Perspectives on better global economic governance (1)
by
Kemal Dervİş*

Formal and informal governance

The current debate on how to reform global governance reflects a tension between two types of arrangements. On the one hand, there is a set of formal multilateral institutions established within an international legal framework which includes the United Nations family, the Bretton Woods institutions and the World Trade Organization (WTO). On the other hand, there is a set of more ad hoc, informal arrangements of the G7, G8, G8+5 or G-20 type. Call them the G-N. These two forms of international cooperation are complementary. Both need to be improved to enhance global governance.

The informal arrangements have emerged to mobilize action but face serious problems of legitimacy, given that many countries are excluded not only from taking part but also from being represented. The fact that the G20 rather than the G8 is at the center of efforts to address the ongoing financial and economic crisis is certainly a step in the right direction in terms of enhancing representation, inclusiveness and legitimacy. It was also significant that the meeting of the G20 which took place in Washington last November was convened at the level of heads of state or government, with a second "leaders" meeting to take place again in London on April 2, 2009. The heads of international organizations (UN, IMF, WB as well as the chair of the Financial Stability Forum) were also invited to attend in November. But despite the improvements, this still falls short.

An enlarged G-20 at the leaders level, call it an L-N, should take place regularly once a year, and not only in periods of crisis. Given that we had an L-20+ meeting in Washington in November 2008 and that we will have another one in April in London, institutionalizing the L-N could very well take as its starting point the 20 included in the original G-20 and those present at the two L-N meetings. Participation could be enlarged to include some rotating representatives of smaller and medium-sized countries, in addition to the EU, which is already present as the "20th" member, in a group that had 19 countries as members, thereby extending membership to an L-23 or L-24 and overcoming the total exclusion many countries deeply resent. Each of the additional countries could represent one of three or four regional groupings: For example, Africa, Asia, Latin America and the Caribbean. There are several possibilities when it comes to determining the countries representing larger groupings. They could be elected to represent the regional geographical groups at the United Nations.

Alternately, they could be designated by regional organizations such as the African Union and the Association of Southeast Asian Nations (ASEAN). Apart from allowing such regional representation, key leaders of multilateral organizations should be present in these meetings. The UN secretary-general, as the senior leader of the system of multilateral organizations, should always be invited, as he was to the Washington meeting, along with the managing director of the IMF and the World Bank president. The managing director of the WTO should also be present, given the absolutely central role trade has in international affairs. Perhaps the director of the International Labor Organization (ILO) should also be invited, at least in 2009 and 2010, as "decent jobs" is the single most important political and social challenge facing the world today. If the Organization for Economic Cooperation and Development (OECD) becomes more global in the coming years, there would be a good case for inviting the secretary-general of the OECD.

An ideal L-N meeting

With key leaders of the international organizations present, there would be about 30 people around the table -- a large number and in many ways too large for actual decision making. But an L-N meeting that truly brings together majors leaders from around the world and wants to be reasonably inclusive can no longer be much smaller. There are alternative proposals worth careful evaluation in the process of institutionalizing an annual L-N meeting -- for example, adding China, India, Brazil, Mexico and South Africa to the G-8 -- but it will be very difficult to "dis-invite" major G-20 countries such as Korea, Turkey or Indonesia, particularly when one compares them in terms of population and gross domestic product (GDP) to some of the "old" G-8 members such as Canada or Italy. The Managing Global Insecurity (MGI) project sponsored by the Brookings Institution and NYU has proposed adding three more countries to the G-8 plus five formula (Indonesia, Turkey and Nigeria or Egypt), and the resulting L-16 would represent a huge improvement in inclusion and realism over the G-8. A good argument can be made that the MGI project's 16 is a very reasonable compromise between inclusiveness and manageability and it reflects very careful deliberations and consultations on this issue. The uncomfortable fact, however, is that any enlargement of the G-7 that is reasonably inclusive will end up with a number of participants that will make these meetings into high-level "forums" rather than meetings conducive to formal decisions. And yet it should be recognized that the original G-7 (or G-8) is now very far from reflecting the realities of the world of the 21st century and has outlived its usefulness.

At this point it is critical to stress that an L-N group, even if kept smaller, would not -- could not -- be a formal governance body. Decision and resource use-oriented global economic governance has never been and can never be anchored in an informal group, but has to use formal treaty-based mechanisms and institutions such as the IMF, the UN or the WTO. How else can countries worldwide commit themselves in a binding way to certain policies and dispute resolution mechanisms or to sharing resource burdens in certain ways? These inherent limitations on any L-N do not at all make such gatherings useless. On the contrary, an L-N that evolves with the times would have a holistic perspective on world affairs, provide a valuable forum to deal with a broad agenda, allow key leaders to meet and to get to know each other better and project an informal and yet reasonably business-like approach to discussing pressing issues that require global approaches. The L-N could inspire and influence the formal and specialized international institutions, but cannot replace them or their governance. Moreover, a new institutionalized annual L-N would obviously not preclude other regional or other desirable and smaller "leaders-level" meetings. The coming meeting in London in early April will be an extraordinary opportunity to send a powerful message of cooperation, inclusiveness and resolve to the whole world at a time of grave crisis. Institutionalizing an L-N would be a breakthrough in the architecture of international cooperation -- but it would have to be complemented by decisive reform of the more formal parts of economic governance.