization’s research focus from resilience to strengthening dynamism.
Regaining these values and reversing the slowdown of innovation will be hard. Economists ought to design an economy high in dynamism where people can experience mass fourishing from the grassroots up. F&D
EDMUND PHELPS is McVickar Professor Emeritus of Political Economy at Columbia University. He is the 2006 recipient of the Nobel Memorial Prize in Economic Sciences.
